07 July 2017

Fitch upgrades Iceland to ‘A-’; outlook is positive

Central Bank of Iceland

Fitch Ratings announced today that it had upgraded Iceland‘s long-term foreign and local-currency Issuer Default Ratings (IDRs) to ‘A-’ from ‘BBB+’. The outlook is positive. The main rating drivers are reduced external vulnerability and improvements in government debt ratios, supported by robust growth.

The rating agency’s press release states that factors that could lead, individually or collectively, to an upgrade are:

• Resilience of the economy to external shocks, in the context of a more open capital account.
• Continued economic growth without excessive macroeconomic imbalances.
• Continued falls in the public debt ratio, supported by prudent fiscal policy.

Furthermore, in view of the positive outlook, Fitch does not currently anticipate developments with a high likelihood of leading to a downgrade. However, future developments that may, individually or collectively, lead to a negative rating action include:

• Evidence of overheating in the domestic economy, for example through wage-price spirals, inflation overshoots, and adverse effects on household and corporate balance sheets.
• A weakened commitment to fiscal consolidation in the medium term.
• Excessive capital outflows leading to external imbalances and pressures on the exchange rate.

Fitch’s press release can be found here.