Moody’s changes outlook on Slovenia’s Baa3 rating to positive

Moody’s changes outlook on Slovenia’s Baa3 rating to positive

Ljubljana September 19, 2016/Independent Balkan News Agency

Rating agency Moody’s has preserved Slovenia’s credit rating at Baa3 while upgrading the outlook from stable to positive.

The agency highlighted on Friday an improved situation as regards public deficit and debt, while calling for structural and institutional reforms.

Moody’s wrote that the decision to change the outlook was driven by improvements in government deficit and debt metrics as well as recent reform initiatives that have the potential to address some of the country’s long-standing economic and institutional challenges. It mentioned reform in the public administration and the judiciary.

As regards the affirmation of the Baa3 rating, the agency pointed to strengths that include substantial per-capita wealth, a high value-added export base and the structural changes to the banking system that have materially reduced potential risks to the government’s balance sheet.

On the other hand, the country continues to face a significant debt burden that will not start decreasing substantially before the end of this decade.

While acknowledging the progress made in public finances, Moody’s is slightly less optimistic in its projections than the government. It expects a 2.4% government deficit for this year and 2.2% for 2017, which compares to the government-announced 2.2% and 1.6% of GDP.

Moody’s moreover expects the public deficit to fall by the end of 2017 from 83.1% to 78.2% of GDP. By 2020 it projects a decrease to 75%.

At the same time the agency is warning that in the absence of structural changes, the structural deficit could already start increasing next year.

It highlighted wage pressures in the public sector, the reintroduction of pension indexation to wages and inflation in 2017 and a lack of a detailed plan to replace the temporary austerity measures with structural changes.

“We would consider upgrading Slovenia’s government bond rating in case of a combination of structural macroeconomic and/or institutional reforms and further certainty regarding the trend towards a gradual improvement of the government’s debt metrics,” Moody’s wrote.

In January last year, Moody’s was the first of the three major rating agencies to increase Slovenia’s rating following the crisis. It was followed by Standard & Poor’s in June this year, while Fitch has not yet opted for an upgrade, although it has given the country a positive outlook.

Source: The Slovenia Times