Fitch affirms Slovenia’s A- rating, outlook remains stable

Fitch affirmed Slovenia’s A- rating and retained its stable outlook. The rating action reflects the country’s GDP per capita in addition to institutional strength and a credible policy framework. On the other hand, the rating is still constrained by a high share of debt-to-GDP ratio, which is, on a more positive note, declining. To note, the agency expects that the ratio should fall down to 66.6% of GDP in 2019 and further down to 63.4% in 2020.

In terms of external finances, Fitch expects that Slovenia’s current account surplus is likely to narrow somewhat in the years ahead as export growth moderates. The rating agency also expects that the absorption of EU funds should increase this year, while public spending should also be solid, supported by an extraordinary pension indexation. In terms of political stability, Fitch does not rule out a change of government, before the term of the five-party minority coalition of PM Sarec expires, especially given the latter’s reliance on cooperation with opposition The Left for parliamentary majority.

A further rating upgrade could take place in case of sustained current account surpluses leading to continued decline in external indebtedness or structural reforms, which would maintain solid medium-growth prospects. On the other hand, a negative rating action could follow if there is a reversal in fiscal consolidation, which would result in a higher debt-to-GDP ratio or an economic downturn that damages fiscal, financial and economic stability.

 

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