Standard & Poor's Ratings Services has raised its long- and short-term foreign and local currency sovereign credit ratings on the Republic of Iceland to ‘BBB/A-2' from 'BBB-/A-3'. The outlook is Stable.
S&P states that the upgrade is based on credible government proposals towards eventual lifting of capital controls. The proposals will address the country's sizable balance-of-payments vulnerability by relieving the latent pressure on the Icelandic krona (ISK) exchange rate. As a result, foreign investor sentiment will strengthen and nonsovereign borrowers' access to international capital markets will improve. The measures will lead to sizable one-off fiscal revenues for the government. The upgrade is premised on the assumption that any such proceeds will be used to pay down government debt and therefore not spent in a way that could contribute to economic overheating.