May 11, 2001
This statement updates the staff report (SM/01/113) to reflect information that has become available since its issuance (April 19,2001). The new information reinforces the thrust of the staff appraisal.
Recent economic developments are consistent with the staff’s projections. During the first quarter of 2001, activity continued to be strong and the external position improved. Industrial production rose 4.7 percent year on year. Exports in January–February were 11.7 percent higher than a year earlier, while imports were broadly at the same level, leading to a small current account surplus (US$65 million, compared to a US$51 million deficit in the first two months of last year). Inflation, however, remains high: partly due to increases in administered prices, the 12-month rate of CPI inflation in April rose to 9 percent, for an annual average of 8.8 percent in the first four months of the year.
Policy implementation has been in line with the authorities’ plans. In April, parliament approved the 2001 budget without changes relative to the draft discussed in the staff report. A two-year budget for 2002–03, consistent with the government’s medium-term fiscal objectives, is now under preparation. Implementation of the authorities’ Action Plan developed in response to the FSAP findings is moving forward. A crucial measure (prudential oversight of banks on a consolidated basis) has been implemented, and supervisory coordination and related-party lending rules have started to be strengthened. Measures were also taken to improve liquidity management: the Bank of Slovenia (BoS) eliminated certain little-used instruments, redesigned its Lombard facility, and announced auctions for 60-day tolar bills. Furthermore, the Ministry of Finance, in cooperation with the BoS, started issuing a benchmark one-month Treasury bill, which is not indexed.
Steps have also been taken in the structural area. The government and the social partners agreed in principle to replace backward-looking wage indexation with partial forward-looking indexation and a link of real wages to productivity in the private sector starting in 2002. Parliament approved the decision to privatize the two state-owned banks, and the government has started preparations for this. The government also announced its plan to sell the state holdings in the major port operator and in Ljubljana airport.