Ratings agencies raise hope for change

Slovakia was given an unexpected boost last week when international ratings agency Standard and Poor's followed the lead of its fellow ratings agency Moody's and raised its outlook for the foreign currency country ceiling and foreign currency bank deposit ceilings from stable to positive November 9.
The outlook change, which ostensibly affects the premium on state-guaranteed bonds and government-issued foreign currency bonds, is, experts say, a prelude to a raising of Slovakia's country rating from speculative to investment grade.
"If everything goes right we could see the [country] grade changed to investment," said Tomáš Kmeť, analyst at Slovenská sporiteľňa, Slovakia's largest finance house. "In half a year we could see a change in the rating if all goes well."

Slovakia was given an unexpected boost last week when international ratings agency Standard and Poor's followed the lead of its fellow ratings agency Moody's and raised its outlook for the foreign currency country ceiling and foreign currency bank deposit ceilings from stable to positive November 9.

The outlook change, which ostensibly affects the premium on state-guaranteed bonds and government-issued foreign currency bonds, is, experts say, a prelude to a raising of Slovakia's country rating from speculative to investment grade.

"If everything goes right we could see the [country] grade changed to investment," said Tomáš Kmeť, analyst at Slovenská sporiteľňa, Slovakia's largest finance house. "In half a year we could see a change in the rating if all goes well."

The move to investment grade would, Kmeť said, usher in further foreign direct investment with the new rating meaning not just cheaper credit from the state should it need to borrow money, but also an increased level of investor confidence in Slovakia. However, he said, the agencies would be looking closely at the progress made by the government on crucial reforms before contemplating any rise in the ratings.

"This is the lead-up to a change in the country ratings, but there is a time lag between this of at least a few months. International organisations such as Moody's and Standard and Poor's have been pleased with the government's series of economic packages, but they will want to see progress made on reforms, such as state administration, social insurance, health care. There is concern [in the agencies] over the fiscal side of state [finances] and they will want to get a feeling that the government is serious about its reforms," said Kmeť.

He added that the outlook change was the first tangible evidence of Slovakia's improved position in international financial circles following its entry into the Organisation for Economic Cooperation and Development (OECD), approved by parliament at the end of September.

In its report Moody's praised the economic progress that the government had made since coming to power in October 1998. "During the term of the current coalition, Slovakia has greatly improved its external balances, budget deficit and debt profile. Since the end of 1998, current and fiscal deficits have dropped by over 50%... and a well-conceived strategy of structural reforms has complemented macro-economic development," the report said.

The agency evaluation added that the government was making impressive gains in fiscal decentralisation of resources and loosening the state's role in the business sector.

The government has welcomed the report, saying that it is an endorsement of its hard work in implementing much-needed social reforms. Finance Ministry spokesman Jozef Mach told The Slovak Spectator November 13: "This was certainly a good signal for Slovakia, and a very positive signal for the coalition and the economic progress that has been made. It did not come as a great surprise."

He added that while only the outlook had been changed, he was confident that a change in the country rating would come soon."In my opinion I think it will be [raised] sometime in the first half of next year."

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