The credit ratings agency Moody’s has upgraded the sovereign debt of Iceland from Baa3 to Baa2 with a stable outlook. According to Moody’s the upgrade reflects several important positive developments in the Icelandic economy.
Lifting of capital controls, strong growth, lower debt and financial stability
The key justifications for the upgrade are the initiation of a process of lifting of capital controls which the ratings agency deems will both reduce the external vulnerability of Iceland and protect economic and financial stability. Furthermore, Moody’s predicts that robust growth and fiscal consolidation will ensure a further reduction in government debt over the next three to four years. Moody’s predicts government debt will have been cut from 77% of GDP in 2014 to below 50% in 2019, as nominal GDP will rise by 7-8% annually in 2016-19.
The final rationale for the improvement in ratings are efforts by the government to strengthen regulatory framework to ensure the Icelandic banks comply with Basel requirements on banking capital and liquidity. Moody’s believes Icelandic authorities have and are preparing meaningful steps to ensure that a repetition of the 2008 financial crash are avoided.
Iceland upgraded, Greece downgraded
The previous rating is one grade above so-called “junk” status, a label given to debt which is considered highly risky and therefore not “investment grade”. Lower credit ratings mean higher interest rates, and the upgrade is therefore welcome news for state finances, since it means future interest payments will be lower as future borrowing will be cheaper and the treasury can look forward to more appealing opportunities for refinancing older debt.
On the same day as Moody’s upgraded the credit rating of Iceland, the credit ratings agency Standard & Poor’s downgraded Greek sovereign debt to junk status. Commentators have described the proposals offered by the Greek government to solve its debt crisis as “the Icelandic Solution”.
The credit ratings agency Moody’s has upgraded the sovereign debt of Iceland from Baa3 to Baa2 with a stable outlook. According to Moody’s the upgrade reflects several important positive developments in the Icelandic economy.
Lifting of capital controls, strong growth, lower debt and financial stability
The key justifications for the upgrade are the initiation of a process of lifting of capital controls which the ratings agency deems will both reduce the external vulnerability of Iceland and protect economic and financial stability. Furthermore, Moody’s predicts that robust growth and fiscal consolidation will ensure a further reduction in government debt over the next three to four years. Moody’s predicts government debt will have been cut from 77% of GDP in 2014 to below 50% in 2019, as nominal GDP will rise by 7-8% annually in 2016-19.
The final rationale for the improvement in ratings are efforts by the government to strengthen regulatory framework to ensure the Icelandic banks comply with Basel requirements on banking capital and liquidity. Moody’s believes Icelandic authorities have and are preparing meaningful steps to ensure that a repetition of the 2008 financial crash are avoided.
Iceland upgraded, Greece downgraded
The previous rating is one grade above so-called “junk” status, a label given to debt which is considered highly risky and therefore not “investment grade”. Lower credit ratings mean higher interest rates, and the upgrade is therefore welcome news for state finances, since it means future interest payments will be lower as future borrowing will be cheaper and the treasury can look forward to more appealing opportunities for refinancing older debt.
On the same day as Moody’s upgraded the credit rating of Iceland, the credit ratings agency Standard & Poor’s downgraded Greek sovereign debt to junk status. Commentators have described the proposals offered by the Greek government to solve its debt crisis as “the Icelandic Solution”.
