Slovakia merits A rating

THE SLOVAK Republic now has one of the best long-term foreign currency ratings among post-Communist countries after international ratings agency Fitch increased the country's rating to A.

THE SLOVAK Republic now has one of the best long-term foreign currency ratings among post-Communist countries after international ratings agency Fitch increased the country's rating to A.

Slovakia's one-notch increase, from A-minus to A, puts the country on par with the Czech Republic. Its healthy economic growth and reforms have outpaced other Central European nations as well. Hungary stands at A-minus while Poland is at BBB plus.

"There has been improvement in Slovakia's general economic performance - forces creating real income convergence with Western European living standards. And that reflects fundamental reforms to refine the business environment and also public finances, which we see as a positive," David Heslam, associate director in Fitch's sovereign group, told The Slovak Spectator.

According to Heslam, the A rating takes into account the 19-percent flat tax reform and the improvements to the business environment that has encouraged investment.

"There is also the government's fiscal reform switch. There are two elements to that: euro adoption looks credible. The other elemental thing is that the government has tackled fundamental spending reforms and it is tackling the pensions issue," Heslam said.

He added that all this puts long-term public finances on a stable basis.

Fitch has also affirmed Slovakia's long-term local currency rating at A-plus and raised the short-term foreign currency rating from F2 to F1. The Country Ceiling has been upgraded from A-plus to AA-minus, while the outlook on Slovakia's ratings is stable.

Slovakia's ratings with Moody's stands at A2 and with Standard & Poor's at A. Fitch in fact caught up with the rating that Moody's gave to the country in January of this year.

It is more than a year since Fitch last increased Slovakia's overall rating by one level, on September 21, 2004.

A key risk seen by Fitch is Slovakia's politics, particularly the general elections to be held in 2006.

Fitch's ratings increase pleased the country's finance minister, Ivan Mikloš, who says that the ratings improvement was mainly caused by intensive economic growth, thanks to which Slovak living standards are moving closer to those of people in Western Europe.

"However, Fitch considers the current political situation (in Slovakia) and the possibility of a populist government after the next general election to be among the most serious risks to the future development of the Slovak economy," Mikloš told the news wire TASR.

According to Mikloš, it is good that Fitch is pointing out the importance of principal reforms in the sphere of fiscal policy, in which Slovakia is showing the best level of progress among the Visegrad 4 (V4) group (Slovakia, Poland, Hungary and the Czech Republic).

"Thanks to fiscal reform, Slovakia is able to lower its public debt and avoid burdening future generations," he said.

"I believe that if Slovakia keeps up its positive reform results, its economic rating and living standards will continue to improve in the near future," Mikloš added.

According to Fitch, the largest risk to Slovakia's financial outlook is political.

"Following the [2006] elections there is the potential for a more populist administration, with some loosening of fiscal policy," Fitch wrote in its press release.

"We highlight [general elections] as a risk. But given the likelihood that the next election will result in a coalition,, the chance of a complete reversal of the reforms is reduced," Heslam told the Spectator.

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