The Fitch Ratings agency has affirmed Slovakia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A' with a Negative Outlook, according to an announcement made on Friday. The agency pointed to potential long-term vulnerabilities stemming from Slovakia's relatively high dependence on the automotive manufacturing sector, structural indicators and the country's external debt position. "The Negative Outlook reflects the ongoing uncertainty over the country's recovery from the coronavirus pandemic and the resultant impact on fiscal finances, particularly debt reduction," stated Fitch.
Citing positives, Fitch pointed to Slovakia's competitive exports-based economic growth, stable FDI and EU capital inflows, and EU and eurozone membership.
Fitch expects rather slow fiscal consolidation in Slovakia due to the counter-pandemic measures that are expected to be maintained for most of 2021.
"We assume pandemic-related fiscal support measures equivalent to 1.6pp of GDP in 2021 (same as in 2020) and expect the general government balance to worsen by 0.9pp to 7.1 percent of GDP in 2021 (the government's target is 7.4 percent, with a revision to 8 percent likely)," stated Fitch.
Pointing to the fact that Slovakia's fiscal balance outturn in 2020 (-6.2 percent of GDP) was better than estimated by Fitch in November (-8.1 percent), as well as the government's revised target of -9.7 percent (original target: -11.6 percent), the agency said that the fiscal deficit would likely drop to 5 percent of GDP in 2022. At the same time the rate of fiscal consolidation will still likely be lower than rating peers.
Fitch expects the fiscal impact of Next Generation EU funds for Slovakia to be largely neutral in 2021-22.
Source: TASR
