Financial analysts Moody’s have released a new report on Iceland, saying that while the country has shown positive growth, the economy is still in bad shape.
“Iceland’s institutional strength is considered to be high,” the report says. “There are no concerns over the ability and willingness of the Icelandic government to honour its own financial obligations when due.” Moody’s also says that the government has been able to relax some strict capital controls, and that the deficit is expected to decline until 2012, when a surplus will then begin to be formed.
“However,” Moody’s warns, “this scenario requires on-going strong commitment to fiscal consolidation for many years to come. The revised medium-term fiscal strategy and the 2012 budget proposal, which will be presented soon, should give important indications of the government’s resolve to return public debt to a more easily manageable level.”
While Moody’s ranks the economy’s strength as Moderate and the institutional strength as High, it ranks the government’s financial strength as Low and says Iceland’s susceptibility to event risk is still High.
“The combination of an upward shift in Factor 3 (government financial strength) and a downward shift in Factor 4 (susceptibility to event risk) would lead to a move in the indicative rating range to Baa2 – Ba1 such that Iceland’s current rating of Baa3 would no longer be outside the rating range,” Moody’s concludes.
The full report can be read here.
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