STANDARD & Poor’s (S&P) Rating Service affirmed its A+ long-term and A-1 short-term sovereign credit ratings for Slovakia on December 15, saying the country’s outlook is stable. S&P also gave Slovakia an AAA assessment on transfer and convertibility, the SITA newswire reported.
Slovakia’s ratings reflect the view that the country’s future economic growth is solid and that the government’s debt burden, though rising, is moderate, according to S&P, adding however that these strengths are partially offset by the cyclical nature of the Slovak economy and a high level of structural unemployment.
“The main risk we see to Slovakia's sovereign creditworthiness stems from the deterioration in the country's public finances since 2008,” said S&P credit analyst Kai Stukenbrok, as quoted by SITA.
Following a government fiscal deficit of nearly 8 percent of GDP in 2009, the rating agency expects a similar deficit in 2010. Public expenditures, particularly on social transfers, have remained high and tax revenues remain weak despite recovery in the economy, S&P wrote, while noting that even though the government’s debt burden recently increased sharply, it is still lower than many of Slovakia’s peers.
Slovakia’s coalition government has pledged to reverse the fiscal decline and bring the deficit below 3 percent of GDP by 2013 through a combination of expenditure cuts and revenue-enhancing measures, S&P noted, writing that its best case scenario is that the government will be able to narrow the deficit to 6 percent of GDP in 2011 and to 4 percent of GDP by 2013. The rating agency said if the government achieves its fiscal targets it would further support the country’s sovereign creditworthiness.
S&P noted that there are risks, including weaker than expected economic performance and public and political opposition to the proposed austerity measures. Assuming that GDP growth and real interest rates remain at current levels, S&P believes that total government debt will remain below 50 percent of GDP through to at least 2013.
“If the government is able to implement further reforms of the social security system and labour market, it could promote sustained, strong, and balanced economic growth, which could in turn help close the wealth gap between Slovakia and other countries in the eurozone, and consequently lead us to raise the ratings,” Stukenbrok said, as quoted by SITA.
