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Slovakia gets rosy outlook

INVESTORS have been given another reason to trust in Slovakia's economic vigour and the country's prospects for euro adoption in 2009.

INVESTORS have been given another reason to trust in Slovakia's economic vigour and the country's prospects for euro adoption in 2009.

Standard & Poor's Ratings Services on March 3 confirmed Slovakia's country rating at A/A-1 and revised its outlook to positive from stable. The rating service also raised the transfer and convertibility assessment on Slovakia to AA+ from AA.

"The Slovak government has reaffirmed its commitment to the established target of Eurozone accession by 2009 and the required fiscal consolidation by executing a relatively constrained 2007 budget," said Standard & Poor's credit analyst Eileen Zhang.

Martin Lenko, an analyst with VÚB Bank, told The Slovak Spectator that the positive development of the public finances and the government's commitment to cut the public finance deficit in the future contributed to the move by Standard & Poor's.

If the government fulfills this commitment the rating could be upgraded, Lenko said. He expects that other rating services will take similar steps.

The evaluation by Standard & Poor's will deepen the faith of foreign investors in Slovakia's ability to meet its financial obligations, said Richard Ďurana, director of Institute of Economic and Social Studies.

The prospect of a higher rating in fact reduces Slovakia's debt servicing costs, Ďurana told The Slovak Spectator.

Zhang, of Standard & Poor's said that the 2007 general government deficit is expected to go down to 2.4 percent of GDP, from 3.8 percent in 2006, on the back of stronger growth in tax revenue and interest savings.

Based on the strong currency and moderate inflation rate, the rating agency said that Slovakia is expected to satisfy the Maastricht criteria for European Monetary Union (EMU) membership in nominal terms, Standard & Poor's reported.

Standard & Poor's noted that there is a small risk that Slovakia's accession to EMU could be rejected, as uncertainty surrounding the macroeconomic policy outlook could raise the question of "sustainability" in the European Commission's considerations.

"The ratings could be upgraded if fiscal consolidation continues after Slovakia enters the Eurozone," Zhang said. "Moreover, reform of the social security system and labour market that ensures sustained, strong, and balanced economic growth could close the wealth gap between Slovakia and other countries in the Eurozone, leading to further improvement in the ratings."

Conversely, reversal of the previous structural reforms, an expansionary fiscal stance, or a postponement of accession to the Eurozone would result in a downward pressure on the ratings.

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