Insight
Denmark keeps its AAA-rating from the credit agency Fitch
Denmark has addressed the corona-crisis better than equivalent EU countries and cities due to a less restrictive lockdown and a high resilience among Danish export goods. Therefore, the credit rating agency, Fitch, maintains its long-term credit rating of Denmark at “AAA; Outlook Stable”.
Fitch’s key rating drivers
Denmark's wealthy high-value added economy, high level of domestic savings, sound government balance sheet, and strong external finance metrics, provide capacity for Denmark to absorb the pandemic shock without the emergence of imbalances, supporting Fitch’s ratings of Denmark having a “Stable Outlook”.
"Denmark's rating reflects a long history of solid political decision-making supported by strong institutions and very strong governance indicators, which Fitch believes will support solid economic recovery as soon as the covid-19 pandemic subsides"
The Danish economy has potential for a strong recovery
Denmark's policy response to the corona pandemic has been rapid and comprehensive, highlighting the flexibility and countercyclical capacity of Denmark's fiscal, monetary and macro-prudential policy frameworks at times of an economic shock.
In the government's latest economic plan outlined in its 2021 fiscal budget proposal, a key focus is on the Danish labour market, where the government has proposed increased spending on upskilling of the labour market and support for vocational training. In addition, proposed investments in green initiatives is expected to support employment growth.
The Danish labour market is highly flexible. Past labour market reforms, adjustments to unemployment benefits and active policies for reskilling of job seekers, have helped maintain strong incentives for individuals to not leave the labour market.
Denmark entered the COVID-19 pandemic from a strong starting fiscal position. A track record of fiscal farsightedness supported by primary fiscal surpluses had kept government debt on a downward curve, bringing it down to 33.2% of GDP in 2019, from a peak of 46.1% in 2011, significantly below the 2019 median debt ratio of 'AAA' peers (40.3%).
Fitch gives Denmark an ESG Relevance Score (RS) of 5 for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in their proprietary Sovereign Rating Model (SRM). Denmark has a high WBGI ranking of 94.5, reflecting again the long history of stable and peaceful political transitions, well-established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption.
Source: Fitch Rating
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