Home Ratings and Research Currently valid ACRA Europe affirms unsolicited credit ratings of A+ to Slovakia, changes outlook to Negative
ACRA Europe affirms unsolicited credit ratings of A+ to Slovakia, changes outlook to Negative
Friday, 11 September 2020
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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 Negative and local currency credit rating is Negative.

The Negative outlook assumes the possibility of a negative rating action over the next 12–18 months.

The COVID-19 crisis has caused a deep recession and placed a heavy burden on the country’s public finances. The key reason behind the negative outlook is the deterioration in Slovakia’s fiscal metrics — the debt to GDP ratio is expected to increase to around 60%. Furthermore, one of the largest slumps in exports and industrial production in the EU has highlighted the susceptibility of the country’s relatively weakly diversified economy to the global economic cycle. On the positive side, the country has been able to retain very favorable financing conditions, to a significant extent on the back of the ECB’s policies compressing government yields, which should mitigate the impact of the crisis and support the recovery.

Credit rating rationale

Positive rating assessment factors

· Low interest expenditures and long maturity structure of outstanding public debt.

· Very low foreign currency share of public and private external debt.

· Solid and job-rich pre-COVID-19 economic growth.

· The European Central Bank’s conditional public debt backstop (OMT programme).

· The euro’s reserve currency status.

Negative rating assessment factors

· COVID-19 shock negatively impacts a wide range of macroeconomic indicators.

· Relatively low innovative capacity and high dependency on automotive exports.

· Deteriorating current account balance and high external debt.

· Weak institutional quality by EU standards.

Potential rating upgrade factors

· Substantial decline in government debt load after the fading of the COVID-19 crisis.

· Strengthening economic diversification.

· Increase in domestic holding of public and private debt.

· Material increase in governance indicators.

Potential rating downgrade factors

· Long-lasting impact of the COVID-19 crisis on the country’s growth potential and public finances.

· Severe financial shock resulting in a costly bailout of the banking system.

· Material deterioration in institutional quality.

Sovereign model results (based on 2019 data)

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

Efficiency of structural, economic and monetary policies

0

Public finance**

A

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

0

0

A

Fiscal policy framework and fiscal flexibility

0

Market access and sources of funding

+1

Debt sustainability

-1

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+

* The A+ Indicative credit rating was used to obtain the final credit rating, even though the core part of the rating model based on 2019 data put Slovakia at AA-. According to the methodology, this conservative correction was made because the indicative score only crossed the AA+ lower boundary by a small amount and due to the expected negative impact of the COVID-19 crisis on a variety of indicators used in the model.

** ACRA Europe expects the indicative rating for the public finance block to decline to BBB in 2020. This expectation, along with the likely decline in the indicative rating for the macroeconomic position, stands behind the negative outlook.

MACROECONOMIC SITUATION AND ECONOMIC POTENTIAL

The structure of the Slovak economy makes it more susceptible to the global economic cycle.


ACRA Europe assesses Slovakia’s macroeconomic position as strong. This assessment is based on a solid economic performance in recent years and low and stable inflation. The assessment is constrained by the relatively weak diversification of the economy, relatively low innovative potential, and negative demographic trends. This assessment may be downgraded in the future based on the depth and duration of the ongoing economic slump related to the COVID-19 shock.

The Slovak Republic is an advanced economy with a GDP per capita (by purchasing power parity) of more than 36,000 international dollars (IMF, 2019). It is a member of the European Union, Eurozone, OECD, Schengen Area, and NATO. The economy is among the most open (185% of GDP in 2019) and most manufacturing-oriented (gross value added in manufacturing stood at 18.5% of GDP in 2019) in the EU, and is highly dependent on the automotive industry (14% of total output in 2019). Such a structure makes the economy more susceptible to the global economic cycle. This was demonstrated during the COVID-19 shock, when the economic output was dragged down by the slump in production of motor vehicles.

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

1

Source: Eurostat

Prior to the COVID-19 shock, the economy was supported by a robust labor market and strong growth in investment.

Prior to the COVID-19 shock, the Slovak economy enjoyed favorable economic conditions. Real GDP growth averaged 3.2% from 2015 to 2019, mainly on the back of solid growth in household consumption supported by a robust labor market. The average annual unemployment rate fell from above 14% in 2013 to below 6% in 2019. The rapid absorption of spare capacity in the labor market translated into labor shortages and the acceleration of wage growth. Nominal wages grew by 7.8% in 2019 (5.0% in real terms). Another important source of growth has been fixed investments, supported to a significant extent by EU transfers, which accounted for 2.2% of GDP (net) in 2015–2019.

High-frequency indicators are recovering quickly.

The COVID-19 shock has caused a big disruption in the economy. In the first half of 2020, the economy contracted 8% year-on-year (somewhat less than the 8.3% decline in the EU 27). High-frequency indicators point to a V-shaped post-lockdown recovery — the year-on-year rate change in retail sales increased to 1.5% in July after contracting 14.3% in April. Nominal exports made even a more impressive comeback, after falling 45% year-on-year in April, they contracted only marginally in June by 1%.

Figure 2. High-frequency indicators point to a V-shaped recovery

2

Source: Eurostat

The labor market is also showing some signs of stabilization. According to the Central Office of Labor, Social Affairs and Family, the unemployment rate only increased by 0.2 and 0.25 percentage points in June and July, respectively, after a 2 pps increase between March and May. In July, the unemployment rate stood at 7.65%, the highest since 2017.

The number of new COVID-19 cases is increasing at a strong pace both domestically and in the EU.

Yet, the outlook remains uncertain. The fragility of the recovery is underpinned by weak soft indicators, most of which remain well below their pre-COVID-19 levels. Moreover, the daily number of new COVID-19 cases is increasing both domestically and in the EU. Although another wave of large-scale lockdowns is considered to be the less likely scenario, in ACRA Europe’s view, given the improvement in management of epidemiologic risks, it cannot be completely ruled out. Finally, a premature phasing-out of government support measures both domestically and abroad constitutes another source of risk for the recovery. In case of no second-wave lockdowns, we expect annual GDP to contract by between 6% and 8% in 2020 followed by a roughly equal 2021 recovery supported by an increase in the capacity utilization rate.

EU transfers will remain a significant factor supporting growth in the medium term.

In the medium term, the economy will receive an additional external boost from the 750 bln European Recovery Fund. The country is entitled to receive more than 6 bln in grants (in 2018 prices) in 2021–2026 from the 312.5 bln Recovery and Resilience Facility (exact figures will depend on the GDP outcome in 2020 and 2021) provided that it submits an acceptable reform and investment agenda to the European Commission. On top of that, Slovakia will remain a significant net recipient from the new EU 2021–2027 Multilateral Financial Framework (ACRA Europe estimates net EU transfers in the next budgeting period at 1.5% of GDP). Finally, due to low utilization of the allocated EU structural and investment funds from the current EU budget (38% of the EUR 18.7 bln, including co-financing), the net operating balance with the EU is very likely to increase in 2020–2023.

From a long-term perspective, the Slovak economy is susceptible to several challenges. The COVID-19 shock has highlighted the risks associated with the country’s dependence on the automotive industry, which is highly pro-cyclical. Slovakia is the global leader in motor vehicle production with approximately 200 units per 1,000 people produced in 2019. Last year, the automotive industry directly employed 4.8% of the workforce and accounted for 14% of the total economic output and 37% of total merchandise exports.

Strong focus on the automotive industry has exacerbated the effect of the COVID-19 shock on the economy.

At the height of the COVID-19 crisis Slovakia experienced the biggest year-on-year contraction in manufacturing in the EU (-47.5% in April and -37.4% in May) due to an EU-wide collapse in manufacturing of motor vehicles (-91% and -55%, respectively). Although car production and manufacturing have recovered significantly since then, this slump highlighted the vulnerability of the economy not only to global, but also sector-specific shocks. 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.

Figure 3. EU countries by share of employment in the manufacture of motor vehicles

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Sources: Eurostat, ACRA Europe

Slovakia is lagging behind in innovation.

Another long-term source of concern is the relatively low innovative capacity of the economy. R&D expenditures averaged 0.84% of GDP in 2016 to 2018. This figure is not only much lower compared to the whole EU 27 (2.15%), but also in comparison with the unweighted average of Slovakia’s regional peers — the Czech Republic, Poland, and Hungary (1.41%). Similarly, the country is lagging behind its EU peers also in other innovation and education related indicators.

Figure 4. R&D expenditures (% of GDP) in the EU countries (2016–2018 average)

4

Source: Eurostat

The risks related to Slovakia’s lagging innovative capacity are evident from several indicators. According to the OECD, Slovakia has the highest share of jobs at risk of automation among 28 assessed countries (33.6% with over 70% risk of automation and 30.8% with 50–70% risk of automation).[1] Moreover, the domestic value added in exports is relatively low (55.5% in 2016 according to the OECD), suggesting that the country’s competitiveness is to a significant degree driven by low nominal labor costs compared to Western European countries. Finally, the gap in productivity growth between large, mostly foreign-owned companies is high, indicating a strong dependence of productivity growth on foreign investments.

The decoupling of wage growth from the growth in productivity witnessed in recent years (nominal wage per hour grew by 5.5% on average since 2015, while the nominal hourly productivity grew by only 3.1%) only poses a small risk to the country’s competitiveness in the short term in ACRA Europe’s view, given the low share of compensation of employees to gross value added by EU standards (47.5% vs 53.2% for the EU 27 in 2019). However, Slovakia has to boost its innovative potential in order to sustain higher wage growth without a significant erosion of competitiveness over the long term.


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 Eurostat’s baseline scenario, the working age population is projected to shrink by about 10% by 2040 and by almost 30% by 2060.

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 to 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 due to a positive global productivity shock.

Inflation expectations are well anchored.

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. In 2019, the HICP inflation rate accelerated from 2.5% to 2.8%, the highest since 2012, on the back of an increase in prices of food and services. In 2020, ACRA Europe expects the inflation rate to slow down to 2.0%.

Looking at the flexibility of the monetary regime, Eurozone membership constrains the ability of the National Bank of Slovakia (NBS) to react to economic developments in the country as the ECB sets its policy for all 19 Eurozone countries. This was evident prior to the COVID-19 shock, when the ECB’s monetary stance was too loose given a positive output gap and inflation above the 2% target. Therefore, the NBS had to rely on its macroprudential toolkit to mitigate the effects of easing. Conversely, should the Slovak economy experience an asymmetric shock compared to the Eurozone in the future, the ECB might not be able to deliver a sufficient policy easing.

PUBLIC FINANCE

ACRA Europe assesses Slovakia’s fiscal strength as moderate (based on our 2020 forecast for public finance indicators). The assessment has been downgraded from upper moderate mainly due to an expected significant increase in government debt and deficit in light of the COVID-19 shock. Among the positive factors supporting the country’s creditworthiness, we highlight low interest expenditure, a negligible share of FX debt and the ECB’s government debt backstop.

The parliament passed a double-digit central government deficit.

The COVID-19 shock has significantly weighed on the country’s public finances. In July, Slovakia’s parliament passed a supplementary budget with an increase in the cash deficit of the central government from EUR 2.77 bln (2.9% of 2019 GDP) to EUR 11.95 bln (12.7% of 2019 GDP). Of the EUR 9.2 bln increase:

  • EUR 1.4 bln is attributable to revenue shortfalls;
  • EUR 4.9 bln to COVID-19 related expenditures, inter alia transfers to the Social Insurance Agency (to compensate for lost revenue and increased expenditures); partial wage, rent and lost-revenue compensation for employers and the self-employed. This figure comes on top of the EU transfers redirected to anti-crisis measures (the Council For Budget Responsibility estimates them at EUR 683 mln, or 0.7% of 2019 GDP);
  • EUR 2.9 bln to reserves for measures to be specified in the future (several measures are currently in some stage of legislative process, including the 13th monthly pension or debt-relief for hospitals).

ACRA Europe’s baseline scenario is less pessimistic, with a general government deficit at around 8% of 2020 GDP. This scenario is based on higher-than-budgeted revenue in light of improving economic conditions, lower-than-budgeted utilization of the crisis support (as of the end of August, the central government’s cash deficit stood at only at 33% of the amended deficit target) and a not fully tapped budget reserve. In such a scenario, the debt-to GDP would increase from 48% in 2019 to nearly 60% in 2020. Yet, given the extremely high levels of uncertainty related to both epidemiological and economic development, a worse scenario would not come a surprise to us.

Borrowing conditions remain favorable.

As of the end of August, the government had been able to issue debt worth EUR 11.7 bln gross in 2020. Net borrowing (including loans) stood at EUR 9 bln, covering 70% of the central government’s financial needs (target cash deficit + remaining T-Bill redemptions). After a brief period of elevated market uncertainty (from March to May), the borrowing conditions have normalized, at the time of publishing this report, the 10-year government bond yielded -0.2% on the secondary market. Low borrowing costs are driven by the ECB’s negative interest rate policy along with its Outright Monetary Transactions (conditional government debt backstop) and Pandemic Emergency Purchase Programme facilities compressing the risk premiums on government bonds. Thus, the country’s interest expenditures are expected to remain low despite the significant increase of government debt. ACRA Europe expects a miniscule increase in interest expenditures in proportion to GDP from 1.2% in 2019 to 1.3% in 2020 and 2021.

Figure 5. Dynamics of debt to GDP and interest to GDP ratios

5

Sources: Eurostat, ACRA Europe

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

The country’s debt profile is healthy in ACRA Europe’s view. The average residual time to maturity stands at over 8 years, with only EUR 3.5 bln (3.7% of 2019 GDP) due in the next 12 months, of which EUR 2.5 bln are treasury bills. FX risk is negligible, as more than 96% of government debt is denominated in euros. The share of general government debt held by non-residents stood at 57.5% at the end of 2019. While this figure is high by global standards, Eurozone countries tend to have a higher share of external government debt due to the almost non-existent currency risk within the monetary union.

Due to exceptional circumstances, the country’s fiscal rules have been put on hold, as in most countries with fiscal rules. The current fiscal framework stipulates a debt to GDP ratio of no higher than 57% (this threshold will be gradually decreased to 50% by 2027, with sanctions mechanisms starting at 10 percentage points below the threshold) and a structural deficit of no higher than 0.5% the country’s GDP or establishing an appropriate path to achieve this objective. The Ministry of Finance claims it is working on a new fiscal framework taking into account the current unexpected increase in public debt. The new framework should also include expenditure ceilings. The adoption of this framework in the constitution with proper escape clauses would be a credit positive factor for the country.

The share of less flexible government expenditure is increasing.

The country’s fiscal flexibility is deteriorating. In 2019, the share of less flexible expenditures (wages, social transfers and interest) in general government revenue stood at 72.1%, the eighth-highest in the EU. With lower revenues and higher mandatory expenditures resulting from an increase in public sector wages, pensions and COVID-19 related social transfers, this ratio is very likely to surpass 80% in 2020. Failure to bring this ratio down in the following years would be a credit negative factor for the country.

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

The government’s contingent liabilities are concentrated mainly in the financial sector. Prior to the COVID-19 shock, the increase in household indebtedness was by far the highest in the EU. Between 2014 and 2019, household loans in proportion to GDP grew by 11 percentage points to 42.7%. Albeit low by EU standards (the unweighted EU average stood at 51.4% in 2019), this figure is far above the unweighted average of the EU-CEE countries (27.9%), where mortgages are a relatively new phenomenon.

Figure 6. Change in household debt to GDP ratios in percentage points in EU countries (2015–2019)

6

Sources: Eurostat, ACRA Europe

According to the NBS, as of the end of July, 5.4% of indebted households had applied for the moratorium on principal repayments for six to nine months. A survey[2] conducted by the NBS shows that 9% of these households will be unable to meet their repayments after the moratorium is lifted if their income situation remains unchanged. Based on these figures, the NBS estimates the potential size of distressed loans to households at EUR 120 mln (0.3% of total loans to households).

Although this figure is to be interpreted with caution given the limited number of respondents and increasing unemployment rate, it is very far from the levels that would trigger extraordinary government support for the baking sector. Moreover, the risks stemming from corporate non-financial debt are low by EU standards. The ratio of non-financial corporate loans to GDP stood at 48.5% in Q1 2020, the fifth-lowest in the EU, with more than 40% related to external intercompany loans, which are considered to be a stable source of funding

The banking sector entered the COVID-19 crisis in solid shape with a system-wide CET 1 capital ratio at 15.8%, NPL ratio at 2.5% in 2019 and the highest NPL coverage ratio in the EU at 69%. Taking all this into account, ACRA Europe views the risk of large-scale support being provided to the banking sector as low, despite the COVID-19 shock. Nevertheless, given the extraordinary uncertainty, such a scenario cannot be completely ruled out.

Likewise, contingent liabilities related to the private non-financial sector are low by EU standards. In 2018, they stood at 8% of GDP, well below the unweighted EU average of 19.7%. The increase of this figure due to the COVID-19 crisis is very likely to be lower compared to most EU countries. Although the government has adopted several credit and guarantee schemes, their utilization is low so far.

The long-term sustainability of public finances has deteriorated markedly.

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 changes to the pension system have decreased its long-term sustainability. According to the Council for Budget Responsibility[3], the European Commission’s S2 ratio (denoting the upfront and permanent fiscal adjustment required to stabilize the debt-to GDP ratio over an infinite period) is likely to surpass 9% of GDP in 2020 on the back of changes to the pension system, an increase in public sector wages and the negative impact of the COVID-19 shock. Since 2018, when the S2 ratio stood at 2.7% of GDP, the long-term sustainability of public finances has declined more than threefold.

3 Source: https://www.rozpoctovarada.sk/download2/sustainability_report_2020.pdf

EXTERNAL RISKS

ACRA Europe assesses Slovakia’s external position as strong. This assessment is based primarily on the euro’s reserve currency status accompanied by low currency volatility and the low share of FX external debt. It is constrained by a high external debt, and a negative current account balance and international investment position.

The current account deficit is driven by primary income outflows.

The current account deficit widened from 2.6% of GDP to 2.9% in 2019, mainly on the back of the deteriorating trade balance, which is likely to fall into negative territory in 2020 due to weak external demand. The main reason for the negative current account is the negative income balance (dividends, reinvested profits) resulting from the economy’s FDI-heavy growth model, a situation similar to the one faced by other EU-CEE countries. Current account deficits are predominately financed by FDIs (FDI inflows have averaged 3.2% of GDP in 2015–2019) and capital account surpluses (mainly EU transfers), which are considered to be more stable sources of funding than portfolio investments and other investments.

The external debt is elevated, however its structure points to a low risk.

Gross external debt has increased significantly in recent years, from 85% of GDP in 2015 to over 110%. Yet, two-thirds of the 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 10% 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% of the external debt is owed by the banking and private non-financial sectors, which are more prone to refinancing risk.

Figure 7. Structure and dynamics of Slovakia’s external debt

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Sources: NBS, ACRA Europe

The net international investment position is deeply negative and reflects mainly the FDI-driven growth model. In Q1 2020, it stood at -67% 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, and reserves coverage of imports is slightly above 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 300% of the identified foreign currency external debt.

Eurozone membership has not caused significant imbalances for the Slovak economy so far. According to the 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. However, in some countries, most importantly in Italy, public and political support for the euro is declining, and therefore renewed uncertainty about the future of the eurozone cannot be completely ruled out. The COVID-19 crisis might exacerbate these tendencies.

INSTITUTIONAL FACTORS

Governance indicators are low by EU standards.

ACRA Europe assesses Slovakia’s institutional strength as upper moderate. 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 its lowest since 2002, with the strongest declines since the peak being recorded in the Political Stability and the Regulatory Quality indicators. Political stability declined notably in 2018 as a result of recent large-scale protests following the murder of a journalist, while regulatory quality is constrained by frequent changes to legislation.

Figure 8. World Governance Indicators compared to EU and EU-CEE averages (global average = 0)

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Sources: World Bank, ACRA Europe

Compared to the global average, control of corruption is the weakest indicator. In 2019, Slovakia ranked 59th out of 198 countries in Transparency International’s Corruption Perception Index (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 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 new government led by the anti-corruption, populist, big tent movement (with a predominately conservative focus) Ordinary People and Independent Personalities (OĽaNO), which has a constitutional majority, has campaigned on an anti-corruption, judicial and governance reform agenda. A successful delivery of those reforms might lead to increase in the assessment of the institutional factors in the future.

Appendix 1. Comparative analysis of Slovakia and the sample group

Comparison of macroeconomic and institutional indicators

 

Slovakia

Czech Rep.

Poland

Hungary

Slovenia

Period

Macroeconomics

GDP per capita (1,000 USD, PPP)

36.4

38.8

33.9

34.4

38.3

2019

Real GDP growth (% y-o-y)

2.4

2.3

4.1

4.9

2.4

2019

HICP inflation (% y-o-y average)

2.8

2.6

2.1

3.4

1.7

2019

Openness of economy (% of GDP)

185

143

106

163

160

2019

Unemployment

5.9

2.0

2.8

3.6

4.3

Q1 2020

Public finance

Consolidated government debt (% of GDP)

48.0

30.8

46.0

66.3

66.1

2019

External consolidated government debt (% of GDP)*

27.6

12.4

20.5

22.1

40.4

2019

Consolidated government budget balance (% of GDP)

-1.3

0.3

-0.7

-2.0

0.5

2019

Interest payments (% of GDP)

1.2

0.7

1.4

2.3

1.7

2019

External position

Current account (% of GDP)

-2.9

-0.3

0.4

-0.9

6.6

2019

Net international investment position (% of GDP)

-65.5

-20.6

-50.1

-48.4

-19.3

2019

External debt position (% of GDP)

112.0

77.0

59.4

91.0

91.8

2019

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

39.1

47.3

16.0

10.0

24.7

2019

Export diversification index **

0.48

0.43

0.40

0.41

0.46

2018

Institutional framework ***

Political stability and absence of violence

0.75

1.04

0.55

0.76

0.91

2018

Government effectiveness

0.71

0.92

0.66

0.49

1.13

2018

Rule of law

0.53

1.05

0.43

0.56

1.06

2018

* At original maturity, excluding direct investments.

** 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).

*** Assessment of effectiveness ranges from approximately -2.5 (weak) to 2.5 (strong).

Sources: Eurostat, ECB, IMF, UNCTAD, World Bank

Appendix 2. List of material data sources

International Monetary Fund

World Bank

Eurostat

The Bank for International Settlements

European Commission

Organization for Economic Co-operation and Development

European Central Bank

National Bank of Slovakia

Statistical Office of the Slovak Republic

Council for Budget Responsibility

Appendix 3. Key indicators

Balance of payments, EUR bln

 

2015

2016

2017

2018

2019

Balance of goods

0.80

1.25

0.60

-0.22

-0.75

Exports

64.6

66.7

70.5

75.7

77.9

Imports

63.8

65.4

69.9

75.9

78.6

Balance of services

0.13

0.38

0.88

0.92

1.04

Exports

7.3

8.4

9.3

10.2

10.7

Imports

7.2

8.0

8.5

9.3

9.7

Balance of income

-2.59

-3.86

-3.10

-3.08

-3.0

Income receivable

4.5

3.2

4.0

4.3

4.5

Income payable

7.1

7.1

7.1

7.4

7.5

Current account

-1.67

-2.22

-1.62

-2.37

-2.71

Current account, % of GDP 

-2.1

-2.7

-1.9

-2.6

-2.9

International reserves at the end of the period

2.64

2.74

3.02

4.57

6.38

Sources: Eurostat, NBS, ECB

External position (assets and liabilities), EUR bln

 

2015

2016

2017

2018

2019

External debt

67.4

75.0

91.6

102.0

105.5

long-term

45.8

45.7

49.7

50.8

55.6

short-term (up to 1 year)

21.6

29.2

41.9

51.2

49.9

           

Sovereign issuer, including

36.0

39.0

52.8

61.0

62.1

monetary authorities

9.6

12.3

25.4

33.3

33.1

consolidated government

26.4

26.7

27.4

27.7

29.0

Banks

6.6

8.0

9.0

9.6

11.4

Other sectors

24.8

27.9

29.7

31.3

31.9

including intra-corporate loans

14.1

17.3

17.8

19.1

19.1

External assets, excluding shares

44.6

51.7

64.5

72.0

74.6

Sovereign issuer, including

15.3

16.6

29.0

36.1

38.2

monetary authorities

12.3

13.6

26.1

32.9

35.2

consolidated government

3.1

2.9

2.9

3.2

2.9

Banks

9.7

9.4

10.5

10.2

9.7

Other sectors

19.6

25.8

25.0

25.7

26.7

Net debt

22.8

23.2

27.0

29.9

30.8

Sovereign issuer

20.6

22.4

23.9

24.9

24.0

Banks

-3.1

-1.4

-1.5

-0.6

1.7

Other sectors

5.2

2.2

4.7

5.6

5.2

International investment position (net),% of GDP

-63.9

-66.8

-68.3

-68.2

-65.5

External debt, % of GDP

84.6

92.5

108.3

113.9

112.0

Sources: ECB, NBS, Eurostat

Budget indicators, % of GDP

Consolidated government

2015

2016

2017

2018

2019

Income

43.1

40.2

40.5

40.7

41.5

Expenses

45.8

42.7

41.5

41.8

42.8

including debt servicing expenses

1.8

1.7

1.4

1.3

1.2

Primary budget balance

-0.9

-0.8

0.5

0.3

-0.1

Overall budget balance

-2.7

-2.5

-1.0

-1.0

-1.3

Consolidated government debt

51.9

52.0

51.3

49.4

48.0

% of income

120

129

127

121

116

Central government

         

Income

27.4

24.3

24.3

24.7

25.0

Expenses

30.1

27.0

25.6

25.9

26.6

including debt servicing expenses

1.7

1.7

1.4

1.3

1.2

Primary budget balance

-0.9

-1.1

0.1

0.1

-0.4

Overall budget balance

-2.6

-2.8

-1.3

-1.2

-1.6

Central government debt

51.9

51.9

51.3

49.5

48.0

% of income

189

214

211

201

192

Note: nominal GDP, EUR bln

79.8

81.0

84.5

89.6

94.2

Source: Eurostat

Rating history

The rating was first released for distribution on October 5, 2018, with the last review on March 13, 2020.

Regulatory disclosure

The sovereign credit ratings have been assigned to Slovakia under the Methodology to assess Sovereign entities, applicable from October 4, 2019. An explanation of the importance of each rating category and a default definition is included on the ACRA Europe website. Information on the rate of historical failure is available at 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 months 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 September 9, 2020, 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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Report.pdf

Minutes from the Rating Committee meeting_SR_review.pdf

Research report accompanying a change in Slovakia's sovereign rating.pdf