Iceland‘s outlook has dropped to negative on fiscal risk according to Standard & Poor‘s, due to plans of lowering the debts of Icelandic homes.
The country maintains its long-term credit rating of BBB- but should that drop as well, Iceland‘s rating will go back to junk status. These are bad news for the new government, led by the Progressive Party whose main platform during the election campaign was to “correct” the amounts of debts that are weighing down Icelandic homes.
In a press release published on the Central Bank‘s website, Standard & Poor‘s states that: “We believe that the contemplated household debt forgiveness could pose a significant fiscal risk to Iceland.”
And: “Depending on the scope of the write-down and the mode of financing, general government debt could rise substantially.” Therefore, upon revision of Iceland’s credit rating, S&P states that the outlook on Iceland’s long term ratings has dropped from stable to negative.