International rating agency Fitch Ratings has lowered Slovakia’s credit rating from 'A' with a negative outlook to 'A-' with a stable outlook. It lowered Slovakia to its 2004 rating and to level with the rating of Poland, Spain and Chile, Slovak liberal daily DennikN, noted.

Fitch's move contrasts with unchanged verdicts from the other two big rating agencies. Moody’s recently left their ratings of Slovakia unchanged in November as did S&P Global. which kept a 'A+' rating for Slovakia with a stable outlook.

Fitch highlighted “the downgrade reflects a deterioration in public finances and an unclear consolidation path”, pointing to both the actions of the previous centre-right governments and the planned measures of the incoming government led by leftist populist Robert Fico's Smer party.

The downgrade comes just days after Fico's new Slovak cabinet  approved a set of €1.9bn measures aimed at consolidating public finances, including a €336mn new levy on banks.

“The consolidation package is mainly based on revenue-enhancing measures,” Fitch noted, adding that “in our view, medium-term fiscal consolidation will require difficult policy trade-offs, given higher medium-term expenditure rigidities and a weakened structural position”.

“We forecast general government debt by 2025 to exceed the pandemic high of 61.1% of GDP in 2021 and to remain on an upward path over the medium term”, Fitch further noted in its commentary.

Fitch said “the government’s consolidation strategy remains uncertain and we do not expect debt to stabilise over the next few years in our baseline scenario”.

Fitch projects the budget deficit to be above 6% of GDP next year and 6.5% in 2025, high above the median level in other countries with similar rating. It also projects the government debt/GDP to raise to 62.1% by the end of 2025, noting that by the end of last year it was 57.8%.

“The agency’s debt dynamics show a continued gradual increase of the debt/GDP ratio to 65.5% by end-2027,” adding that interest costs are expected to rise gradually, "given a favourable redemption profile (average maturity of 8.5 years) and predominantly fixed-rate debt”.    

The new 'A-' rating is the seventh best and three grades above the end of the investment level. DennikN warned the downgrade could lead to high costs of debt payments. However, Slovakia raised close to €0.5bn in a bond auction with an improved below 4% yield on November 20, the last auction this year and the first under the new government.