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Fitch Upgrades Iceland

Fitch Upgrades IcelandFitch Upgrades Iceland

As it returns to financial normality nearly a decade after a devastating banking crisis, Iceland’s “robust economic growth” has prompted ratings agency Fitch to upgrade the Nordic country’s sovereign rating.

Fitch on Friday said it was raising Iceland’s rating from BBB+ to A- and assigning it a positive outlook, Reuters reported.

Despite its recent move to lift capital controls put into place in 2008 following the implosion of its three largest banks, Iceland’s currency, the krona, has strengthened, appreciating by 20.1% against the US dollar and 17.3% against the euro from the start of the 2017 until the end of June, Fitch analysts noted.

The agency said that liberalizing capital controls on residents—a process that started in 2016 and wrapped up in March—had not led to a massive outflow of capital.

The external vulnerabilities of the island nation’s economy has also been “reduced considerably”, the report said, with strong current account surpluses and capital inflows bolstering external finances. And tourism demand has remained strong, which Fitch expects to continue for the foreseeable future.

Fitch analysts wrote: “Robust economic growth has supported the improvements in public indebtedness and external finances…. Fitch has revised its growth forecast for 2017 up to 5.6%, but expects growth to moderate to 3.7% by 2019. However, domestic cost pressures resulting from the above-trend growth and wage rises, coupled with the appreciating real exchange rate could lead to overheating and exposes the economy to the risk of a contraction in tourism activity.”

Fellow rating agency Moody’s has set Iceland’s rating at A3, while S&P recently affirmed its A/A-1 rating on the country.

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