On Monday, 10 August, the rating agency Standard & Poor's (S&P) decided to lower Estonia's sovereign rating by one grade from A to A- with the outlook remaining negative.
"The agency's assessment reflects a view to the risks present on the financial markets, including in this region, which stem from the global economic crisis," said Deputy Governor of Eesti Pank, Märten Ross.
"The agency's decision expressively demonstrates the importance that the perspective of quickly joining the euro area has for the reliability of Estonian economy and its development in the coming years. Similarly, once again it confirms the considerable role played by fiscal policy in the current global economic conditions," he added.
"Joining the euro area will significantly increase Estonia's reliability and it is the main factor in determining sovereign ratings in the near future," commented Deputy Governor.
"In central bank's estimation the current outlook of Estonian economy is in line with the spring forecast of Eesti Pank and fulfilling the 3% criterion is still possible in case of maintaining a strong fiscal policy," stressed Ross.
He also noted that Estonia's dependence on external financing has decreased more than considered in the agency's ssessment. "Estonia's current account and cash flows are in a surplus which has considerably decreased our external vulnerability. Estonia's banking sector is strong and reliable even in the current phase of economic cycle," said Ross.
In its assessment, the agency noted that Estonia's strengths are a monetary system based on a fixed exchange rate and strong institutions that are committed to fulfilling the criterion on budgetary position. S&P also highlighted the low level of external debt and the presence of sufficient reserves should a global economic crisis emerge. These are Estonia's advantages in the current economic conditions.
According to S&P, the reasons for keeping Estonia's negative outlook are risks arising from the economic situation of Estonia's neighbouring countries and main trading partners. Furthermore, the agency states that the postponement of joining the euro area may affect the sovereign ratings.
