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BNS - The ratings agency Standard & Poor's on Thursday raised Estonia's credit rating outlook from negative to stable, citing the prospect that the country would adopt the euro next year.
Standard & Poor's left Estonia's A- rating unchanged.
"Estonia has stabilized its public finances, which significantly increases its prospects for eurozone accession in 2011," S&P's Frankfurt-based Kai Stukenbrock and London-based Frank Gill said said in a statement.
"The outlook reflects our view of Estonia's improving economic flexibility and the prospect of near-term eurozone accession against the challenges inherent in adapting the economy to lessen its reliance on external funds," the statement said.
"Today's decision by S&P once again indicates that the impact of the global crisis on Estonia is passing and according to foreign observers, too, our economy is balancing off. We can say that further developments on ratings will therefore depend more on ordinary factors so-to-say, such as our ability to increase productivity of the economy and to maintain a conservative fiscal policy," Bank of Estonia Vice President Marten Ross said.
He added that "in the estimate of the ratings agency accession to the eurozone will reduce Estonia's vulnerability on the condition that fiscal behavior by the public sector and also the private sector will not become laxer," Ross said.
The ratings agency said in its conclusions that the Estonian labor market and the market for services and goods have rapidly adapted to the changed economic situation, external balance has improved and the government has been successful in consolidating public sector expenditures, the Bank of Estonia said.
"The ratings reflect, in our view, the clear commitment of the country's political parties to support and implement budgetary and structural policies to address the effects of severe economic recession, anchor the currency board arrangement, and safeguard public finances," S&P said.
It said Estonia's economy is likely to have contracted by more than 14 percent in 2009 because the large external imbalances and double-digit credit growth of the past decade were no longer sustainable. S&P said it expects the Estonian economy to stabilize in 2010 and expand by about 3 percent.
"With a view to eurozone accession, the government has taken a series of aggressive consolidation measures, both on the expenditure and the revenue sides. As a result, the deficit remained less than 3 percent of GDP in 2009," S&P said.
The agency said it estimates the general government deficit to have been 2.6 percent of GDP in 2009, and that it would remain broadly unchanged in 2010. The general government budget should then gradually return to balance by 2013.
Last week, the rating agency Fitch raised the outlook on Estonia's rating from negative to stable and affirmed the rating at BBB+.
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