TALLINN - Estonia may have its credit rating raised by Fitch Ratings as the country appears on track to adopt the euro in 2011, reports Bloomberg. Fitch said it put Estonia’s BBB+ rating, three notches above non-investment grade, on a positive watch on March 30. The outlook was raised to stable last month.
“Formal approval of Estonia’s bid to adopt the euro this summer would lead to a rating upgrade,” said Douglas Renwick, an associate director in Fitch’s Sovereigns group. “Euro membership would significantly reduce risks associated with the country’s high levels of external debt and foreign exchange-denominated domestic lending, and would provide an exit to its currency board arrangement.”
Interest rate spreads between Estonian and euro money-market rates have declined to 17-month lows, showing investors expect the bloc’s authorities to approve Estonia’s entry in July.
The government reduced the budget deficit, a key obstacle to meeting euro entry terms, to 1.7 percent of GDP last year from 2.7 percent of GDP in 2008. Though partly based on one-off measures, the cut was “a remarkable achievement,” said Christoph Rosenberg, head of the IMF’s mission.
The nation will probably keep its budget gap below the 3 percent threshold in 2010, while the targeted surplus by 2013 will require additional measures, Rosenberg said.
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