Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of Slovakia’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at A and changed the Outlook to Negative, from Stable. The agency has also affirmed the short-term issuer ratings at S-1 in both local and foreign currency, with Stable Outlooks.

The outlook change on Slovakia’s credit ratings reflects:

1. the delayed reduction of the general government deficit resulting in a rising, albeit still moderate, debt-to-GDP ratio given mounting spending pressures, sustained political uncertainty, and a subdued economic growth outlook, despite ongoing fiscal consolidation efforts; and
    
2. the comparatively high vulnerability to trade/tariff shocks in the context of heightened international trade uncertainties given the country’s low diversification of exports and high industrial production weighing on the country’s modest economic growth outlook.

Downloading the rating report.

Key rating drivers

Delayed reduction of the general government deficit resulting in a rising, albeit still moderate, debt-to-GDP ratio amid mounting spending pressures, sustained political uncertainty, and a subdued economic growth outlook.

Slovakia’s fiscal deficit has remained consistently above 5% of GDP since 2020, with a temporary reduction only in 2022, reflecting fiscal slippage and structural expenditure pressures. According to the Progress Report published in April 2025¹, which provides an update to the medium-term structural budget plan submitted in October 2024², the government now targets to reduce the fiscal deficit below 3% of GDP by 2028, one year later than originally planned.

Still, Scope expects the headline fiscal deficit to decline only marginally to 5% of GDP in 2025 (from 5.3% in 2024) and further to 4.2% in 2026 and 4.1% of GDP in 2027, before averaging 3.3% in 2028-2030. In Scope’s opinion it is therefore unlikely that Slovakia’s deficit will decline to below the Maastricht’s 3% limit by 2030, underlying the rationale for the Negative Outlook. This trajectory favourably assumes that the government will implement further fiscal consolidation measures worth EUR 1.7bn in 2026 and EUR 1.8bn in 2027 (accounting for around 1.2% of GDP in each year), reaching the government’s EUR 3.5bn consolidation target by 2027. These additional fiscal consolidation packages would be broadly in line with the first^a (EUR 1.9bn or 1.5% of GDP) and second^b (EUR 2.7bn, or 1.9% of GDP) fiscal packages implemented since 2023, which were mostly revenue based. Should the government be unable to implement fiscal consolidation measures of this assumed magnitude on a timely basis, the deficit will be even higher, which would be credit negative.

While discussions for a new fiscal consolidation package for next year are ongoing, the subdued economic prospects expected to lead to lower tax revenue and mounting spending pressures, such as on interest expenditure (expected to increase from 1.3% of GDP in 2024 to 1.8% by 2027) and healthcare (estimated at 7% of GDP in 2025 up from 5.9% in 2022), weigh on the government’s capacity to reduce the deficit. Moreover, Slovakia also aims to increase its defence expenditure in coming years, which is expected to average 2.1% of GDP over 2025-28, up from 1.4% of GDP in 2021, adding to the public finance pressures^c.

Scope also notes that Slovakia’s political uncertainty and fragmented environment further challenge the prospect for continued fiscal consolidation over coming years. The current government’s narrow parliamentary majority ahead of general elections scheduled in 2027 risks further slowing the fiscal consolidation efforts, especially after 2026. In addition, the temporary suspension of the stricter sanctions forced by the debt brake rule is scheduled to be lifted in November 2025. An immediate reinstatement of sanctions would force the government to reduce public expenditure to present a balanced budget for 2026, with potentially severe disruptive consequences for the economy. Conversely, an amendment to the debt-brake constitutional law addressing the shortcomings of the asymmetrical sanction design would strengthen Slovakia’s fiscal framework, but this is not Scope’s baseline given the current fragmented political environment.

As a result, Scope expects a slow fiscal deficit reduction, which together with a more subdued economic growth outlook will result in a steadily increasing general government debt level. Even assuming additional fiscal consolidation of EUR 3.5bn over coming years, Scope projects the debt-to-GDP to rise from 59.3% in 2024 to 60.7% in 2025, reaching approximately 66.5% by 2030, in line with the projections for Poland (A/Stable; 66% of GDP), but above those of Latvia (A-/Stable; 51%) and Cyprus (A-/Stable; 40%) The forthcoming budget proposal together with the planned consolidation measures for 2026 and beyond, scheduled for Autumn 2025, as well as the parliament’s decision on the suspension of sanctions related to the debt brake rule, are the next critical milestones for Scope’s assessment of Slovakia’s credit rating trajectory.

Modest economic growth outlook, comparatively high vulnerability to trade/tariff shocks and uncertainties given low diversification of exports and high industrial production.

As a small, open, and export-oriented economy, Slovakia is highly integrated in global supply chains and vulnerable to shifting trade regimes, including US tariffs. While direct trade links with the US are limited – representing only 4.2% of total exports – the sluggish economic growth in major EU trading partners such as Germany (accounting for 21% of total exports) will negatively affect Slovakia’s economic output. The Slovak Central Bank³ calculates that a hypothetical combined increase in US tariffs starting in the second quarter of 2025 on imports from China (+10pp), Canada, Mexico and the EU (+25pp), with subsequent retaliatory tariffs, would lead to a 2.7pp contraction in GDP growth by 2027, a drop of around EUR 5bn in export volumes and the loss of approximately 20,000 jobs. While there remains significant uncertainty as regards the final tariffs and trade regime that will emerge from ongoing negotiations, Scope does not expect tariffs to revert to the low levels prevailing prior to the inauguration of the current US administration. As a result, Scope expects higher tariffs to become part of the forthcoming trade regime, which will impact particularly negatively Slovakia’s export-oriented growth model.

This is because exports accounted for 85.2% of GDP in 2024 and were mostly goods exports (75.5% of GDP) concentrated in the machinery and transport sector, accounting for 61.5% of total exports. This results in a significantly lower export diversification compared to peers and thus Slovakia’s higher vulnerability to sector-specific tariffs. Slovakia’s automotive industry accounted for 10.4% of GDP in 2024 and 46.5% of total industry production revenues. This sector is thus one of the most impacted by the higher and uncertain US tariffs. Moreover, while the automotive sector in Slovakia is undergoing a smooth transition towards the production and exports of electric vehicles thanks to significant investments, the sector is facing intense competition from big and technologically more advanced Chinese producers.

Scope thus expects real GDP growth to remain below 2% in the coming years, at 1.5% in 2025 and 1.7% in 2026, compared to 2.1% in 2024. Continuous efforts to consolidate public finances resulting in higher fiscal pressure on households and corporates, together with prolonged heightened international trade uncertainties will curb Slovakia’s economy and discourage business investments. While the economy will benefit from an acceleration of investments funded by the Recovery and Resilience Facility (RRF) funds, higher investments in defence due to planned deliveries of military equipment and an expected expansion of production capacity in the automotive industry, the conclusion of the Recovery Plan’s implementation in 2026 will gradually lower the absorption of EU funds.

Longer term, Slovakia’s economic outlook also faces challenges from its ageing population, leading to a decline in the country’s working age population growth. All these factors weigh on the medium-run growth potential, which Scope now projects at 2.25%, in line with select rated peers such as Latvia, but lower than Poland (3%), Cyprus (3.0%) and Croatia (2.8%).

Rating strengths: EU and euro area membership, competitive industrial base and favourable debt profile. Slovakia’s A credit ratings are supported by its European Union and euro area membership, conferring advantages via access to substantive structural and recovery funds, a strong reserve currency, access to the European Central Bank’s asset purchases and refinancing operations and the EU fiscal framework.

The A rating is further supported by Slovakia’s competitive and robust manufacturing sector benefitting from substantial inward foreign direct investments, particularly into the country’s automotive sector, amid the ongoing global transition toward electric and hybrid vehicles. Reported net FDI inflows amounted to EUR 56.3bn, around 46% of GDP. Finally, Slovakia’s credit ratings are anchored by a favourable general government debt profile, which is almost entirely denominated in EUR, with an average debt maturity of around 8 years and a smooth redemption profile⁴.

Rating-change drivers

The Negative Outlook represents the opinion that risks for the ratings are skewed to the downside over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are if (individually or collectively):

1. The fiscal outlook improves, for example, due to a sustained reduction in budget deficits leading to a stabilisation or even decline of the government debt ratio; and/or
    
2. The near- and medium-term growth outlook improves.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. The fiscal outlook weakens, resulting in larger-than-expected fiscal deficits and continued rising government debt;
    
2. The economic outlook weakens, for example, due to a domestic or external economic shock, lowering economic growth and/or the country’s medium-term growth potential; and/or
    
3. Institutional risks or political instability increases, raising the materiality of governance concerns and/or challenging European fund inflows.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a-’ for Slovakia, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives 1) a one-notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘a’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of Slovakia’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope identified the following QS relative credit weaknesses for Slovakia: 1) macro-economic stability & sustainability. Conversely, Scope identified no QS relative credit strengths for Slovakia. On aggregate, the QS generates zero notches adjustment for Slovakia, resulting in final A long-term ratings.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

Slovakia’s environmental profile is characterized by a somewhat poor performance under the SQM both in terms of Co2 emissions per GDP and greenhouse gas emissions per capita relative to most of its rated peers. Nevertheless, the country’s energy mix benefits from a relevant share of nuclear power (62% of total energy mix). Five nuclear reactors are responsible for more than 60% of the electricity production in the country, strengthening Slovakia’s self-sufficiency in electricity production. Water represents another relevant energy source, accounting for 17.1% of the energy mix, followed by fossil fuels such as natural gas (8.1%) and coal (4%). For oil and natural gas imports Slovakia, together with Hungary, has remained heavily dependent on Russian supply over the past three years, using sanction exemptions that were granted in 2022. The recent proposal by the European Commission to gradually halt all oil and gas imports from Russia by the end of 2027, is likely to lead Slovakia to diversify its oil and gas sources. Tensions with the EU, however, could emerge as the country originally opposed the proposal. These factors drive Scope’s ‘neutral’ assessment.

Slovakia’s social profile reflects a mixed performance across key social dimensions. Socially related credit factors are reflected in demographic trends expected to deteriorate in the long-term, although less adversely than in some of the other EU Central and Eastern European peers. Poverty levels remain broadly in line with peers and below the EU average, unemployment rates are moderate but regional inequalities are high. This drives Scope’s ‘neutral’ assessment.

Under governance-related factors captured in the SQM, Slovakia’s performance is weaker than that of other euro area member states in central and eastern Europe, as assessed via the World Banks’ Worldwide Governance Indicators. The weakening is particularly evident for the Government Effectiveness indicator, as well as the Political Stability and Absence of Violation/Terrorism which has declined during the last five years. Signs of deterioration in the country’s rule of law became evident with the amendment of the penal code approved by the Parliament in February 2023, including a reduction in sentences for serious crimes and the abolition of the Special Prosecutor’s Office. Concerns raised by the EU, which considered the reform an obstacle to the timely disbursement of EU funds, were later addressed by the Slovakian government. In the end, the government amended the criminal code reform increasing the punishment for misallocation of EU funding, demonstrating the willingness to avoid confrontations with the EU and guarantee a swift funding disbursement. These considerations balance Scope’s ‘neutral’ assessment.

a. The first package of fiscal consolidation measures introduced by the government at the end of 2023 worth EUR 1.9bn (1.5% of GDP) helped to limit the increase in the headline fiscal deficit to 5.3% of GDP in 2024, up from 5.2% in the previous year, below the initially projected 5.8%. These measures were mostly focused on the revenue side and included a reduction of contributions to the second-pillar pension scheme, higher employers’ health insurance contributions and the introduction of a minimum corporate income tax, among others. They were needed to offset the impact of previous governments’ policies which led to a widening in the fiscal deficit, such as early retirement after 40 years’ service, education law reforms and gradual increase in R&D spending. The 2024 fiscal deficit was also negatively impacted by higher funding in the healthcare sector, energy subsidies, rising interest expenses, compensation for higher mortgage requirements and the creation of the Ministry for Tourism and Sport.
b.The second fiscal consolidation package introduced in 2025 included measures for EUR 2.7bn (1.9% of GDP), mostly aiming at further increasing fiscal revenue. The government introduced a financial transaction tax applied to every outgoing transaction by legal entities and self-employed individuals, a 3pp increase in the VAT rate to 23% and 1pp increase in the corporate income tax for companies with revenues above EUR 5m. These policies were complemented by targeted reductions in certain social transfers and public administration wage-bill growth on the expenditure side, partially offset by previous increases of the 13th pension.
c. Slovakia requested the activation of the Stability and Growth Pact’s escape clause to exclude rising defence spending from the calculation of the net expenditure trajectory. While activation of the escape clause is in line with EU rules and similarly implemented by EU peers, the projected increase in defence spending is likely to persist, adding pressure on Slovakia’s public finances.

Rating Committee
The main points discussed by the rating committee were: i) the country’s macroeconomic outlook; ii) budget and public-debt outlooks; iii) governance and political risk; iv) external sector; and v) sovereign peers considerations.

Rating driver references
1. Ministry of Finance of the Slovak Republic
2. Ministry of Finance of the Slovak Republic
3. National Bank of Slovakia
4. Debt and Liquidity Management Agency (ARDAL)

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, is published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation   YES
With access to internal documents                                 NO
With access to management                                           NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and third parties.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 1 September 2017. The Credit Ratings/Outlooks were last updated on 9 February 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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