Moody's Upgrades Slovenia's Rating Outlook

(RTTNews) - Moody's Investors Service upgraded the rating outlook on Slovenia's bond rating to 'stable' from 'negative' as uncertainty regarding banks' capital shortfall decreased after stress tests.

Slovenia's foreign and local-currency country ceilings for long-term debt and deposits have been raised to 'Baa1' from 'Baa2'.

Moody's said the asset quality review and stress tests revealed that recapitalization needs for the country's banks are manageable. Further, it greatly lowered the probability of external financial requirement to meet its funding needs.

As a consequence, the rating agency believes that risks to Slovenia's fiscal outlook have become balanced.

Nonetheless, fundamental challenges remain which keep the rating at Ba1. Moody's estimates that Slovenia's economy likely contracted by a further 2 percent in 2013 and will continue to contract by 0.7 percent in 2014.

Moody's forecasts government debt to reach 76 percent of GDP once the restructuring of the banking system is finalized and to stabilize only in 2016-17, peaking at slightly over 80 percent.