Moody’s downgrades Slovakia

On Friday, rating agency Moodys downgraded Slovak domestic and foreign-currency long-term issuer and senior unsecured ratings to A3 from A2, revising the outlook to stable from negative. The downgrade reflects Slovakia's broad institutional challenges amid political tensions. According to Moodys, reforms in the judiciary and media will weaken institutional checks and balances, while increased political fragmentation complicates policymaking. On the fiscal front, despite the governments commitment to reduce the deficit in line with EU rules, Moodys expects Slovakias debt burden to rise above that of similarly rated peers in the coming years. The Slovak government aims to reduce the headline deficit to 2.9% of GDP by 2027 under the European Commission's excessive deficit procedure. However, Moodys projects a higher deficit of 3.5% of GDP in 2027 due to implementation uncertainties, particularly regarding the financial transactions tax. Rising debt levels reflect budget rigidity and challenges in executing consolidation measures. Meanwhile, the other two major agencies, S&P and Fitch, have affirmed their ratings in recent weeks. Moodys rating aligns with Fitchs, while S&Ps rating is two notches higher. All three agencies maintain a stable outlook.