Rating action

Scope Ratings GmbH (Scope) has today upgraded the Republic of Slovenia’s long-term local- and foreign-currency issuer and senior unsecured debt ratings to A+, from A, with Stable Outlooks. The short-term issuer ratings have been upgraded to S-1+, from S-1, in foreign and local currency, with Stable Outlooks.

The upgrade of Slovenia’s credit ratings reflects: i) an improved fiscal outlook, with public debt on a declining trajectory; ii) sustained GDP growth and rising income, supported by reform momentum; and iii) enhanced external resilience, underpinned by a stronger NIIP and continued current account surpluses, even under adverse global economic conditions.

Challenges for the long-term credit ratings of Slovenia include: i) persistent labour supply shortages, which may constrain potential growth; and ii) adverse demographic trends, including population ageing, posing long-term fiscal and economic pressures.

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Key rating drivers

Strengthened fiscal outlook, with a steady debt reduction path. Slovenia’s fiscal outlook has strengthened significantly, with the general government deficit narrowing to just 0.9% of GDP in 2024, well below the government’s 2.9% target. This follows moderate deficits of 3.0% in 2022 and 2.6% in 2023, and reflects solid budget execution, stronger-than-expected revenue performance, and structural reforms addressing long-term fiscal pressures. The strong fiscal performance in 2024 was driven by higher-than-expected personal income and corporate tax revenues, supported by robust employment, rising wages, and solid profitability in sectors such as banking and construction. Fiscal consolidation was further aided by the phase-out of energy crisis-related subsidies and the gradual implementation of post-flood reconstruction spending. Although the 2023 floods caused significant damage—estimated at up to 16% of GDP—actual reconstruction expenditures in 2024 remained below initial plans, in part due to implementation delays, helping to ease near-term fiscal pressures.

Scope projects primary deficits to remain moderate over the medium term, at 1.5% of GDP in 2025 and 1.4% in 2026, below peer averages. Public investment remains robust, with the investment-to-GDP ratio reaching 5.1% in 2024, exceeding its long-term average. A large share of this investment is nationally financed, with additional support from EU funds helping limit the fiscal impact. Targeted revenue measures, including a bank tax and a temporary 3pp- surcharge on the corporate income tax for five years introduced to finance flood recovery, also supported near-term consolidation.

Public debt is on a firm downward trajectory, having declined from 74.8% of GDP in 2021 to 67.0% in 2024, and Scope projects it to decline further to 63.8% by 2030. Slovenia’s public debt profile remains highly favourable, reflecting conservative debt management practices that underpin debt sustainability. As of March 2025, the average weighted term to maturity (AWTM) stood at a long 9.4 years, with an implicit interest rate of 1.9%. The government also maintained a sizeable cash buffer of EUR 10.4bn in Q1 2025, while 98.2% of the debt stock was at fixed interest rates, limiting exposure to interest rate volatility and supporting fiscal resilience.

In addition, Slovenia is advancing structural reforms to address long-term age-related spending pressures. On 8 May 2025, the government approved draft amendments to the Pension and Disability Insurance Act as part of its commitments under the EU Recovery and Resilience Plan. The reform supports long-term fiscal consolidation and reduces reliance on discretionary policy measures. It aims to limit future pension expenditures to below 12.5% of GDP (about 1.5 percentage points lower than in a no-policy scenario) through measures such as increasing the retirement age, modifying indexation rules, and incentivising longer labour market participation. The 11 June 2025 referendum on pension top-ups for award-winning artists underscores political polarisation in Slovenia but is not material to the broader structural pension reform or its fiscal implications. The Long-Term Care Act, which introduces higher social security contributions from mid-2025, along with ongoing healthcare reform, further supports long-term fiscal sustainability.

Sustained GDP growth and rising income, supported by reform anchors. Slovenia’s economic performance continues to support its credit profile, with real GDP growth projected at 2.2% in 2025 and 2.4% in 2026, following a resilient recovery driven by external demand, government investment, and robust private consumption. The medium-term growth outlook remains favourable compared to peers. Growth is supported by strong private consumption, underpinned by real income gains and continued wage growth, as well as resilient goods and services exports. Tourism and pharmaceuticals remain key contributors to external performance, with new investments in the pharmaceutical sector and the launch of production of a new car model expected to further support export growth.

Reform implementation is anchored to Slovenia’s EU Recovery and Resilience Plan (RRP), which has provided a framework for progress in pensions, healthcare, the public wage system, and digital and green transition initiatives. These measures are designed to support productivity and strengthen potential output over the medium term. Some progress has been made in implementing structural reforms aimed at easing labour market rigidities, including the adoption of a Higher Education bill in April 2025. Although the recently advanced pension and healthcare reforms do not directly target labour market flexibility, they are expected to indirectly support labour supply by enhancing incentives for longer workforce participation. Furthermore, the government’s stable parliamentary majority provides political continuity, supporting the reform momentum.

Improved external position reinforces Slovenia’s resilience to geopolitical and financial market volatility. Slovenia’s net international investment position (NIIP) has improved markedly, rising from –15.8% of GDP in 2020 to a modestly positive 2.3% at end-2023, and further to 8.2% of GDP in 2024. This transition to a net external creditor position represents a material shift in Slovenia’s external profile, enhancing its capacity to absorb external shocks and reducing its vulnerability to external financing risks. The improvement in the external position is supported by consistent current account surpluses (at 4.5% of GDP in 2023–2024). These are driven by strong services exports such as in tourism and pharmaceuticals alongside moderate import growth and steady net FDI inflows of around 1% of GDP annually.

Scope expects Slovenia’s NIIP will continue to improve, driven by steady current account surpluses, supported by strong services exports and moderate domestic demand. Ongoing net FDI inflows and prudent external debt management further contribute to the gradual strengthening of the country’s external position. The persistence of current account surpluses, even under adverse conditions, reflects underlying strengths in Slovenia’s external sector.

Rating challenges: persistent labour supply shortages and adverse demographic trends pose long-term fiscal and economic pressures.

A key structural constraint on Slovenia’s long-term credit profile is the persistence of labour supply shortages, which risk limiting potential growth and economic flexibility. Despite a high employment rate (around 78.5%) and low unemployment (3.2% as of early 2025), tight labour market conditions persist, particularly in sectors such as construction and healthcare. A key element of Slovenia’s labour market adaptability has been its effective use of foreign labour, which accounted for around 16% of the total labour force at end-2024. While this has helped offset demographic pressures and sector-specific labour shortages, it also underscores the structural nature of the shortfall. Unless addressed through targeted policy action, labour supply constraints may hinder private investment, and increase wage pressures, ultimately weighing on the country's growth potential over the longer term.

Finally, Slovenia faces long-term structural pressures stemming from adverse demographic trends, which pose an increasing challenge to its fiscal outlook. The old-age dependency ratio is projected to rise significantly in the coming decades, likely increasing age-related public spending in areas such as pensions, healthcare, and long-term care. While the government has initiated structural reforms, including adjustments to the pension system, additional policy measures will likely be needed to preserve fiscal resilience over the long term.

Rating-change drivers

The Stable Outlook represents the opinion that risks for the ratings are balanced over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. Greater economic diversification, higher wealth levels, and sustained current account surpluses, further improving its external position and enhancing economic resilience; and/or
    
2. A significant reduction in the debt-to-GDP ratio driven by strong fiscal discipline.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Weakening fiscal performance, reversing the progress in debt reduction and undermining the fiscal outlook; and/or
    
2. GDP growth prospects weaken materially, for example driven by stalled structural reforms or declining reform momentum.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a+’ for Slovenia, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives 1) a one-notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘aa-’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Slovenia’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following QS relative credit weaknesses for Slovenia: 1) macro-economic stability & sustainability; and 2) environmental factors. Conversely, Scope identified no QS relative credit strengths for Slovenia. On aggregate, the QS generates a negative one-notch adjustment for Slovenia, resulting in final A+ long-term ratings.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

Slovenia’s environmental profile continues to face structural challenges, with limited progress in decarbonisation and the diversification of its renewable energy mix. While hydropower remains the dominant source of renewable energy, advances in wind and solar capacity have been modest. Despite support from the EU Recovery and Resilience Plan, Slovenia’s per capita carbon emissions have remained broadly stable, reflecting the slow pace of transition away from fossil fuels, such as in transport and heating. In addition to structural challenges in its energy transition, Slovenia has faced increased environmental spending needs due to the 2023 floods, which have added to near-term fiscal pressures. These factors drive Scope’s ‘weak’ assessment.

Slovenia’s social profile reflects structural demographic pressures and labour market constraints. A rapidly rising old-age dependency ratio is expected to create long-term fiscal and growth pressures. While labour force participation is relatively high, persistent labour shortages point to limited adaptability. Ongoing reforms in pensions, education, and long-term care aim to mitigate these pressures and improve labour market resilience over time. This drives Scope’s ‘neutral’ assessment.

Under governance-related factors captured in the SQM, Slovenia scores well on a composite index of five World Bank Worldwide Governance Indicators, reflecting strong democratic institutions. The stability afforded by the absence of any election until 2026 is balanced by possible tensions within the centre-left coalition and converging voting intentions between the Freedom Movement and the Slovenia Democratic Party. This drives Scope’s ‘neutral’ assessment.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation        YES
With access to internal documents                                      NO
With access to management                                              YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Jakob Suwalski, Executive Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 5 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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