Moody's on Sept. 27 changed its outlook on Slovakia to stable from positive as the country's economic strength remains behind that of its peers.
The rating agency said the revised outlook reflects the lack of material improvements to Slovakia's institutional environment, which should adopt sustained reform efforts.
Based on the World Bank's Worldwide Governance Indicators, the country's scores for the rule of law, control of corruption and government effectiveness continue to lag the median of single A-rated peers.
Moody's also cited the deterioration in Slovakia's long-term fiscal sustainability due to the reversal of previous pension reforms as another factor that led to the outlook change. Parliament earlier this year passed a law capping the retirement age at 64, reversing past measures that had originally set the pension age in line with life expectancy.
Meanwhile, the rate of decline in the debt-to-GDP ratio is projected to ease on the back of Moody's trimmed GDP growth projections through 2020, as well as expectations that the government will be unable to meet its target of achieving a balanced headline fiscal position for this year.
Moody's forecasts government debt to reach 48.1% of GDP at the end of 2019 and 47.5% of GDP in 2020 from 48.9% at end-2018. It revised its growth forecasts to 2.5% and 2.2% of GDP in 2019 and 2020 from previous estimates of 3.7% and 3.5%, respectively.
The agency also noted that Slovakia's "very high degree of economic openness" leaves the country vulnerable to external shocks. It affirmed Slovakia's foreign- and local-currency long-term issuer and senior unsecured ratings at A2.
