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©2007 International Monetary Fund
May 2007
IMF Country Report No. 07/183
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2007 Article IV consultation with the Republic of Slovenia, the following documents have been released and are included in this package:
the staff report for the 2007 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on March 16, 2007, with the officials of the Republic of Slovenia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 2, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF;
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its May 18, 2007 discussion of the staff report that concluded the Article IV consultation; and
a statement by the Executive Director for the Republic of Slovenia.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
REPUBLIC OF SLOVENIA
Staff Report for the 2007 Article IV Consultation
Prepared by the Staff Representatives for the 2007 Consultation with the Republic of Slovenia
Approved by Juha Kähkönen and G. Russell Kincaid
May 2, 2007
Executive Summary
Background: Slovenia’s sound macroeconomic policies were crowned with success in January when Slovenia entered the euro area. Nonetheless, challenges remain. Strong growth driven by domestic demand brought output to capacity limits in 2006, and inflation stabilized. Looking forward, credit growth and wage and fiscal pressures are risks to non-inflationary growth, while the slow pace of structural reform is a challenge for future competitiveness.
Staff views: The staff saw risks of overheating and, to ensure a balanced expansion, advocated a neutral fiscal stance in 2007–08 and continued prudent wage policies. Upfront expenditure reforms would also smooth the adjustment towards structural balance in 2011, improve fiscal flexibility, and help accommodate spending pressures from infrastructure and pensions. Closer monitoring of rising credit risks, privatization and improved corporate governance of banks, along with capital market development would help contain and diversify risks and boost growth. Using the good times to reduce financial vulnerabilities and advance structural reforms would also benefit growth and competitiveness.
The authorities’ views: The authorities broadly shared the staff’s assessment and agreed on the need to enhance efficiency of budgetary spending. However, the Ministry of Finance ruled out majority foreign ownership of large banks given EU’s home-host supervisory rules that make the cost of bank failures the responsibility of the host country, while the home country is responsible for supervision. It was also not convinced of the need to tighten fiscal policy as it saw little risk of overheating, and wage pressures contained. Progress with further structural reforms, including on pensions, would be politically difficult.
Contents
Executive Summary
I. Introduction
II. Background
III. Report on the Discussions
A. Outlook
B. Fiscal Policy
C. Financial Sector
D. Structural Reforms
IV. Staff Appraisal
Boxes
1. Sectoral Balance Sheets Analysis
2. Lessons from Portugal and Ireland from Euro Adoption
3. Performance of Slovene Banks in the Regional Context
Figures
1. Economic Indicators, 2000–08
2. Labor Market Indicators, 2000–06
3. Monetary Conditions, 2000–07
4. CPI Inflation and Components, 2000–07
5. Wages and Productivity, 1998–2005
6. External Sector Developments, 2001–06
7. Exchange Rate Indicators, 1998–2006
8. Wages, Productivity, and Product ULC in Manufacturing, 1998–2006
9. Competitiveness Indicators and Export Market Shares of Slovenia and New Member States (1998q1=100), 1998–2006
10. Bank Credit to Households and Non-Financial Corporations in European Emerging Markets, 2005
11. Market Risk Indicators, 2005–07
12. Housing Market Indicators, 1995–2006
13. Financial Soundness Indicators, 2005
14. Banking Sector, Equity and Bond Market Development Indicators, 2004
Tables
1. Selected Economic Indicators, 2003–08
2. Summary of General Government Operations, 2003–09
3. Balance of Payments, 2004–09
4. Banking Sector Soundness Indicators, 2002–06
5. Vulnerability Indicators, 2002–07
6. Macroeconomic Framework, 2003–12
Appendix
I. Debt Sustainability Analysis
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INTERNATIONAL MONETARY FUND
REPUBLIC OF SLOVENIA
Prepared by the European Department
May 2, 2007
Contents
I. Fund Relations
II. Statistical Issues
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Public Information Notice (PIN) No. 07/57
FOR IMMEDIATE RELEASE
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
May 23, 2007
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May 18, 2007
