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Fitch says no rating impact from Slovenia's early elections

Fitch says no rating impact from Slovenia's early elections

LJUBLJANA (Slovenia), June 3 (SeeNews) - Fitch Ratings said on Tuesday that Slovenia's decision to call early elections in July has no immediate implications for the country's 'BBB+' sovereign rating or the stable outlook.

Slovenia's president Boris Pahor called during the weekend early general elections on July 13.  The country's prime minister Alenka Bratusek resigned a month earlier after losing the leadership of the Positive Slovenia party, which went on to suffer heavy losses to the opposition Slovenian Democratic Party in the recent European Parliamentary elections.

“Government policy actions taken in late 2013 and early 2014 have materially reduced risks surrounding the banking sector and thus for the sovereign balance sheet. This was one of the key drivers of our revision of the Outlook to Stable from Negative in May,” the ratings agency said in a statement on its website.

Fitch's statement also said:

“We do not think that banking sector clean-up will be a point of contention in an election campaign, as there has been broad-based political support for the actions taken so far.

Protracted political instability beyond the elections would be credit negative. This is not our base case, as Slovenian politics tends to produce coalition governments with predominantly centre-left or centre-right components. Nevertheless, difficulty in forming a ruling coalition might make it difficult to deliver further fiscal consolidation, and could slowdown structural reforms in 2014-2015 including key privatisations. This might weaken Slovenia's medium-term growth profile, dampening the boost from recovery in the eurozone (1Q14 GDP increased 1.9% from a year earlier, with exports increasing by 4.7%).

Previous governments, including the outgoing coalition, introduced some structural reforms, including pension and labour market reform and changes to the bankruptcy code. The coalition in May called for expressions of interest in Nova Kreditna Banka Maribor (NKBM) and invited non-binding bids for a majority stake in Telekom Slovenije. Binding bids for a controlling stake in Aerodrom Ljubljana are expected next month, according to Reuters.

However, privatisations of large state-owned enterprises are an area of long-standing political controversy. Our baseline fiscal projections, which see public debt peaking this year at 80% of GDP, do not assume substantial privatisation revenues. Of greater significance for the sovereign credit profile in the next two years is the clean-up of the banking sector. This has seen the injection of EUR3.2bn from the state budget boosting capital adequacy ratios, and the subsequent transfer of EUR3.3bn of impaired assets to the Bad Asset Management Company reducing the proportion of overdue bank loans. Further transfers from smaller banks are scheduled.

Thus the major initial action to address the key risk to the sovereign balance sheet has been completed, although there is a residual risk that continuing high levels of impaired loans make further recapitalisation or asset transfers necessary, and the sovereign incurs the associated fiscal costs.”

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