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S&P Global Ratings Affirms Iceland´s ratings at 'A/A-1'; Outlook Remains Stable

International rating agency S&P Global Ratings has affirmed Iceland’s sovereign ratings at A/A-1 with a stable outlook. The rating agency assumes that Iceland´s economy will contract by 7.5% in 2020, reflecting Covid-19´s significant blow to the tourism sector. Iceland´s modest net general government debt enables a comfortable response to the Covid-19 fallout and economic downturn.

The stable outlook reflects strong fiscal and balance of payment buffers, that leaves room for policy response over the next two years, capturing that the economy remains exposed to high Covid-19 related risks. Stable institutional framework and effective policymaking supports the ratings.

According to S&P, the agency could raise the ratings if the fiscal performance and external position strengthen significantly beyond current projections. A quicker economic recovery than expected could support lower net external leverage and reduce external vulnerabilities. On the other hand, the rating agency could lower the ratings if the Covdid-19 fallout becomes more pronounced than anticipated, for instance due to a longer-lasting, more severe impact on Iceland´s tourism sector, depressing growth rates over a prolonged period.

S&P Global Ratings research update
 

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