EN Official Journal of the European Union C 320/17

COUNCIL OPINION

of 5 July 2004

on the Convergence Programme of Slovenia, 2004-2007

(2004/C 320/09)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 5 July 2004, the Council examined the convergence programme of Slovenia, which covers the period 2004 to 2007. The programme largely complies with the data requirements of the revised ‘code of conduct on the content and format of stability and convergence programmes’.

The budgetary strategy underlying the programme aims at achieving sound public finances as defined by a budgetary position of close-to-balance. To this end, the programme envisages a gradual reduction of the general government deficit over the period covered, consistent with a cut in both the revenue and the primary expenditure ratio, the latter through restraint on mandatory expenditure. According to the adjustment path, the deficit halves over the next four years, reaching just below 1 % in 2007. While gearing the policy towards a gradual decrease of the structural deficit, the authorities will allow automatic fiscal stabilisers to operate — although to a limited extent — under unfavourable economic conditions.

The macro-economic scenario underlying the programme beyond 2005 seems to reflect plausible growth assumptions, forecasting real GDP to grow slightly above potential output. Nevertheless, for 2004 growth is assumed rather favourably. The projection for inflation appears on the low side of the current forecasting range in 2004 but is realistic thereafter provided that economic policies continue to be co-ordinated in the aim to lower inflation durably.

Increasing marginally to 1,9 % of GDP in 2004 and then declining gradually to 0,9 % of GDP by 2007, general government deficits are foreseen to stay below the 3 % of GDP reference value in each year. The budgetary targets presented in the programme are not sufficient to ensure the Stability and Growth Pact's medium-term objective of a budgetary position of close to balance; the pace of fiscal consolidation is rather slow and the medium-term objective would only be approached by the end of the programme period. Furthermore, the budgetary outcome could be worse than projected, in particular, given the downside macroeconomic risks related to an upbeat growth forecast in 2004 highlighted above. Moreover, the fiscal consolidation is back-loaded. Therefore, the budgetary stance in the programme may not provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations especially in the initial years of the programme period.

Gross public debt is relatively low and will remain so in the future. After increasing to 29,5 % of GDP by 2005, the debt ratio is expected to fall back to 28,4 % of GDP in 2007. Regarding long term sustainability, Slovenia faces risks of budgetary imbalances in meeting the costs of an ageing population. Implementing thoroughly the pension reform and putting in place a stable health-care system together with securing an adequate primary surplus are essential for placing public finances on a sustainable footing.

Key projections from the convergence programme of Slovenia

2003 2004 2005 2006 2007 Real GDP growth (%) 2,3 3,6 3,7 3,8 3,9 Employment growth (%) – 0,2 0,4 0,6 0,6 0,7 HICP inflation (%) 5,7 3,3 3,0 2,7 2,6 General government balance (% of GDP) – 1,8 – 1,9 – 1,8 – 1,5 – 0,9 Government gross debt (% of GDP) 28,6 29,1 29,5 29,4 28,4

(1) OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website

http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm