Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Action:

Moody's affirms Estonia's A1 government bond rating; Outlook stable

Global Credit Research - 24 Jul 2015

London, 24 July 2015 -- Moody's Investors Service, ("Moody's") has today affirmed Estonia's A1 government bond rating with a stable outlook.

The drivers of today's rating action are:

(1) The government's strong balance sheet, as indicated by its very low level of indebtedness;

(2) The resilience of Estonia's economy, which supports further income convergence towards the European Union (EU) average; and

(3) The government's strong institutions, which safeguard the country's credit fundamentals through the economic cycle.

The stable outlook on the rating incorporates Moody's assumption that policies that support the country's fiscal position and economic resilience will be maintained, but that the overall pace of economic reform, which underpinned the rapid return to growth after the financial crisis, will slow going forward. It also recognizes Estonia's resilience to shocks emanating from Russia's (Ba1 negative) economic contraction.

Estonia's local and foreign-currency ceilings are unchanged at Aaa. The short-term foreign currency bond and deposit ceilings are also unaffected by this rating action and remain at P-1.

RATINGS RATIONALE

RATIONALE FOR THE AFFIRMATION

FIRST DRIVER -- The government's strong balance sheet

The first driver of Moody's decision to affirm Estonia's government bond rating is the government's strong balance sheet, as evidenced by its low level of indebtedness, which cushion the impact of external shocks on government finances.

Estonia's sound fiscal management has resulted in a general government debt-to-GDP ratio of 10.6% of GDP in 2014, far below the median of its A-rated peers (40.9% of GDP) and the lowest debt burden in the EU. The debt ratio is expected to decrease to 10.3% of GDP in 2015 and to 9.8% in 2016. A substantial part of the debt (2.5% of GDP) reflects Estonia's contribution to the European Financial Stability Facility (EFSF, (P)Aa1 stable), which largely drove the increase in the debt ratio from 6% of GDP in 2011 to close to 10% in 2012.

In addition, the central government has no bonds outstanding, which further cushions its public finances from any unforeseen developments in sovereign bond markets. The country also benefits from substantial fiscal reserves, which currently stand at 10.4% of GDP, of which around 5% of GDP are highly liquid. Moody's expects these reserves to decline to slightly below 10% of GDP, as they will be used to finance budget deficits in the next two years. But even at this lower level, the reserves provide a significant degree of shock absorption.

SECOND DRIVER -- The resilience of Estonia's economy

The second driver supporting the affirmation is the resilience of Estonia's economy. This resilience is expected to support growth above the euro area average and help to further narrow the income gap with the rest of Europe. Estonia's average economic growth of 3.8% during 2010-14 was amongst the highest in the euro area, reflecting the significant competitiveness gains achieved in 2010. Since then, private consumption has played a greater role in driving economic growth, reflecting a more sustainable balance between domestic and external demand.

Moody's expects the economy to expand by 2.3% and 2.9% in 2015 and 2016, significantly slower than pre-crisis, but still above expected average growth in the euro area of around 1.5% over those two years. Domestic sources of demand will continue to support economic growth, as private consumption will remain strong based on the improvements in the labour market and continued wage growth. Investment in sectors outside energy and agriculture is expected to continue to grow. Exports are supported by an improving external environment, particularly in the EU which accounts for more than 70% of exports.

Estonia's ability to withstand shocks emanating from Russia reflects the economy's strong resilience. Despite the trade embargo on agricultural exports to Russia, overall exports grew 2.9% in 2014, reflecting Estonian exporters' ability to diversify into new markets. For example, dairy exporters successfully placed their products in 20 new countries in 2014. Estonia's economic resilience also reflects its integration into the Nordic supply chain (primarily Sweden, Aaa stable, and Finland, Aaa negative) in the form of a larger proportion of high value added exports than other Baltic countries. In particular, continued growth in Sweden, which is Estonia's largest trade partner and accounts for an increasing share of Estonia's total exports, and better prospects in the EU will help to offset weaker demand from Russia.

Estonia also benefits from the launch of the floating liquefied natural gas terminal in Lithuania at the end of 2014, which reduces its reliance on Russian gas. Furthermore, given that Estonia is a member of NATO (Estonia joined in 2004), Moody's considers geopolitical event risk to be contained. Article 5 of the NATO treaty sets out the commitment of all NATO members to mutual defense and US President Barack Obama has explicitly committed to defending the Baltic countries.

THIRD DRIVER -- Strong institutions safeguard the country's credit fundamentals

The third driver of today's affirmation is Estonia's very strong institutional framework. Estonia scores among the highest for Central and Eastern European countries on the World Bank Worldwide Governance Indicators. This underpins the economy's resilience to shocks and demonstrates its ability to implement conservative budgetary policies. For example, during the sharp 14.7% economic contraction in 2009, the government strictly adhered to the Maastricht Treaty criteria. Furthermore, economic reforms supported a rapid return to growth (2.5%) in 2010.

Estonia's strong institutions supported a tight fiscal policy stance during 2002-2007 which allowed it to build up fiscal reserves ahead of the financial crisis. Estonia recorded a deficit of 2.2% of GDP in 2009, smaller than the median deficit for the EU (around 5% of GDP). Furthermore, fiscal discipline has been sustained. Between 2010 and 2014, the government averaged a fiscal surplus of 0.3% of GDP and only recorded small deficits in two out of the last five years.

This strong adherence to fiscal discipline was undertaken despite the requirement for a structural fiscal balance only enshrined into law in 2014. Nevertheless, the new State Budget Act strengthens Estonia's overall fiscal framework. In 2014, Estonia's budget balance exceeded expectations by posting a surplus of 0.6% of GDP compared to the targeted deficit of 0.3% of GDP in the Draft Budgetary Plan.

The new coalition government is undertaking a number of pro-growth reforms in 2015, shifting the tax burden from labour to consumption. Moreover, the government intends to increase family benefits (expected to cost around 0.4% of GDP) as part of its policy to tackle the high rate of child poverty and demographic challenges. Although Estonia's fiscal balance is expected to turn slightly negative to a deficit of 0.2% and 0.1% of GDP in 2015 and 2016, Moody's believes that the government's commitment to conservative fiscal policies will be maintained and, given adequate fiscal reserves, the deficit is not expected to increase the government's low gross debt burden.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the rating incorporates Moody's assumption that policies that support the country's economic resilience and significant fiscal strength are to be maintained, but that the overall pace of reform, which underpinned the rapid return to growth after the financial crisis, will slow going forward. Moody's believes that the government's commitment to conservative fiscal policies will be maintained despite small fiscal deficits in the next two years, and a more fragmented parliament following the elections in 2015. Prudent fiscal management provides the authorities with room to manoeuvre in the case of economic shocks.

Upside and downside risks are evenly balanced. There is the potential for the government to implement measures that would further improve the country's competitiveness. According to the International Monetary Fund, measures to strengthen the labour supply, such as increasing the participation of low-income earners in the labour force, will help to bring down high structural unemployment. On the other hand, high emigration, which substantially reduces the labour force and weighs on potential growth, remains a significant constraint on Estonia's economic strength and hence on the government's long-term credit rating. Furthermore, modest growth in Finland, Estonia's closest Nordic neighbour, will also likely weigh on potential. As a result, while incomes will continue to converge towards the EU average, they will do so at a slower pace.

The stable outlook is also a reflection of Estonia's ability to withstand external shocks. Thus far the country has demonstrated resilience to risks arising from political and economic developments in Russia and there is mitigation in place were other risks to crystallize. Re-exports are a key component of trade with Russia, making up more than 75% of total exports, which limits the economic impact, although exports of transport services will continue to be weak. More broadly, the share of exports to Russia has been falling since 2009 as Estonia has sought to reduce its reliance on trade with Russia.

WHAT COULD MOVE THE RATING UP/DOWN

Upward pressure would arise from a sustained improvement in Estonia's growth profile through higher exports and a more supportive investment environment. Over the longer term, a record of steady economic growth and an improvement in economic strength that helps to further improve Estonia's fiscal strength and to mitigate vulnerabilities to external shocks would also improve Estonia's creditworthiness.

Conversely, a material and sustained deterioration in Estonia's economic growth prospects would undermine fiscal consolidation efforts and have negative implications for the rating. This could result from Russian interference in Estonian domestic affairs which manifested itself in unrest among the sizeable Russian speaking population, beyond what was observed in 2007, and which undermined Estonia's economic performance. The emergence of structural imbalances in the form of a large current account deficit would also be credit negative.

GDP per capita (PPP basis, US$): 26,999 (2014 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 2.1% (2014 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): -0.9% (2014 Actual)

Gen. Gov. Financial Balance/GDP: 0.6% (2014 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 0.1% (2014 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 22 July 2015, a rating committee was called to discuss the rating of Estonia, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have increased. The issuer's strong institutional strength/framework has not materially changed. The issuer's strong fiscal or financial strength, including its debt profile, has not materially changed. The issuer has become increasingly susceptible to event risks.

The principal methodology used in these ratings was Sovereign Bond Ratings published in September 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Evan Wohlmann
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD-Banking & Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Estonia's A1 government bond rating; Outlook stable
No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.