S&P Global Affirms Latvia's 'A' Credit Rating with Stable Outlook Amid Geopolitical Uncertainties

S&P Global Reaffirms Latvia's 'A' Rating

On November 28, 2025, S&P Global Ratings affirmed Latvia's long-term foreign and local currency sovereign credit ratings at 'A' with a stable outlook. This decision follows a semi-annual review and maintains the rating at the same level as its previous report in May 2025. The stable outlook reflects S&P's expectation that Latvia will manage external challenges, including those arising from the Russia-Ukraine conflict, over the next two years.

Rating Rationale: Resilience and Prudent Fiscal Policy

S&P Global highlighted Latvia's economic resilience as a key factor in the affirmation. Despite a substantial increase in defense spending due to geopolitical risks, Latvia's GDP per capita is projected to have risen by almost 30% through 2025 compared with 2021, prior to the start of the war. The agency also noted the Latvian authorities' commitment to preserving a prudent fiscal policy, aiming to keep budget deficits and government debt in check.

The stable outlook is predicated on the assumption that the Russia-Ukraine war will not escalate into NATO territory, including Latvia. While acknowledging persistent geopolitical uncertainty and elevated regional security risks, S&P believes these are balanced by a projected cyclical economic recovery driven by stronger domestic and foreign demand, and looser monetary policy.

Economic Outlook and Fiscal Management

S&P Global forecasts Latvia's real economic activity to expand by 1.5% in 2025, accelerating to 2.25% in 2026. This growth is expected to be supported by significant investment activities, particularly from a larger uptake of European Union funds, with implementation of the EU's Recovery and Resilience Facility (RRF) fund peaking in 2026. Public-sector investments in infrastructure, security, and defense are also anticipated to underpin economic activity.

The agency projects the general government deficit to average around 3.8% of GDP annually from 2026 through 2028, even with planned increases in defense spending. Latvia's Ministry of Finance emphasized that the consistent 'A' rating reflects the government's disciplined fiscal policies, which have kept the budget deficit and national debt within manageable limits despite rising military expenditures.

Geopolitical Context and Challenges

The ongoing Russia-Ukraine conflict and broader geopolitical risks continue to influence Latvia's credit profile. S&P Global warned that the protracted nature of the war poses challenges to the country's medium-term economic growth. Latvia's geographical position on NATO's eastern border means security concerns are unlikely to diminish, even after the conflict concludes, adding complexity to its stability.

Prime Minister Evika Siliņa welcomed S&P's decision, stating that it signifies that 'investors can trust us, and confirms that international partners see Latvia's ability to manage risks, observe fiscal discipline and continue development in difficult circumstances.'