Ljubljana - Rating agency Moody's has upgraded Slovenia's long-term issuer and senior unsecured bond ratings by one notch to A3 from Baa1, changing the outlook to stable, the Finance Ministry has announced.

"Considering that at this time ratings agencies are downgrading countries ratings or keeping them unchanged, the upgrade places Slovenia among the most reliable countries also for foreign investors," the ministry said in a press release.

Friday's upgrade of Slovenia's ratings reflects two key drivers; "the improvement of Slovenia's debt burden and debt affordability metrics relative to peers", and "the significant improvement of the health of the banking system, as well as the completion of the privatization of the country's largest banks".

The agency notes a considerable decrease in financing and interest costs, as relatively expensive maturing debt has been swapped with cheaper debt.

Moreover, in the four years preceding the outbreak of the coronavirus, Slovenia recorded the fastest reduction of its government debt burden among any EU member state bar Ireland, the ministry sums up Moody's arguments for the rating action.

The agency finds that the Covid-19 pandemic will impact on the fiscal metrics of EU member states, holding that due to the significant improvements made by Slovenia the country's economic and fiscal strength will remain resilient to the continued economic and fiscal impact of the coronavirus.

Moody's also notes "significant and lasting improvements to the health and functioning of Slovenia's banking system, which was the subject of a large-scale government recapitalization and nationalization programme as well as the transfer of non-performing assets to a bad bank at the end of 2013".

The improvements are also reflected in substantial decrease in non-performing loans in the Slovenian banking system.

"The stable outlook reflects Moody's expectation that the current crisis will not leave a significant and lasting negative impact on Slovenia's economy and that the country's economic and fiscal strength will remain aligned with the A3 rating.

"The stable outlook also reflects the expectation that the banking system will remain broadly resilient to the pandemic shock, with the capacity to support the economic recovery next year." the ministry cited the rationale behind the agency's decision.

Moody's last upgraded Slovenia's credit rating in September 2017 to Baa1 with stable outlook, which it changed to positive in April 2019.