Sunday, August 19, 2007

Fitch downgrades Latvia to BBB+

From Danske Bank:

Fitch downgrades Latvia to BBB+
Fitch ratings agency has downgraded Latvia’s foreign currency issuer default rating (IDR) to ‘BBB+’ from ‘A- and it also downgraded the country’s local currency IDR to ‘BBB+‘ from A –‘ both with a stable outlook. Fitch says, “The Latvian economy is severely overheating and Fitch considers the policy reaction of the government to be insufficient to restore the economy to a sustainable growth path”. It is hard to disagree and the downgrade should as such not be a surprise. The ratings agency, Standard & Poor’s, earlier this year also downgraded Latvia. Even though this is hardly surprising, Fitch’s downgrade of Latvia is nonetheless not good news and it is becoming increasingly obvious to everybody that urgent policy action is needed to address the major imbalances in the Latvian economy. We, however, find it encouraging that the Latvian Finance Minister, Oskars Spurdzins, in a comment on the downgrade said that it was “a clear and unmistakable signal to Latvia for an even stricter fiscal policy and for all involved parties to more actively carry out measures against inflation". We certainly hope that the Latvian government will follow up on the Finance Minister’s wise statement.

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