S&P raises Slovenia’s rating to A-/A-1, forecasts 1.7% GDP growth in 2016

By bne IntelliNews June 20, 2016

Standard & Poor's Ratings Services said on June 17 that it has raised Slovenia’s long and short-term foreign and local currency sovereign credit ratings to A/A-1 and that it expects Slovenia’s real GDP growth in 2016 will be 1.7%.

On March 25, Fitch Ratings also lifted Slovenia’s credit rating to BBB+ with a positive outlook. Slovenia is rated Baa3 by Moody's.

S&P upgraded its rating for Slovenia on strengthening domestic demand and ongoing fiscal consolidation. It said the outlook was stable. In 2015, domestic demand continued its recovery for a second year in a row, growing by 2%.

S&P said in a June 17 statement that it expects Slovenia’s real GDP growth in 2016 to slow down because public investment is likely to contract this year, as the 2007-2013 EU budget cycle has ended. In 2015, the Slovenian economy expanded by 2.9% on strong export growth. 

The S&P announced the upgrade of the Slovenian credit rating on the same day as the European Council closed the EU's Excessive Deficit Procedure (EDP) for Slovenia, confirming that the country reduced its budget deficit below 3% of GDP in 2015. Slovenia has been subject to an excessive deficit procedure since December 2009.

“We now expect that the government will focus on further narrowing the fiscal deficit and reducing the general government debt-to-GDP ratio, in line with their obligations under the EU's Stability and Growth Pact,” the agency said. 

EU countries have agreed that they should limit the amount governments can borrow each year to 3% of GDP, and their total indebtedness to 60% of GDP. The EDP is the EU's step by step procedure for correcting excessive deficit or debt levels.

According to S&P, successively lower deficits and redemptions of government-bonded debt will be increasingly financed via the drawdown of the government's cash buffers, rather than via the issuance of more debt, which will support a reduction in the gross general government debt to about 74% of GDP in 2019 from 82% in 2015.

“In our forecast we do not incorporate any proceeds from the ongoing privatisation process or sale of assets from the Bank Asset Management Company (BAMC), which took over nonperforming claims totalling €5bn (about 13% of 2015 GDP) from the banking sector. If these sale proceeds were applied toward government debt reduction, net general government debt relative to GDP would decline at a faster pace than we currently anticipate,” S&P said. 

Since the initiation of the privatisation process in 2014, the government has received €400mn (1% of 2015 GDP) through asset sales. In 2015, BAMC generated about €300mn (0.8% of 2015 GDP) which it used to meet part of its maturing debt obligations.

The S&P upgrade of Slovenian rating reflects the agency’s expectation that over 2016-2019 the general government debt-to-GDP ratio will gradually fall as authorities reduce government deficits and sell assets totalling 18% of 2015 GDP. 


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