The key drivers for the change in the rating outlook to positive from stable are:
1. Improving economic resilience afforded by net external creditor position, more balanced growth and ongoing strengthening of the country‘s banking system.
2. Anticipated further improvement in the government‘s debt metrics beyond what was previously expected.
The positive outlook also reflects progress made in the past two years on the major preconditions we laid out at the time of the upgrade to A3 in September 2016, including the smooth removal of capital controls and the settlement of the offshore krónur situation.
The A3 rating affirmation reflects a balance of the above positive trends against ongoing challenges related to the country’s very small size and its relative lack of economic diversification, the uncertainties facing the tourism sector and its capacity to successfully adjust to a lower and sustainable pace of expansion, competitiveness challenges arising from the upcoming rounds of wage negotiations and the inherent vulnerabilities to excessive capital flows.
Moody’s press release
Moody’ credit opinion