S&P lowers Macedonias L-T LC rating to BB.

By bne IntelliNews August 24, 2011
Credit rating agency Standard & Poor's announced that it has lowered its long-term local currency sovereign credit rating on Macedonia to BB from BB+ and affirmed its long-term foreign currency sovereign credit rating at BB. The agency also affirmed the B short-term ratings on the country. The outlook is stable. The agency's transfer and convertibility assessment for the country remains BB+. S&P comments that the rating actions are the result of the implementation of a revised methodology and assumptions for rating sovereign governments. The revised methodology results in narrowing of the gaps (if there are such) between the local and foreign currency ratings on many of the agency's rated sovereigns. That is because S&P believes that given the increasing globalization of markets, governments are less likely to differentiate between their local and foreign currency debt in the event of a debt restructuring. In the case of Macedonia, the country's local currency rating is equalized with the foreign currency rating, which partly reflects the agency's view that a greater capacity for paying a government's local currency debt than its foreign currency debt requires ability for managing the local currency independently. S&P elaborates, "The pegged exchange rate regime prevents Macedonia from doing this as it is not able to set interest rates without regard to the currency's external value." The agency expects real GDP growth in the country to reach 2.4% in 2011 and 3.1% in 2012. S&P noted that government debt increased to 25% of GDP in 2010. The agency expects only small increases in the coming years as the government plans to run moderate deficits. S&P also expects that the general government deficits will narrow toward 1.8% of GDP by 2014 and that the share of capital expenditure in total spending will progressively grow starting this year. Regarding the external sector, the agency notes that the country's external debt levels are low. It also expects some widening of the CA deficit from the low 3% of GDP last year.

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