International rating agency Standard & Poor's said on June 1 it will rate the upcoming first-ever euro-denominated senior unsecured bond to be issued by the Slovak Republic. At the same time, Standard & Poor's affirmed its issuer credit and senior unsecured ratings on the republic. The outlook is negative.
The ratings and negative outlook reflect the new government's untested ability to reduce wide fiscal and current account deficits, and to implement policies that effectively support urgently needed restructuring in the industrial and banking sectors, S & P's said in a press release.
While the new government has shown its commitment to market-oriented reforms over the past six months, and promises a more open and Western-oriented political environment, correcting large macroeconomic imbalances and building competitive industries from the money-losing firms that predominate has been immensely challenging. Slovakia's incipient market economy increasingly has been distorted in the past couple of years by vested interests, political patronage, and a contorted economic growth strategy. As a result, the corporate and banking sectors are crippled by high inter-enterprise arrears.
As projected by Standard & Poor's, a significant economic slowdown this year (with real GDP growth of 1.0%-1.5%, rather than the budgetary target of 3.0%) has precipitated further deterioration in bank portfolios and a rising tide of bankruptcies. Consequently, the 1999 targeted budget and general government deficits (both at 1.8% of GDP) are unlikely to be met.
In March, Standard & Poor's projected a budget deficit of 2.6% of GDP and a general government deficit of 3.0%, and maintains this forecast.