Iceland Mag

14 Reykjavik

Iceland Mag

Economy

The credit rating of Iceland improves due to lifting of capital controls

By Staff

  • Central Bank of Iceland The lifting of the capital controls had a positive effect on Icelandic creditworthiness. Photo/Pjetur Sigurðsson

The credit rating agency Stanrad & Poors has raised the long and short term rating (pdf) for Iceland from A/A-2 to A/A-1 with a stable outlook. The reasons given for the rating increase is the lifting of the remaining capital controls last week. Moody‘s similarly states (pdf) that the lifting of capital controls has positive effects on Icelandic credit.

Stable outlook
Standard & Poors notes that while there is a potential for improvement in Iceland‘s public financed this is balanced by the risk of overheating in the economy. Economic growth in 2016 was 7.2%, which was the second highest growth rate among OECD countries. Government debt at the end of 2016 was 88% of GDP.

Read more: General government surplus in 2016 amounted to 17.2% of GDP

The liquid krona overhang
The capital controls were lifted on March 14, 2017. At the same time the Central Bank announced an agreement with most of the foreign investors whose krona assets had been locked in due to the capital controls. This so-called liquid krona overhang, which totalled 8% of GDP in February, will now exit in a manner which will not threaten the value of the currency.

This overhang originated principally from „glacier bonds“, bonds denominated in Icelandic krona issued by foreign entities before 2008 and from non-resident holdings of bonds of the state Housing Financing Fund.

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