Fitch Ratings on Sept. 23 upgraded Slovenia's long- andshort-term foreign- and local-currency issuer default ratings to A-/F1 fromBBB+/F2 and revised the country ceiling to AAA from AA+.
The upgrade reflects progress in Slovenia's fiscal activities,with the general government deficit declining to 2.9% of GDP in 2015 from 5.0%in 2014 and 15.0% in 2013, marking the country's exit from the EU's excessivedeficit procedure. Fitch expects the government deficit to continue to decline,to 2.3% in 2016 and to 1.6% by 2018, thanks mainly to stronger economic growth.
The ratings action also reflects the completion of the statesupport package to the banking sector. Fitch noted that the Slovenian bankingsector's health has improved markedly following government interventions andrestructuring. The sector, however, remains fragile with nonperforming claimsremaining high despite the decline to 7.3% of gross claims in July from a peakof 18.1% in November 2013.
Fitch said Slovenian banks will continue to face pressureson profitability, driven by the low interest rate environment and shrinkingbusiness volumes.
The outlooks on the long-term issuer default ratings arestable, reflecting Fitch's assessment that upside and downside risks to theratings are evenly balanced.