New IMAD director says crisis measures worked
As the economic activity slowed down, the state first introduced measures to help the labour market and only then moved to ensure fiscal consolidation, salvage the banking system and start the process of privatisation of state-owned companies.
The fiscal situation deteriorated because the public sector costs increased due to a new pay system just as the crisis hit, Bednaš told the STA in an interview, noting that the state had started borrowing more money while interest on state bonds went up.
"It was only in 2012, after general government deficit reached 6.7% of GDP in 2011 ..., that the government stepped up consolidation measures on the expenditure side."
Most of these measures were emergency and temporary measures, she said. The deficit was notably reduced through the lowering of the flexible part of expenditure, which negatively affected the economic activity while diminishing the options for a response to a possible new crisis.
But such a response was necessary at the time to avoid Slovenia requesting international financial aid, according to Bednaš, who was appointed IMAD acting head at the end of last November after Boštjan Vasle went on to become central bank governor.
Also crucial for stabilisation was the salvaging of the banking system and the transfer of bad claims to the Bank Asset Management Company (BAMC) in 2013. "This laid the foundation for the restructuring of the banking and business sectors. Another important signal was also a gradual withdrawal of the state from the economy and efforts to improve the management of banks and companies."
Mentioning the 2013 changes to the pension legislation to adjust to the demographic trends and the labour market reform aimed at making the labour legislation more flexible and reduce the segmentation of the labour market, Bednaš also highlighted the role of the monetary policy of the European Central Bank in the economic recovery.
In recent years, Slovenia has been catching up with other EU countries in terms of development, economic activity, employment and productivity. "Companies have reduced their debt, improved the allocation of production resources and exports, and became more included in the global value chains."
But there are fields where the principles of sustainable development are still not fully implemented, she said, pointing to the public sector.
She therefore calls for systemic changes. "The mid-term fiscal strategy of restructuring of revenue and expenditure must aim to create efficient social protection systems, preserve the quality of public service and support business activities."
According to Bednaš, the fiscal policy should be changed to adjust budget planning to the need for more long-term social protection systems. But she warned that because of the high public debt, the state is quite restricted in introducing anti-cyclical measures.
Bednaš believes not enough progress was made in recent years to promote research, development, innovation and digitalisation, which are crucial factors of productivity growth.
"This significantly limits the potential for any permanent rise in productivity. The relatively low potential growth and slow adapting to demographic changes pose a threat to the sustainable and stable economic development and thus also to the improving of the standard of living and prosperity, so these are the areas which all measures should target."