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

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’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 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 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 3 December 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, please see here.

Slovenia’s A/Stable ratings are driven by the country’s i) resilient economy driven by economic diversification and external demand; and ii) credible policy framework and favourable debt profile supporting the sovereign’s funding flexibility. Credit rating challenges relate to i) economic and fiscal costs of a rapidly ageing population; ii) supply-side constraints in the labour market, which curb the country’s economic growth potential and external competitiveness relative to regional peers.

Real GDP growth has been revised down to 1.5% in 2024, against a previous projection of 2.3%, after 2.1% in 2023, due to significantly weaker growth in Q2 (0.7% YoY unadjusted data) and Q3 2024 (1.4%), after 2.2% in Q1. This results from lower foreign demand from the main EU trading partners accounting altogether for more than 50% of total good exports. Investment growth has also been penalized by higher unit labour costs and energy prices in the manufacturing industry, and high geopolitical risks across the region.

However, Scope projects real GDP growth to rise to 2.2% in 2025 and 2.3% in 2026 thanks to a stronger rebound in private consumption that will be supported by the rise in real income (with inflation stabilizing around 2%) and strong labour market (with the unemployment rate remaining below 4%). The gradual recovery in exports is expected to support economic activity, as is private investment in the manufacturing industry and sustained public investment. The authorities expect the largest drawdowns for 2025 (EUR 484m) and 2026 (EUR 1.1bn) under the European Recovery and Resilience Facility.

Moreover, Slovenia is expected to maintain a robust fiscal position. Notwithstanding the under-execution of the post-flood reconstruction, the headline deficit is projected at 2.7% of GDP in 2024, after 2.6% in 2023, and at 2.5% in 2025. The reduction of the deficit will be driven by the rebound of the domestic economic activity, the phasing out of energy and flood recovery measures, as well as the adaptation of the national fiscal framework to revised EU rules. A possible tax reform and measures to contain the revalorisation of public sector wages could also strengthen fiscal discipline.

Slovenia is also expected to further progress on the reform agenda underlying the disbursements of European funds. The authorities have started to strengthen the sustainability of the social security system by reforming healthcare and by levying a new long-term care contribution from July 2025 onwards. In addition, current discussions about the pension system signal possible reform to stabilize pension expenditure in terms of GDP over the long-term. Progress on this critical policy challenge would be credit positive.

Finally, Slovenia is expected to continue benefiting from high debt affordability based on a strong debt profile, characterised by its long average debt maturity (more than 9 years) limiting exposure to higher interest rates, while large liquidity buffers (EUR 8.3bn in Q3 2024, or 13.4% of GDP) strengthen its shock absorption capacity. The main risk on general government debt, projected to decline from 68.4% of GDP in 2023 to 61.6% by 2029, is a weak demographic outlook relative to rating peers.

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

The ratings/outlooks could be upgraded if, individually or collectively: i) the fiscal outlook improved with lower budget deficits and declining public debt; and ii) progress was made on important supply side reforms to address labour market shortages and/or the sustainability of the pension system.

The ratings/outlooks could be downgraded if, individually or collectively: i) the medium-term growth prospects decreased significantly due to, for example, heightened labour shortages and/or continued erosion of external competitiveness; ii) the fiscal outlook weakened due to, for example, fiscal loosening and/or stalled reform agenda; and iii) political fragmentation and policy uncertainty weighed on foreign direct investment inflows and/or undermined the disbursement of EU funds.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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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