Fitch confirms Estonia’s credit rating at AA-stable | Economy
Fitch announced on Friday that: “We expect the budget deficit to narrow to 3.5% of GDP in 2021 from 4.9% in 2020, much better than our previous projection of 4.2% of GDP and government forecasts. 6.0% of GDP.
“Tax revenues are strong as job losses were concentrated mainly in low-wage sectors of the economy, such as trade, accommodation and food services, and wage dynamics were strong overall,” Fitch continued in his statement, quoted by the SNB.
Fitch revised his real GDP growth forecast for Estonia to 9.7% this year, with forecasts of 4.8% for 2022 and 5.1% for 2023.
The agency’s previous review suggested growth rates of 3.8% for 2021 and 4.3% for 2022.
The revision reflects the base effects of the very strong first half of 2021 and the agency’s expectation of a continued recovery in the sectors most affected by the pandemic.
Fitch said the rating reflects the governance standards and strong institutions underpinned by EU and euro area membership, and the track record of sound fiscal policies that have resulted in low public debt, as well as the credit position. net foreign currency of Estonia.
These are, however, offset by lower per capita income than comparable Estonian nations, as well as the small size of the economy, which leaves it more prone to shocks than large economies.
Further improvement in structural indicators, including a significant narrowing of the gap in GDP per capita over rated peers, would lead to a rating uplift, Fitch continued, while public debt significantly higher relative to GDP , reflecting a still lax fiscal policy, and persistent severe economic overheating – leading to the creation of macro-financial imbalances – scenarios that could lead to a downgrade, according to Fitch.
Fitch latest rating from Estonia in brief:
- Coronavirus risks have diminished in the face of the vaccination program and the resilience of the economy despite the restrictions.
- The economy has weathered the shock of the pandemic better than the economies of many peer countries.
- Estonia entered the pandemic with one of the lowest gross government debt (GGD) to GDP ratios among Fitch-rated sovereign countries, at 8.4% of GDP in 2019.
- The absorption of EU funds as the current funding cycle under the 2014-2020 multiannual financial framework comes to an end in 2023, and the Next Generation EU Fund (NGEU) comes into operation.
- The balance of risks to growth has now improved thanks to the positive effect of investments and structural reforms under the NGEU on the country’s growth potential.
- The pension reform and an expected resumption of absorption of EU funds should allow a substantial acceleration of growth in 2022 and 2023.
- The debt ratio is expected to decline over the medium term, after peaking at just under 20% of GDP in 2021-2022.
- The sustainability of public debt is further enhanced by Estonia’s favorable financing costs.
Fitch is one of the three major international credit rating agencies, the other two being Moody’s and Standard & Poor’s.
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