MIL-OSI Europe: Fitch Affirms Iceland at ‘A’; Outlook Stable

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Source: Government of Iceland

Fitch Ratings has affirmed Iceland’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook.

Iceland’s ‘A’ rating is underpinned by its very high income per capita and governance indicators that are more consistent with those of ‘AAA’ and ‘AA’ rated sovereigns. The country has built sizeable buffers, which help mitigate its vulnerability to external shocks and balance of payments’ risks; including ample foreign reserves, and a fiscal cash buffer, which has been reduced in recent years. Strong credit fundamentals include the country’s sizeable pension fund assets, sound banking sector, and strong private sector balance sheets. The rating remains constrained by Iceland’s small size economy with its limited export diversification and high level of public debt.

Increased confidence in a sharp and sustained decline in the government debt/GDP ratio, higher trend growth and/or evidence of economic diversification that reduces Iceland’s vulnerability to external shocks could lead to a positive rating action.

A marked deterioration in the debt/GDP ratio, for example from a sustained period of fiscal loosening, or a severe economic shock, for example, due to a sharp correction in the real estate market, could lead to a negative rating action.

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