Iceland Outlook Revised To Positive On Strengthening Fiscal Position; ‘A+/A-1’ Ratings Affirmed

On March 6, 2026, S&P Global Ratings revised the outlook on its long-term ratings on Iceland to
positive from stable. At the same time, the long- and short-term foreign and local
currency sovereign credit ratings were affirmed at ‘A+/A-1’.

The positive outlook primarily reflects the potential for Iceland’s budgetary performance to
strengthen over the next two years, leading to a further sustained decline in net general
government debt. S&P currently forecast it will decline to 35% of GDP by 2029, from an estimated
41% in 2025, as the rating agency projects the authorities will achieve a balanced budget after 2027.

Under S&P´s existing baseline, it is projected that Iceland’s general government deficit will reduce to just 0.2% of GDP by 2027 from an estimated 1% of GDP last year, before moving to a balanced budget from 2028, broadly in line with the authorities’ medium-term fiscal strategy. However, budgetary performance could prove even stronger under a scenario of more buoyant economic growth; stronger results from the government’s focus on limiting nominal expenditure growth and rationalizing spending within departments; or if privatization of publicly owned assets led to extra fiscal dividends that were used to reduce government debt.

S&P could raise the ratings if Iceland’s fiscal performance proves stronger than they currently
forecast. This could be the case, for example, if growth turns out faster, the authorities’ efforts to
contain spending growth deliver a higher impact; or the government privatizes additional assets
leading to one-off fiscal windfalls that are used to pay down government debt. S&P also consider
that continued gradual diversification of Iceland’s economy with emergence of new economic
sectors–such as data centers, biotech, and pharmaceuticals–could enhance its resilience over
the longer term.

The outlook could be revised back to stable if Iceland’s growth performance was weaker than S&P
expect, for example if persistently disruptive volcanic activity or higher fuel prices in the wake of
conflict escalation in the Middle East hampered the country’s tourism sector or if Iceland was
more significantly affected by global trade tensions. S&P could also revise the outlook to stable
under a scenario of weaker budgetary outturns, for instance, as a result of weaker growth
outcomes or if Iceland was forced to sharply increase defence-related expenditure and did not
put in place offsetting measures.

Further information on www.government.is