Bloomberg News

Slovenia Debt Rating Cut by S&P on Worsening Fiscal Position

October 20, 2011

(Updates with bond market reaction in sixth paragraph. See {EXT4 <GO>} for more on the debt crisis in Europe.)

Oct. 20 (Bloomberg) -- Slovenia, like fellow euro members Spain and Italy, had its sovereign credit ratings cut by Standard & Poor’s due to a deteriorating fiscal outlook as Europe’s debt crisis takes its toll.

The long-term rating of the Alpine nation that adopted the euro in 2007 was reduced to AA- from AA with a stable outlook, S&P said in a statement dated today. The AA- level is the fourth-highest ranking and on a par with non-euro regional peer, the Czech Republic.

“The downgrade reflects our view that Slovenia’s fiscal position has deteriorated since the 2008 financial crisis and the government has not thus far presented a credible consolidation strategy,” David T. Beers, a London-based analyst for S&P, said in the statement. “The upcoming elections” on Dec. 4 “present an opportunity for the new government to prevent further slippage and implement structural reforms.”

S&P joins Moody’s Investors Service and Fitch Ratings in lowering Slovenia’s credit score in the past month after Prime Minister Borut Pahor’s government was toppled in a no-confidence vote. Political uncertainty, a weak banking industry and a worsening economic outlook were cited by Fitch and Moody’s for the downgrade, with both companies maintaining a negative outlook.

Regional Downgrades

Slovenia follows Italy, Spain, Portugal, Ireland, Cyprus and Greece as euro-region countries to be downgraded this year. Contagion from the debt crisis that started in Greece in May 2010 is prompting rating companies and investors to step up scrutiny of credit risk.

The extra yield investors demand to hold Slovenia’s bonds maturing in 2021 rather than similar-maturity German debt rose to 349 basis points, or 3.49 percent, at 11:07 a.m. in Ljubljana, the capital. That compares with a record 362 basis points on Oct. 7, Bloomberg data show. The spread more than doubled since voters rejected pension changes in June, when the difference was 147 basis points.

Slovenia is “on track” to cut spending this year, even though state aid for banks and other companies has “worsened the picture,” outgoing Finance Minister Franc Krizanic said Sept. 30. The government aims to narrow the budget deficit to 4.6 percent of total output this year, equivalent to 5.5 percent under European accounting standards. Slovenia’s public debt ballooned to 44.2 percent of gross domestic product at the end of June, according to the statistics office.

The country’s borrowing has increased as the government sought to cushion the economy and the banking system from Europe’s debt crisis, S&P said. The ratings company sees “an extremely low risk” of the European Central Bank restricting access to foreign currency needed for debt service.

--Editors: Rocky Swift, Garfield Reynolds, Alan Crosby, Andrew Langley, Jeffrey Donovan

To contact the reporters on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net Vivek Shankar at vshankar3@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net


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