Slovenia's Draft Budget Risks EU Non-Compliance

By , 21 Nov 2019, 12:16 PM Politics
Primož Trubar, a foundational figure in Slovenian culture, appears on some one euro coins Primož Trubar, a foundational figure in Slovenian culture, appears on some one euro coins Montage - JL Flanner

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STA, 20 November 2019 - Slovenia's draft budgetary plans for next year contain risks that could lead to non-compliance with EU budget rules, the European Commission said on Wednesday, adding the country might still end up complying with the rules considering the high degree of uncertainty in output gap estimates.

Today marks the first time since 2002 that none of the eurozone countries is subjected to excessive public finance deficit procedure, which means that all of them managed to contain their deficit under 3% of GDP.

The Commission found that the budgetary plans of Germany, Ireland, Greece, Cyprus, Lithuania, Luxembourg, Malta, the Netherlands and Austria are compliant with the 2020 requirements under the Stability and Growth Pact, Estonia and Latvia are broadly compliant, while the plans of Slovenia and seven other countries contain risks of non-compliance.

The budgetary plans of Slovenia, Belgium, Spain, France, Italy, Portugal, Slovakia and Finland "might result in a significant deviation from the adjustment path towards their respective medium-term budgetary objective," the Commission said.

Slovenia is expected to soon bring its general government debt below 60% of GDP and with its surplus in nominal terms the country is far from the deficit limit of 3% of GDP.

However, the country is not making progress fast enough, said Commission Vice President Valdis Dombrovskis, who is in charge of financial stability.

Taking into account the country's surplus of 0.5% of GDP and the uncertainties in the output gap calculations, Slovenia may come closer than expected to its medium-term budgetary objective, Dombrovskis said, adding that this may be confirmed in spring.

Slovenia's medium-term budgetary objective is a structural deficit of less than 0.25% of GDP, however, the Commission's autumn forecast for the country in 2020 puts the deficit at 0.9% of GDP.

According to unofficial sources, the Commission is not too worried about Slovenia and the country could become broadly compliant with the Stability and Growth Pact in the spring.

In a response, the Finance Ministry pointed to the differences in certain calculations in Brussels and Ljubljana which result, among other things, from different projections of economic growth and the output gap.

The Commission has estimated that Slovenia will record a nominal surplus of the general government sector of 0.5% of GDP this year and keep it at this level in 2020. The ministry has meanwhile assessed that the surplus will be at 0.8% this year and at 0.9% next year.

The ministry added that the assessments of the draft budgetary plans were based on the Commission's autumn projection of 2.6% GDP growth for this year and 2.7% growth for 2020.

This is a downgrade compared to the Commission's spring forecast and to the autumn forecast by the government macroeconomic think tank IMAD, which was used to draft the budgetary plan for 2020, it said.

"Since the Commission's projection is more pessimistic, its assessments of revenue and nominal balance are consequently somewhat lower."

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