RIGA — Moody’s Investors Service has suggested that there is light at the end of the tunnel for Latvia’s battered economy, which has begun to stabilize.

“Latvia’s economy and government finances are now beginning to stabilize after being severely affected by the global financial crisis in 2009,” the ratings wrote in its annual report on Latvia issued Monday. “A strengthening regional economy is supporting Latvian production and exports, while the sharp swing in the current account balance suggests that the ‘internal devaluation’ is working,” the report said.

However, the agency stressed that significant concerns remain, in particular the lack of financing for businesses and national elections in October. Moody’s pointed out that Latvia “has a history of political instability,” manifested in 12 governments since independence in 1991.

“The key risk is that renewed political instability leads to a breakdown in relations with the EU and the IMF, delaying loan disbursements,” Moody’s wrote, adding that any such impasse in talks with international lenders would “probably cause only a temporary decline in investor confidence.”

Latvia’s Ministry of Finance said the report was a “positive assessment” of the government’s actions so far. Minister Einars Repše warned, however, about the political risks highlighted by the agency.

“Certainly the biggest fears remaining involving political stability, which have a tremendous impact on our credit rating,” Repše said in a statement. “Political parties must be responsible and not allow populism, which will grow in the pre-election period, ruin what we have accomplished so far.”