Fitch upgrades Iceland to investment grade

It seems like it's a case of 'first in, first out', as Fitch has decided to upgrade its rating on Iceland after the country has made progress in restoring "macroeconomic stability".

The ratings agency has lifted its long-term foreign currency issuer default rating from 'BB+' to 'BBB-', the first step of investment grade.

"The restoration of Iceland's Long-term foreign currency rating to investment grade reflects the progress that has been made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding sovereign creditworthiness since the 2008 banking and currency crisis," says Paul Rawkins, the senior director of Fitch's Sovereign Rating Group.

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"Iceland has successfully exited its IMF programme and gained renewed access to international capital markets."

He said that the country's economic recovery is promising, as the restructuring of the financial sector is "well-advanced" and the debt-to-GDP (gross domestic product) ratio is now close to peaking due to a "robust fiscal consolidation programme".

Iceland, seen as the first country to suffer the full force of the recent financial crisis, completed a three-year International Monetary Fund-supported rescue programme back in August of last year.

"Despite some setbacks along the way, the programme laid the foundations for renewed access to international capital markets in mid-2011 and an encouraging rebound in economic growth to 3% for 2011 as a whole," Fitch notes.

GDP growth is expected to slow to 2-2.5% in 2012-13 and Fitch does not foresee the economy slipping back into recession.

"However, the private sector remains heavily indebted - household debt exceeds 200% of disposable income and corporate debt 210% of GDP - highlighting the need for further domestic debt restructuring, while the key export sector has been held back by capacity constraints and a lack of investment exacerbated in part by the slow unwinding of capital controls," the agency said.

BC