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12th Aug 2022

Slovenia sticks to bond sale despite 'junk' status

Slovenia is struggling to avoid a eurozone bailout after Moody's ratings agency downgraded its sovereign to "junk" status.

The Slovenian finance ministry on Wednesday (1 May) said it will resume a bond sale that was halted just hours before Moody's downgraded the country to junk.

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  • Slovenia's first female Prime Minister is only two months in the job (Photo: European Commission)

"After Moody's downgrade of Slovenia, the issue of the US dollar bond is not dropped and will continue. Due to the US regulations related to the bond issues, we cannot provide further details," said a statement from the finance ministry.

Moody's said the main reason for its decision was the "ongoing turmoil in the country's banking system" and the "high likelihood" that the government will have to step in again and recapitalise banks.

Slovenia's largest bank Ljubljanska Banka and the second-largest - Nova KBM - both downgraded to junk - have almost 30 percent of bad loans, Moody's noted.

With continued recession this year and "delays in establishing a bad bank" due to the transition to a new government earlier this year, as well as difficulties in getting money on the bonds market, Moody's predicts that Slovenia is more likely to need a eurozone bailout.

But he other two major ratings agencies, Standard&Poor's and Fitch, have reaffirmed Slovenia's investor grade status.

"The country's credit metrics, its debt and deficit, have risen sharply. However they are still at a moderate level compared to peers, and at the moment we see the impact of the future recapitalization of Slovenian banks manageable," Standard&Poor's main analyst on Slovenia, Kyran Curry told Reuters.

Fitch also continues to rate Slovenia at A-, with a stable outlook.

A spokesman for the EU commission on Thursday did not want to comment Moody's downgrade.

The EU commission predicts a public deficit in Slovenia of 5.1 percent of GDP in 2013, instead of three percent - as the EU deficit rules require.

Unemployment stands at 13.5 percent and the centre-left government of Alenka Bratusek is under public pressure to slow the pace of austerity.

Only two months in the job, Bratusek is Slovenia's first woman prime minister. She came to power after the previous government was ousted on corruption charges.

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