Iceland's credit rating remains A+ with a positive outlook

S&P Global Ratings published a report on Iceland. The report does not constitute a rating action, and Iceland’s credit ratings remain A+ with a positive outlook.

According to S&P, the positive outlook primarily reflects the potential for Iceland's budgetary performance to strengthen over the next two years, supporting a sustained decline in net general government debt. The agency forecasts that the general government budget will move close to balance after 2027.

S&P highlights Iceland’s strong institutional framework and very high per capita income. The country's swift and effective response to recent shocks, including the pandemic and volcanic eruptions, underpins the agency's view that policymaking is generally effective and stable. However, S&P notes that the economy remains small in absolute terms and concentrated in tourism, fishing, and energy‑intensive industries.

The ratings could be raised if fiscal performance proves stronger than S&P currently forecasts, for example due to faster economic growth, greater success in containing expenditure growth, or further privatization proceeds being used to reduce government debt. S&P also notes that continued economic diversification into sectors such as data centers, biotechnology, and pharmaceuticals could strengthen the economy's resilience over time.

The outlook could be revised to stable if economic growth or budgetary outcomes prove weaker than expected. Risks include persistently disruptive volcanic activity, higher fuel prices stemming from an escalation of conflict in the Middle East, greater effects from global trade tensions or a sharp increase in defence expenditure without offsetting measures.