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Credit agency S&P: Estonia long-term rating AA-, outlook stable

Credit rating agency Standard and Pooor's.
Credit rating agency Standard and Pooor's. Source: Photo: Reuters/Scanpix

Credit rating agency Standard and Poor's has affirmed Estonia's rating at AA-/A-1+ on long- and short-term foreign and local currency sovereign credit, Baltic News Service reports, with an outlook of "stable". S&P's rating this time last year was AA- also.

The outlook reflects strong economic growth and financial and economic policy, BNS reports, along with a debt burden amongst the lowest in the eurozone and continuation as a net lender.

Economic growth will average 2.6 percent a year, 2019-2022, S&P says, driving primarily by private consumption.

Wages are set to grow around 7 percent on average and unemployment will remain low, with a high level of household savings apparently reflecting a general prudence going forward.

While construction has declined in its contributions to economic growth – a trend that will continue – this is accompanied by a peaking of European funding, which fuelled the bulk of construction investments, meaning growth is expected to slowdown in the near future.

The export of services, particularly in IT, as well as lower value-added exports such as manufacturing and transport, continue strongly (the latter two sectors in fact making up the greater share of Estonian exports, according to S&P).

Obstacles to economic growth include rapid wage growth, low unemployment levels and a fall in working-age residents, though net migration continues, including that of returning Estonian citizens, meaning the population has started to rise.

With average incomes closer to the EU average – which productivity growth in higher-parid sectors like services – S&P would be open to raising Estonia's rating; on the other hand external imbalances, including wages outstripping productivity over anything excluding short periods, plus regional and geopolitical risks, would cause S&P to give Estonia a downgrade.

S&P thinks that EU and NATO membership make the latter cases unlikely.

Based in New York City, S&P is one of the "big three" credit-rating agencies, along with Moody's Investors Service and Fitch Ratings.

In its long-term assessments, S&P rates borrowers on a scale from AAA (highest) to D (lowest).

AA category means a strong capacity to meet financial commitments, diverging from the highest-rated places only to a small degree.

Finch also gave Estonia an AA- rating in October.

Editor: Andrew Whyte

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