August 22, 2014 / 8:10 PM / 3 years ago

Fitch Affirms Slovakia at 'A+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, August 22 (Fitch) Fitch Ratings has affirmed Slovakia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A+'. The issue ratings on Slovakia's senior unsecured foreign and local currency bonds have also been affirmed at 'A+'. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling has been affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1'. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following factors: -Our latest forecast sees Slovakia GDP growing 2.3% in 2014, followed by average growth of around 3% p.a. in 2015-2016. Economic activity in 1H14 has been encouraging, with GDP up 2.2% yoy and signs of domestic demand picking up after two consecutive years of contraction. For 2014, real GDP growth is expected to be broad-based, followed by a more domestic demand-led recovery over the medium-term. Slovakia suffers from few macroeconomic imbalances, although high structural unemployment remains a weakness. -A solid banking sector, sound macro-prudential environment and low level of private sector indebtedness also support Slovakia's ratings. -We expect the sovereign's external position to continue to gradually improve. We project Slovakia's current account to remain in surplus in 2014-2016, averaging 3% of GDP, up from 2.1% in 2013 and above the 'A' median surplus of 2.2%. Sustained current account surpluses will help to further reduce Slovakia's net external debt, which is in sharp contrast to the net external creditor position of the 'A' median. -A manageable general government fiscal deficit and forecast stabilising debt-to-GDP ratio also support the ratings. Slovakia's exit from its Excessive Deficit Procedure (EDP) in June 2014 now obliges the sovereign to conduct fiscal policy within the bounds set out under the preventive arm of the European Commission's Stability and Growth Pact. However, further structural measures will be needed if Slovakia is to achieve its medium-term budgetary objective for a structural deficit of around 0.5% of GDP by 2017. A government cash reserve of 8% of GDP provides important fiscal flexibility. -Membership of the eurozone continues to benefit Slovakia's economic development, by promoting a robust institutional framework, expanding its export sectors and supporting prospects for inward investment. EMU membership also limits balance of payments and exchange rate risks. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are evenly balanced. Nonetheless, the following risk factors could individually or collectively trigger negative rating action: - A severe economic downturn that damages fiscal, financial or economic stability -Failure to maintain credible fiscal policy to stabilise and, ultimately, reduce the public debt-to-GDP ratio The main factors that could individually or collectively trigger a positive rating action include: -Stabilising the government debt ratio, followed by a firm downward trajectory, in conjunction with higher trend growth KEY ASSUMPTIONS Fitch assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key economic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term. Fitch assumes the eurozone will avoid long-lasting deflation, such as that experienced by Japan from the 1990s. Fitch assumes that under severe financial stress, support for Slovak foreign subsidiary banks would be forthcoming from their parent banks. Fitch does not expect Slovak banks to face significant capitalisation changes following results of the upcoming asset quality review by the European Central Bank. Contact: Primary Analyst Kit Ling Yeung Analyst +44 20 3530 1527 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Paul Rawkins Senior Director +44 20 3530 1046 Committee Chairperson Richard Fox Senior Director +44 20 3530 1444 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 09 August 2013, are available at Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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