The Slovenia Times

IMF: Privatisation List Should Be Expanded


Talking to the STA on the sidelines of the spring meetings of the World Bank and the International Monetary Fund (IMF) after the IMF revised its projection for Slovenia's economy to 0.3% growth from 1.1% contraction, Zakharova cited three major reasons for that.

"One is the recent asset quality review and stress tests and the subsequent recapitalisation of Slovenian banks, which clearly improved the confidence in Slovenia's banking system... All this has been very positive and we see consumer confidence indicators and market sentiment improving in Slovenia."

The second reason is the new data releases by the Slovenian Statistics Office that retroactively upgraded Slovenia's GDP growth for last year, and the third reason is the stronger growth projections for the euro area.

Zakharova also pointed to reforms, including of the pension system and the labour market, and most recently of the insolvency legislation, which, coupled with the banks recapitalisation, brought down the yield on Slovenia's bonds and enabled the country to obtain favourable terms for its bonds.

"So the situation is improving, but it's not the time to relax now," the IMF officials says, adding that it is important for the country to continue pressing with reform and not only to announce them but to actually start implementing them to get the results.

"The overarching challenge is to maintain the reform momentum, without that you cannot sustain the recovery," the IMF official warns, pointing to three priority areas: the bank cleanup, corporate restructuring, and the continuation of fiscal consolidation.

Commenting on the recent repeal of the real estate tax and the measures taken by the government to offset the loss of revenue, Zakharova says that the IMF still supports the real estate tax, particularly if it can be modified to satisfy the demands of the Constitutional Court.

"This is a broad-based measure, a structural measure that will permanently increase revenue," she says, adding that the revenues from the current tax are low by international standards. But she also believes the government should take time to address the issues highlighted by the Constitutional Court.

She underscored the need to distinguish between one-off and permanent measures, arguing that adjustment should be balanced between expenditure and revenue measures, and reiterated that across-the-board cuts are not sustainable.

She suggested Slovenia should tackle big expenditure items such as the public wage bill and social transfers through structural reform, civil service reform or measures to better target social transfers. She also says Slovenia has scope to reduce spending on healthcare without compromising the quality of service.

On the revenue side, the IMF believes Slovenia has still room to increase revenue from the corporate tax and personal income tax, also by broadening the basis of these taxes by including groups of population or sectors that are now exempted.

Zakharova encouraged Slovenia to continue with privatisation, saying that the list of 15 companies, two of which have now been sold, "should probably be expanded to include more companies", while she also expressed understanding that it takes time to identify qualified new owners.

She underscored that privatisation was important not only because of its revenue-generating capacity but because it improved corporate governance, efficiency and financial performance of companies.

Zakharova also highlighted the issue of non-performing loans at banks, which are still high. The IMF believes that there is scope to transfer more of these assets to the Bank Asset Management Company (BAMC), because the bad bank has the expertise to handle such assets.

The removal of these loans from bank balance sheets will create room for new lending. However, Slovenia should also tackle the demand side of the credit, so corporate restructuring is a big priority.

Meanwhile the IMF official also warned Slovenia that it should look beyond the tasks immediately at hand in order to create the conditions for higher growth, which she believes the country needs in order to catch up with its European partners.

"To put the country on a higher sustainable growth trajectory you would need to focus on structural reform," she said, highlighting privatisation, improving governance in companies that remain state owned, and improving the business climate to attract FDI as key tasks.

Asked about how Slovenia should strengthen corporate governance at companies that remain state-controlled, Zakharova says the important thing is to establish very strict supervision and to make sure boards are independently appointed.

Moreover, Zakharova says that growth cannot be sustainable unless it is inclusive so Slovenia should tackle the segmentation of the labour market and the very high youth unemployment through legislation that would create "a level playing field for young people".

Finally, Zakharova said that Slovenia has every chance to succeed - "it has amazing resources, a perfect geographic location and very well educated labour force...but the risk now is complacency that needs to be overcome".


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