Fitch Ratings has reaffirmed Iceland’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook, reflecting the country's strong economic fundamentals and solid financial position.

Key Factors Supporting Iceland’s Rating

Iceland’s ‘A’ rating is backed by:

• High income per capita and strong governance standards, comparable to sovereigns in the ‘AAA’ and ‘AA’ categories.
• Robust financial fundamentals, including substantial pension fund assets, a resilient banking sector, and healthy private sector balance sheets.
• Ample foreign reserves, which help cushion against external economic shocks.

However, the rating remains constrained by Iceland’s small economy and limited export diversification, which increase its exposure to external risks.

Potential for a Positive or Negative Rating Change

Fitch indicates that an upgrade could be possible if:

• Iceland demonstrates a sharp and sustained reduction in the government debt-to-GDP ratio.
• The country achieves higher long-term economic growth and greater export diversification, reducing its vulnerability to global economic fluctuations.

Conversely, a downgrade could occur if:

• There is a significant deterioration in the debt-to-GDP ratio, particularly due to prolonged fiscal loosening.
• Iceland experiences a severe economic shock, such as a sharp downturn in the real estate market, leading to financial instability.

Economic Outlook

With strong financial institutions and solid economic fundamentals, Iceland remains in a stable position. However, maintaining fiscal discipline and further diversifying the economy will be key to sustaining and potentially improving its credit rating in the future.