Today, October 3, Fitch Ratings downgraded Estonia's sovereign rating by a notch, from A to A-, and left the rating outlooks unchanged.

"Fitch based their decision primarily on the changes in the European economic and financial environment, which affects, in turn, the economy and financial system of Estonia. Although the Estonian government needs not borrow funds to cover budget expenditure and the revision of the rating will not have a direct impact on the state, we take the views of Fitch Ratings very seriously," said Märten Ross, Deputy Governor of Eesti Pank.

"The macroeconomic adjustment, which started in the second half of 2007, has substantially alleviated the main risk factors constituting the basis for Fitch's decision. Rapid credit growth has slowed notably and next year the current account deficit should decline to the level of 6%," Ross said.

According to Ross, attention should be drawn to the fact that by now the current account deficit is reflecting chiefly dividends paid to owners on direct investment and other transfers, referring to the continuously high profitability of direct investment. This is natural, considering that the Estonian investment climate is relatively favourable and the cost basis is beneficial for investors.

"The dependence of the Estonian economy on the current inflow of foreign capital has considerably decreased. This is also proved by the extremely fast contraction of the trade balance. The robust exports growth confirms our economy is competitive and inflationary pressures are mitigating as well. Looking ahead, it is unlikely the risks related to external financing would materialise," Ross said.

He stressed that the Estonian banking system, which is fully integrated into the Scandinavian financial groups, is sound and reliable. "The Scandinavian banking groups operating in Estonia have successfully coped with the global financial shocks. Today, the capital adequacy of Estonian banks is 18% and the valid reserve requirement is 15% of all the liabilities. Eesti Pank's analyses confirm that the capital and liquidity reserve of banks is more than sufficient to cope with market risks and slowing economic growth," stated Ross.

"All in all, the decision Fitch has taken is a reflection of the risk aversion and uncertainty wide-spread among investors and market analysts that have mainly been caused by the global financial market situation," Ross said.

The last time Fitch Ratings assessed Estonia's economy was in March this year, when the country's rating was affirmed at A negative In July, Standard & Poor's affirmed Estonia's sovereign rating at A negative, and Moody's confirmed Estonia's rating at A1 with a stable outlook in September.