Estonia's ratings also take into account the still large short-term debt and the currency mismatch of bank loan portfolios. In the long term, the outlook assumes a broadening of reforms, particularly in public sector restructuring, and the adoption of measures to meet EU requirements.
"Estonia is on the forefront of market-oriented reforms among the transition economies of the former Soviet republics and has been selected for the fast track for EU accession," according to the report's author, Nina Ramondelli.
A strong fiscal position and an environment that will continue to attract private investment are necessary for enhancing Estonia's external competitiveness, Ramondelli said.
Moody's believes that foreign direct investment is primarily responsible for the country's productivity gains and for the establishment of direct trade links to Western Europe. Indeed, the reorientation of trade away from Russia and other CIS countries is a major reason why Estonia has been able to weather the recent turbulence caused by Russia's financial crisis.
Moody's issuance of this credit report was an annual update, not a formal rating action that alters the issuer's credit rating.