Fitch ups Latvia forecasts

Fitch Ratings said that higher-than-expected tax revenue and lower interest and social benefits payments in Latvia in 2012 has increased fiscal buffers, making room for some growth-friendly tax policy changes.

The agency noted that it has upgraded its growth forecasts for Latvia to 3.5% year over year in 2012 from 2.5% because of stronger domestic consumption and investment.

This is the result of falling unemployment and more efficient use of E.U. funds, the agency said.

It also suggests that household deleveraging is bottoming out, Fitch noted. However, the sovereign remains vulnerable to weaker external demand, with merchandise exports falling by over 20% year over year in 2012.

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