In a statement issued yesterday, the ratings agency said the Scandinavian nation’s public finances were in line with the average for a top rated country, with government debt equal to 46% of its gross domestic product last year.
‘The Danish government's long-standing commitment to fiscal discipline and historical record of turning deficits into surpluses strengthens the credibility of its fiscal strategy to adhere to European Union recommendations to bring the 2013/14 budget within the 3% reference level,’ Fitch added.
Denmark’s status as a ‘safe haven’ for capital investment during the eurozone crisis had enabled it to improve its public finances by borrowing at record low interest rates, it explained.
‘The authorities have successfully exploited the favourable financing environment for Denmark by materially increasing the average maturity and duration of government debt, reducing refinancing and interest rate risk,’ the statement said.
Fitch also highlighted Denmark’s maintenance of low and stable inflation, a trade surplus and a stable banking sector, despite high levels of household indebtedness and a weakening housing market.
The country also benefited from its relatively wealthy and diverse economy and from its strong and transparent institutions. It outperformed the triple-A rated medians in five out of six World Bank governance indicators, which Fitch said contributed to a stable political and economic environment.
While the rating was assigned a stable outlook, the agency noted that the country’s small, open economy made its recovery susceptible to a worsening in either the global economic outlook or the eurozone crisis.
The rating could also be affected negatively by a reversal of the long-standing commitment to fiscal discipline and the political consensus on fiscal strategy, it added.
In January, the International Monetary Fund said Denmark should consider increasing public spending as its economic recovery stumbled. GDP shrank by 0.4% last year and is expected to grow by just 0.9% this year, but Denmark’s strong public finances give it space to increase government spending, the fund said.
