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Iceland is now safe to invest in again says ratings agency Fitch

Published on March 1, 2012 by   ·   No Comments

Iceland is now safe to invest in again, according to ratings agency Fitch, which has upgraded its credit rating three years after its economy spectacularly collapsed, as Fitch raised Iceland’s sovereign rating by one notch, to BBB- from BB+, meaning that the country’s debt is now investment grade.

Iceland’s economy imploded under a mountain of debt in 2008, forcing an International Monetary Fund bailout and since then, the debts of its neighbours have sparked a crisis in the eurozone.

Fitch said the decision “reflects the progress that has been made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding sovereign creditworthiness”.

In 2008, its three banks failed under their enormous foreign debt, which at one point was larger than the Icelandic economy.

The value of the Icelandic krona plunged, which made its exports more competitive. The new government of 2009 was allowed to carry on borrowing and spending for another year before spending cuts kicked in.

That is in contrast to the austerity measures that have been imposed on Greece, Portugal and the Irish Republic since their respective bailouts. All those countries share the euro and so cannot devalue their currencies.

Last month, Fitch downgraded five eurozone countries, including Italy and Spain, citing financial weakness during the debt crisis.

Standard & Poor’s agency had downgraded nine eurozone economies, including France. And Moody’s this week put the UK on “negative outlook”, implying a 30% chance of losing its AAA credit rating within 18 months.

Iceland left the IMF bailout programme last year.

Iceland’s Finance Minister Steingrimur Sigfusson has told the BBC that his country’s size has been crucial in the move towards recovery: “You are quicker turning a small boat around than a big ship.”

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