NEW YORK, Feb 12 (Reuters) - Credit ratings agency Standard & Poor’s on Tuesday cut Slovenia’s sovereign credit rating by one notch to A-minus from A, citing the likelihood of an increased debt burden due to support of its state-owned banks and uncertain growth prospects.
The rating outlook was revised to stable from CreditWatch negative, which it placed on the credit in early November.
“We also observe rising policy-implementation risks to resolving economic and fiscal pressures,” S&P said in a statement.
“In our view, this confluence of factors constrains Slovenia’s ability to further implement policy responses to help boost its banking system, public finances, and growth prospects,” S&P said.
Slovenia is rated two notches lower by Moody’s Investors Service at Baa2 with a negative outlook while Fitch Ratings has the euro zone member state at A-minus with a negative outlook.
Earlier on Tuesday, central bank governor Mark Kranjec said in a published interview that Slovenia must recapitalize its state banks and then sell them.
Bad debts total about 7 billion euros ($9.37 billion), or 20 percent of gross domestic product, in the mostly state-owned banking sector. The country is struggling to avoid having to apply for a bailout.
According to S&P, government support for the state-controlled banks will increase its debt in 2013 by about 3 billion to 4 billion euros. That is the amount S&P said it believes will likely be needed to fund the transfer of the banks’ distressed assets to the government-owned Bank Asset Management Company.
“In such a scenario, we forecast the net general government debt ratio will rise to 59 percent of GDP at end-2013 and exceed 60 percent thereafter - well above our previous forecast of 53 percent for 2013,” S&P said.
S&P said that it expects Slovenia’s underlying general government deficit will decrease to around the government’s target of 3 percent of GDP during 2013 due to reforms, including a 5 percent cut to public sector wages. The firm expects further fiscal consolidation and the potential for a more flexible economy once healthcare and labor market systems are reformed.