Estonia Credit Rating Raised by S&P on Euro Accession

Estonia’s credit rating was raised at Standard & Poor’s, a move other credit assessors may follow as the former Soviet state 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 and on par with Czech Republic and Malta, 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.

“Although Estonia is now back to its highest S&P rating ever, S&P still rates Estonia one-notch below Moody’s and we see potential for a further upgrade if there is a substantial improvement in growth prospects,” Yarkin Cebeci, a JPMorgan Chase & Co. economist in Istanbul, said in a note to investors.

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.

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.”

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 as of 2:41 p.m. 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

“Interestingly, Fitch still rates Estonia at BBB+, a full three notches below Moody’s and now two notches below S&P,” Cebeci said. “Given the positive outlook, we think that at least a one-notch upgrade is imminent.”

Moody’s Investors Service and Fitch Ratings said on 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.

To contact the reporter on this story: Ott Ummelas in Tallinn at

To contact the editor responsible for this story: Willy Morris at

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