S&P affirms Estonia's AA- rating with stable outlook

Standard and Poor’s.
Standard and Poor’s. Source: (Emmanuel Dunand/Reuters/Scanpix)

Standard & Poor's (S&P), one of the "Big Three" credit rating agencies, on Monday affirmed Estonia's long-term sovereign rating at AA- with a stable outlook, and short-term rating at A-1+.

The AA- rating by S&P is the highest rating assigned to Estonia by an international rating agency. The sovereign rating represents an evaluation by the rating agency of the debtor to meet its obligations in the future. According to S&P, Estonia's rating is supported by the state's strong institutions, European Union membership, the flexibility of the Estonian economy and strong state finances, the Ministry of Finance said.

The stable outlook indicates the agency's expectations of Estonia's continued strong economic growth, and the agency is forecasting only a marginal budget deficit for the next few years.

In order to improve the country's ratings, it would be necessary for Estonians' incomes to approach the eurozone average and for fluctuations in GDP growth and inflation to be reduced.

Estonia's economic development is accelerating thanks to investment growth and the enlivening of construction activity, which is supported by the current EU financing cycle. Primary risks are related to labor shortage.

The economic outlook for the near future is positive, but labor accessibility will in the longer perspective be restricted by a decrease in population. The situation on the labor market may bring along wage growth that exceeds productivity.

The agency is anticipating greater economic growth than before for Estonia from 2017-2019, by 4.2 percent, 3.7 percent and 3.4 percent, respectively. Private consumption growth will remain moderate, being based on the moderate growth of real wages and employment. External demand, especially from Finland and Russia, will remain strong.

The state's debt burden measured as a ratio to GDP will remain one of the smallest in the eurozone. The government will remain a net lender in the future as well, so that reserves exceed debt obligations.

Editor: Aili Vahtla

Source: BNS

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