* S&P upgrades Latvia ahead of euro entry
* Small Baltic state got EU go-ahead last week to switch to euro next year
* Country still emerging from deep 2008-2010 crisis, austerity
NEW YORK, June 10 (Reuters) - Standard & Poor’s raised its sovereign credit rating on Latvia on Monday to BBB-plus from BBB following the country’s go ahead to join the euro zone.
The European Commission said last week that Latvia had met all the economic targets to switch to the euro. The approval came after several years of crisis fighting and austerity.
“We anticipate that becoming a member of the monetary union would reduce Latvia’s foreign exchange risks and improve its monetary flexibility,” S&P said in a statement.
The outlook on the credit is stable, S&P said.
In Riga, the Finance Ministry said the S&P decision was in line with its expectation that a green light for a switch to the euro from the lat currency would lead to ratings’ upgrades.
“It can be expected that other ratings agencies will in the next six months also raise our country’s credit rating,” Finance Minister Andris Vilks said in a statement.
Moody’s Investors Service rates Latvia one notch lower at Baa2 with a positive outlook. Fitch Ratings is also one notch lower at BBB with a positive outlook.
Latvia slashed public spending and raised taxes after the 2008 global credit crunch popped a real estate bubble and one of its top banks collapsed. Overall, it took austerity measures equal to more than 15 percent of output, while gross domestic product declined by about a fifth over 2008-2010.
But growth in exports and improving domestic demand has now made Latvia become the fastest-growing country in the EU.
S&P said its upgrade reflected its view that euro zone membership would have a positive impact on Latvian creditworthiness by reducing foreign exchange risks and providing the banking system with access to the European Central Bank as a lender of last resort and provider of liquidity.
It said the stable outlook on the rating reflected an expectation that the economy would continue its post-crisis recovery, and that the government would remain broadly committed to stable fiscal policy.