S&P: Serbia ratings supported despite EU concerns

Standard & Poor's said that good macroeconomic prospects, projected moderate fiscal surpluses and improving debt and external liquidity indicators support the sovereign credit ratings on the Republic of Serbia (BB-/positive/B) at their current level, despite the European Union's decision to postpone further talks on a Stabilization and Association Agreement (SAA) with the republic.

The agency said that the EU's decision, taken due to the failure of the Serb authorities to apprehend war crimes suspect Ratko Mladic, is unlikely to have a long-term impact on Serbia's EU accession prospects, assuming that full cooperation by a reform-oriented Serb government with the International Criminal Tribunal at The Hague will eventually occur.

In the short term, however, the EU's decision will increase political pressure on the coalition government of Prime Minister Vojislav Kostunica, which is already facing the challenge of ongoing talks on the future status of Kosovo and the independence referendum in Montenegro on May 21, the agency added.

S&P said the positive outlook reflects the possibility of an upgrade of the sovereign, if this progress is sustained.

Conversely, policy slippage and a loss of reform momentum would indicate deteriorating creditworthiness and would diminish prospects for ratings upgrades in the medium term, the agency noted.

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