The Slovenia Times

IMF commends Slovenia's response to Covid, says consolidation must follow

Economy

Washington - The International Monetary Fund (IMF) has commended Slovenia's "swift, substantial, and well-coordinated policy responses" to the pandemic following consultations with the authorities earlier in May, as it stressed that once the recovery is entrenched, the focus should shift toward consolidation.

"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% 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% of GDP, from about 65.5% in 2019," says a report released on Wednesday.

The IMF slightly upgraded Slovenia's GDP growth forecast for this year, to 3.9% from 3.7% and kept the forecast for next year at 4.5%. In 2023 Slovenia's economy is projected to grow at a rate of 3.6%.

While a strong economic rebound is expected as the pandemic abates, "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," it says.

The IMF says strong fiscal support should be maintained in the near term 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 Once the recovery is entrenched, the emergency measures should be withdrawn, and the focus should shift toward consolidation.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," it says.

The report also highlights that risks to financial stability have risen and advised a continuation of 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.

It notes that the pandemic has had an uneven impact on employment and the government is encouraged to continue to adapt policies to facilitate labour reallocation and provide support to those affected the most - low-skilled workers, women and youth. Active labour market programs could effectively be used to help transition between jobs.

The report welcomes the authorities' focus on digitalization and climate change mitigation as improving the digital infrastructure, building human capital, and promoting digital inclusion would boost productivity and resilience.

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