RIGA, Latvia—This Baltic nation, which withstood something close to a depression during the global financial crisis, looks to be on the mend: The International Monetary Fund said Thursday in a report that Latvia's recovery plan is working. Standard & Poor's this week raised the country's sovereign-credit rating. And though unemployment remains at 18%, the economy has grown for three straight quarters.

But some economists say the signs that appear to show Latvia's resurgence—its shrinking trade deficit, stable currency and...