The credit rating agency Standard & Poor‘s today raised the credit rating of Iceland´s long-term foreign and local currency debt to A- from BBB+ with a stable outlook. The main reason for the increase was a stronger external position.
The news release of the credit rating agency notes that Iceland‘s strong external position is one of the key elements of its the credit rating assessment. There is a robust surplus on the balance of payments and the net foreign exchange reserves have increased sharply in the past year. Iceland‘s balance of payments has exceeded the expectation of S&P. Robust economic growth, a reduced external debt ratio and a strong fiscal position are also important factors in the rating increase. The agency also points out that Iceland enjoys a high per capita income.
S&P could raise the credit rating still further if external capital controls were fully removed without endangering financial stability or causing and adverse influence on the balance of payments. The rating could also increase still further if the public sector debt ratio declines faster than expected by the S&P.
The rating could decline if recent wage increases lead to an overheating of the economy that would increase the risk for monetary and fiscal policy as well as the external position of the economy. Similarly, a further uncontrolled liberalisation of capital controls could have an adverse impact on the financial system and thus impact the rating downwards.
The agency last raised the Iceland´s credit rating in January 2016. The Treasury currently has an A rating both with Moody‘s and S&P; the last time Iceland had an A rating from S&P was in October 2008.