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Fitch Affirms “BB-” Long-Term Ratings Of Serbia
International rating agency Fitch affirmed the long-term foreign and domestic currency ratings of Serbia at “BB-” with a stable outlook.
International rating agency Fitch affirmed the long-term foreign and domestic currency ratings of Serbia at BB- with a stable outlook. The short-term rating and the country ceiling were also affirmed at B and BB-, respectively. The agency noted that the credit ratings are supported by the cautious fiscal policy resulting in 1.6% budget surplus in 2005 and plans for 2.7% surplus for this year as well as the good dynamics of the public debt, which is expected to fall to 44% at the end of the year from 51%, aided by US$ 600 million Paris Club debt write-off in February.
As expected, Fitch pointed out the difficult political situation in Serbia as a major constraint for improvement of the ratings. The agency noted that the reformist policies of the current cabinet may lose momentum ahead of the 2007 elections and added that the chances for a cabinet led by nationalist SRS cannot be ruled out although a new democratic government still appears the most likely outcome of the elections. The political situation is further complicated by the Montenegrin independence referendum, the talks on the future status of Kosovo, as well as the possibility for suspension of the talks on the conclusion of a Stabilization and Association Agreement with the E.U. in case former Bosnian Serb general Ratko Mladic is not delivered to the Hague Tribunal, it was noted in the statement.
Fitch also pointed to several macroeconomic imbalances as a hinder for improvement of the rating. These included very high inflation the second-highest in 98 sovereigns rated by the agency , considerable CA deficit and significant external indebtedness. The agency also warned about the excessive credit growth in the country and the strong growth of non-performing loans to 16% at the end of 2005 from only 6% at the end of the previous year. The continuation of structural reforms and the reduction of debt levels were identified by Fitch as the main factors for possible improvement of the credit rating of Serbia.