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 ratings: S-1/Stable) on 15 January 2024.

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; ii) strong market access and favourable debt profile; and iii) effective and prudent fiscal policy.

Credit rating challenges relate to i) the moderately high public debt; ii) a weak demographic outlook, with a rapidly ageing population pressuring long-term fiscal sustainability via rising pension and healthcare costs; iii) labour market rigidities that threaten to curb the country’s medium-term economic growth potential; and iv) pressure on external competitiveness relative to regional peers.

Slovenia’s economy has been adversely impacted by the severe floods and landslides in August 2023 for a cost estimated at EUR 10bn (or about 16% of GDP). Scope expects real GDP growth to increase from 1.3% in 2023 to 2.2% in 2024 and 2.7% in 2025, as private consumption benefits from average inflation receding from 7.4% in 2023 to 4.0% in 2024.

Notwithstanding the reintroduction of fiscal rules at the EU and national levels, budgetary consolidation is delayed by the reconstruction of flood-affected areas. Scope projects the fiscal deficit at 3.3% of GDP in 2024, after 3.6% in 2023. The one-off measures to ease the impact of floods and landslides are significant (EUR 1.1bn in 2024 or 2% of GDP; EUR 0.5bn in 2023 or 1% of GDP) but in line with the energy crisis (around EUR 1.3bn over 2022-2023, or 2.4% of GDP) and well below measures introduced in response to the Covid pandemic (EUR 5.8bn, or around 11% of GDP). Moreover, part of the one-off measures will be financed through the EU Solidarity Fund and the Recovery and Resilience Facility. The EU Commission approved in November 2023 a payment request for EUR 226m in grants (net of pre-financing) and EUR 310m in loans under the Recovery and Resilience Facility.

Slovenia also benefits from strong market access as highlighted by the issuance of EUR 1.5bn of 10-year bonds at 3.0% in January 2024, covering almost one-third of central government financing needs of EUR 4.7bn in 2024. Finally, the government raised the corporate income tax from 19% to 22% and introduced a 0.2% tax on bank assets over 2024-2028, which could generate revenues by around EUR 1.5bn over the period. This should support Slovenia’s fiscal sustainability with public debt projected to decline from 69% of GDP in 2023 to 62% of GDP in 2028. Yet, fiscal pressures remain, including from the revalorisation of public sector wages following the agreement reached in December 2023 with public sector unions, the indexation of social transfers on inflation, and the rise in age-related spending in the longer run.

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, individually or collectively, Slovenia’s: i) fiscal outlook improved, with public debt on a firm downward trajectory over the medium- to long-term, supported, for example, by structural reforms addressing age-related pressures sustainably; and/or ii) sustained growth raises income due to, for example, structural reforms addressing labour market rigidities and/or pressure on external competitiveness.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively, Slovenia’s: i) medium-term growth prospects notably deteriorated due to, for example, a large economic shock, labour shortages and/or a continued erosion of external competitiveness; ii) fiscal outlook weakened; and/or iii) political fragmentation and policy uncertainty curtailed the implementation of reforms and/or resulted in lower EU transfers and/or foreign direct investment.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2023) 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, Director

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