Toronto, 24 May (STA) - International credit rating agency DBRS Morningstar, based in Toronto, Canada, has maintained Slovenia's long-term sovereign debt rating at A (high), with the outlook remaining positive. The agency is currently optimistic about the country's economic and public finance prospects, also noting the adoption of several reform measures.
This follows positive assessments from other major rating agencies over recent months. In April, both Moody's affirmed Slovenia's A3 rating with a positive outlook and Fitch upgraded its outlook from stable to positive whilst maintaining its A rating, with both agencies citing fiscal consolidation progress and planned pension reforms.
According to DBRS Morningstar, the assessment is based on a positive evaluation of reform efforts to tackle medium- to long-term fiscal challenges arising from population ageing. The adoption of structural reforms would most likely strengthen the sustainability of Slovenia's public finances over the medium and long term.
In this regard, they highlight changes to pension legislation, which the government has approved and which are expected to be confirmed this year, due to their anticipated effect on reducing the burden of growing public expenditure on pensions. They also mention the regulation of long-term care, including a dedicated contribution for this purpose, and already approved changes to health legislation.
Despite rising public spending due to pay reform and planned increases in defence and security expenditure, the agency estimates that the public finance deficit should remain moderate at around 2% of GDP in the coming years, whilst public debt as a share of GDP should continue to decline, though remaining above 60% in the medium term.
A risk for Slovenia is the fact that it has an open, export-oriented economy, but for now the agency sees the consequences of current global trade tensions as limited.
Despite the GDP decline in the first three months of the year, DBRS Morningstar believes medium-term prospects for the Slovenian economy remain good, given its demonstrated resilience to shocks and the strengthening of higher value-added sectors.
Domestic consumption should successfully limit negative external effects. However, increased US tariffs on imports from the EU will likely have a negative impact on Slovenian exports, at least indirectly, for about a year.
There could, however, be downward revisions to Slovenia's rating or future outlook if the period of weaker economic activity were to last longer and structural reforms were to be watered down, resulting in a worse public finance picture.
