5 July (BNS)

The international rating agency Fitch has upgraded Estonia's long-term foreign and local currency issuer default ratings (IDR) to A+ from A, with the outlook as Stable. The agency also affirmed the short-term foreign currency IDR for Estonia at F1 and the country ceiling at AAA.

"The upgrade reflects Estonia's solid economic growth performance, exceptionally strong public finances, declining external debt ratios and signs of increasing stabilisation in the banking sector," Fitch said. Public finances are Estonia's key rating strength and euro area membership increases the significance of fiscal policy in the rating profile, it added.

"Fitch rightly names euro area membership and strength of public finances as the key elements of the Estonian country rating -- Estonia has made a lot of effort in the name of these two goals," Bank of Estonia Vice President Marten Ross said.

Fitch pointed out that Estonian wages and prices proved flexible during the crisis and competitiveness has been regained. The short period during which the process of internal devaluation, or falling nominal wages and prices, has occurred indicates the flexibility of the Estonian economy. This flexibility is an important asset for a small country in a currency union, enabling it to adjust after a loss of competitiveness, it said.

The last upgrade of the Estonian rating by Fitch was by two notches to A, with outlook as Stable, in July 2010. The rating agency Moody's last reviewed its rating on Estonia in March 2010,
affirming it at A1 Stable.

Standard & Poor's last took rating action with regard to Estonia in April this year when it maintained its rating at A but changed the outlook from Stable to Positive.