Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

Scope completed the monitoring review for the Republic of Latvia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A-/Stable; short-term local- and foreign-currency issuer ratings: S-1/Stable) on 3 February 2026.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

Latvia’s A- credit ratings are supported by several credit strengths, including: i) its sound institutional set-up and effective policymaking underpinned by its status as a member of the euro area, ensuring a robust framework for fiscal and economic policy, while its NATO and EU memberships constitute strong mitigants to external security risks in the context of heightened geopolitical tensions; ii) sound medium-run economic growth prospects supported by large allocations of EU funds, underpinning the country’s continued convergence with the euro area despite persistent headwinds stemming from the enduring repercussions of Russia’s war against the Ukraine; and iii) its moderate public debt level, supporting the country’s fiscal resilience and room to withstand shocks.

The main challenges to the ratings are: i) exposure to external shocks given the Latvian economy’s small size, elevated openness and moderate income levels; and ii) unfavourable demographic trends, persistent labour shortages and long-term fiscal pressures.

After contracting by 0.3% in 2024, Latvia’s economy entered a recovery phase in 2025, with real output growth reaching an estimated 1.7%. Wage growth continues to support disposable income and household spending, although a still-elevated savings rate is likely to curb the pace of consumption growth in 2026. Investment is set to remain a key growth driver, supported by a ramp-up in public investment, notably funded by EU funds and including the implementation of large infrastructure projects such as Rail Baltica, alongside a rebound in business investment underpinned by robust credit growth and easing financing conditions. Growth is expected to strengthen over the medium term, with real GDP projected to accelerate to 2.6% in 2026 and 2.9% in 2027.

After narrowing to 1.8% of GDP in 2024, the general government deficit widened to an estimated 2.4% of GDP last year. This widening was mainly driven by weaker revenues following the personal income tax reform and lower dividend payments from state-owned enterprises as energy prices normalise, combined with rising expenditure on military spending, social transfers and interest payments. However, the deficit is forecast to widen further over the medium term, rising to 3.1% of GDP in 2026 and 3.7% in 2027. Revenue growth should remain constrained following recent tax changes, while higher defence investment adds to spending pressures. The deficit is expected to decline only gradually thereafter, reaching about 3.0% of GDP by 2030. As a result of sustained deficits and stock-flow adjustments, public debt is projected to rise from an estimated 48.2% of GDP in 2025 to around 51% by end-2030.

The Stable Outlook reflects Scope’s view that the risks Latvia faces over the next 12 to 18 months are balanced.

Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Solid economic growth and income convergence continued through reform implementation and investment;
    
2. The public debt-to-GDP ratio remained moderate, supported by balanced government finances in the medium run; and/or
    
3. External and/or financial sector vulnerabilities continued to moderate.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Geopolitical risks increased, undermining macroeconomic stability;
    
2. Fiscal fundamentals weakened, leading to a significant increase in the debt-to-GDP ratio over the medium run;
    
3. Macroeconomic imbalances increased, weakening growth prospects; and/or
    
4. External and/or financial sector vulnerabilities increased substantially.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Brian Marly, Senior Analyst

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