Fitch Ratings affirmed Iceland's BBB credit rating on Friday, citing the high level of income per capita and governance as well as human development indicators.

The outlook on the credit rating is stable, indicating that Fitch does not currently anticipate developments with a high likelihood of leading to a rating change.

The government's plan to fund the recently launched household debt relief programme through budget adjustments rather than increased borrowing is consistent with the authorities' commitment to fiscal consolidation, the rating agency said. Further, the introduction of a proposed organic budget law is expected to improve the fiscal policy framework.

Meanwhile, public finances remain a credit weakness, Fitch said, with the general government debt in 2013 estimated just over 96 percent of GDP, which is more than double the 'BBB' average of 40 percent.

Financing a substantial portion of direct debt relief via the bank tax on the estates of failed banks may dent investor sentiment towards Iceland and would make it difficult to unwind capital controls, Fitch warned.

Iceland's external finances are also a credit weakness, despite sharp improvement in the current account over the first nine months of 2013, Fitch said. The legacy of the financial crisis in 2008/2009 and the winding up proceedings of the old banks, while unresolved, exacerbate the country's external position, the agency noted.

The rating agency also pointed out that the presence of capital controls suggest a substantial amount of non-resident claims remain 'locked in' krona assets.

"The authorities are not committed to a precise date for the removal of capital controls, and appear committed to avoiding a disorderly unwinding," Fitch said. The firm expects this to continue to weigh on Iceland's fundamental economic and financial stability at least until 2015, as well as on the credit profile.

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