The agency has placed its A/A-1 long- and short-term sovereign credit ratings on Slovenia on CreditWatch with negative implications, which it expects to resolve following the Constitutional Court's decision whether the pending referendum should proceed.

S&P says it could lower its rating on Slovenia by one notch to A-, or by up to three notches to the BBB category.

A warning about a potential new downgrade on Slovenia's debt rating was issued at Monday's session of the parliamentary Finance Committee by Finance Ministry State Secretary Aleš Živkovič, who said a downgrade in ratings would follow if the Constitutional Court should allow the referendum on the act establishing a sovereign holding.

The National Assembly is expected to formally ask the court today to review the constitutionality of the referendum request made by a group of 30 opposition MPs on the grounds that non-implementation of the act would jeopardise the welfare state and the rule of law. The opposition's initiative for a referendum on a bad bank had already been thrown out earlier.

While S&P believes Slovenia can continue to manage its assets under the current legislative regime, it says the possibility that the opposition will use the referendum procedure as a blocking device raises uncertainties about the "government's ability to develop and execute structural reform policies of higher importance to Slovenia's long-term macroeconomic stability".

As examples the agency cites policies concerning budgetary consolidation, pension and health care, labour market, and state administration.

In the face of the consequences cited by the S&P, the Finance Ministry urged the opposition to reconsider its initiative, arguing that the S&P's move echoes the ministry's warnings about the harmful effects of referendum initiatives.

A potential downgrade on Slovenia's long-term credit rating from A to A-, BBB or even BBB- could push Slovenia to the brink of non-investment grade speculative category, starting with BB+, the Finance Ministry stated in press release.

In case of the rating fell to BB+ category, this would spell trouble for the Slovenian banking system as about 80% of Slovenian bank's assets placed with the European Central Bank (ECB) as part of refinancing operations would become inappropriate, the ministry said.

A lowered credit rating would reflect on costlier financing and reduced access to international financial markets. The country's guarantee values would fall, which would jeopardise some of the planned investment projects and aggravated state-owned companies' access to capital markets.

The ministry went on to say that a downgrade in rating could also mean that the state guaranteed bonds to be granted to banks in exchange for bad loans under the bad bank act could not be used as collateral with the ECB to secure banks' liquidity.