TEXT-S&P raises ratings on Latvia to 'BBB/A-2';outlook positive

Fri Nov 9, 2012 5:09am EST

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(The following statement was released by the rating agency)

Nov 09 -

Overview

-- We expect Latvia's fiscal and external metrics to continue to improve.

-- We are therefore raising our long-term sovereign credit ratings on Latvia by one notch to 'BBB' and our short-term ratings to 'A-2'.

-- The positive outlook reflects our view of at least a one-in-three chance that we could raise our ratings on Latvia again within the next 24 months, especially if its fiscal and inflationary performance remains consistent with euro adoption criteria, leading to Latvia becoming a member of the eurozone.

Rating Action

On Nov. 9, 2012, Standard & Poor's Ratings Services raised the foreign and local currency long-term sovereign credit ratings on the Republic of Latvia to 'BBB' from 'BBB-'. We also raised the foreign and local currency short-term sovereign ratings to 'A-2' from 'A-3'. The transfer and convertibility (T&C) assessment has been revised upward to 'A'. The outlook is positive.

Rationale

The upgrade reflects our expectation that Latvia's net general government debt will decline on the back of its strong economic recovery and rapidly improving fiscal balances, and also our view that the economy will come to rely less on external debt financing. The positive outlook reflects our view that moderating inflation in Latvia increases the likelihood of it joining the European Economic and Monetary Union (eurozone) in 2014.

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