GOOD NEWS FOR THE ECONOMY OF LITHUANIA: INVESTMENT RATING UPDATED BY FITCH TO BBB+/ Financial Times
Updated 2013-04-09
Good news for the Baltic state of Lithuania. One of the three major ratings agencies, Fitch, has upped the rating of its long-term foreign-currency sovereign debt to an investment grade of BBB+. This compares to a rating of BBB (one notch below) from Standard and Poor’s and Baa1 (investment grade) for Moody’s.
Now that two of the three agencies have Lithuania on investment grade, the country’s debt can be included in more funds, which should help drive down borrowing costs.
Here’s what Fitch say are the main ratings drivers:
- Lithuania’s continuing economic recovery from its deep economic crisis. Growth surprised on the upside in 2012, while eurozone downside risks have not materialised. Consumption growth supported domestic demand and investment is likely to pick up in 2013-14 making growth more broad-based.
- Fiscal consolidation has remained on track with the budget deficit narrowing markedly from 5.5% of GDP in 2011 to around 3% in 2012. Government debt burden of 41% of GDP is in line with rating peers and expected to decline after peaking in 2013. The government targets a balanced budget by 2016. Lithuania’s turnaround in its public finances has increased confidence in its sovereign creditworthiness with the country benefiting from record low yields in recent bond auctions.
- External competitiveness and confidence in Lithuania’s solvency are restored, after it unwound large external imbalances through domestic demand contraction and internal devaluation.
- Lithuania’s largely foreign-owned banking sector is profitable and well capitalised. Notwithstanding individual failures among domestic banks (e.g. Snoras in 2011, Ukio in 2013), confidence has been preserved owing to the support of Nordic parent banking groups during the crisis and – more recently – an overhaul of the supervisory framework which has promoted timely resolution.
- Structural factors – income per head, measures of governance, human development and ease of doing business – are superior to the ‘BBB’ median.
- Shallow domestic capital markets, high and structural unemployment and adverse emigration trends continue to constrain the rating to its current level.
- Lithuania is now less vulnerable to a sudden halt of capital inflows as asset price bubbles have burst and external imbalances have narrowed markedly. Private sector deleveraging has been rapid with net external debt projected to fall below 25% of GDP in 2013.
Source: http://blogs.ft.com/beyond-brics/2013/04/05/snap-fitch-upgrades-lithuania-to-bbb/#axzz2PxekfGhK
Now that two of the three agencies have Lithuania on investment grade, the country’s debt can be included in more funds, which should help drive down borrowing costs.
Here’s what Fitch say are the main ratings drivers:
- Lithuania’s continuing economic recovery from its deep economic crisis. Growth surprised on the upside in 2012, while eurozone downside risks have not materialised. Consumption growth supported domestic demand and investment is likely to pick up in 2013-14 making growth more broad-based.
- Fiscal consolidation has remained on track with the budget deficit narrowing markedly from 5.5% of GDP in 2011 to around 3% in 2012. Government debt burden of 41% of GDP is in line with rating peers and expected to decline after peaking in 2013. The government targets a balanced budget by 2016. Lithuania’s turnaround in its public finances has increased confidence in its sovereign creditworthiness with the country benefiting from record low yields in recent bond auctions.
- External competitiveness and confidence in Lithuania’s solvency are restored, after it unwound large external imbalances through domestic demand contraction and internal devaluation.
- Lithuania’s largely foreign-owned banking sector is profitable and well capitalised. Notwithstanding individual failures among domestic banks (e.g. Snoras in 2011, Ukio in 2013), confidence has been preserved owing to the support of Nordic parent banking groups during the crisis and – more recently – an overhaul of the supervisory framework which has promoted timely resolution.
- Structural factors – income per head, measures of governance, human development and ease of doing business – are superior to the ‘BBB’ median.
- Shallow domestic capital markets, high and structural unemployment and adverse emigration trends continue to constrain the rating to its current level.
- Lithuania is now less vulnerable to a sudden halt of capital inflows as asset price bubbles have burst and external imbalances have narrowed markedly. Private sector deleveraging has been rapid with net external debt projected to fall below 25% of GDP in 2013.
Source: http://blogs.ft.com/beyond-brics/2013/04/05/snap-fitch-upgrades-lithuania-to-bbb/#axzz2PxekfGhK
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