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Investment grade rise backs FDI boom

A top ratings agency has moved Slovakia to investment grade on the back of economic reform and its faith in the country's continuing an "excellent relationship with the EU" after 2002 elections.
Standard & Poor's, one of the three biggest global ratings agencies, announced October 30 it had raised the country's rating from BBB+ to A-.
The move now means Slovakia can not only get foreign credit cheaper but is likely to attract far more investment.

A top ratings agency has moved Slovakia to investment grade on the back of economic reform and its faith in the country's continuing an "excellent relationship with the EU" after 2002 elections.

Standard & Poor's, one of the three biggest global ratings agencies, announced October 30 it had raised the country's rating from BBB+ to A-.

The move now means Slovakia can not only get foreign credit cheaper but is likely to attract far more investment.

"This is a very positive move which will benefit Slovakia and its inhabitants," said Deputy Prime Minister for the Economy Ivan Mikloš.

Standard & Poor's said in making the announcement it had no fears of the direction of the country after next September's parliamentary elections.

"Standard & Poor's has an expectation that the upcoming elections (September 2002) will continue the current government's excellent relationship with the EU. As a result, the country will be eligible for EU membership as early as 2004-2005. The necessary reform and prudent macroeconomic management needed for the likely accession support an improved creditworthiness trend in the next one to three years," the agency said.

"The upgrade reflects significant progress in negotiations with the European Union, the almost complete financial restructuring of state-owned banks, the general strengthening of the financial system, and the successful stabilisation of the economy. Legislation of politically difficult administrative and pension reform further support the upgrade," it added.

Fears have recently been voiced by top research houses both in Slovakia and the world's financial capitals that a return to power of Vladimír Mečiar and his HZDS party could spell economic doom for the country.

Mečiar's economic policies during his last term in office from 1994 to 1998 were criticised by international financial bodies such as the World Bank and the International Monetary Fund as recklessly expansionist.

The overheating of the economy and a ballooning trade deficit were among the reasons Slovakia was downgraded to speculative grade in 1998.

But analysts said the agency had decided there was no threat to the economy even if the former PM were to be returned following the September 2002 general elections.

"What this basically means is that there is no political risk after the next elections in the eyes of the agency. In Slovakia everyone is worried about Mečiar and Robert Fico, leader of the Smer party. But we, and the agency, are much more optimistic.

"All parties are saying they won't risk international isolation, that they want to be in Nato and the European Union," said Tomáš Kmeť, an economist at Slovenská sporiteľňa.

"The political scene is definitely not as bad as it may have looked to the agency a year ago. I wouldn't say Standard & Poor's doesn't have some worries about the election, but this is a show of confidence," added Pavol Pop of Poštová banka.

The new improved grade brings Slovakia back on a par with neighbours Hungary and the Czech Republic. It also moves it ahead of Poland, widely considered the economic powerhouse of central Europe, which has a BBB+ speculative grade with the agency.

Moody's and Fitch IBCA, the other two major ratings agencies, could follow suit soon. They currently place Slovakia at Ba1 and BB+, still below investment grade.

Following Standard & Poor's move, ministers were already looking forward to more future investments and increased trust from companies already involved in investments in Slovakia.

Commenting on forthcoming privatisations in the energy sector the Economy Minster, Ľubomír Harach, said: "We will try to agree with privatisation advisors to include the improvement of the investment environment into the criteria for investor selection."

Slovenská sporiteľňa's Kmeť said: "The reason why these ratings are so important is that the government can now get better rates on credit and that investors like fund managers, who have no time to carry out their own research on a country and have to rely on these agencies, will now be able to just put their investments here."

He added: "Without an investment grade they won't go near a country."

Slovakia last year attracted $2 billion in foreign direct investment. The figure outstripped the total for the previous seven years combined.

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