Fitch Ratings has upgraded Iceland’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘A+’ from ‘A’. The Outlook is Stable. Fitch Ratings has subsequently withdrawn all ratings.

The upgrade reflects Iceland’s strengthened public finances and projected path of declining general government debt, underpinned by a strong political commitment to fiscal prudence and a return towards balanced budgets.

Improving fiscal metrics and fiscal space were the key rating drivers. Prudent fiscal policy has supported a material narrowing of Iceland’s headline general government deficit. Fitch expects the deficit to narrow further in 2026-2027, supported by the national stability rule, adopted revenue-raising measures, and a broad political commitment to achieve a balanced budget by 2027.

Furthermore, the rating agency expects general government debt ratio to gradually decline in 2026–2027 after a significant debt reduction following the settlement of the liabilities of the Housing Financing Fund (HF Fund) and the full privatisation of Íslandsbanki.

Iceland’s ratings and Stable Outlook are supported by its wealthy economy, high governance standards, strong institutions, and strong private-sector balance sheets. Set against these strengths are the economy’s small size and resulting vulnerability to sector-specific shocks. However, Iceland’s strong financial buffers and policy prudence has enhanced its economic resilience.

Among other factors supporting Iceland´s ratings according to Fitch are Iceland´s sound banking sector and high World Bank Governance Indicators (WBGI)ranking that reflects its long record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption.

Fitch Ratings has chosen to withdraw the Ratings of Iceland for commercial reasons.

See further information on www.government.is