The Slovenia Times

Moody's Downgrades Slovenia's Bond Ratings


Moody's also placed the ratings on review for possible further downgrade, the rating agency announced on Friday.

Among the reasons quoted is increasing risk that the government may be called upon to provide additional support to Slovenia's banking system, and the weakening outlook for the medium-term economic growth.

The latter is due to the deleveraging expected in the corporate sector, anticipated constraints on credit availability due to stress within the banking system, and expected deceleration of export growth as a result of the global economic slowdown.

As a further reason for the downgrade, Moody's quotes increasing political uncertainty and implementation risk surrounding plans for fiscal consolidation and structural reforms required to prevent a further rise in the government debt and promote an increase in the country's long-term economic growth prospects.

A review of Slovenia's sovereign rating will focus on the government's ability to achieve ambitious fiscal consolidation targets and structural reforms.

A further factor considered in the review will be further analysis of the current political uncertainty and its potential impact on the implementation of fiscal consolidation measures and structural reforms, as well as broader developments across the euro area.

The Slovenian government is not surprised by the downgrade, having cautioned itself of the consequences of the failure to adopt the necessary structural reforms. But the government believes Moody's is too cautions and has failed to taken into consideration all the measures taken.

The government regrets that structural reforms, especially the one aimed at securing sustainability of the pension system, were not endorsed in the June referendum and that parliament deepened political uncertainty by rejecting a vote of confidence, the Finance Ministry said in response to the downgrade.

It went on to say that the outgoing Prime Minister Borut Pahor would consult MPs on Tuesday on the plausible short-term measures that his cabinet could submit for discussion in parliament despite its limited powers in order to facilitate further fiscal consolidation.

The Finance Ministry maintains that fiscal consolidation is running as planned in the stability programme. Eligible expenditure was substantially lowered with the adoption of the supplementary budget for 2011 earlier this month.

The ministry also has other leverage at its disposal, including a suspension of the implementation of the budget to halt, when necessary, assumption of new liabilities, the response reads.

The ministry is confident that the new government will continue fiscal consolidation so that Slovenia can bring its budget deficit to below 3% by 2013 in line with the stability programme.

Moody's upgraded Slovenia's bond ratings from Aa3 to Aa2 in July 2006. In March 2009 it put the outlook on Slovenia's Aa2 bond ratings to stable from positive.


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