Slovenia's Ratings Lowered To 'A+/A-1'; Outlook Negative
|Publication date: 13-Jan-2012 16:56:51 EST|
- Standard & Poor's is lowering its long-term sovereign credit rating on the Republic of Slovenia to 'A+' from 'AA-' and its short-term sovereign credit rating to 'A-1' from 'A-1+'.
- The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union, into which Slovenia is closely integrated.
- The outlook on the long-term rating is negative.
FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services said today that it lowered the long-term sovereign credit rating on the Republic of Slovenia to 'A+' from 'AA-' and the short-term rating to 'A-1' from 'A-1+'. At the same time, we removed the ratings from CreditWatch with negative implications, where they were placed on Dec. 5, 2011. The outlook on the long-term rating is negative. Our transfer and convertibility (T&C) assessment for Slovenia, as for all European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting Standard & Poor's view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low. This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future. The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery." As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues. Accordingly, in line with our published sovereign criteria, we have adjusted downward the political score we assign to the Republic of Slovenia (see "Sovereign Government Rating Methodology And Assumptions," published on June 30, 2011). This is a reflection of our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which Slovenia is closely integrated) have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone. We believe this environment, and the lack of an effective policy response, is likely to increase caution among both households and investors. As a result, we expect precautionary savings to increase, which could, in turn, constrain the country's growth outlook. Slovenia's high degree of openness also makes it susceptible to shifts in external demand, in our view. As a result, we expect that negative growth prospects for the country's trading partners could continue to affect growth in Slovenia while the crisis in the eurozone deepens. In addition to the political score, we also lowered the external score for Slovenia. We believe that the country's external financing costs may remain elevated for an extended period of time and see further risks of rapid deterioration of market conditions. Such financing costs are exacerbated by high leverage in the corporate sector, which in our view continues to weigh on asset quality and profitability in the financial sector. The ratings on Slovenia remain supported by our view of its open economy, which has a relatively large export base that contributes to economic growth, and a track record of fiscal prudence that has kept debt levels moderate despite recent increases. The lack of resolve in progress on structural reforms continues to constrain the ratings in our view. The outlook on the long-term rating on Slovenia is negative, indicating our view that there is at least a one-in-three chance that we could lower the rating again in 2012 or 2013. The negative outlook reflects our view of the significant downside risk to budgetary performance and the possibility of deterioration in growth prospects and income levels, which could lead us to reduce the fiscal or economic scores. We could lower the rating if we see that the new government does not present, and begin to implement, a credible reform program, one that is likely to include reforms in the labor market and pensions system, to ensure growth that would maintain GDP per capita at the current level or higher. We could revise the outlook to stable if we come to believe that the government reforms reduce some of the structural rigidities in the economy and allow for a more efficient allocation of resources. We expect that this, in turn, would result in a more adaptable economic structure and more competitive economy with higher levels of income. RELATED CRITERIA AND RESEARCH All articles listed below are available on RatingsDirect on the Global Credit Portal.
- Sovereign Government Rating Methodology And Assumptions, June 30, 2011
- Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications, Dec. 5, 2011
- Trade Imbalances In The Eurozone Distort Growth For Both Creditors And Debtors, Says Report, Dec. 1, 2011
- Who Will Solve The Debt Crisis?, Nov. 10, 2011
TELECONFERENCE INFORMATION Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 PM UK time. The teleconference can be accessed live or via replay and by phone or audio internet streaming The call will begin promptly at 3:00 p.m. TELECONFERENCE DETAILS Passcode: 2705831 For security reasons, the passcode will be required to join the call. DIAL IN NUMBERS: Country Toll Numbers Freephone/Toll Free Number AUSTRIA 43-1-92-80-003 0800-677-861 BELGIUM 32-1-150-0312 0800-4-9471 DENMARK 45-7014-0239 8088-2100 ESTONIA 800-011-1121 FINLAND 106-33-149 0800-1-12771 FRANCE 33-1-70-75-25-35 080-563-9909 GERMANY 49-69-2222-3198 0800-101-6627 GREECE 30-80-1-100-0674 00800-12-6609 IRELAND 353-1-247-5274 1800-992-870 ITALY 39-02-3601-0953 800-985-849 LUXEMBOURG 352-27-000-1351 8002-9058 NETHERLANDS 31-20-718-8530 0800-023-4392 PORTUGAL 8008-12439 SLOVAK REPUBLIC 421-2-322-422-16 SPAIN 34-91-414-40-78 800-098-194 UNITED KINGDOM 44-20-7950-6551 0800-279-3590 USA 1-210-795-1143 866-297-1588 TELECONFERENCE REPLAY INFORMATION: Call notes: This call is to be recorded for Instant Replay purposes UK TOLL #: +44-20-7108-6279 UK TOLL FREE #: 0800-376-9027 The instant replay will start at: Jan. 14, 2012 5:30pm UKT The instant replay will end at: Feb-14-2012 11:59pm UKT Passcode for replay: 7498 Restrictions may exist when accessing freephone/toll free numbers using a mobile telephone. AUDIO STREAMING AND AUDIO REPLAY INFORMATION: To join the event: URL: https://e-meetings.verizonbusiness.com Conference number: 1297498 Passcode: 2705831 To access the Audio Replay of this call, all parties can: 1. Go to the URL listed above. 2. Choose Audio Streaming under Join Events. 3. Enter the conference number and passcode. (Note that if this is a recurring event, multiple dates may be listed.) Replays are available for 30 days after the live event.
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
|Primary Credit Analyst:||Moritz Kraemer, Frankfurt (49) 69-33-99-9249;|
|Secondary Contact:||Frank Gill, London (44) 20-7176-7129;|
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