Slovenia's biggest problems are limited access to financing, inefficient government bureaucracy, restrictive labour regulations and tax rates and regulations, according to the report.

In response to the report, the government directed attention to measures it adopted in February to improve competitiveness, while the biggest opposition party called the fall in index alarming.

Last year Slovenia placed 45th among 139 countries. This year it ranks just below India and ahead of Mexico. Trailing Slovenia among EU countries are Latvia (64th), Slovakia (69th), Bulgaria (74th), Romania (77th) and Greece (90th).

Slovenia scored best in higher education and training (21st), and health and primary education (24th), while scoring lowest in labour market efficiency and financial market development (both 102nd).

The least problematic factors in Slovenia in the opinion of the business executives questioned are government instability, inflation, crime and poor public health.

Slovenia ranks high in terms of business costs of terrorism and crime (1st and 11th spot, respectively), as well as strength of investor protection (20th) and transparency of government policymaking (30th).

In the institutions pillar, the country places low in efficacy of corporate boards (126th), protection of minority shareholder's interests (127th), efficiency of legal framework in settling disputes (111st) and wastefulness of government spending (110th).

Slovenia ranks high according to nearly all indicators of health and primary education, as well as higher education and training, but much lower in the quality of the higher educational system (63rd).

The country fares poorest in some of the labour market efficiency indicators such as firing and hiring practices (141st), rigidity of employment (129th), flexibility of wage determination (126th) and cooperation in labour-employment relations (116th).

In financial market development, Slovenia ranks lowest in soundness of banks (127th), financing through local equity market (108th) and ease of access to loans (107th).

Commenting on the report, Minister of Development and European Affairs Mitja Gaspari said the government adopted a strategy in February envisaging five sets of measures to deal with the most critical fields: employment, payment discipline, efficient financing of companies, management and administrative barriers.

Gaspari also noted that the government had recently announced that majority state-owned banks would be required to take action to increase financing of companies.

But Andrej Vizjak of the opposition Democrats (SDS) said that the Global Competitiveness Report pinpointed the flaws that the government had done least about despite businesses' demands and the SDS's proposals aimed at resolving these problems.

Vizjak pointed to the prolonged credit crunch, while noting that in labour market, companies should not feel excessive consequences of lay-offs when business is low.

"The SDS is thus proposing establishing a severance pay fund that would alleviate the impact of redundancies for workers and employers in case of falling orders."

Vizjak also argued that the Borut Pahor government had made no progress in the removal of administrative barriers. He called for simplification of acquisition of various permits.

Bernard Brscic, a professor at the Ljubljana Faculty of Economics, also commented on the news, saying that Slovenia needed to make a major shift in economic policy. The fact that Slovenia has been overtaken by India is a wake-up call, urging changes, he added.

The drop is not a surprise, "because the business environment has deteriorated significantly in the last three years". Brscic blames the state for the current situation, labelling the report as slap in the face to the holders of economic policy and the state as a whole.

Labour, Family and Social Affairs Minister Ivan Svetlik meanwhile said he was aware of the rigid labour market in Slovenia, adding that the government has drafted changes to the labour relationship act in oder to address the issue.

"We are aware that the wage system, rigidity of employment and the practice of hiring and firing is really our weakness," Svetlik told the STA, adding that the state also wanted to ensure better protection to workers exposed to the most flexible forms of employment.