Fitch Revises Iceland's Outlook to Negative; Affirms at A
Fitch Ratings has revised Iceland’s Outlook to Negative from Stable and affirmed Iceland’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’.
The revision of the Outlook to Negative reflects deterioration in Iceland's near-term growth and public finance outlook caused by the coronavirus pandemic and risk of further adverse impact on the economy. As a small and highly open economy with a sizeable concentration in tourism and commodity exports, Iceland is exposed to the economic shock with a severe recession, widening budget deficits and significant rise in government debt.
Iceland entered the Covid-19 crisis with a relatively strong starting position with a small average general government fiscal balance in 2017-2019, low net government debt, strong household balance sheet and large external reserves.
The main factors that could, individually or collectively, lead to positive rating action or upgrade are greater confidence that the economy will avoid a prolonged crisis, for example supported by diminishing downside risks in the export sectors and greater confidence in general government debt/GDP stabilising in the medium term.
The main factors that could, individually or collectively, lead to negative rating action or downgrade are severe and prolonged economic weakness, failure to stabilise general government debt/GDP and excessive capital outflows that precipitate macroeconomic instability or erosion of external buffers.