EU Unhappy with Slovenia's Budget & Lack of Reforms

By , 28 Feb 2019, 12:45 PM Politics
EU Unhappy with Slovenia's Budget & Lack of Reforms Montage: JL Flanner

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STA, 27 February 2019 - Slovenia has not seen progress in healthcare, long-term care and the pension system, the European Commission said as part of its European semester winter package and country reports released on Wednesday. It also assessed the updated draft budget plan for 2019 remains at risk of non-compliance with the requirements of EU budget rules.

The Commission argues that Slovenia's economy, currently experiencing strong growth, could become even more resistant to future shocks by strengthening investment and resolving challenges related to the ageing population.

The report features mixed findings as regards progress in the implementation of recommendations issued in 2018.

Progress is for instance acknowledged in privatisation, alternative financing sources for fast growing companies, while limited progress was established in public procurement and the employment of older and low-skilled workers.

Considered as seeing no progress are healthcare, long-term care and the pension system, areas that are all burdened by the ageing population.

The Commission indicated that expenditure related to the ageing population could rise by 6 GDP percentage points between 2016 and 2070, which is one of the biggest increases in the EU. In the 2020-2050 period public pension costs could rise from 11% to 15.6% of GDP.

However, the Commission said Slovenia was performing well in most social indices, while saying that fairness in the system could be improved further.

Another finding says that Slovenian SMEs rely strongly on bank loans and that major administrative burdens as well as shortcomings related to public procurement persist despite an improved business environment.

Despite the good progress in the privatisation of the country's no. 1 and no. 3 banks, the Commission said the state continued to play a dominant role in a number of sectors, which entailed competition distortion risks.

Also, Slovenia is not on course to meeting renewable energy goals for 2020 and goals for investment in research and development. It is on other hand nearing its employment rate target.

Meanwhile, in an assessment of Slovenia's budget plans for 2019, the Commission said that the last draft remains at risk of non-compliance with the requirements of the preventive arm of the Stability and Growth Pact.

The Commission said the draft could lead to a substantial deviation from the adjustment path towards reaching medium-term budgetary objectives.

European Commissioner for Economic and Financial Affairs Pierre Moscovici said these findings may come as a surprise, as the public finances situation improved substantially in nominal terms and as public debt is falling. However, high economic growth has played a crucial role in this, he added.

The plan's structural effort is not compliant with the 2018 June recommendation that the nominal growth rate for primary expenditure must not exceed 3.1% this year, which would require an annual structural effort of 0.65% of GDP.

Commission data indicates a 0.7% of GDP gap between the plan and the target as regards expenditure, and a 0.8% of GDP gap as regards the structural effort.

The Commission's and the government draft budget plan data diverge markedly, with the latter assessing the expenditure gap at 0.5% of GDP and the structural effort gap at 1.3% of GDP.

Meanwhile, the Commission highlighted pressure on expenditure, mostly due to wages and social services, as key challenges for Slovenia's public finance in the coming years.

The opinion on the recently updated plan comes after the draft submitted to the Commission under the no policy change scenario last October had already been deemed at risk of non-compliance.

In a first review on the updated draft on 1 February, the Commission acknowledged the plan projected the budget to remain in surplus, at 0.8% of GDP in 2018 and 0.6% of GDP in 2019, but argued, among other things, that the planned rate of expenditure growth exceeded the recommended maximum increase.

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