S&P Upgrades Estonia's Rating to AA

On August 9, Standard & Poor's raised Estonia's credit rating from A to AA-, a perceived nod to its stringent budgetary policies.

In its statement, the agency said that it believes in "Estonia's strong economic flexibility and improving external competitiveness against the challenges inherent in adapting the economy to lessen its reliance on external funds."

Also cited by the fresh rating report were the "clear commitment of Estonia's political parties to support and implement budgetary and structural policies to address the effects of severe economic recession" and low government sector debt.

According to Ülo Kaasik, Deputy Governor of the Bank of Estonia, the agency's decision first and foremost shows a growing trust in the country's economy.

"The ongoing Eurozone credit crisis shows once again how important it is to keep national finances in order. That is exactly why we need to follow through on our budget strategy and achieve budget surplus in 2013. In view of the lessons learned from the recent crisis, we also need to improve the mechanism of budgetary policies in order to curb the growth of expenses more efficiently in the future," he said.

According to the Standard & Poor's report, Estonia's growth in the near future will be mainly driven by growing investments and a recovery of domestic demand, whereas winding down of the growth rate of its main trade partners constitutes the greatest risk.

"Growing export performance has helped Estonia recover from a deep slump. However, we should keep close watch on external developments, because uncertainty about the future is still strong. Being a small, open economy, we also need to use the improved economic situation to replenish our reserves," said Kaasik.

In April 2011, S&P upgraded Estonia's sovereign rating outlook from stable to positive. Another major credit rating agency, Fitch, raised Estonia's rating from A to A+ in July.

Source: ERR