Seven CEE borrowers have riskier government finances than Italy; Slovenia plunging fastest

Seven countries across Central and Eastern Europe have riskier government finances than Italy, according to Euromoney’s Country Risk Survey, and three of those – Serbia, Bosnia-Herzegovina and Montenegro – are riskier than Spain.

Source: ECR

Serbia’s government-finances score has fallen by 0.2 to 3.6 so far this year, and Bosnia and Herzegovina’s by 0.4 to 3.2. Fitch’s credit rating of Serbia (BB-) was put on negative watch in mid-August, mainly because of the deteriorating fiscal outlook, and has previously been downgraded by S&P to BB- (it is not rated by Moody’s). Bosnia, not covered by Fitch, is rated B2 negative by Moody’s and B with S&P. Estonia, on a score of 7.1, still has the safest government finances in the region. The country has the smallest general government (EU) debt burden of any European country, according to Eurostat, at just 6% of GDP at end-2011. That’s comparable to an EU-27 average of 82.5% of GDP. Bulgaria ranks second in the region for its government finances. It, too, has a favourable debt position – just 16.3% of GDP at end-2011 – and a reasonably low deficit (2.1% of GDP), providing some fiscal wriggle-room, given the deteriorating external economic climate. The biggest faller in the rankings is Slovenia. Its government-finances score has fallen by 0.5 (to 4.2) so far this year, narrowing the gap to Italy from 0.4 to just 0.1. Slovenia’s general government deficit increased to 6.4% of GDP last year and its general government debt to 47.6% of GDP. Slovenia has also seen the largest rise in bank stability risk anywhere in Europe.

The link between government finances and bank stability has been previously documented by ECR.

This article was originally published by Euromoney Country Risk.