The new projection was presented at the conclusion of the IMF's annual mission to the country with the mission chief Nikolay Gueorguiev assessing Slovenia was on track but must press on with planned reforms.

During its week in Slovenia, the IMF mission conducted discussions with representatives of the country's central bank, ministries, government offices, civil society and other stakeholders.

Like in the past, the IMF is again encouraging the country to continue on the path of reform, in particular increase the pace of privatisation and reform the pension system.

Commenting on the growth upgrade, Gueorguiev pointed to substantial growth in private consumption, above-planned investment levels and solid export growth. Considering improved business sentiment, growth rates are expected to be quite stronger than initially projected.

The IMF official hailed efforts for the sale of NLB, Slovenia's largest bank, but once again expressed doubt about the planned model of sale through an initial public offering with the restriction that no private owner can have a stake higher than the state's 25%.

The IMF also welcomed the government's decision to start the privatisation process for Abanka, Slovenia's third largest bank, which Gueorguiev said was vital for the bank's development.

The IMF believes the state asset management strategy needs amending in order to reduce the number of investments classified as strategic. The state should also withdraw from tourism and manufacturing.

Moreover, the mission's belief is that Slovenia should also continue with the privatisation of other companies such as telecoms incumbent Telekom Slovenije.

Finance Ministry State Secretary Gorazd Renčelj commented that the government announced back in autumn it would not change the strategy until it got a clear picture of its effects so far.

"These are expected to be known in the second half of the year," said Renčelj, adding that a proposal of potential changes to the strategy was not expected by the end of the year when deadline expires to sell NLB.

He said the IMF's position on the matter was well known. "They also know what's ours and dispersed ownership is a criterion set down in the strategy," he said, adding that Telekom Slovenije had been slated for sale throughout.

In its concluding statement, the IMF mission noted that "Slovenia is enjoying a fourth consecutive year of steady economic growth...financial stability has improved and the external position has strengthened.

"Yet challenges remain. Public debt remains high, as do non-performing loans of small and medium-sized businesses," Gueorguiev summed up the findings.

The medium-term outlook for the country is less favourable with growth and employment rates expected to remain below pre-criss levels, constrained by adverse demographic trends and rising social transfers.

The IMF therefore calls on Slovenia to take further steps in reforming the labour market to increase flexibility, and put in place health and education reforms that maintain the high quality of service but reduce costs.

The country is also advised to implement further pension reforms with suggestions to expand White Paper proposals to raise the retirement age to 67 and automatically adjust it to demographic trends with further steps such as index pensions to inflation only.

The IMF also advises the country to design a sustainable public pay system that motivates employees, rewards good performance rather than providing automatic, seniority-based wage rises.

Gueorguiev also said that banks would have to adjust their business models in response to low interest rates and limits on bob-interest revenue growth.

The government should continue with the efforts to introduce a real estate tax, eliminate the budget's structural deficit by 2020 and reduce debt to 60% of GDP by 2026, in order to create space for response to potential external shocks.