Fitch, the credit rating agency today issued its rating for Iceland. The prospects were upgraded to positive, whereas previously they were seen as stable. The long-term ratings in foreign and domestic currency were confirmed at BBB+. In the opinion of Fitch, vulnerability towards external shocks has considerably diminished with the strengthening of the exchange rate of the króna and the accumulation of net foreign exchange reserves of the Central Bank. The declining debt ratio and strong economic growth have also influenced the changed prospects.
The factors that could improve the sovereign credit rating are continued economic growth without economic instability, further ability to weather foreign adverse shocks by freeing capital flows and a further reduction in the debt ratio through a prudent fiscal policy.
Overheating of the economy due to wage-price escalation, an inflation spurt and a substantial capital outflow would lead to pressures on the króna exchange rate and external imbalance, and an ease in fiscal policy could lead to a reduction in the credit rating.
Fitch ratings upgraded its outlook for the sovereign credit rating in January 2015 to positive and in July of the same year the credit rating was raised by one notch with stable outlook.