The Fitch international ratings agency said that if the new coalition government in Slovakia proves stable, cohesive and able to implement fiscal and structural reforms, the agency might improve the country’s rating over the medium term, the SITA newswire wrote. Slovakia currently has a Long-term Foreign Currency Issuer Default rating of A+ with a Stable Outlook.
Slovakia’s rating already incorporates strong credit fundamentals, reflecting the acceleration of reforms leading to EU accession under the Slovak Democratic and Christian Union (SDKÚ) government, as well as sound fiscal management by both SDKÚ and Smer governments leading to euro area membership under the latter, Fitch wrote.
However, further upgrades will depend on the future direction of policy in Slovakia, namely fiscal and structural reform which underpins long-term income convergence with the rest of the euro area. Although Slovakia's fiscal deficit (6.8 percent of GDP) is not out of line with the euro area aggregate, public finances are nonetheless on an unsustainable path, which will require consolidation measure worth around 3 percent of GDP over the medium term. Nevertheless, Slovakia's moderate public debt stock (35 percent of GDP, under half the aggregate euro area level) is a rating strength, SITA wrote on June 21.
Labour market regulation is not restrictive and productivity gains over the past five years have been significant, SITA continued, based on the Fitch report. However, the new government coalition will need to tackle the structural reforms if it is to ensure Slovakia maintains the strong growth record of the past decade.
SITA wrote that despite a shift away from the previous, market-friendly SDKÚ government's policies under Smer's term (2006-2010), Slovakia remains an attractive destination for foreign capital which has been the key driver of growth in recent years. While corruption perceptions are among the highest in the EU (and have been worsening), euro area membership, low labour costs and a favourable geography have helped maintain the country's attractiveness to investors.
Compiled by Zuzana Vilikovská from press reports
The Slovak Spectator cannot vouch for the accuracy of the information presented in its Flash News postings.
22. Jun 2010 at 14:00