Stable and mature political institutions Very high per capita income Low government debt burden Significant contingent fiscal risks from high level of external debt and weak external liquidity Poor fiscal and monetary policy mix in management of macroeconomic imbalances Small, relatively undiversified, and volatile economy The ratings on the Republic of Iceland reflect the mounting economic policy challenges facing the sovereign, largely related to pressure on Iceland's external funding for the nation's commercial banks. Iceland's banks rely on wholesale funding, particularly from overseas, and higher funding costs are hurting their profitability and growth. Due in part to banks' financing of their own rapid expansion abroad as well as that of several local entrepreneurs, net external debt of the financial system
