The credit rating agency Fitch Ratings affirmed Slovenia’s credit rating at “A” and announced a stable outlook. The agency in question is one of the three internationally recognised statistical credit rating organisations, appointed in 1975 by the U.S. Securities and Exchange Commission.
In its report, the credit rating agency Fitch Ratings justified Slovenia’s “A” rating with a stable outlook on several factors, which is also substantiated in the report.
The high credit rating is based on several factors
Slovenia’s ratings are supported by high governance and human development indicators, improving external finances, and a credible policy framework anchored by EU and eurozone membership. The agency also mentioned high public debt, but it is balanced with all the advantages mentioned above. In the justification, they also mentioned the slow progress in the implementation of structural reforms to address medium-term fiscal and growth challenges associated with the ageing population, which Slovenia has been facing for some time now.
The agency also announced that the GDP growth will slow down in the upcoming two years, but it also expects that this year’s growth will be higher than the EU average, namely, by three percent, following a solid expansion in 2021. Private consumption will be affected by higher inflation and only modest wage rises, while ongoing supply chain disruptions and weaker external demand will also affect exports and private investment (the latter saw a sharp recovery in 2021). Public investment tied to EU programmes will provide some support over the forecast period, even as capacity constraints are likely to increase to higher labour and input costs.
Slovenia benefits greatly from its membership in the EU
They also wrote in the report that the inflationary pressures had been somewhat offset with a series of measures, which the authorities have introduced to this end, and the inflation is expected to moderate until the year 2023. The agency also lists our membership in the EU and the eurozone as strengths which support the economic and financial stability and institutional strength of the country, as well as the high level of domestic savings and external competitiveness, which have a positive effect on the current account surplus. Highlights also include strong economic growth and strong fiscal support during the pandemic, which kept unemployment low. They also mentioned the significant liquidity reserve, which significantly improves the net debt situation and financial flexibility, as well as the low share of foreign currency debt, which is also hedged against the risk of exchange rate differences.
Although the agency mentioned Slovenia’s relatively high public debt as a weakness, it also mentioned that the debt is well below the average in the euro area and that Slovenia is managing it prudently. In the long-term view, Slovenia is under pressure due to the costs associated with an ageing population. Regarding the war in Ukraine, the agency noted that Slovenia is the most vulnerable in the field of energy supply.
Ana Hribar
