Moody's Investors Service has raised its outlook on Slovakia’s A2 government bond rating to stable from negative, citing an expected stabilisation in debt metrics by 2014 at below 57% of GDP given the authorities' commitment to fiscal consolidation and to ensuring the sustainability of public finances. The improved outlook was also supported by Slovakia’s limited exposure to shocks from the eurozone debt crisis given the country's healthy financial system, evidenced by a highly liquid and well capitalised banking sector, improving external finances, evidenced by high current account surpluses, and favorable funding conditions.
Moody's noted that while the Slovak export-driven economy is still subdued due to muted external demand, it should gain speed thanks to increased domestic demand, as confidence indicators point to a firming of household expectations of a more favorable economic and employment outlook. The global ratings agency expects the country’s economic growth to rebound to around 2.8% in 2014 from 0.9% in 2013 and 2.0% in 2012. It predicted that the progress on fiscal consolidation (the government plans to cut its budget deficit to below 3% of GDP this year from 4.3% in 2012) and the impending recovery are likely to contribute toward stabilising debt ratios.
Moody's said it would consider upgrading Slovakia's sovereign rating in the event of a resumption of structural reforms, a significant strengthening of the government's balance sheet and debt ratios, and a resumption of the country’s convergence to EU levels of economic development. On the other hand, it could lower the rating if Slovakia's economic growth prospects deteriorate significantly, endangering fiscal consolidation and leading to a deterioration in the government's balance sheet. Material fiscal and debt slippage would also be negative, as it would lead to a deterioration of policy credibility and debt dynamics.
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