Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Slovakia (A+/Stable; S-1+/Stable) on 9 May 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Slovakia’s A+ long-term ratings reflect the following credit strengths: i) European Union and euro area memberships offering an appropriate cushion against external shocks via a strong reserve currency and flexible exchange rate regime, access to substantive EU structural and recovery fund inflows, as well as access to ECB asset purchases and refinancing operations; ii) a track record of credible macroeconomic policies and strong constitutional budgetary framework, strengthened by fiscal and pension reforms under consideration, that support moderate levels of general government debt; and iii) strong economic fundamentals and a competitive industrial base anchored by FDI inflows and export-oriented production.

Notwithstanding Slovakia’s credit strengths, the country is exposed to energy shortages and supply chain disruptions triggered by the Russia-Ukraine conflict. Still, Scope expects the European Commission and member states to pursue a gradual phasing out from Russian energy that would make such a transition manageable for Slovakia. Proposed exemptions to be introduced by the European Commission in the context of the planned oil embargo should enable Slovakia to continue temporarily buying Russian oil under existing contracts. Disbursements of EU structural and recovery fund will support necessary investment in energy infrastructure projects and could also partly compensate for the impact of higher energy prices and ease the reorganisation of energy supply.

However, Slovakia’s credit ratings remain constrained by outstanding short- and longer-term credit challenges associated with: i) the economy’s high exposure to external demand and global value chains; ii) pre-existing public debt sustainability challenges, compounded by adverse demographic trends; and iii) the economy’s relatively high reliance on the car industry, exposing it to the acute and structural changes taking place in the sector.

The Stable Outlook reflects Scope’s view that risks to Slovakia’s ratings over the next 12 to 18 months are balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) projected stronger decline in public debt ratios in the medium term strengthens debt sustainability, for example, due to sustained fiscal consolidation, and/or ii) sustained stronger-than-anticipated economic growth was supported by the implementation of reforms, supporting longer run GDP potential.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) a material deterioration of macroeconomic stability was, for example, due to a prolonged period of energy shortages or sudden halt of energy supply from Russia, and/or ii) there were persistent increases in government debt ratios in the medium term, for example, because of sustained delay in fiscal consolidation.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Gillet, Associate Director.

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