S&P keeps Slovenia rating but reforms now priority

LJUBLJANA Fri Jan 17, 2014 7:44am EST

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LJUBLJANA Jan 17 (Reuters) - Standard & Poor's kept Slovenia's rating unchanged on Friday, after the country rescued its troubled banks last month, but analysts said the government must now press on with long-delayed market reforms and sale of state assets.

After cutting Slovenia's rating several times in 2013, the rating agency affirmed its foreign and local currency sovereign credit ratings for Slovenia at 'A-/A-2' with a stable outlook.

But it also pointed to rising government debt and weak growth outlook, private-sector deleveraging, low investment levels and weak labour and property markets.

"The good thing is that the agency has assessed the banking system is being secured, public debt is seen stabilising and Slovenia should retain access to the capital markets," said Saso Stanovnik, chief analyst at Alta, a leading local brokerage.

"But it is also evident they expect further fiscal consolidation, privatisation and reforms... The main risk is that the government could slow down with implementing measures to stabilise the economy because there is less pressure now," he said.

After a year of market speculation that Slovenia might become the next euro zone member in need of a bailout, the government announced on Dec. 13 it could overhaul its troubled banks alone, to the relief of its European Union partners.

It then injected 3.2 billion euros in capital into five banks and started moving bad loans, amounting to more than a fifth of national output, to a state 'bad bank'.

"The due diligence, stress tests and the bank overhaul marked the start of a process to eliminate one of the key reasons behind the shrinking credit and economic activity in Slovenia," said Bostjan Vasle, the head of the government's economic institute, an advisory and forecasting body.

"The response from foreign investors was positive so today's rating affirmation was expected. But to maintain a stable rating and its improvement, we need to keep up the current pace of structural reforms," Vasle said.

This week, leaders of the four parties that make up Prime Minister Alenka Bratusek's ruling bloc said they would focus on reforms and economy for the remaining two years in office but gave few concrete details.

Since Bratusek took office last March, fifteen state firms have been slated for a sell-off, including number one bank NLB, the state telecom operator and flag carrier Adria Airways, but none have yet been sold. (Writing by Zoran Radosavljevic; Editing by Toby Chopra)

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