Market analysts Standard & Poor’s have reaffirmed their BBB-/A-3 rating for Iceland, but have expressed optimism for the future of the country’s economy.
In a statement to the press, S&P say their rating is based on “our opinion of its prosperous and flexible economy, and its institutional capacity to address financial sector problems and build an environment more conducive to job creation and sustainable economic growth.”
However, they say, Iceland is not without its continuing financial problems. The rating has not been raised in part because of “high external and public-sector debt”, but they credit capital controls – which hinder the ability of residents to invest overseas, and non-residents from trading krónur for other currencies – from preventing the debt from rising higher still. They also contend that private sector nonperforming loans remain too high.
S&P believes Iceland’s GDP will continue to grow by 2-3%, annually, from 2012 to 2015. Interestingly, they also contend that “exceptionally lax financial sector oversight contributed to the boom-bust cycle in Iceland”, contradicting the oft-repeated refrain among conservative analysts within the country that the crash was the result of a global crisis which overwhelmed the country.
“We could consider raising the ratings on Iceland if, by attracting further foreign investment, its economic growth potential is boosted and external vulnerabilities are reduced,” S&P contend. “This would likely strengthen Iceland’s creditworthiness.”
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