Fitch Revises Iceland’s Outlook to Positive

Fitch Ratings has revised Iceland’s outlook to Positive from Stable and affirmed the IDRs at ‘BBB’ and ‘BBB+’, respectively, reports Reuters.

Fitch estimates that domestic demand – especially private consumption and investment – will remain the driver of economic growth in Iceland over the next two years but adds that public financing – the collection and allocation of resources by the government – remains a ratings weakness.

The decision to revise Iceland’s Outlook is a result of a few key rating drivers, i.e the extension of bond maturities on the loan between Landsbankinn hf. and LBI hf. (which is managing the winding-up process of Landsbanki Islands hf. following its collapse in 2008).

The extension is also expected to cut Iceland’s private foreign-debt service burden over the next three years, reducing the risk of balance of payment pressures, and improving external financing sustainability.

A statement from Fitch indicates that the steps Iceland has begun taking to remove capital controls is also a driving factor in the outlook revision though capital controls remain in place and weigh on Iceland’s credit profile.