Moody’s Investors Service has upgraded Iceland’s long-term issuer and senior unsecured ratings to A2 from A3, Iceland’s senior unsecured MTN rating to (P)A2 from (P)A3 and other short-term rating to (P)P-1 from (P)P-2. The outlook on the ratings is stable.

The key drivers for the upgrade in the ratings are mainly twofold, firstly Iceland’s sizeable debt reduction gains will be sustained, positioning the country favourably relative to A2-rated peers; and secondly improvements in economic resilience which reduces the country’s inherent vulnerability to shocks.

The rating agency points out that Iceland‘s government debt has fallen substantially since 2011, more so than in any other rated sovereign in the post-crisis era. Refinements to the fiscal framework, including the Organic Budget Law, will further help to preserve these fiscal improvements. Proceeds from privatisation of SOEs could help to further strengthen the government‘s balance sheet according to Moody‘s.

Moody’s has today also raised Iceland’s local currency bond and deposit ceilings to Aa3 from A1, long-term foreign currency bond ceiling to A1 from A3 and long-term foreign currency deposit ceiling to A2 from A3. Moody’s has also raised the short-term foreign currency bond and deposit ceilings to P-1 from P-2.

Iceland´s rating could be upgraded with marked improvement in its external position and build-up of financial buffers that further reduce its vulnerability to shocks, for instance through large primary surpluses, one-off income flows including from privatisations and further material reduction in government´s contingent liabilities.

Sharp increase in government debt, disruptive slowdown or other economic shock would have negative effect on the ratings.

Iceland´s rating outlook has been positive since July 2018. Moody´s last change to the credit rating was made in September 2016. Iceland´s ratings are now similar for all of the three agencies that rates Iceland, Moody‘s, Fitch ratings and S&P Global ratings.

Government of Iceland´s credit ratings

Moody‘s A2 Fitch A S&P A

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