S&P downgrades three Baltic countries due to war in Ukraine
RATING agency S&P announced on Friday (May 31) that it had downgraded the ratings of the three Baltic States, Estonia, Latvia, and Lithuania, citing the effects of the war in Ukraine and geopolitical risks with Russia.
Estonia saw its sovereign debt rating raised from “AA-“ to “A+“, while Latvia’s has been raised from “A+“ to “A”, as has Lithuania’s, all with a stable outlook.
The downgrades reflect “our view that the impact of the war in Ukraine and the wider regional geopolitical risks” will affect the Baltic region’s “economic growth, public finances, and competitiveness over the medium term,” S&P said.
The countries were particularly hard hit by the hike in inflation that hit the European Union after the Covid-19 pandemic and in the wake of the Russian invasion of Ukraine.
While inflation peaked at around nine per cent for the EU, it exceeded 20 per cent in the Baltic States, which are more dependent on energy from Russia.
The countries were hit the hardest by the shock to gas and oil prices caused by the invasion and subsequent sanctions against Russia.
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Faced with the threat posed by Russia, with which the trio of countries share a border, but also because of their support for Ukraine, the Baltic states have also increased their military spending.
This is bound to weigh on public finances in a context of recession or weak growth, the agency warned.
The stable outlook reflects the rating agency’s confidence that the war in Ukraine “will not spread to the territory of any Nato member country,” the military alliance to which the three countries belong.
Ukrainian President Volodymyr Zelensky said on Friday that Russia was preparing “provocations” at the borders of the Baltic region, which includes not only Estonia, Latvia, and Lithuania, but also Finland, a member of the EU and now Nato.
He made the comments a week after Estonia said Russian border guards had removed buoys from the Narva River marking the border. AFP
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