Fitch affirms Latvia

Fitch Ratings said it affirmed the Republic of Latvia's foreign currency and local currency issuer default ratings at A- and A, respectively. The country ceiling is affirmed at A+, and the short-term foreign currency rating is affirmed at F2.

The outlook is stable.

Spectacular economic growth and real convergence with Western Europe underpin Latvia's sovereign ratings, Fitch noted.

However, the prospect of a delay in euro adoption until 2010 adds to risks associated with Latvia's high external debt burden and financing needs. Euro adoption is now virtually certain to be delayed beyond the initial target of 2008, the agency said.

Fitch said its central scenario is that the government formed after parliamentary elections in October will combine a new target date for eurozone entry with a fiscal policy stance that will enable the country to achieve the Maastricht inflation criteria and adopt the euro in 2010. Should this not be the case, downward pressure on Latvia's rating would increase as the support to stretched external finances from euro adoption would be effectively eliminated over the medium-term.

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