New York, 26 July (STA) - Ratings agency Standard & Poor's (S&P) affirmed on Friday Slovenia's long-term credit rating at A- and said that the outlook remains stable due to expectations that the government will continue fiscal consolidation and restructuring of the banking system.
One of the three main ratings agencies in the world said that as long as the costs of fixing the banking system do not rise, Slovenia had secured its debt needs for the year and also for a part of 2014 with the US$ 3.5bn bond issue in the US in May.
In one of the more optimistic forecasts for the Slovenian economy, S&P anticipates that Slovenia will return to growth as early as next year. After a contraction of 2.4% this year, the agency forecasts economic growth of 1.5% next year and 1.9% in 2015 and 2016.
The general government deficit is to rise to 12.5% this year due to the costs of fixing the banking system, before falling to 3.6% GDP next year and 3.3% in 2015, S&P says.
The agency also expects that the costs of bank restructuring will lead to a rise in public debt to 67.5% this year and 70.7% by 2016. However, it says that government measures should stabilise debt at around this level.
In a statement accompanying the ratings release, S&P says that it expects the government of Alenka Bratušek will make further progress in fiscal consolidation, while also assessing that "Slovenia's policy settings appear to have stabilised".
"We view the National Reform Programme 2013-2014 and Stability Programme 2013 as providing useful policy frameworks to guide progress in fiscal consolidation."
The agency also says that new limits on referendums "appear likely to reduce uncertainty regarding decision-making and policy implementation", although it fears that the effectiveness of structural reforms could be hampered by "long-entrenched political patronage and weak institutional and corporate governance".
While keeping the outlook for Slovenia's rating stable, S&P warns that it could lower the rating if debt rises significantly, the banking system weakens further or if the government fails to push ahead with structural and economic reforms.
An improvement in Slovenia's rating will be possible once Slovenia's debt falls to below 60% of GDP or its budget deficits return to pre-crisis levels, which S&P does not expect to happen in the next three to five years.