Standard & Poor's affirms Serbia's BB- credit rating

Standard & Poor's affirms Serbia's BB- credit rating

S&P analysts say that the affirmation of Serbia's credit rating and the decision to end a negative credit watch reflect the opinion that the immediate risk of weakened creditworthiness has declined.

S&P put Serbia on negative credit watch on October 10, 2014 due to negative implications.

The rating agency said that Serbia has initiated fiscal consolidation processes that should alleviate the growth of public debt during the year, adding that the arrangement with the International Monetary Fund (IMF) and the 2015 budget are important positive factors as well.

Explaining the decision to give Serbia a negative credit outlook, S&P analysts said that it was based on the uncertainty regarding the scope of fiscal reforms over the medium term and poor prospects of economic growth.

The international rating agency said that fiscal consolidation remains the main and immediate challenge for the Serbian government and that it is still too early to confirm that the austerity measures introduced in late 2014 and the 2015 budget will be sufficient to stabilise the trajectory of public debt.

If cost-cutting measures and the reduction of budget support to public enterprises remain in place, government debt will grow at an average annual rate of 5.7 percent of GDP in the period between 2015 and 2018 - slightly above the projected general government budget deficit of 4.8 percent of GDP.

That will be sufficient to stabilise the level of public debt, but only if the annual rate of economic growth is back to over 2 percent and the inflation rate is over 4.5 percent from 2017 onwards, as anticipated at this time by S&P analysts.

S&P said that Serbia will register a 0.5-percent decline of GDP in 2015 but that it should be on an upward trajectory in the coming years and that it is expected to grow by 1.3 percent in 2016 and by 2 percent in 2017.

Last week, the Fitch Ratings credit rating agency affirmed Serbia's B+ credit rating, with stable outlook.

In January last year, Fitch downgraded Serbia's rating from BB - with negative outlook to B+ with stable outlook.

As the key reasons behind the decision, the agency cited a deficit growth in 2014 and the general public debt condition relative to the GDP.

A lack of structural reforms in the past years was also cited as one of the reasons.