Today, rating agency Fitch Ratings affirmed Iceland’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at A with a stable outlook. According to the rating agency, this rating balances the economy’s high income per capita, strong performance on governance, human development and doing business indicators against its high commodity export dependence, vulnerability to external shocks and experience of macroeconomic and financial volatility.
The stable outlook reflects balanced risks to the rating. Continued falls in the public debt ratio supported by prudent fiscal policy as well as sustained improvement in the external balance sheet and resilience to external shocks might lead to a positive rating action. On the other hand, evidence of overheating through wage-price spirals, inflation overshoots and adverse effects on household and corporate balance sheets or excessive capital outflows leading to external imbalances and pressures on the exchange rate might lead to a negative rating action.