Today, 16 September 2008, the rating agency Moody's issued its annual report on Estonia, leaving the sovereign ratings and rating outlooks of the country unchanged and affirming the foreign currency government bond rating at A1 with a stable outlook.

"The decision by Moody's to leave the level and outlook of the credit rating assigned to Estonia unchanged reflects the rating agency's opinion that although our economy is cooling, the risk of an abrupt adjustment is mitigated by the strong and largely foreign-owned banking sector, ERM2 membership and consistently prudent fiscal policy. Therefore, it is extremely important to reach an agreement as regards the 2009 budget balance," commented Andres Sutt, Deputy Governor of Eesti Pank.

Owing to the general government's solid balance sheet and prudent fiscal policy, which emphasises saving in addition to spending, Moody's considers the Estonian government's financial strength to be high. The biggest risks to the government's creditworthiness are posed by the economic slowdown and its impact on the financial sector and the balance of payments.

"Moody's expects Estonia's economic growth to recover in 2009 and does not think the economic adjustment which started in the middle of 2007 is going to be especially deep or last beyond two to three years," Sutt said. He added that the rating agency cautions that if inflation and wage growth are not brought under control in the near future, this will pose a serious threat to Estonia's economic adjustment. "Although the economic slowdown has reduced price pressures arising from domestic demand and allowed the external balance to improve, a more moderate wage growth and the preservation of competitiveness are still very important," said Sutt.

The last time Moody's assessed Estonia's rating was in September 2007, when the country's rating was affirmed at A1 and the outlook was changed to stable from positive. Standard & Poor's assessed ratings for Estonia in January 2008, when the agency affirmed the country's long-term sovereign rating at level A negative. In March 2008, Fitch Ratings affirmed Estonia's sovereign rating at the level A negative.

The press release prepared by Moody's is published on the web site of Eesti Pank at
www.eestipank.info/pub/et/press/Press/pressiteated/pt2008/pt0916.html

The full report is published at
www.eestipank.info/pub/et/majandus/majandus/rating/reiting1.html