Estonia Retains A+ Sovereign Credit Rating
Fitch Ratings affirmed Estonia's A+ rating with a stable outlook.
"Estonia's sovereign ratings reflect its sound public finances, its governance and institutional strengths, and reduced risk of balance-of-payments crises through euro membership," a press release said.
"Healthy public finances are a key credit strength. Estonia's government debt to GDP ratio of just under 10 percent is by far the lowest in the European Union, even after a rise in 2012 due to the assumption of contingent liabilities associated with the European Financial Stability Facility and the use of credit from the European Investment Bank to co-finance structural funds."
The rating agency also noted that, as a small and open economy, Estonia is highly vulnerable to economic developments in its trading partners. From 2012 to 2013, GDP growth slowed from 3.9 percent to 1.1 percent, due to lower investment and exports. On a positive note, Fitch expects growth to rise 3-4 percent annually over the next two years, reflecting improving conditions in Estonia's trading partners.
The agency also noted that income per capita is still at just two-thirds of the Eurozone average, and a declining and aging population are creating pressures in the labor market.
"There is potential for skills mismatches amid already high wage and low productivity growth. Unemployment is still high, although it is expected by Fitch to fall back to 8 percent by 2015 from 8.8 percent at end-September 2013," the press release said.