Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or at minimum each six months in the cases of sovereign, sub-sovereign and supranational organisation issuers.

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’s 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 ratings assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review of the Republic of Slovenia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A/Stable; short-term local- and foreign-currency issuer rating: S-1/Stable) on 6 February 2023.

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 ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Slovenia’s A/Stable ratings are driven by the country’s i) wealthy and resilient economy, supported by the country’s robust external performance; ii) favourable market access and debt profile; and iii) prudent fiscal policy, supporting a gradual reduction of primary deficits. Slovenia’s dependence on Russian natural gas imports is high although declining (about 50% over January to November 2022), but a diversified energy mix – with gas accounting for around 15% of energy consumption – and ongoing diversification of the energy supply, via alternative suppliers such as Algeria, Croatia, Hungary, underpin Scope’s expectation that macroeconomic stability will be preserved. In the longer run, initiatives taken by the government to strengthen the country’s energy security, including the action plan to fully diversify away from Russian natural gas by 2025, should further diversify the energy mix and support Slovenia’s resilience to external shocks.

Slovenia’s rating challenges include: i) limited but growing diversification of energy supply amid geopolitical uncertainties that weigh on the economic outlook; ii) a moderately high public debt burden; iii) labour market rigidities curbing medium-term GDP growth; and iv) adverse demographic trends with a rapidly ageing population that places long-term structural pressures on fiscal sustainability through rising pension and healthcare expenditures.

Scope expects economic growth of 1.0% in 2023, after 5.4% in 2022, and 2.3% in 2024 as internal and external demand recover gradually. The public deficit is expected at 5.2% of GDP in 2023 because of temporary measures introduced to mitigate high energy prices – an equivalent of 2% of GDP or EUR 1.2bn. However, the phasing out of energy related measures and strong fiscal framework should drive a swift consolidation post-crisis with the deficit expected to decline to 2.8% of GDP in 2024 and 2.5% in 2025. Lower fiscal deficits amid dynamic GDP growth should reduce public debt to 63% of GDP in 2027 in Scope’s baseline scenario.

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

The ratings/Outlooks could be upgraded if there is, individually or collectively: i) medium-term growth prospects notably improved, supported by structural reforms addressing long-term challenges including labour market rigidities and the adverse effects of an ageing population; and/or ii) the fiscal outlook improved, with public debt on a firm downward trajectory.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) medium-term growth prospects notably deteriorated due to, for example, substantial and sustained energy supply disruptions; ii) fiscal outlook weakened due to protracted fiscal deterioration and/or; iii) political fragmentation and policy uncertainty curtail the implementation of needed reforms and/or result in lower EU transfers and/or foreign direct investments.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) 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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