IMF urges measures to bolster private investment, reduce debt
With limited private investment continuing to weigh on growth, the IMF has recommended that measures focus on reducing debt in the overleveraged SME sector to help free up capacity for investment.
The conclusions issued by the mission say that the sector - which accounts for 60 percent of investment in the economy - remained indebted above the point where debt adversely affects their investments.
"Company balance sheets need to be adequately repaired...to allow investment activity," IMF mission chief to Slovenia Nikolay Gueorguiev told the press on Tuesday.
Highlighting that the country's Bank Association had issued guidelines to help push along the cleaning of balance sheets in the SME sector, Gueorguiev said the creation of special purpose vehicle to deal with this sector could help increase make the action more efficient.
On a fiscal note, Slovenia should continue consolidating its public finances in order to rebuild fiscal buffers which have been severely eroded during the financial and economic crisis, as public debt quadrupled from just over 20% to 83% of GDP.
Finance Minister Dušan Mramor echoed the warning that Slovenia must rebuild its fiscal buffers and needs to take this into consideration when deciding on spending. "Without external shocks the state of public finances appears stable, but shocks could change that."
Measures being planned by the government as part of the National Reform Programme, which needs to be submitted to the EU in mid-April, mostly implement the IMF recommendations, he said.
Welcoming Slovenia's commitment to a balanced budget principle, the IMF recommends cuts in structural deficit of 0.6 percentage points of GDP a year until the overall structural balance reaches zero.
"The zero structural balance should then be maintained until public debt falls below 60 percent of GDP," said Gueorguiev.
In order to achieve this, the country will need to undertake "substantial additional policy measures, amounting to about 3% of GDP", the IMF wrote in its concluding statement.
The main challenge in this respect is the public sector wage bill and reforms of public healthcare and education as well as the pension system. These have been identified by the IMF as "areas where Slovenia is spending more than its peers without achieving better outcomes".
In pension reform, where international organisations have repeatedly called on Slovenia to respond to population ageing with new measures, the IMF is proposing indexation of pensions to inflation only and the abolishment of pension supplements as well as preferential tax treatment.
Measures implemented in 2012 are gradually increasing the retirement age to 65 and the IMF proposes that new reforms continue to increase the retirement age to 67 in line with an increase in life expectancy.
Part of the savings achieved through the reform should be channelled into support for low-income pensioners through welfare programmes.
With the government facing calls from pensioners and the coalition Pensioners' Party (DeSUS) to allow a second increase in pensions this year, Mramor reiterated the position that the budget does not allow for any increases.
The need to reduce the deficit coupled with slowing growth, which the government projects will tail off from near 3% last year to 1.6% of GDP this year, "severely limits the possibilities for increases in spending".
In a repeat of warnings Slovenia has heard from the EU and IMF before, Gueorguiev highlighted that the country has one of the largest shares of state-owned enterprises in the EU and OECD.
Calling for privatisation as a means of increasing efficiency in the corporate sector, the IMF is calling for "faster and more comprehensive privatisation".
While a step in the right direction, the state asset management strategy envisages the state retaining control in too many companies, said Gueorguiev.
In this vein, he said plans to privatise the NLB bank in an initial public offering as part of which the state wants to retain a controlling stake "is unlikely to attract strategic investors".
Responding to the assessments of the state asset management strategy adopted last summer, Mramor said that the government had left the door open to a review after a year.
"The strategy will be reviewed this summer and there is the possibility of changing it," the minister said.