(Adds Slovenian finance ministry's comment, IMF forecast)
By Almir Demirovic
LJUBLJANA Jan 17 Standard & Poor's confirmed Slovenia's investment grade credit rating on Friday after the government rescued banks last month but the IMF said the state must pursue long-delayed asset sales and other reforms.
After cutting Slovenia's rating several times in 2013, the rating agency affirmed its main rating for Slovenia at A- with a stable outlook.
But it also pointed to rising government debt, a weak economic outlook, low investment levels and weak labour and property markets.
In a regular review, the International Monetary Fund said on Friday Slovenia's economy would decline by 1.1 percent this year, which would extend its recession into a third straight year.
It also urged the government to press on with structural reforms, fiscal consolidation and privatisation.
The finance ministry said after the rating news the government would continue with reforms, privatisation, "a resolute fiscal consolidation and tight budget policies".
"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 ($4.35 billion) 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 the economy for the remaining two years in office but gave few concrete details.
The government has slated 15 state firms for a sell-off, including major bank NLB, the state telecom operator and flag carrier Adria Airways, but none have been sold yet. ($1 = 0.7352 euros) (Writing by Zoran Radosavljevic and Igor Ilic in Zagreb; Editing by Ruth Pitchford)