The ratings agency raised the country's short-term debt rating to A-1 from A-2.

"We expect the ongoing recovery in private-sector demand to strengthen over 2016-2019, aiding Slovenian authorities' budgetary consolidation efforts," the agency said.

The agency also expects that accumulated deposit assets totalling 18% of GDP will be drawn down to affect a reduction in general government debt, which totalled 83.2% of GDP at the end of 2015.

The outlook is stable due to the risks arising from still high general government debt, state-owned enterprises' large role in the economy, possible complacency in reform implementation, and renewed external uncertainty.

Although risks due to political instability have receded since 2013, S&P "cannot rule out disagreements among the coalition partners in government", in particular over the state's role in the economy, which could slow the economic restructuring under way.

Aside from the government's precautionary cash buffers, the risks are balanced on the possibility of an upside risk from the ongoing privatization process.

Positive trends contributing to the ongoing budgetary consolidation are continued recovery in tax-rich domestic demand, positive labour market outcomes and a gradual easing of credit conditions.

The situation in the banking sector is improving and the corporate debt-to-GDP ratio has reduced to below the euro area average.

After Slovenia exited the EU's excessive deficit procedure, S&P expects the government will continue with fiscal consolidation, and limit public spending, while improving tax collection.

S&P believes that successively lower deficits and redemptions of government-bonded debt will be increasingly financed via the drawdown of the government's cash buffers than via the issuance of more debt.

The agency projects for Slovenia's gross general government debt to be reduced to about 74% of GDP by 2019. "The pace of debt reduction could be faster if economic conditions and the authorities' willingness support a faster narrowing of the deficit."

Risks to deficit reduction could arise from opposition by trade unions as well as from the possibility of higher-than-planned costs related to the refugee crisis or the activities of the bad bank.

S&P's forecast does not incorporate any proceeds from the ongoing privatization process or sale of assets from the Bank Asset Management Company.

General government deficit is projected to fall from 2.5% of GDP in 2016 to 2% of GDP in 2017 and then by 2019 to 1.5% of GDP. Economic growth is to increase from 1.7% this year to 2.2%, 2.3% and 2.4% over the next three years.

"This is an exceptional achievement for Slovenia and I'm very happy about it," Finance Minister Dušan Mramor commented on the news on Friday in Luxembourg, where he attended a session of EU finance ministers.

The upgrade is especially welcome today, shortly before the British EU membership referendum, which is greatly increasing the risk of investment and thus interest rates, the minister said.

Noting that a higher credit rating means easier access to financial markets and lower borrowing costs, Marmor said it was good news not only for the state and public sector, but also for business.

Asked about the reason for the upgrade, Mramor pointed to economic growth and the expectation of higher growth fuelled by recovering domestic demand, after growth had been generated chiefly by exports.

Analysts commenting on the upgrade for the STA said that the action was expected considering Slovenia's good macroeconomic results.

However, they warned that it should not be taken as an argument not to continue with the implementation of reforms and fiscal consolidation, but rather as an opportunity for the government to "buy itself future" through a somewhat restrictive fiscal policy.

S&P is the second of the major three ratings agencies to upgrade Slovenia's rating after Moody's raised it in January 2015 to Baa3 from Ba1 with stable outlook.

No such action has yet been taken by Fitch, whose rating of Slovenia is at BBB+ with positive outlook. Fitch has recently increased credit ratings of Slovenia's largest three banks.

S&P cut Slovenia's credit rating four times during the economic and financial turmoil, downgrading it for from AA in October 2011 to A- in February 2013.