Scope Ratings GmbH (“Scope”) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations, performs a monitoring review.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. As part of the monitoring review, Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted either by performing a peer comparison, benchmarking against the rating change drivers, and/or a review of the credit ratings` performance over time, as deemed appropriate by the Lead Analyst or the Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology(ies), including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Estonia (AA-/Stable; S-1+/Stable) on 13 December 2021.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action on the credit ratings of this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Estonia’s AA- rating is underpinned by i) a track record of prudent fiscal management anchoring low public debt; ii) strong institutions and commitment to a favourable business environment, underpinned by EU and euro area memberships; and iii) strengthened resilience of the Estonian economy, supported by effective structural reform, reducing the country’s underlying vulnerability to shocks.

Scope expects broad policy continuity under the current government, including strong support for Estonia’s EU, euro area and NATO memberships, as well as a continued commitment to maintaining Estonia’s sound public finances following the pandemic.

Challenges relate to i) an ageing population and skilled-labour shortages, alongside still lower per-capita income relative to the euro-area average; ii) limited economic diversification together with a large export sector relative to the size of the economy, which exposes Estonia to external shocks; and iii) banking spill-over risks.

The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) a continued implementation of structural reforms, such as in the labour market, research and development, and infrastructure, drives a stronger growth potential; and/or ii) there is a further sustained reduction in external vulnerabilities.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) the public-finance outlook deteriorates, resulting in a substantial increase in public debt; ii) risks in the financial sector escalate, increasing financial stability concerns; iii) Estonia’s external position deteriorates, and its external competitiveness declines; and/or iv) an external shock or heightened geopolitical risks undermine Estonia’s macro-economic stability.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Senior Analyst

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