Fitch IBCA downgrades forex rating

Fitch IBCA, the international rating agency, on October 7 placed Slovakia's 'BBB-' long-term foreign currency rating on RatingAlert negative pending a review of recent political and economic developments. The 'A-' local currency rating is also subject to the RatingAlert announcement.

The agency recognised that the recent elections are likely to bring to power a new government in a position to improve relations with the international community and return Slovakia into the mainstream of the EU accession process.

The recent devaluation of the crown will aid external adjustment but cannot carry the entire burden, said the agency. In the absence of an accompanying fiscal adjustment package, Slovakia risks being forced into a severe recession as a loss of confidence ends the availability of external finances.

The agency added that appropriate action could allay the risk of a foreign exchange crisis in the short-term. However, this risk would inevitably emerge again later unless the authorities could re-inject impetus into the process of structural reform.

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