Financial analysts Moody’s have raised their assessment of Iceland’s economic situation, from negative to stable, and give the government an overall rating of Prime-3 – that is, “an acceptable ability to repay short-term obligations” – with an overall optimistic forecast of the economy’s future.
The change of outlook was driven by the improvement in Iceland’s external liquidity due to the restoration of financing from the IMF and Nordic governments. “The successful passage of the IMF review and re-instatement of the Nordic credit line ensures that Iceland’s external liquidity is now secure,” says Kenneth Orchard, Vice-President/Senior Credit Officer in Moody’s Sovereign Risk Group. “The resumption of official financial inflows into the country should also boost confidence and support the ongoing economic recovery.”
“Iceland’s ability to re-pay its Eurobonds is now relatively secure,” Orchard says. “The renewed liquidity facilities from the IMF and Nordic governments provide a significant backstop if the government is unable to re finance the bonds in the international capital markets.”
Moody’s also notes that “the economy continues to perform slightly better than expectations, even though the recovery following the 2008 crisis is expected to take several years,” and that “the eruption of the volcano Eyjafjallajokull is not expected to have a material impact on Iceland’s economy, as it is in a relatively remote location and air transport was closed for only a few days.”