S&P Global Ratings Affirms Iceland‘s ratings at ‘A/A-1’; Outlook Remains Stable
GolliInternational rating agency S&P Global Ratings has affirmed Iceland‘s sovereign ratings at A/A-1 with a stable outlook.
Iceland's economy has continued to recover, growing by more than 4% in 2021 backed by strong domestic demand. S&P expects that the Russia-Ukraine conflict will have a limited impact on Iceland's economy given its minimal direct trade links with those countries and overall limited need for energy commodity imports. The agency also expects fiscal consolidation to accelerate this year, with government debt net of liquid assets settling at about 42% of GDP over the medium term.
The stable outlook indicates S&P‘s expectation that Iceland's economy will continue to recover and remain relatively unaffected by the war in Ukraine. The agency believes fiscal deficits will continue to decrease over the next few years, stabilizing the debt to GDP ratio net of liquid assets. At the same time, ample foreign reserves will enable the CBI to deal with external pressures or exchange-rate volatility, should they occur.
According to S&P, the agency could raise the ratings if economic growth exceeds expectations, which would likely coincide with stronger export growth and export categories becoming more diverse, reducing external debt or the volatility in Iceland's terms of trade. The agency could lower the ratings if the effects of the war in Ukraine became more pronounced, for example through second-round effects due to lower economic activity in Iceland's main trading partners in Europe or a shift in global travel preferences. The latter could also occur if the pandemic re-emerged, particularly in the form of new and more malignant variants.