Moody’s: not lowering Iceland’s rating
Moody’s has announced that it’s not lowering but affirming Iceland’s credit rating at Baa3/P-3 and maintains a negative outlook. The rating agency is not making any changes post-referendum.
(1) Despite the rejection of the revised agreement to resolve the dispute over the Icesave offshore bank deposit scheme, the British and Dutch governments are now expected to receive initial payments from the Landsbanki estate soon for the costs they incurred in covering their citizens’ Icesave deposits. In addition, the Landsbanki estate now expects to be able to make significantly higher payments to priority claimholders as asset recoveries have been much higher than expected earlier. The outstanding Icesave obligation and potential liability to the government might therefore be reduced significantly in the coming months regardless of the referendum outcome.
(2) Moody’s also expects Iceland’s programme of support from the International Monetary Fund (IMF) to remain on track. The fifth review was scheduled for 27th April and there will certainly be a delay while the IMF assesses the implications of the referendum outcome. However, it seems unlikely that there will be a significant delay or blockage of the programme as occurred in 2009.
(3) Public statements indicate that the Nordic governments will likely continue to provide funding to the Icelandic authorities under their loan agreements. Apart from the IMF, the Nordic governments’ financing has been an essential external funding source for the Icelandic authorities.
The outlook on the rating remains negative given the ongoing uncertainty. Moody’s understands that the underlying issue of whether the Icelandic government has a liability under the EU directive on deposit-guarantee schemes will now most likely be resolved through the court of the European Free Trade Association (EFTA). This legal process may take at least a year. There are also uncertainties regarding the timetable for the relaxation of the capital controls and the economic outlook, in particular related to investment.
See here IMarketNews reporting on the Moody’s affirmation.
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