Denmark, famous for its ‘Dannebrog’, has the oldest national flag in the world. It also does well in the UN’s World Happiness Report, which assesses citizens’ perception of their quality of life.
Given Denmark’s positive reputation, it comes as no surprise that the country has attained AAA status in the credit rating world. This prestigious rating, provided by three internationally recognized Credit Rating Agencies (CRAs), signifies the country’s exceptional ability to meet its financial obligations.
One of the rating agencies explained that Denmark’s ratings reflect its prosperous economy, with governance indicators exceeding those of similarly rated sovereigns. Despite the vulnerability of Denmark’s small and open economy to external factors, it has demonstrated resilience in the face of the global pandemic.
Denmark’s robust policy framework, stable public finances and strong external metrics have contributed to its track record of maintaining macroeconomic and financial stability. As a result, the government can secure financing at favorable rates, as investors are not required to pay extra for the risk associated with purchasing Danish Government Bonds.
Furthermore, Denmark’s banking sector remains stable, thanks to the banks’ solid capitalization buffers, high liquidity ratios and low levels of non-performing loans.
One rating agency predicts that the Danish economic activity will be supported by a gradual decrease in accumulated domestic savings, both at the household and corporate levels. This reduction will help offset the withdrawal of fiscal stimulus. Moreover, the ongoing economic recovery of Denmark’s key trading partners will further bolster the resilience of the country’s net exports.
It is pertinent to note that the credit rating view expressed in this write-up was adapted and not that of DataPro.