Abstract
IMF Country Report No. 21/94
Copyright Page
IMF Country Report No. 21/94
REPUBLIC OF SLOVENIA
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF SLOVENIA
May 2021
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 2021 Article IV consultation with the Republic of Slovenia, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its May 19, 2021 consideration of the staff report that concluded the Article IV consultation with the Republic of Slovenia.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 19, 2021, following discussions that ended on March 19, 2021, 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 3, 2021.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Republic of Slovenia.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623–7430 • Fax: (202) 623–7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2021 International Monetary Fund
Press Release
PR21/139
IMF Executive Board Concludes 2021 Article IV Consultation with the Republic of Slovenia
FOR IMMEDIATE RELEASE
Washington, DC – May 26, 2021: On May 19, 2021, The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 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 Assessment2
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)
Accrual basis.
Excludes one-offs and adjusted for the output gap and calendar year shifts between receipt and expenditure of earmarked EU funds.
Includes EUR 1.1 bn in 2013 and EUR 0.7 bn in 2014 of debt issuance of the Bank Asset Management Company (BAMC).
Floating or up-to-one-year fixed rate for new loans to non-financial corporations over 1 million euros.
For household time deposits with maturity up to one year.
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 | … | … | … | |||
Accrual basis.
Excludes one-offs and adjusted for the output gap and calendar year shifts between receipt and expenditure of earmarked EU funds.
Includes EUR 1.1 bn in 2013 and EUR 0.7 bn in 2014 of debt issuance of the Bank Asset Management Company (BAMC).
Floating or up-to-one-year fixed rate for new loans to non-financial corporations over 1 million euros.
For household time deposits with maturity up to one year.
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 | … | … | … | |||
Accrual basis.
Excludes one-offs and adjusted for the output gap and calendar year shifts between receipt and expenditure of earmarked EU funds.
Includes EUR 1.1 bn in 2013 and EUR 0.7 bn in 2014 of debt issuance of the Bank Asset Management Company (BAMC).
Floating or up-to-one-year fixed rate for new loans to non-financial corporations over 1 million euros.
For household time deposits with maturity up to one year.
Title Page
REPUBLIC OF SLOVENIA
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
May 3, 2021
KEY ISSUES
Context: 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 the vulnerable groups. They averted a larger decline in output and kept unemployment under control. After contracting by 5.5 percent in 2020, real GDP is projected to grow by 3.9 percent in 2021 and 4.5 percent in 2022, as vaccinations help achieve herd immunity. However, risks to the outlook are large and tilted to the downside, given the epidemiological situation.
Key Policy Recommendations: The overriding priority remains saving lives and livelihoods. Therefore, policies should remain supportive in the near term and adjusted flexibly to the evolving conditions. As the recovery becomes entrenched, they should shift toward facilitating reallocation and fostering stronger, smarter, and greener growth.
• Fiscal policy should remain supportive until the recovery is entrenched. Thereafter, fiscal consolidation should start, guided by staff’s past advice, and supported by a fiscal rule.
• Banks’ asset quality should continue to be monitored closely, especially for banks exposed to SMEs and COVID-affected sectors. The exit from the support measures should be carefully planned and executed to minimize risks to financial stability.
• Labor market policies should switch from job preservation to facilitating reallocation and strengthening the social safety net.
• Investment in digital and green technologies will boost productivity and ensure a sustainable recovery.
Approved By
Jörg Decressin (EUR) and Anna Ilyina (SPR)
Discussions took place by video conference during March 8–19, 2021. The staff team comprised B. Akitoby (mission head), M. Hassine, R. Rozenov and J. Sandhu (all EUR), and was assisted at headquarters by E. Espinoza and H. Baldev (all EUR). J. Garrido (LEG) and M. Stone (FAD) participated in selected meetings. D. Palotai and M. Pucnik (all OED) also joined the discussions. Staff met virtually with the Bank of Slovenia Governor Boštjan Vasle, Minister of Finance Andrej Šircelj, President Robert Polnar and members of the Parliamentary Committee on Finance and Monetary Policy, other senior officials, representatives of the private sector and labor unions.
Contents
CONTEXT
THE ECONOMIC IMPACT OF THE COVID-19 CRISIS AND POLICY RESPONSES
OUTLOOK AND RISKS
POLICY DISCUSSIONS: SECURING A STRONG RECOVERY AND SUSTAINABLE GROWTH
A. Fiscal Policy: Sustainably Supporting the Recovery
B. Financial Sector Policies: Safeguarding Financial Stability and Reviving Credit Growth
C. Structural Policies: Building the Foundation for Sustainable, Inclusive, and Greener Growth
STAFF APPRAISAL
BOXES
1. Covid-19 Testing, Vaccination and Containment
2. Next Generation EU and Slovenia
3. Impact of COVID-19 and Policy Responses on Banks’ Capital
FIGURES
1. Internet Access and Digitalization
2. Macroeconomic Developments
3. Labor Market
4. External Sector Developments
5. Fiscal Developments
6. Financial Sector Developments
TABLES
1. Selected Economic Indicators, 2018–26
2. General Government Operations, 2018–26
3. Balance of Payments, 2018–26
4. Vulnerability Indicators, 2011–20
5. Core Financial Soundness Indicators, 2012–20
ANNEXES
I. Key Measures in Response to COVID-19
II. Labor Market Measures and Outcomes
III. Risk Assessment Matrix
IV. External Sector Assessment
V. External Debt Sustainability Analysis
VI. Public Sector Debt Sustainability Analysis
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.
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: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
