Latvia’s Credit Rating Raised to Investment Grade by Fitch

Latvia seems to be sailing smoothly out of the deep crisis it was flooded with recently. The financial crisis of 2008 had brought the economy to a screeching halt, but things seem to be improving now. Newly released Fitch ratings show that the country has jumped from junk status to investment grade. The country’s economy is recovering as the debt levels are coming down. Since the outlook on the new rating is positive, it indicates that an upgrade is expected in the medium term.

According to Fitch, they have increased the investment look from negative to positive. Fitch claimed that if Latvia’s economy continues to grow at this pace, the ratings firm may increase its grade even further later on. In the last three months, the GDP of the country grew at an annual 3.6% rate as exports and industrial production picked up well. This is the highest observed rate of expansion in the last three years. The country is willing to sell its bonds – worth 1.5 billion Euros – and it would use these funds to replace the existing debt obligation, as claimed by the Finance Minister Andris Vilks.

“Progress has been shown by Latvia during its recovery period from the crisis,” reported Douglas Renwick, Fitch analyst. “Where on one hand, the weak external finances of Latvia still continue to weigh on the rating, on the other hand, signs of substantial growth, declining external debt ratios and fiscal deficit reduction may lead to further upgrades in the future.” Latvia has conceded to austerity measures of nearly 17% of GDP from the time the crisis hit in the year 2008.

“The country has shown powerful political resolve to abide by the austerity measures of the program, by the re-election of the government in October 2010. The country also appears on track to meet the aim of a sub-3% shortage in 2012,” Renwick said in the statement. Fitch also states that the economy of the country will expand 3.5% this year, and will increase to 4% through next year. To refinance its loans, the government resorted to a 7.5 billion Euro loan from the International Monetary Fund (IMF) and the European Commission in 2008. Witnessing the country’s progress, due to its country’s growing competitiveness and lower dependence on external financing, S&P has rated Latvia to BB+, while Moody’s Investors Service rated Latvian debt at Baa3.

“In the coming weeks and months we’re getting closer and closer” to the sale of Euro bonds, as quoted by Minister Vilks in an interview with Brussels Today. “It’s up to us and the credit rating agencies. It seems to be the second half of the year, maybe early summer. It will be interesting to see the rate offered to us. Technically, we are prepared.” The higher ratings will likely inspire investors from the outside to invest more in the Latvian economy.