Ljubljana is a happier place these days, overcoming the banking and political crisis weighing on its prospects. Investors should take note: Slovenia is one of several smaller European countries making a comeback.
Slovenia’s country risk score embarked on an upward trend over a year ago which is now sending the sovereign closer to the second of Euromoney’s five risk categories – one that is commensurate with an A- to AA credit rating.
Iceland, Latvia and Lithuania are keeping pace, but Slovenia has pushed its nose in front, rising to 34th in the global rankings out of 186 countries surveyed:
It’s a far cry from the aftershocks of the global financial crisis when the country persevered with notable banking sector problems and political instability, which led to early elections in 2014.
The credit rating agencies are now scrambling to keep up.
Even now, as a high-ranking tier-three sovereign – having climbed eight places last year to its current position – Slovenia is already worthy of an A- rating.
S&P is bang on, but Fitch has still not upgraded its BBB+ (positive) rating, and Moody’s on Baa3 (stable) is lagging behind.
Yet all five of Slovenia’s economic risk factors improved last year, including the score for bank stability rebounding to more than half the 10 points available.
All bar one of the six political factors were similarly upgraded – government stability the most – and structural factors were mostly stable.
Question of economics
Economic growth accelerated during the fourth quarter of 2015, to 3.3% year-on-year, and was broad-based, supported by domestic and external demand.
Darja Zlogar, head of the economic studies department at the Ljubljana-based consultancy CMSR, says: “GDP growth for 2015 was 2.9%, driven mainly by exports. Private consumption growth has strengthened, though, and posted a 2.6% year-on-year growth rate in Q4 2015.
“The same goes for gross investment, with 8.1% growth. Employment has also been on the rise.”
Another Slovenian ECR survey contributor, Ales Pustovrh, managing director of research institute Bogatin, concurs, saying: “The solid GDP growth is making the general economic environment much more optimistic.”
Pustovrh is realistic. He believes export growth prospects are less favourable than last year. The solid growth performance also creates some consequences, he believes, triggering a rise in pension payments, for instance, which will likely end up as additional budget expenditure.
It might also delay any privatization.
He notes nevertheless that “tax receipts are increasing and probably led to a primary budget surplus in 2015”.
Pustovrh adds: “Together with government debt that is below the EU-average and good access to bond markets – with Slovenia issuing a new bond at a fairly favourable interest rate last week – the debt repayments are not in doubt, and the ability to service its commitments are improving.”
With inflation non-existent, the current account in surplus at around 6% to 7% of GDP and the budget deficit falling further below 3% this year to 2.5%, according to the European Commission, sovereign debt is likely to fall after climbing in recent years to 84% of GDP in 2015.
Slovenia’s debt rating and capital access scores have also improved in Euromoney’s survey.
The borrower is looking like a safer bet.
This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.