S&P raises Estonia's credit rating on euro accession
10.06.2010, 18:19Estonia’s credit rating was raised at Standard & Poor’s as the country is poised to join the euro area in January. S&P raised its long-term foreign and local currency sovereign credit ratings on Estonia to A, the sixth-highest investment grade from A-. Short-term local and foreign currency sovereign credit ratings were raised to A-1 from A-2. The outlook is stable, S&P said today in a statement, according to a Bloomberg report.
Euro accession “should reduce exchange rate risk and improve Estonia’s access to European capital markets,” S&P said. “Estonia has, in our view, consistently demonstrated the economic, fiscal, and labor market flexibility required to cope with the constraints of being in a monetary union.”
Estonia won European Commission backing on May 12 to become the euro area’s 17th country after outperforming the bloc’s existing members on the Maastricht Treaty fiscal criteria. The nation had a budget deficit of 1.7 percent of gross domestic product last year and a debt-to-GDP ratio of 7.2 percent, the lowest in the European Union, the commission said May 5.
While Estonia’s government doesn’t have any outstanding bonds, investors trade credit default swaps on the country’s debt. Five-year Estonian CDS decreased one basis point to 128, according to CMA Datavision prices in London.
The Baltic state pushed through budget cuts equivalent to 9 percent of GDP last year to bring this year’s shortfall to 2.4 percent of economic output, outperforming all existing euro members, according to EU forecasts.
Moody’s, Fitch
Estonia can’t rely on euro membership to trigger a ratings upgrade and needs to demonstrate the economy is more export- oriented before its credit grade is raised, S&P analyst Frank Gill said May 14 in a response to Bloomberg questions.
Moody’s Investors Service and Fitch Ratings said May 12 that Estonia’s chances of an upgrade were boosted by the European Commission’s decision earlier that week to recommend euro accession for the Baltic nation.
Fitch “would expect” to upgrade its BBB+ rating for Estonia after a formal invitation to join the euro area, due on July 13, Fitch Head of Emerging Europe Ed Parker said May 12 in an e-mailed response to questions.
Moody’s rates Estonia’s long-term foreign-currency debt A1, and raised the outlook to stable on March 31.