RIGA: Standard & Poor's raised its credit rating on Latvia on Friday and said it may do so again if the country, which has rebounded from a battering during the global financial crisis, joins the euro.
S&P raised Latvia to BBB/A-2 from BBB-/A-3, making it more attractive to investors, citing the economic and fiscal improvements in a country that had suffered a 20 percent drop in output after the global crisis.
Latvia underwent a harsh austerity programme during the crisis of 2008-2010, with the support of a bailout from the International Monetary Fund and the European Union.
"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," S&P said in a statement.
S&P put a positive outlook on the ratings, meaning it could upgrade Latvia in the next two years.
An upgrade could come "if its fiscal and inflationary performance remains consistent with euro adoption criteria, leading to Latvia becoming a member of the eurozone," the agency said.
In February 2009, S&P lowered Latvia's rating to below investment grade, but raised it back again in May 2012.
"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," the credit rating agency said.
Finance Minister Andris Vilks welcomed the news.
"Latvia is able to demonstrate a consistent policy, aligning its public finances, reducing excessive deficit, as well as providing a stable and predictable tax system," he said in a statement.
Latvia expects to be able to reduce its budget deficit next year to below the current target of 1.4 percent of gross domestic product.
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