IMF Executive Board Concludes 2021 Article IV Consultation with Republic of Slovenia

Washington, DC: On May 19, 2021, The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Slovenia.

The pandemic is inflicting much suffering, which has been met with swift, substantial, and well-coordinated policy responses. The anti-crisis measures have helped preserve jobs, provide liquidity to companies and income support to vulnerable groups. They averted a much larger decline in output and kept unemployment under control. However, real GDP still dropped by 5.5 percent in 2020, as containment measures led to falling economic activity. The COVID-related spending, together with lower revenue, drove up the fiscal deficit and public debt rose to about 81 percent of GDP, from about 65.5 percent in 2019. The current account surplus rose to about 7 percent of GDP, driven by an increase of private sector saving relative to investment.

A strong economic rebound is expected as the pandemic abates, with GDP growing by 3.9 percent this year and 4.5 percent in 2022. However, the outlook is clouded by significant uncertainty and risks are tilted to the downside. Delays in mass vaccination and the spread of new virus variants could require stricter containment measures with adverse economic effects. Other risks include weak external demand and worsening financial market conditions.

Executive Board Assessment [2]

Directors commended the authorities for their swift, substantial, and coordinated policy response. The anti-crisis measures have mitigated the economic and social consequences of the pandemic, including by preserving jobs and providing liquidity and income support to firms and households. The recovery is expected to be driven by a rebound in consumption and investment, including public investment supported by EU funds. Uncertainty around the outlook is high and there are downside risks, mainly related to epidemiological developments.

Directors recommended maintaining the strong fiscal support in the near term, with well-targeted policies that are continuously assessed and adjusted to the evolving conditions. Once the recovery is entrenched, the emergency measures should be withdrawn, and the focus should shift toward consolidation. The large fiscal deficit should be reduced gradually over the medium term to maintain buffers, and fiscal rules should continue to play a strong role. The ambitious public investment plans call for improved public finance management to mitigate execution risks.

Although bankruptcies have not increased so far, risks to financial stability have risen. Directors stressed the need for continuing the close monitoring of banks’ asset quality. Given that the exit from loan moratoria has started, the phasing out of measures should be gradual and well-coordinated to avoid cliff-edge effects. Macroprudential policies should continue to be reviewed on a regular basis to ensure an appropriate balance between financial stability and the need for credit to the economy.

The pandemic has had an uneven impact on employment. Directors encouraged the authorities to continue to adapt policies to facilitate labor reallocation and provide support to those affected the most―low-skilled workers, women and youth. Active labor market programs could effectively be used to help transition between jobs. These programs could be supplemented with measures to improve the business environment and to strengthen the social safety net.

Directors welcomed the authorities’ focus on digitalization and climate change mitigation. Improving the digital infrastructure, building human capital, and promoting digital inclusion would boost productivity and resilience. The goal of reaching carbon neutrality by 2050 would be best achieved by combining investment in green technologies with taxation of polluting industries. The Next Generation EU instrument could play a key role in Slovenia’s digital and green transformation.

Slovenia: Selected Economic Indicators, 2018-23

(Annual percentage change, unless indicated otherwise)

2018

2019

2020

2021

2022

2023

Staff Projections

Nominal GDP (EUR millions)

45,863

48,393

46,297

48,522

51,444

54,138

GDP per Capita (EUR)

22,189

23,255

22,090

23,061

24,377

25,607

Real economy

Real GDP

4.4

3.2

-5.5

3.9

4.5

3.6

Domestic demand (contribution to growth)

5.0

3.4

-5.9

4.3

4.9

3.9

Private consumption

3.6

4.8

-9.8

4.3

4.6

3.7

Public consumption

3.0

1.7

1.8

1.5

1.6

0.5

Gross capital formation

10.3

1.5

-5.8

9.8

10.4

8.4

Net exports (contribution to growth)

-0.1

0.1

0.4

-0.5

-0.4

-0.3

Exports of goods and services

6.3

4.1

-8.7

8.8

6.0

3.8

Imports of goods and services

7.2

4.4

-10.2

10.5

7.1

4.5

Output gap (in percent of potential GDP)

0.3

0.6

-4.5

-3.5

-1.8

-1.0

Prices

Consumer prices (national definition, period average)

1.7

1.6

-0.1

0.6

1.2

1.5

Employment and wages

Unemployment rate (in percent, ILO definition)

5.1

4.5

5.0

5.3

4.9

4.8

Real wages (all sectors)

1.6

2.7

6.0

4.0

3.1

2.8

Public finance (percent of GDP)

General government balance 1/

0.7

0.4

-8.4

-8.0

-4.8

-3.3

Structural balance 2/

0.3

0.0

-6.3

-6.3

-3.9

-2.7

Structural primary balance 2/

2.3

1.7

-4.7

-4.9

-2.7

-1.7

General government debt 3/

70.3

65.6

80.8

81.8

80.5

79.7

Monetary and financial indicators

Credit to the private sector

2.5

3.4

-0.2

5.3

6.3

5.8

Lending rates 4/

2.1

1.6

1.8

Deposit rates 5/

0.2

0.2

0.1

Balance of payments (percent of GDP)

Trade balance (goods and services)

8.5

8.5

9.7

8.8

8.5

7.9

Current account balance

5.8

5.6

7.1

6.5

6.3

6.1

Gross external debt (percent of GDP, end-period)

91.9

90.5

104.1

103.1

98.2

94.8

Nominal effective exchange rate (2010=100)

105.2

104.8

106.9

Real effective exchange rate (2010=100, CPI-based)

97.9

97.2

97.8

Sources: Slovenia authorities and IMF staff calculations and projections.

1/ Accrual basis.

2/ Excludes one-offs and adjusted for the output gap and calendar year shifts between receipt and expenditure of earmarked EU funds.

3/ Includes EUR 1.1 bn in 2013 and EUR 0.7 bn in 2014 of debt issuance of the Bank Asset Management Company (BAMC).

4/ Floating or up-to-one-year fixed rate for new loans to non-financial corporations over 1 million euros.

5/ For household time deposits with maturity up to one year.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: https://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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