S&P Affirms A- Rating and Stable Outlook for Slovenia


The stable outlook is based on the expectation that the shoring up of public finances and the restructuring of banks will continue. Another condition is that the incumbent coalition stays in power until the next regular general election, scheduled for 2015.

S&P observes some delays in structural reforms, while it expects progress in the mid-term in reform measures meant to boost growth.

The agency could cut the rating if the situation in the banks deteriorates or in case there is political instability again or if the public debt burden increases.

An upgrade on the other hand is possible in the event of a substantial improvement in terms of the economy and public finances. However, S&P feels such a scenario is unlikely in the coming three to five years.

The agency forecast a 1% contraction of Slovenia's GDP for this year and a recovery to 0.9% growth next year. In 2016 the economy is already expected to expand by 2.1%. This would mean the crisis would have caused an aggregate GDP drop of around 6%.

The government budget deficit, which is assessed to have reached 15.7% of GDP last year as a result of bank recapitalisation costs amounting to 11.4% of GDP, is expected to fall to 7.2% of GDP. Next year a 2.5% deficit is expected, which would bring Slovenia back in compliance with the Maastricht criteria.

The total costs of the salvaging of banks, initially put at 17.1% of GDP by S&P, will amount to 15.4% in the worst case scenario, according to the agency's latest assessment.

Public debt is expected to reach its highest level this year, when it is to climb to 75.6% of GDP and stabilise around this point after that.

S&P highlights among Slovenia strong points its "open and relatively wealthy economy, and its declining net external liability position".

Ever since 2011 Slovenia has been recording current account surpluses. The surplus expected this year is 6% of GDP and could grow further in the coming two years in the face of improved export performance and continuing weak demand at home.

Net external debt, which rose to almost 99% of current account revenue in 2009 and fell to 72.5% by last year, is expected to decrease to 46.1% by 2016.

Less encouraging are the "rising government debt burden, which is partly associated with government support for state-owned banks", Slovenia's "weak labour and property markets, and policy implementation risks to resolving economic and fiscal pressures".

According to S&P, "further privatisations would likely strengthen Slovenia's competitive position", but Slovenia's openness also means its growth prospects will depend on the sustainability of economic recovery in its main trading partners.