Wednesday, July 9, 2008

Fitch upgrades country’s long-term sovereign rating by one notch.

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If the only problem is "the relatively low income levels" then Slovakia entered EUR too early. Look at EUR/PLN or EUR/CZK and compare it to EUR/SKK. There is high correlation therefore if CZK(PLN) appreciates by additional 20-50% in 5 years they won't have that problem with "the relatively low income levels" compared to other EU peers. On the other hand, strong SKK made property bubble in EUR terms. Properties are valued in line with Vienna/Prag and that is scary given "the relatively low income levels". So that, If Slovakia entered later then this bubble would be even greater (I personally made 300% in EUR terms for the last 4 years.). Choose what is worse. Finally, I do not see how Slovakia is going to increase income levels without considerable levels of inflation.

Fitch upgrades country’s long-term sovereign rating by one notch. International credit rating agency Fitch upgraded the long-term foreign-currency sovereign issuer default rating of Slovakia by one notch to A+, the agency announced. The outlook on the rating was stable and the positive watch review status was thus withdrawn. Fitch also raised the country ceiling rating by two notches to AAA and affirmed the long-term local currency rating at A+ and the short term rating at F1. It explained that the rating action was based on the official decision on letting Slovakia to join the eurozone from the beginning of next year. Adoption of the euro was considered to have a net positive impact on the country’s creditworthiness as the likelihood for monetary shocks and for self-fulfilling currency crisis diminished. The agency noted that after entry in the eurozone the importance of factors, determining Slovakia ’s credit ratings, would shift towards public finances, financial sector stability and economic flexibility rather than external balances and liquidity. In this respect, it stressed that public finances in the country compared relatively well with countries in the A rating peer group while the recent pension reform even put Slovakia at a comparative advantage against other eurozone members. On the other hand, a restraining factor for ratings was the relatively low income level in the country and thus, successful real income convergence was seen as a key way to improve creditworthiness in the mid- to long term. In this regard, the convergence process was also expected to generate a catching up effect in price levels as well, creating risks for overheating and financial market bubbles. Consequently, Fitch emphasized that consistent prudent fiscal policy, being the only remaining economic policy tool in the country, would be crucial for providing further support to the credit ratings of the country.

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Securitisation is not dead

Fitch upgrades country’s long-term sovereign rating by one notch.

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