Fitch Ratings affirmed Latvia's long-term foreign and local currency Issuer Default Rating (IDR) at BBB+, country ceiling at AA+, and short-term foreign currency IDR at F2. The outlook on the ratings is Stable. The affirmation was attributed to string economic growth seen at 4% in 2013 and three-year average of 4.8%. In 2014 Fitch forecasts 4.1% growth vs. 0.9% in the Eurozone. At the same time Latvia's economy remains small and open to shocks, with past track record of severe volatility. Recent Eurozone membership strengthens Latvia's creditworthiness and reflects policy coherence and credibility. Euro adoption improves fiscal and external financing flexibility, reduces Fx currency risks, and gives the banks access to ECB's liquidity facilities. Domestic macro imbalances are seen as improving by Fitch. The consistently high unemployment of 11% is on the downwards trend and net emigration is positive. Deleveraging has cut the private sector debt from 142% of GDP in 2009 to 90% of GDP. While fiscal deficit is low as compared to the rating peers, external debt of 32% of GDP is a weakness as compared to 6% median of the BBB range. Significant presence of non-resident deposits in the banking system (about half of total and equivalent to 40% of GDP) exposes the system to liquidity risks and shocks, Fitch believes. However, the risks are mitigated by prudent liquidity and capital buffers that are required by the ECB.
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