S&P affirms Slovakia at A/A-1, outlook stable.

By bne IntelliNews August 7, 2012
Standard & Poor's Ratings Services said it has affirmed Slovakias A/A-1 long- and short-term sovereign credit ratings with stable outlook, saying it expects the government to keep its pledge of cutting the budget deficit to below 3% next year. The ratings reflect our view of Slovakia's decade-long track record of economic and fiscal reforms, its solid growth potential, and its moderate (although rising) government debt burden, the agency said in a statement. It added that the strengths are offset by the central European countrys high structural unemployment and by its wealth levels that still lag behind those of its eurozone peers. S&P expects Slovakias new leftist government to continue its fiscal consolidation efforts and to stabilise government debt-to-GDP ratio. The agency does not expect the new austerity measures, which include removal of the flat tax regime and higher taxes for banks and regulated industries and are unpopular with the targeted industries, to affect negatively foreign direct investment or Slovakia's growth prospects, given its attractiveness as a manufacturing platform. S&P expects Slovakias economic growth to be at around 2% this year, driven mainly by exports, while real consumption is seen remaining weak. The countrys medium-term growth is forecast to be driven also by continuing foreign investment inflows that should boost industrial capacity. Slovakias gross government debt burden increased by 16% of GDP during 2008-2011, but remained below 50% of GDP, S%P said, adding that it expects it to keep staying below 50%. Slovakias banks overall exposure to peripheral European government bonds is negligible, and the countrys banking sector remains strong and adequately capitalized, the ratings agency noted. The banking sector is 90% foreign-owned, but with a loan-to-deposit ratio of about 80%, it is predominantly deposit-funded.
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