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S&P cuts Slovenia debt rating a notch

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(Globalpost/GlobalPost)

Ratings firm Standard & Poor's downgraded Slovenia's government bond ratings by a notch Tuesday, citing the struggling eurozone country's larger-than-expected debt burden.

Slovenia's long-term sovereign ratings was cut to A- to A and also removed the rating from a negative watch, where it was placed on November 6 last year.

S&P said the country's outlook was "stable."

"The downgrade reflects Slovenia's higher-than-anticipated debt burden, due to its announced support of its state-owned banks, amid uncertain growth prospects," S&P said in a statement.

The agency also noted rising risks to resolving economic and financial pressures.

"In our view, this confluence of factors constrains Slovenia's ability to further implement policy responses to help boost its banking system, public finances, and growth prospects," it said.

Problems at Slovenia's banks, struggling under a mountain of bad debts, have raised speculation that the former Yugoslav republic, once a model newcomer to the European Union, may need a bailout.

S&P said that the country's growing fiscal deficits in 2009-2012 had pushed the government debt ratio to about 48 percent of gross domestic product in 2012, from 16 percent of GDP in 2008.

"In our opinion, government support of distressed state-controlled banks will increase its debt in 2013 by about 3 billion to 4 billion euros ($4.0-5.4 billion), the amount we believe will likely be needed to fund the transfer of the banks' distressed assets to the government-owned Bank Asset Management Company," it said.

The rating firm projected the debt ratio would rise to 59 percent of GDP at end-2013 and top 60 percent afterward, well above its previous forecast3.

The small eurozone country is locked in political crisis. Embattled Prime Minister Janez Jansa is fighting to stay in office at the head of a government with now just 36 seats in the 90-seat parliament.

Jansa's lack of support in parliament makes it tough for him to implement austerity cuts and the deep structural reforms needed to pull the two-million-strong country out of recession.

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http://www.globalpost.com/dispatch/news/afp/130212/sp-cuts-slovenia-debt-rating-notch