S&P cuts Latvia to BBB+

Standard & Poor's said it lowered its long-term sovereign rating on the Republic of Latvia to BBB+ from A- due to the increasing risk of a hard landing and persistent external imbalances. The short-term sovereign credit rating was affirmed at A-2. S&P's also lowered its transfer and convertibility assessment to A+ from AA.

The outlook is negative.

The downgrade reflects the expectation that the Latvian government's recently adopted anti-inflation plan will only slowly reverse rapid growth in the current account deficit and external debt, resulting in an adjustment process that is potentially more disruptive than a more comprehensive policy approach, the agency said.

The negative outlook reflects the prospect of a downgrade if the economic imbalances continue to be addressed at a slow pace and the risk of a hard landing increases, S&P added.

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