From Iceland — Fitch Changes Iceland's Rating From Negative To Stable

Fitch Changes Iceland’s Rating From Negative To Stable

Published May 17, 2011

Fitch Ratings has announced that they have changed Iceland’s assessment from Negative to Stable, saying in part that the fallout from the Icesave referendum appears to be less than expected.
“Fitch continues to regard the resolution of ‘Icesave’, a bilateral agreement with the UK and Dutch
governments to finance the compensation of ‘Icesave’ depositors, as an important step towards the
normalisation of relations with international creditors. However, the capacity of this dispute to close
off access to multilateral and bilateral funding for Iceland’s IMF financial rescue programme and
put Iceland’s economic recovery at risk has clearly diminished,” said Paul Rawkins, Senior Director
in Fitch’s Sovereign Rating Group, in a press release put online by the Central Bank of Iceland.
Fitch’s general economic outlook for Iceland was both cautious and optimistic. “Having experienced a steep contraction in output in 2009-10, Fitch believes that Iceland’s economy
is close to stabilising and could post growth of around 2% in 2011,” they contend, “Fiscal consolidation is on track: the
primary balance is budgeted to be in slight surplus in 2011, even as general government debt (including accrued interest on Icesave) peaks at around 100%. Net debt is significantly lower,
reflecting large deposits with the central bank, some of which are the counterpart of the increase in
international reserves under the IMF programme.”
The country still has work ahead of it to do, though, if they expect a full recovery. “Iceland is
still a relatively high income country with standards of governance, human development and ease
of doing business more akin to a high grade than a ‘BB+’ sovereign. However, accelerated private
sector domestic debt restructuring, an orderly unwinding of capital controls, normalisation of
relations with external creditors and enduring monetary and exchange rate stability will be key tothe restoration of investment grade status.”

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