Home Ratings and Research Currently valid ACRA Europe affirms unsolicited credit ratings of A+ to Slovakia, outlook Stable
ACRA Europe affirms unsolicited credit ratings of A+ to Slovakia, outlook Stable
Friday, 04 October 2019

The Slovak Republic (hereinafter, Slovakia, or the country) has been assigned the following ratings:

  • Long-term foreign currency credit rating at A+ and local currency credit rating at A+;
  • Short-term foreign currency credit rating at S1 and local currency credit rating at S1.

The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable.

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

Credit rating rationale

Positive rating assessment factors

  • Stable economic development.
  • Declining interest expenditures, lengthening of the maturity structure of outstanding public debt.
  • Very low foreign currency share of public and private external debt.
  • The European Central Bank’s public debt backstop.
  • The euro’s reserve currency status.

Negative rating assessment factors

  • Moderate debt load mostly held by non-residents.
  • Low innovative capacity, high dependency on automotive exports.
  • Deteriorating current account balance, high external debt.
  • Weak institutional quality by EU standards.

Stable outlook

  • Public debt is expected to decline further, albeit at a slower rate.
  • Macroprudential policy has been successful in reducing the excessive growth of household debt.
  • Rapid increase in wage growth is likely to dampen the impact of the global slowdown.

 

Potential rating upgrade factors

  • Substantial decline in public debt load.
  • Increase in domestic holding of public and private debt.
  • Material improvement in governance.

Potential rating downgrade factors

  • Substantial increase in public debt load.
  • Material deterioration in governance.
  • Severe risk of Eurozone breakup.

 

 

Sovereign model results  

Block

Indicative credit rating for the block

Modifier

Score

Modifier corrections to the indicative credit rating

Final credit rating for the block

Macroeconomic position

AAA

Potential economic growth

-1

-1

AA+

Sustainability of economic growth

-1

Efficacy of structural, economic and monetary policies

0

Public finance

A-

Contingent liabilities and risk of them materializing on the sovereign balance sheet

0

+1

A

Fiscal policy framework and fiscal flexibility

0

Market access and sources of funding

+1

Debt sustainability

0

External position

AA-

Balance of payments vulnerabilities

0

+1

AA

External debt sustainability

+1

Stability of currency regime

0

Institutional framework

A

Willingness to pay

0

0

A

Default history

0

Political instability and recent political decisions

0

Involvement in geopolitical conflicts, exposure to geopolitical risks

0

 

Assigned credit rating

Indicative credit rating

A+

Modifier corrections to the indicative credit rating

0

Final credit rating

A+

Assigned credit rating

A+

 

MACROECONOMIC SITUATION AND ECONOMIC POTENTIAL

Trade openness and a high share of manufacturing makes the economy more susceptible to global fluctuations.

The Slovak Republic is an advanced economy with GDP per capita PPP of above 35,000 international dollars (IMF, 2018), the third highest among the former Eastern Bloc EU countries (after the Czech Republic and Slovenia). As a small and very open economy (exports contribute to nearly 100% of GDP) with a high share of manufacturing in total output (gross value added in manufacturing accounts for one-fifth of GDP), it is more susceptible to the global economic cycle. This was demonstrated at the height of the global financial crisis in 2009, when Slovak GDP fell by more than 5%. Since then, the Slovak economy has enjoyed fairly stable economic growth and strong job creation.


Figure 1. Exports and manufacturing dependency of Slovakia and its regional peers

1 

Source: Eurostat


Job-rich growth has put strong upward pressure on wages.

The Slovak economy has enjoyed favorable economic conditions in recent years. Real GDP growth has been above 3% since 2015, supported by household consumption, investment, and foreign trade. In 2018, economic growth accelerated from 3.2% to 4.1%. Robust and job-rich economic growth has led to a strong decline in the unemployment rate from above 14% in 2014 to below 5.5% in Q2 2019, the lowest on record. The rapid absorption of spare capacity in the labor market has translated into labor shortages and the acceleration of wage growth. Nominal wages grew by 6.2% in 2018 (3.6% in real terms). Their growth is accelerating further in 2019, with wages growing by 8.1% on average in the first two quarters.


The slowdown in Slovak economic growth is caused by a decrease in the activity of world trade.

Despite strong domestic fundamentals, the recent global trade slowdown has weighed on the Slovak economy. In Q2 2019, year-on-year growth slowed to 2.6% after seasonal adjustment, mainly driven by a decrease in exports and fixed investment, which declined from a high 2018 base. As a result, ACRA Europe expects economic growth to slow to 2.6% this year, before increasing to 3% in 2020. Household consumption should remain solid in light of strong wage growth. In addition, government final consumption expenditure growth is picking up in 2019 in line with a robust increase in public sector wages by 10% in both 2019 and 2020. Moreover, experience shows that EU funding is likely to increase with the approaching end of the programming period and, thus, support public investment.

The risks, however, are tilted to the downside and mainly related to global trade tensions. The Slovak economy is currently losing momentum as a result of the indirect impact of global protectionism manifested in the form of rising household savings rates and slowing business investment abroad. There is, however, a risk of tariffs on exports to United Kingdom in case of a no-deal Brexit, and also on car exports to the United States.


Share of compensation of employees on value added is among the lowest in the EU.

The decoupling of wage growth from productivity growth poses another risk. Nominal labor productivity has been growing slower than wages for five years. On average, wages grew by 4.2% year-on-year, while productivity grew only by 2%. Yet, from the medium-term perspective, in ACRA Europe’s view the risk of a substantial loss of competitiveness is contained as the share of labor costs on gross value added is still one of the lowest in the EU at 45.7% in 2018, while the EU average stood at 53.3%. Moreover, Slovakia’s main regional competitors for foreign investments are currently facing similarly robust increases in cost of labor.


Figure 2. Share of compensation of employees on gross value added

2 

Sources: AMECO, ACRA Europe


Slovakia is lagging behind in innovation.

In the long term, however, the risk of losing competitiveness is higher. Domestic value added to exports is relatively low (55.5% in 2016 according to the OECD) and the productivity gap between large, mostly foreign-owed, companies is high. According to the OECD, Slovakia has the highest share of jobs at risk of automation among 31 assessed countries (33.6% with over 70% risk of automation and 30.8% with 50–70% risk of automation). One of the main factors contributing to these developments is the relatively low innovative potential of the economy. The share of R&D spending to GDP is low by EU standards (0.95% of GDP in 2015–2017, the EU unweighted average stood at 1.54%), quality of research is lagging according to the European Commission’s Adjusted Research Excellence Index (score is the sixth-lowest in the EU), and brain drain is supported by free movement of labor within the EU. Last, but not at least, the education outcome scores are declining, with the average PISA score falling substantially from 488 in 2009 to 463 in 2015, well below the OECD average of 492.

In order to sustain higher wage growth over the long term, Slovakia has to boost its innovative potential, otherwise it may face a loss of competitiveness. An additional factor constraining competitiveness is relatively weak regulatory quality and efficiency by EU standards. Slovakia scores below the average EU level in the Global Competitiveness Index (41st place), Doing Business Index (42nd) and Economic Freedom Index (65th). However, Slovakia’s scores are above average globally.


The automotive industry constitutes the backbone of the Slovak economy.

Slovakia’s economic structure is another source of concern. As a small and open economy, Slovakia is too focused on the automotive industry, making it more susceptible to sector-specific shocks. Slovakia is the clear global leader with an annual production of almost 200 motor vehicles per 1,000 people. The industry directly employs almost 5% of the workforce and accounts for more than 30% of the country’s merchandise exports. The current economic slowdown demonstrates the weakness of Slovakia’s economic structure. In the longer term, the sector is expected to undergo major changes due to the increasing penetration of electric vehicles, growing shared economy, and the emergence of self-driving cars. Failing to respond to these challenges could have a considerable negative impact on economic growth and employment.


EU transfers are likely to decline in the next budgeting period.

EU transfers have made an important contribution to economic growth in recent years. Slovakia has received 14.1 bln EUR since 2010, which constitutes 2.1% of gross national income on average. Despite being below the EU-CEE average, it is very likely that in terms of GDP share, net EU funding will decline in the upcoming 2021–2027 EU budgeting period and, thus, contribute less to GDP growth.


Figure 3. Net budgetary balance with the EU (% of gross national income) for EU-CEE countries (average for 2010–2018)

 3

Source: European Commission


The working age population might decline by as much as 30% by 2060.

Demographic trends are negative and are likely to constrain GDP growth in the medium and long term. The country’s working age population peaked at the beginning of the decade and has been in decline since then. This decline is very likely to speed up in the coming decades. According to the Eurostat baseline scenario, the working age population is projected to shrink by about 30% by 2060. This figure is close to the unweighted average of the projections for the EU-CEE countries.

Taking all these factors into account, the potential economic growth for the next decade is projected at close to 3% by both the EU and the OECD before slowing below 2% in the following decades. The long-term growth potential could increase as a result of improvement in the innovative capacity of the economy, better demographics or by a positive global productivity shock.


Eurozone membership has contributed to anchoring inflation expectations.

On the monetary side, Slovakia has enjoyed low inflation rates since the late 2000s also thanks to Eurozone membership, which has brought more credibility for the monetary policy and helped to anchor inflation expectations at low levels. Since the introduction of the euro in 2009, the inflation rate has averaged at 1.4%, which has been the lowest inflation in the V4 region. In 2000–2008, the inflation rate averaged at 5.7%, the second highest in the region.

The inflation rate has been above 2% since 2018, with food and service prices being the main drivers. In the first eight months of 2018, annual inflation averaged 2.6%. ACRA Europe expects the inflation rate to remain within the 1–3% corridor in the medium term. However, inflation is very likely to be higher than the Eurozone average as higher wage growth will spill over into prices in the non-tradable service sector.


Figure 4. Average annual inflation rate and its components (%)

 4

Sources: Eurostat, ACRA Europe


ECB policies might not be appropriate for the Slovak economic cycle in the future.

Eurozone membership limits the ability of the National Bank of Slovakia (NBS) to react to economic development in the country as the ECB sets its policy for all 19 Eurozone countries. With a positive output gap and inflation above the 2% target, the ECB’s monetary stance is too loose for the economy. Therefore, the NBS has to rely on its macroprudential toolkit to mitigate the effects of easing. Conversely, should the Slovak economy experience stronger headwinds than the Eurozone in the future, the ECB is not likely to deliver a sufficient policy easing.


PUBLIC FINANCE

Risks to fiscal sustainability in the medium term are low. The general government consolidated debt to GDP ratio has been declining since its peak at 54.7% in 2013 and fell below 49% in 2018. The decline has been primarily driven by nominal GDP growth, with declining deficits and interest rates on government debt also being important contributing factors. In 2018, general government deficit fell to 0.7%, the lowest ever.


There will be no balanced budget in 2019.

The government’s plan to balance the budget this year is very likely to fail. According to the Council for Fiscal Responsibility, the budget shortfall could be as high as 1.2% of GDP. The NBS estimates the deficit at 0.9% of GDP. The economic slowdown plays only a minor role in explaining this expected shortfall. Instead, it can be attributed to overstated estimates of non-tax revenues, along with understated local government, social security and healthcare expenditures. However, even if these estimates will prove to be correct, the debt-to-GDP ratio should continue to decline. ACRA Europe expects the debt-to-GDP to decline to 48.3% in 2019, just above the lower boundary mandated by the debt rule.


The debt rule has been tightening since 2018.

Slovakia introduced two fiscal rules in response to the European debt crisis. The more stringent one is the constitutional “debt brake” that has been in force since 2012, which initially capped the debt to GDP ratio at 60%, with sanctions starting at 50%. If debt enters the sanction range, the government is obliged to report what measures are being taken to reduce the debt amount. The sanction range has been automatically declining since 2018 by one percentage point every year from 50–60% of GDP, and will reach 40–50% by 2027. This pre-implemented tightening combined with constitutional force makes Slovakia’s debt rule one of the strongest in the EU.


The government is not ambitious enough to achieve the medium-term budgetary objective required by the EU.

The second rule is the “balanced budget” law required by the European Fiscal Compact, which calls for either structural deficits of no higher than 0.5% of a country’s GDP or establishing an appropriate path to achieve this objective. Without additional consolidation measures, structural deficit is likely to increase from 1% in 2018. The NBS expects an increase to 1.2% and 1.6% in 2019 and 2020, respectively. In ACRA Europe’s view, the government is not ambitious enough to achieve the medium-term budgetary objective required by the EU fiscal pact. This is also demonstrated by the fact that the government has recorded strong windfall revenues in recent years, which have been used to improve its fiscal position only to a limited extent.


ECB policies are significantly reducing the cost of refinancing government debt.

The current financing conditions are very favorable for Slovakia. Renewed ECB easing has pushed the yield on 10-year bonds into negative territory and, thus, provided additional relief to interest expenditures. In 2018, interest expenditures accounted for 1.3% of GDP (this ratio stood at 1.8% for the Eurozone), and is very likely to decline further in light of an expected decline of debt-to-GDP ratio and a lower cost of debt refinancing.

An important factor keeping the government interest costs down is the ECB’s Outright Monetary Transactions program (OMT). This program, introduced in 2012 to tackle the Eurozone sovereign debt crisis, allows unlimited purchases of government-issued bonds that mature in one to three years, provided that the bond-issuing countries agree to certain domestic economic measures. Prior to the OMT, a considerable number of Eurozone sovereign euro-denominated bonds were deemed as foreign currency debt due to limited central bank backstop. Since it came into force, yields on non-core Eurozone government bonds have declined substantially as the OMT significantly reduces the risk of losing market access even if the government debt-to-GDP ratio increases substantially. ACRA Europe considers the risk of cancelling this program as very low, as it might cause severe financial stress to big peripheral Eurozone economies such as Italy and Spain and, thus, endanger the future of the Eurozone.


Figure 5. Yields on Slovak and German 10y bonds and the announcement of OMT program (%)

5
Sources: ECB, ACRA Europe


Government debt is mostly long-term and local currency denominated.

ACRA Europe considers the structure of the government debt to be solid. Debt is almost solely denominated in euros (95%). The share of debt held by non-residents stood at 57.5% at the end of 2018. Although this figure is higher than for Slovakia’s regional peers, it is just above the unweighted average of the Eurozone countries (55%). Eurozone countries tend to have a higher share of external government debt due to the cross-border search for higher-yielding government securities with almost non-existent currency risk within the Eurozone. Slovakia is able to raise long-term debt with favorable yields, and the average maturity of outstanding government securities stands at 8.8 years, much longer than for its regional peers. Prior to joining the Eurozone, the average maturity of the outstanding debt was below 5 years.


Figure 6. Risk characteristics of government debt compared to regional peers

 

Residual maturity

Foreign currency share

External debt share

Slovakia

8.8 years

5%

58%

Czech Republic

6.0 years

12%

40%

Poland

4.9 years

23%

50%

Hungary

3.8 years

31%

37%

Sources: ECB, Eurostat


The increase in household debt is the highest in the EU.

Despite some signs of vulnerability, the contingent liability risks related to the financial sector are contained. Challenges arise mainly from strong household credit growth fueled by a low-interest rate environment coupled with a strong appetite for homeownership. In the last five years, the household debt-to-GDP ratio rose by 11.7 percentage points to 41.4% in Q1 2019, by far the highest increase in the EU. While lower than the unweighted EU-average (51.8%), the ratio is the highest among the former Eastern Bloc EU countries (with an unweighted average of 27.7%), where mortgages are a relatively new phenomenon.

The growth in the household debt-to-GDP ratio will most likely continue in the future due to older generations that are almost mortgage-free (during the post-Communist transformation, they were offered residential properties from the state at low prices) and a very high appetite for homeownership (90.1% in 2017, the third highest in the EU). This could increase the risk of unsustainable development in the housing market. Another source of concern is the high share of lower-income groups (with less than 60% of median income) among debtors compared to the EU-average.

There are, however, two factors mitigating the risk of unsustainable development. The increase in housing prices resulting from the recent credit expansion has been to a large extent matched by the increase in household income. The ratio of average price for a square meter of residential property to average wage has shown only a slight increase in recent quarters and is still one-third below its peak in 2008. For flats, whose prices are rising more rapidly, this ratio is 25% below its 2008 peak. The risk of a strong decrease in housing prices is, therefore, limited and is likely to occur only in the case of a severe external shock.

Macroprudential policies have been successful in reducing the growth rate of household debt.

On top of that, the NBS is taking active steps to mitigate the risks in the housing market and the financial sector. It has limited the share of new mortgage loans with loan-to-value above 80% to 20% and the share of new mortgages with a debt-to-income ratio above 8 to 10%, as well as capped the loan-to-value at 90% and the debt service to total income rate at 80%. These measures have been successful in tackling high credit growth rates so far — in July 2019, the annual growth rate of credit for house purchases eased to 9.8% from 12.3% and the annual increase of household debt to GDP ratio slowed to 1.1 percentage points in Q1 2019, the lowest in six years.


Figure 7. Effectiveness of macroprudential measures: Year-on-year change of loans for housing purchase and household debt-to-GDP ratio

7 

Source: Eurostat, NBS


The banking system is fairly profitable and adequately capitalized, but liquidity ratios are low.

Banking sector statistics are mixed. Although the capital ratios have increased substantially since the crisis, they are still below the unweighted EU average (CET1 ratio at 15.7% vs 17.1% in Q1 2019). The credit expansion caused a deterioration in the share of banks’ liquid assets. In Q1 2019, only 20.2% of short-term liabilities were covered by liquid assets, the second lowest in the EU after Greece. The unweighted EU average stood at 41%. On the other hand, the Slovak banking sector shows higher profitability (mainly thanks to higher credit origination), lower leverage, and better asset quality compared to the EU average. The NBS is actively involved in maintaining the stability of the banking sector. To ensure that banks build up extra shock absorbers, it has increased the counter-cyclical capital buffer from 1.5% to 2% (starting from August 2020), the second highest in the EU along with the Czech Republic.

ACRA Europe believes that the non-financial sector contingent liability risk is low. According to the latest EU data, non-financial sector liabilities accounted for 8.4% of GDP in 2017, one of the lowest in the EU. They are related mainly to SOE liabilities (5.4%) and public-private partnerships (2.9%). With respect to direct support to private non-financial sector, Slovak governments spend only a small fraction of GDP on state aid. In 2008–2017 they spent 0.3% annually on average for this purpose. ACRA Europe believes that the trend of low direct support to the private sector will persist.


The sustainability of the pension system has declined following the recently imposed cap on the retirement age.

Slovak public finances will face challenges related to aging in the long term. The European Commission estimates an increase in healthcare and long-term care costs of 1.8% of GDP by 2060. Moreover, the recently introduced constitutional cap on the retirement age at 64 (prior the new legislation, the retirement age was indexed to life expectancy) is very likely to widen the pension system deficit after 2035. The extent of the shortfall will depend on the future replacement rate if the cap remains unchanged. According to the Council for Fiscal Responsibility, the additional shortfall in the pension system without adjustment of the parameters could be as high as 3% of GDP by 2060 compared to 2018. Nevertheless, given the constitutional debt rule and sufficient time to address the future shortfall, ACRA Europe does not consider future aging-related costs as a factor constraining the creditworthiness.


EXTERNAL RISKS

Current account deficit is driven by dividend outflows.

Slovakia’s current account balance has been negative since 2015. In 2018, the current account deficit reached 2.5% of GDP and is expected to deteriorate further due to a sharper slowdown in exports compared to domestic demand. Among the EU-CEE countries, only Slovakia and Romania have non-negligible current account deficits. However, the structure of the deficit reveals that it is to a large extent the result of the FDI-heavy growth model and not due to trade imbalances. With the trade balance being positive in the recent years, the shortfall has been driven mainly by primary income outflows in the form of dividends from foreign direct investments. The current account is also propped up by personal remittances (compensation of employees and personal transfers), which account for about 2% of GDP. Given the free movement of labor within the EU, ACRA Europe views this source of funding as stable.


Figure 8. Composition of the current account balance (% of GDP)

 8

Sources: NBS, ACRA Europe


The current account deficit is financed by surpluses on capital and financial accounts. The capital account surplus reflects mainly EU funding, while the financial account surplus reflects to a significant degree FDI inflows. In 2016–2018, gross FDI inflows averaged at 4.0% of GDP. Gross portfolio investment inflows have been far less significant and stood at 1.5% of GDP. Foreign portfolio investments are almost solely directed toward debt securities, mostly government bonds.


Increase in external debt was driven by non-resident deposits in the central bank.

Gross external debt has increased significantly in recent years, from 85% of GDP in 2015 to over 100%. Yet, two-thirds of this increase is attributed to foreign deposits in the NBS, which ACRA Europe sees as non-defaultable debt. The structure of the external debt itself is sound. Only 11.5% of the external debt is denominated in foreign currencies (assuming unallocated external debt has the same currency composition). Moreover, most of the external debt can be attributed to stable sectors — government, central bank, and intercompany borrowings. Only 22.5% of the external debt is owed by the banking and private non-financial sectors, which are more prone to refinancing risk.


Figure 9. External debt to GDP and its currency structure compared to regional peers

 9

Sources: ECB, World Bank, ACRA Europe


The net international investment position is deeply negative and reflects mainly the FDI driven growth model. In Q1 2019, it stood at -66% of GDP, the lowest among the EU-CEE countries. However, as with external debt, according to ACRA Europe, this does not currently imply a risk for external debt sustainability as the external liabilities are almost solely denominated in euros, have longer maturity, and are owed by sectors less prone to liquidity risk.


Low reserves are not a source of concern for a reserve currency country.

Despite a more than twofold increase since 2017, international reserves are very low by standard metrics, reserves coverage of imports is below one month. This is not, however, a source of concern as the euro has reserve currency status and therefore Eurozone countries tend to hold much lower foreign exchange reserves compared to most of the world. Moreover, international reserves can cover more than 200% of the identified foreign currency external debt.


Eurozone membership has not caused significant imbalances for the Slovak economy so far
. According to IMF, the real effective exchange rate is line with the fundamentals. Current account deficits and a negative international investment position can be largely attributed to foreign direct investments and are not a sign of excessive domestic consumption financed by external debt. Political risks for the Eurozone are currently moderate in ACRA Europe’s view. Politicians and central bankers in the Eurozone countries have invested immense political capital in preserving the euro. But in some countries, most importantly Italy, public and political support for the euro is declining, and therefore the risk of the Eurozone breaking up in the future cannot be completely ruled out.


INSTITUTIONAL FACTORS

Governance indicators, which are at above-average levels on the global scale, have declined slightly since their peak in the mid-2000s. In 2018, the average score fell to lowest since 2002, with the strongest declines since the peak being recorded in the political stability and the regulatory quality categories. Political stability declined notably in 2018 as a result of recent large-scale protests following the murder of a journalist, while the regulatory quality is constrained by frequent changes to legislation.


Control of corruption is the weakest among the governance indicators.

Compared to the global average, control of corruption is the weakest indicator. Corruption was identified as the most problematic factor for doing business in the 2017–2018 World Economic Forum survey (by 19.1% of respondents). In 2018, Slovakia ranked 50th in the Transparency International Corruption Perception Index from 180 countries (a higher rank means lower corruption), the sixth worst score in the EU. This implies a relatively high level of rent-seeking in the economy and constitutes a drag on economic growth.

As for other indicators lagging behind the EU average, the weaker rule of law score is demonstrated by the third-lowest perception of judicial independence among companies and the second-lowest among the general public in the EU, according to the most recent EU justice scorecard. The weaker score for government effectiveness is demonstrated by second place for “inefficient government bureaucracy” in the problematic factor ranking for doing business according to the 2017–2018 World Economic Forum survey.


Figure 10. World Governance Indicators compared to EU and EU-CEE averages (global average = 0)

 10

Source: World Bank


Despite the notable decline, political stability and absence of violence is the only indicator above the EU average. This is to a large extent attributable to the ability of governments to carry out their mandates as early elections are rare events. The next parliamentary elections will be held in February or March 2020. The political scene is fragmented: according to recent polls, nine parties would pass the 5% threshold required to get into parliament. Despite this fragmentation and the rise of support for far-right populists, the risk of an anti-EU majority in parliament after the election is relatively low.


Appendix 1. Comparative analysis of Slovakia and the sample group

Comparison of macroeconomic and institutional indicators for 2018

 

Slovakia

Czech Rep.

Poland

Hungary

Slovenia

Lithuania

Macroeconomics

GDP per capita (1000 EUR, PPS)

24.0

28.1

21.9

21.7

26.9

24.9

Real GDP growth (%)

4.1

3.0

5.1

4.9

4.1

3.5

CPI (% y-o-y)

2.5

2.0

1.2

2.9

1.9

2.5

Openness of economy (% of GDP)

192.4

150.4

107.2

168.2

162.5

162.0

Unemployment *

5.7

2.0

3.4

3.4

4.3

6.1

Public finance

Consolidated government debt (% of GDP)

48.9

32.7

48.9

70.8

70.1

34.2

External consolidated government debt (% of GDP)

28.2

13.0

24.3

25.7

43.9

24.8

Consolidated government budget balance (% of GDP)

-0.7

0.9

-0.4

-2.2

0.7

0.7

Private non-financial sector debt (% of GDP) **

94.9

89.2

80.2

83.8

78.0

65.0

External position

Current account (% of GDP)

-2.5

0.3

-0,6

0.3

5.6

1.6

Real effective exchange rate (base: 2010)

102.4

101.1

94.3

92.3

100.3

109.0

External debt position (% of GDP) *

111.7

80.0

60.8

103.1

93.0

72.9

Short-term external debt to total external debt (%) ***

47.6

57.8

19.4

16.6

25.9

35.6

Export diversification index

0.48

0.43

0.40

0.41

0.46

0.44

Institutional framework ***

Political stability and absence of violence

0.75

1.04

0.55

0.76

0.91

0.75

Government effectiveness

0.71

0.92

0.66

0.49

1.13

1.07

Rule of law

0.53

1.05

0.43

0.56

1.06

0.96

* Q2 2019
** Q1 2019
*** Q2 2019; at original maturity; without intercompany lending
**** Indicates the extent of differences between the country’s trade structure and the average world indicator and ranges approximately from 0 (weak differences) to 1 (strong differences).
Sources: Eurostat, ECB, World Bank, UNCTAD


Appendix 2. List of material data sources

International Monetary Fund

World Bank

Eurostat

The Bank for International Settlements

European Central Bank

European Commission

Organisation for Economic Co-operation and Development

National Bank of Slovakia

Statistics office of the Slovak Republic

Council for Budget Responsibility of the Slovak Republic

Appendix 3. Key indicators

 

Balance of payments, EUR bn

 

2015

2016

2017

2018

Balance of trade

0.80

1.25

0.60

-0.22

Exports

64.6

66.7

70.5

75.7

Imports

63.8

65.4

69.9

75.9

Balance of services

0.13

0.38

0.88

0.92

Exports

7.3

8.4

9.3

10.2

Imports

7.2

8.0

8.5

9.3

Balance of income

-2.59

-3.86

-3.10

-3.08

Income receivable

4.5

3.2

4.0

4.3

Income payable

7.1

7.1

7.1

7.4

Current account 

-1.67

-2.22

-1.62

-2.37

Current account, % of GDP 

-1.7

-2.2

-2.0

-2.5

International reserves at the end of the period

2640

2743

3020

4568

Sources: NBS, Eurostat

 

External position (assets and liabilities), EUR bn

 

2014

2015

2016

2017

2018

External debt

68.5

67.4

74.9

94.2

101.9

long-term

47.2

45.8

45.7

48.2

50.7

short-term (up to 1 year)

21.3

21.6

29.2

46.0

51.2

External liabilities

68.5

67.4

74.9

94.2

101.9

Sovereign issuer, including

38.6

36.0

39.0

52.8

61.0

monetary authorities

9.9

9.6

12.3

25.4

33.3

consolidated government

28.8

26.4

26.7

27.4

27.7

Banks

5.9

6.6

8.0

9.0

9.6

Other sectors

23.9

24.8

27.9

32.4

31.3

including intra-corporate loans

13.2

14.1

17.3

20.5

19.1

External assets, excluding shares *

55.2

53.2

55.0

61.7

77.2

Sovereign issuer, including

20.5

17.7

16.1

19.0

31.2

international reserves

2.2

2.6

2.7

2.7

3.0

other external assets

18.3

15.0

13.5

16.3

28.1

Banks

11.3

10.0

10.6

9.8

10.9

Other sectors **

23.4

25.6

28.3

32.9

35.1

Net debt

13.3

14.2

19.9

32.5

24.7

Sovereign issuer

18.1

18.3

22.9

33.8

29.8

Banks

-5.4

-3.4

-2.6

-0.8

-1.3

Other sectors

0.5

-0.8

-0.3

-0.6

-3.8

International investment position (net),% of GDP

-63.6

-64.4

-66.6

-65.6

-67.3

External debt, % of GDP

90.0

85.2

92.2

111.0

113.0

Sources: NBS, Eurostat


Budget indicators, % of GDP

Consolidated government

2015

2016

2017

2018

Income

42.5

39.2

39.4

39.9

Expenses

45.1

41.5

40.2

40.6

including debt servicing expenses

1.7

1.6

1.4

1.3

Primary budget balance

-0.8

-0.6

0.6

0.6

Overall budget balance

-2.6

-2.2

-0.8

-0.7

Consolidated government debt

52.2

51.8

50.9

48.9

% of income

1.23

1.32

1.29

1.23

Central government

 

 

 

 

Income

26.8

23.4

23.4

23.9

Expenses

29.3

25.9

24.5

24.9

including debt servicing expenses

1.7

1.6

1.4

1.3

Primary budget balance

-0.8

-0.8

0.3

0.3

Overall budget balance

-2.5

-2.5

-1.1

-1.0

Central government debt

52.2

51.7

51.0

49.1

% of income

1.95

2.21

2.18

2.05

Note: nominal GDP, EUR mln

79138

81226

84851

90202

Source: Eurostat


Rating history

The rating was first released for distribution on October 3, 2018 with last review on April 5, 2019.


Regulatory disclosure

The sovereign credit ratings have been assigned to Slovakia under the international scale based on the Methodology to assess Sovereign entities. An explanation of the importance of each rating category and a default definition is included in the ACRA Europe website. Information on the rate of historical failure is available at www.cerep.esma.europa.eu. The default rate means a percentage of ratings that were changed to default from the overall number of ratings, for each rating category and given period. The disclosure of the unsolicited rating and outlook was preceded by the approval of the Rating Committee. Since July 30, 2012, ACRA Europe has been a registered credit rating agency according to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, on credit rating agencies.

The sovereign credit ratings and their outlook are expected to be revised within 6 mounts following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was issued as unsolicited. The rated entity did not participate in the credit rating assignment. ACRA Europe did not have access to the rated entity’s internal documents or management. ACRA Europe, in the context of routine care, verified all sources entering the rating process and considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The rated entity was notified on October 3, 2019, and after the notification there were no changes or amendments in the rating.

ACRA Europe provided no additional services to the Slovak government. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.

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