Slovak Debt Rating Raised by S&P on Growth, Budget Deficit

Slovakia’s credit rating was raised by Standard & Poor’s, which cited accelerating economic growth and government efforts to narrow the budget deficit and trim debt.

The euro-area member’s assessment was increased one step to A+, S&P’s fifth-top investment grade and on par with Israel and Ireland. Fitch Ratings has Slovakia at the same level, while Moody’s Investors Service, which is due to publish a review of the sovereign later Friday, rates it one step lower at A2.

“We expect growth in the Slovak Republic will accelerate further in 2015, supported by favorable external and domestic factors,” S&P analyst Felix Winnekens said Friday in an e-mailed statement from Frankfurt. “Policy makers will continue to gradually consolidate government finances and lower the debt burden.”

Faster economic growth and improved tax collection are helping Prime Minister Robert Fico balance Slovakia’s commitment to narrow the budget gap with a pledge to boost social spending before general elections next spring. The government is targeting a 2016 deficit of 1.9 percent of gross domestic product, less than this year’s estimated 2.4 percent.

S&P only sees the budget deficit narrowing to less than 2 percent of GDP by 2018. Economic growth will average more than 3 percent in the next four years, allowing fiscal consolidation to continue without “unconventional” measures such as extra taxes for selected industries, it said.

Growth Risks

Risks to growth include a faltering recovery in the euro region, the primary destination for Slovak exports, or an escalation of the conflict in Ukraine, according to S&P. Declining public debt and low interest rates stemming from monetary easing by the European Central Bank will lower Slovakia’s interest burden in the coming years, it said.

Slovak 10-year debt yielded 0.9 percent at 6:30 p.m. in Bratislava, matching Austria, which Moody’s rates at its highest investment grade. The surcharge over similar-maturity German Bunds has halved this year to 26 basis points, or 0.25 percentage point.

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