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      Scope takes no action on Slovakia
      FRIDAY, 13/05/2022 - Scope Ratings GmbH
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      Scope takes no action on Slovakia

      No action has been taken on Slovakia following a monitoring review

      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.

      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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