The ratings on the Republic of Iceland are supported by its stable political institutions, a very wealthy and flexible economy, and healthy public finances. The ratings remain constrained by very high levels both of external financing needs and of external debt throughout the economy. The financial sector in Iceland has recovered from the imbalances created by the pre-2001 lending boom. Improved regulation and supervision, as well as the expansion of operations within the Scandinavian region and beyond, and the recent entry of commercial banks into the mortgage market, leave the sector much more resilient and less sensitive to developments in the Icelandic economy, as well as providing easier access to funds. Nevertheless, rapidly increasing levels of already very high external
