2010.07.1910:41:00UTC+00Fitch Raises Estonia's Ratings On Euro Entry

Rating agency Fitch upgraded Estonia's credit ratings on Monday, following the European Union's formal approval for the Baltic nation's entry into the euro currency bloc in January 2011.

Fitch raised Estonia's long-term foreign and local currency issuer default ratings, or IDRs, to 'A' from 'BBB+' and 'A-', respectively with a stable outlook. They have been removed from Rating Watch Positive. At the same time, short-term foreign currency IDR has been upgraded to 'F1' from 'F2' and the country ceiling has been raised to 'AAA' from 'A+'.

"Joining the euro area improves Estonia's risk profile as it reduces risks associated with the country's sizable external debt and forex lending in the domestic banking system," Douglas Renwick, Associate Director in Fitch's Sovereigns group said. "Entry to the euro area will gives its banks access to European Central Bank's liquidity facilities and, furthermore, Estonia's sound public finances and flexible economy make the country well-suited for a currency union."

The rating agency said Estonia's long-term growth prospects are brighter than average, though the country is poorer than the existing euro area members. At the same time, Estonia's public finances are one of the strongest in the EU.

European Union finance ministers gave the final approval to Estonia to become part of the euro currency bloc from January 2011 in a meeting held in Brussels on July 13. The country, a one-time satellite of the Soviet Union and a country of 1.3 million people, will become the 17th member of the Eurozone, succeeding Slovakia that joined in 2009.

Estonia's general government deficit fell to 1.7% of GDP in 2009 and the gross debt level stood at 7.2% of GDP. The deficit in 2009 remained within the 3% set out in the Maastricht Treaty.

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