IMF Wraps Up 2024 Article IV Slovenia Consultation

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with the Republic of Slovenia on Friday, May 3, 2024.

Slovenia's economy recovered well from the pandemic, only to be hit by spillovers from the war in Ukraine, followed by severe flooding in 2023. After a strong recovery in 2021, growth slowed in 2022 because of adverse energy price spillovers from the war in Ukraine and supply chain disruptions. Severe floods in August 2023 posed new challenges, with direct damages estimated by the authorities at almost 5 percent of GDP, and the cost of upgrading infrastructure to be more climate resilient estimated to be much higher. Inflation has fallen from earlier highs as pressures from commodity prices abated, and as tighter monetary policy fed through to prices.

Growth is expected to recover and inflation to fall further this year, although uncertainty remains high and risks appear on the downside. Growth is expected to increase to about 2 percent in 2024, led by domestic demand, including because of higher flood-related investment, and higher consumption as real wages recover. Inflation is projected to decline to below 3 percent by end-year and to 2 percent in 2025. External risks include an intensification of regional conflicts, renewed commodity price volatility, and lower external demand. Supply chain disruptions pose additional risks but also may create opportunities for Slovenia in the event of nearshoring. Labor shortages and broader capacity constraints could affect post-flood reconstruction or undermine disinflation. Severe weather events also remain a risk.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for Slovenia's economic resilience and their timely and effective policy response to shocks, including the recent devastating floods. Directors looked forward to the envisaged recovery, while recognizing that the outlook is subject to uncertainty and downside risks. They underscored the need to maintain prudent fiscal and macroprudential policies and advance structural reforms to boost growth, accelerate income convergence with the EU, and strengthen climate resilience.

Directors agreed that stronger medium‑term fiscal consolidation and fiscal reforms are important to rebuild fiscal space and underpin debt sustainability, especially given the expected increase in age‑related spending. Noting the increase in core public spending and the high tax wedge, Directors called for expenditure‑driven consolidation, accompanied by pension, health, tax, and public sector wage reforms. Eliminating remaining pandemic and energy‑related measures would also support consolidation. Directors welcomed the authorities' transparent handling of flood‑related spending and underscored the need for careful prioritization and phasing. They recognized the potential negative effects of the new bank asset tax and agreed that it should be allowed to lapse after the allotted 5‑year period. Noting the expected increase in public investment, Directors recommended enhancing the efficiency of capital spending by implementing recommendations from the recent Public Investment Management Assessment.

Directors agreed that the banking system appears sound, with strong profitability, capital, and liquidity, and with low non‑performing loans. High interest rates have, however, increased repayment and rollover risks, warranting continued close monitoring of bank assets. Directors concurred that the Bank of Slovenia's macroprudential stance is appropriate and that the planned increase in the neutral countercyclical capital buffer will help to strengthen the banking system's capacity to respond to adverse shocks. They also welcomed progress on strengthening the AML/CFT framework.

Directors called for structural reforms to boost productivity growth, supported by the EU‑backed National Recovery and Resilience Plan. They underscored the need to address skill mismatches, improve regulatory quality, and deepen capital markets. Reducing the tax wedge on labor would help to support a higher labor supply. Directors welcomed the authorities' emphasis on investment in the digital and green transitions. They also stressed the need to continue to adapt to climate change and for timely preparation of a national climate adaptation strategy.

It is expected that the next Article IV consultation with the Republic of Slovenia will be held on the standard 12‑month cycle.

Slovenia: Selected Economic Indicators, 2020–25

(Annual percentage change, unless noted otherwise)

2020

2021

2022

2023

2024

2025

Prel.

Projections

Real economy

Real GDP

-4.2

8.2

2.5

1.6

2.0

2.5

Domestic demand (contribution to growth)

-3.9

9.2

3.5

-1.2

3.7

3.0

Private consumption

-6.5

10.3

3.6

1.3

1.3

2.6

Public consumption

4.2

6.1

-0.5

2.4

5.4

2.6

Gross capital formation

-6.3

13.9

7.9

-9.8

12.2

5.0

Gross fixed capital formation

-7.2

12.6

3.5

9.5

5.9

3.1

Net exports (contribution to growth)

-0.3

-1.0

-1.0

2.8

-1.7

-0.5

Exports of goods and services

-8.5

14.5

7.2

-2.0

2.9

4.3

Imports of goods and services

-9.1

17.8

9.0

-5.1

5.2

5.1

Output gap (in percent of potential GDP)

-2.2

2.3

1.9

0.7

0.2

0.0

Unemployment rate (in percent, ILO definition)

5.0

4.7

4.0

3.7

3.7

3.8

Prices

Consumer prices (national def., period average)

-0.1

1.9

8.8

7.4

2.7

2.0

Core inflation (period average) 1/

1.0

1.0

6.8

7.8

2.9

2.0

Public finance (percent of GDP)

General government balance

-7.6

-4.6

-3.0

-2.5

-3.0

-2.7

Cyclically-adjusted general government balance

-6.6

-5.6

-3.8

-2.8

-3.1

-2.7

Structural balance 2/

-6.6

-5.6

-3.8

-2.7

-2.4

-2.2

Structural primary balance 2/

-5.2

-4.4

-2.9

-2.0

-1.4

-1.0

General government gross debt

79.6

74.4

72.5

69.2

68.1

67.4

Monetary and financial indicators

Credit to the private sector

-1.0

5.0

9.5

-0.6

2.0

3.7

Lending rates 3/

1.8

1.6

2.0

4.9

5.5

Deposit rates 4/

0.1

0.1

0.1

0.8

1.4

Government bond yield (10-year)

0.1

0.1

1.9

3.4

Balance of payments (percent of GDP)

Current account balance

7.2

3.3

-1.0

4.5

2.7

2.1

Trade balance (goods and services)

0.8

-2.1

-3.1

2.8

0.3

0.0

Gross external debt (percent of GDP, end-period)

102.1

97.4

90.9

91.8

87.0

83.7

Nominal effective exchange rate (2010=100)

106.8

107.7

106.7

109.6

Real effective exch. rate (2010=100, CPI-based)

98.0

97.6

96.5

99.4

Memorandum items

Population (millions)

2.1

2.1

2.1

2.1

2.1

2.1

Nominal GDP (EUR millions)

47,045

52,279

57,038

63,090

66,900

69,995

GDP per capita (EUR)

22,447

24,789

27,068

29,802

31,572

33,023

Sources: Slovenia authorities and IMF staff estimates and projections.

1/ Harmonized Index of Consumer Prices excluding energy and unprocessed food.

2/ Excludes one-offs and adjusted for calendar year shifts between receipts and expenditures of earmarked EU funds.

3/ Floating or up-to-one-year fixed rate for new loans to NFCs over €1 million. 2024 value shows an average for the first two months.

4/ For household time deposits with maturity up to one year. 2024 value shows an average for the first two months.

1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm

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