Council opinion of 8 March 2005 on the updated convergence programme of Slovenia, 2004-2007
Date: 2005-03-08
Institutions: Council of the European Union
Subjects: Slovenia, stability programme

19.7.2005

EN

Official Journal of the European Union

C 177/17

COUNCIL OPINION

of 8 March 2005

on the updated convergence programme of Slovenia, 2004-2007

(2005/C 177/06)

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 surveil-
lance of budgetary positions and the surveillance and coordination of economic policies (1), and in particu-
lar Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

(1)

(2)

(3)

(4)

On 8 March 2005 the Council examined the updated convergence programme of Slovenia, which
covers the period 2004 to 2007. The programme partly complies with the data requirements of the
‘code of conduct on the content and format of stability and convergence programmes’. Government
accounts do not fully abide by ESA95 standards evidenced in the high share of ‘other’ revenue and
expenditure as percentage of GDP. Therefore, Slovenia is invited to achieve full compliance with the
data requirements.

On the basis of currently available information,
the macroeconomic scenario underlying the
programme seems to reflect plausible growth assumptions. It envisages real GDP growth, estimated
at 4,0 % in 2004, to continue growing at around that level throughout the rest of the programme
period. The projections for inflation appear attainable but risks remain.

The budgetary strategy underlying the programme aims at achieving sound public finances as
defined by a budgetary position of close-to-balance, but not during the programme period. The
the general government deficit over the period
programme envisages a gradual reduction of
covered, consistent with a sustained cut in the expenditure share as percentage of GDP. The revenue
ratio, after falling steadily until 2006, rebounds towards the end of the programme period in view
of the net positive budgetary impact of EU membership. According to the adjustment path, the
deficit halves over the next four years, reaching just above 1 % in 2007. Compared with the
previous programme, the current update broadly confirms the planned adjustment against a slightly
more favourable macroeconomic scenario.

The risks to the budgetary projections in the programme appear broadly balanced. On the one
it is at the
hand, a plausible macroeconomic scenario supports the deficit targets. Furthermore,
government's discretion to refuse claims for further expenditure to safeguard the deficit target
should it be threatened by unfavourable conditions, in the manner exercised in 2004. In addition,
the yearly loss of VAT revenue at 0,3 % of GDP budgeted for 2005-2007 may be overestimated,
rendering the tax revenue projections overly cautious. On the other hand, the level of direct tax
revenues after the adopted tax reform could be uncertain. At the same time, the outcome for 2007
is partly due to the new EU financial perspective 2007-2013, anticipating a significant rise in the
net budgetary inflows from the EU budget. Moreover, there is a risk of expenditure overruns, parti-
cularly regarding pension outlays should the review of the current pension indexation formula,
announced for 2006, lead to a loosening of the parameters.

(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

C 177/18

EN

Official Journal of the European Union

19.7.2005

(5)

(6)

(7)

In view of this risk assessment, the budgetary stance in the programme may not provide a sufficient
safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluc-
tuations except for the final year of the programme. It is also insufficient to ensure that the Stability
and Growth Pact's medium-term objective of a budgetary position of close-to-balance is achieved by
2007.

Gross government debt is relatively low: the debt ratio is estimated to have reached 30,2 % of GDP
in 2004, well below the 60 % of GDP Treaty reference value, and to attain 29,7 % by 2007.

Slovenia appears to be at some risk with regard to the long-term sustainability of the public
finances, of which the projected budgetary cost of an ageing population is an important element.
The ongoing pension reform has had a positive budgetary impact but the projected increase in
pension expenditure beyond 2020 remains very high. In addition, despite the introduction of some
rationalisation measures of the health-care system in 2004, a further, substantial reform of the
health-care system would contribute to the improvement of the long-term sustainability of the
public finances.

In view of the above assessment, the Council is of the opinion that Slovenia should:

(i)

seize all opportunities to accelerate the reduction of the general government deficit;

(ii) undertake further measures to improve the long-term sustainability of the public finances, including

the reforms of the pension and health-care systems.

Comparison of key macroeconomic and budgetary projections

2004

2005

2006

2007

Real GDP
(% change)

HICP inflation
(%)

General government
balance
(% of GDP)

Primary balance
(% of GDP)

Government gross debt
(% of GDP)

CP January 2005

COM October 2004

CP May 2004

CP January 2005 (1)

COM October 2004

CP May 2004 (1)

CP January 2005

COM October 2004

CP May 2004

CP January 2005

COM October 2004

CP May 2004

CP January 2005

COM October 2004

CP May 2004

4,0

4,0

3,6

3,6

3,9

3,3

– 2,1

– 2,3

– 1,9

– 0,3

– 0,3

– 0,3

30,2

30,9

29,1

3,8

3,6

3,7

3,0

3,4

3,0

– 2,1

– 2,2

– 1,8

– 0,4

– 0,2

– 0,4

30,7

30,8

29,5

3,9

3,8

3,8

2,7

3,0

2,7

– 1,8

– 1,9

– 1,5

– 0,2

– 0,1

– 0,2

30,9

30,6

29,4

4,0

n.a.

3,9

2,6

n.a.

2,6

– 1,1

n.a.

– 0,9

0,4

n.a.

0,4

29,7

n.a.

28,4

Note:
(1) CPI inflation for the convergence programme

Sources:
Convergence programme (CP); Commission services autumn 2004 economic forecasts (COM)