Moody's says outlook positive for Slovenia

In its annual report on Slovenia, Moody's Investors Service said the country's Aaa foreign-currency ceiling for bonds and the positive outlook on its foreign- and local-currency government bond ratings reflect the country's advanced economic and financial integration with the European Union and the European Union's recent decision to allow Slovenia to adopt the euro as its currency by 2007.

"The ratings reflect the positive credit implications associated with acceptance of Slovenia into the European Monetary Union as well as a consistent record of prudent macroeconomic policies," Moody's vice president Jonathan Schiffer said in the report.

Slovenia instituted important fiscal reforms in recent years to advance its European integration, including two-year "rolling" budgets (currently, for 2007-2008), making it increasingly difficult for sitting governments to loosen expenditures at a certain time in the political cycle.

"Other positive factors include a decline in inflationary expectations conditioned by tighter macroeconomic policy coordination between the government and the Bank of Slovenia, the elimination or weakening of indexation mechanisms that had governed many economic variables and favorable, multi-year wage policy agreements in both public and private sectors," Schiffer said.

The key area of risk for Slovenia, according to the agency, will be the need for its small, open economy to maintain export competitiveness, making fiscal policy an even more central component of macroeconomic policy.

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