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Recovery Expected in 2014, Govt Says in Response to Fitch

Ljubljana, 18 May (STA) - The effects of the planned bank and company overhaul measures in Slovenia should fuel a recovery already next year, the Slovenian government said in response to Friday's ratings cut by Fitch Ratings.

Responding to the decision by Fitch to downgrade the country's sovereign debt rating to BBB+ from A-, the Finance Ministry said that the government was committed to effective implementation of measures included in reform documents sent to the EU earlier this month.

"In an environment of cleansed banks and deleveraged companies, we expect to achieve stable macroeconomic conditions and economic recovery already in 2014," the ministry said in the statement.

It added that the consolidation of public finances would continue in line with set goals, while efforts to shore up the banking system would be based on independent due diligence and the results of stress tests conducted recently by Banka Slovenije.

The effects of bank stabilisation measures on public debt will be of a temporary nature and debt will be brought down again with effective management of bank assets and privatisation, the statement adds.

The Finance Ministry issued the statement after Fitch said the ratings cut was based on the fact that Slovenia's macroeconomic outlook has "deteriorated significantly" since its last rating review of August 2012.

The ratings agency forecast a 2% GDP contraction for 2012 and a 0.3% decline in 2014. It also projected that the general government deficit would surge to 72% of GDP due to the macroeconomic environment and bank recapitalization costs.

Crucially, Fitch believes that non-performing loans have yet to peak, given the prolonged economic contraction.

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