COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and stability programme for SLOVENIA Accompanying the document Recommendation for a Council Recommendation on Slovenia's 2013 national reform programme and delivering a Council Opinion on Slovenia's 2013 stability programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: administrative reform, banking system, competitiveness, economic recession, financial solvency, indebtedness, labour market, public debt, public sector, tax reform

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 374 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and stability programme for 
SLOVENIA 

Accompanying the document 

Recommendation for a Council Recommendation 

on Slovenia's 2013 national reform programme and delivering a Council Opinion on 
Slovenia's 2013 stability programme for 2012-2016 

{COM(2013) 374 final} 

EN 

   EN 

 
 
 
 
  
 
CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 8 

Recent economic developments................................................................................... 8 

Challenges .................................................................................................................... 9 

Assessment of policy agenda ..................................................................................... 12 

Fiscal policy and taxation........................................................................................... 14 

Financial sector .......................................................................................................... 22 

Labour market, education and social policies ............................................................ 24 

Structural measures promoting growth and competitiveness..................................... 27 

Modernisation of public administration ..................................................................... 30 

State ownership and corporate restructuring.............................................................. 31 

Overview table ........................................................................................................... 37 

Annex ......................................................................................................................... 42 

2 

 
 
 
 
 
EXECUTIVE SUMMARY 

ECONOMIC OUTLOOK 

After  subdued  growth  in  2010-11,  Slovenia  has  slipped  back  into  recession.  Real  GDP 
declined  by  2.3%  in  2012  and  is  projected  to  drop  a  further  2%  in  2013,  on  the  back  of 
steadily declining domestic demand before stabilising in 2014. The protracted weakness of the 
economy  has  subdued 
income  and  credit  supply. 
Unemployment is still  rising and is projected to reach 10.3% in 2014. The budget deficit is 
projected to be significantly above 3% of GDP in 2013, the deadline set by the Council in its 
recommendation  in  2009,  and  government  debt  is  projected  to  rise  above  the  60%  of  GDP 
threshold. 

inflation  and  shrunk  disposable 

KEY ISSUES 

The recession is accentuating  the  deleveraging challenge for over-indebted  enterprises. 
Financial distress is reportedly rising in both publicly and privately-owned enterprises, which 
is a major cause of high levels of non-performing loans. As a result, large domestically-owned 
banks  have  recorded  sizeable  losses,  necessitating  further  recapitalisations  and  depressing 
lending to healthy firms. Barriers in the business environment and weak corporate governance 
in  state-owned  enterprises  hinder  investment  and  FDI,  and  the  labour  market  is  segmented 
and insufficiently flexible. Past cost-competitiveness losses have thus not been reversed and 
export  market  shares  continue  to  decline.  The  2013  in-depth  review  (IDR)  highlighted 
important  vulnerabilities.  In  the  Communication  accompanying  the  IDRs,  the  Commission 
concluded that excessive imbalances exist in Slovenia.  

Slovenia has launched some of the reforms that are necessary to address the CSRs of the 
2012 Council Recommendation. There has been some short-term consolidation of the public 
finances.  Parliament  adopted  a  constitutional  basis  for  establishing  a  general  government 
budget balance/surplus rule in structural terms. However, further consolidation measures and 
improvements  in  the  medium-term  budgetary  framework  are  needed. A  pension  reform  was 
adopted in December 2012, but it reduces the burden on public finances only until 2020. To 
maintain  financial  sector  stability,  parliament  adopted  legislation  for  bank  restructuring,  but 
the envisaged asset quality review is still pending, bank balance sheets remain to be cleansed, 
bank  governance  has  to  be  improved  and,  relatedly,  bank  privatisation  plans  are  at  an  early 
stage. An important reform tackling labour market rigidity and segmentation was adopted in 
March  and  is  due  to  be  followed  by  the  necessary  regulation  of  student  work.  The  public 
sector wage bill has been reduced, but the minimum wage has continued to rise, and there is 
room for improvement in the matching of workforce skills with employer needs. The Slovenia 
Sovereign  Holding  (SHH)  is  not  yet  in  place  and  announced  legislative  amendments  may 
jeopardize  necessary  corporate  governance  improvements  and  envisaged  privatisations.  A 
quick sale of the 15 companies recently slated for full privatisation, including several major 
firms,  will  signal  a  more  welcoming  business  environment  and  help  to  attract  much-needed 
FDI. Albeit with some delay, the process of deregulating professional services has started, and 
the Competition Protection Agency has been established.  

The  main  challenges  for  Slovenia  are  to  restructure  its  banking  sector,  improve 
corporate  governance  of  the  state-owned  enterprises  (SOEs)  and  correct  the  excessive 
macroeconomic imbalances.  

•  Public finances: The general government deficit declined markedly to 4.0% of GDP 
in 2012 from 6.4% of GDP in 2011. Nevertheless, Slovenia is not expected to correct 
the  excessive  deficit  by  2013,  also  because  of  the  high  cost  of  bank  recapitalisation. 
The medium-term budgetary framework and expenditure rule need to be strengthened 

3 

 
 
 
to secure long-term sustainability. The contingent liabilities of the state are among the 
highest  in  the  EU,  which  calls  for  measures  to  put  it  on  a  downward  path.  Further 
pension  reforms  are  needed  to  stabilise  the  share  of  pension  expenditures  beyond 
2020. 

•  Banking  system:  Determined  implementation  of  a  comprehensive  banking  sector 
strategy  is  needed  to  ensure  stability  and  a  return  to  growth.  The  transmission  of 
financial  distress  from  firms  to  banks,  and  from  banks  to  the  state  has  intensified, 
limiting funding options for both banks and the sovereign. Economic contraction has 
further  hindered  balance  sheet  repair  and  left  banks  increasingly  exposed  to  non-
performing  loans,  which  reached  14.4%  in  2012  (24.5%  for  corporate  loans).  Banks 
are increasingly dependent on ECB funding and government deposits. 

•  State-owned enterprises: The corporate governance of SOEs, which account for one 
sixth of total value added, needs to be improved significantly. SOEs form a complex 
matrix  of  frequently  financially-troubled  banks,  insurance  groups  and  non-financial 
corporations,  which  own  each  other.  Better-performing  SOEs  frequently  use  their 
financial  resources  to  recapitalise  other  SOEs  in  difficulties.  This  thwarts  the 
productive investment, FDI and privatisation necessary to boost productivity, deepen 
capital  markets  and  enhance  technological  spill-overs.  SOEs  burden  the  public 
finances  –  capital  transfers  to  loss-making  SOEs  contributed  1.4  pps  to  the  budget 
deficit  of  6.4%  of  GDP  in  2011  and  the  total  debt  of  non-bank  SOEs  reached  about 
30% of GDP, most of it guaranteed by the state. 

•  Corporate  restructuring  and  insolvency  proceedings:  The  insolvency  framework 
lacks proper incentives and sanctions to ensure that companies file for insolvency at an 
early  stage,  and  incentives  for  early,  out-of-court,  settlement  are  also  weak.  The  in-
court, "compulsory settlement" procedures are complex and debtor-friendly, which is 
particularly dissuasive for SMEs and micro companies.   

•  Labour  market:  The  overall  employment  rate  stagnated  in  2012,  while  youth 
unemployment  increased  substantially.  Long-term  unemployment  continued  to 
increase,  in  particular  among  older  workers  and  the  low  skilled.  Labour  market 
flexibility  is  insufficient  due  to  high  protection  of  permanent  contracts  and  labour 
market segmentation is widespread, including due to loose regulation of student work. 
The  minimum  wage  is  among  the  highest  in  the  EU  as  a  percentage  of  the  average 
wage and it continues to increase automatically at the beginning of every year by the 
level  of  inflation  in  the  previous  year.  Despite  rising  unemployment  participation  in 
active  labour  market  policies  is  declining  while  the  role  of  employers  in  vocational 
education and training remains weak. 

•  Competitiveness  and  business  environment:  Notwithstanding  wage  moderation, 
declining  productivity  prevented  cost-competitiveness  from  improving  in  2012. 
Despite its strong potential, Slovenia has one of the lowest stocks of FDI among new 
EU  member  states  (31%  of  GDP  in  2012),  and  weak  export  performance  (its  export 
market share fell by 6.4% in the last three years). Professional services, accounting for 
about  10%  of  GVA,  remain  heavily  regulated.  The  recently  established  Competition 
Protection Agency is not yet financially independent. Transposition of the 3rd energy 
package and improvements in the justice system are also challenges. 

4 

 
 
 
 
 
the  basis  of 

in  Slovenia.  On 

1.  INTRODUCTION 
In May 2012, the Commission proposed a set of country-specific recommendations (CSRs)1 
for  economic  and  structural  reform  policies 
these 
recommendations,  the  Council  of  the  European  Union  adopted  seven  CSRs  in  July  2012.2 
These CSRs concerned public finances and fiscal governance, pension reform, banking sector 
balance  sheets,  labour  market  segmentation,  skills  mismatches,  selected  aspects  of  the 
business environment and the wage setting.  
The  Commission’s  Annual  Growth  Survey  (AGS)  20133  and  the  Alert  Mechanism  Report 
(AMR)4  were  published  in  November  2012.  The  2013  AGS  sets  out  the  Commission's 
proposals  for  five  priorities  to  guide  Member  States  to  renewed  growth  in  2013:  pursuing 
differentiated, growth-friendly fiscal consolidation; restoring normal lending to the economy; 
promoting growth and competitiveness for today and tomorrow; tackling unemployment and 
the social consequences of the crisis; and modernising public administration. The 2012 AMR 
served as an initial screening device to determine whether macroeconomic imbalances exist or 
risk emerging in Member States. Slovenia and 13 other Member States were selected for an 
In-depth Review (IDR).5 

On the basis of the 2013 IDR for Slovenia, the Commission Communication of 10 April 2013 
concluded  that  Slovenia  is  experiencing  excessive  economic  imbalances.  These  imbalances 
correspond  closely  to  challenges  identified  during  the  2011  and  2012  European  Semester, 
with  a  focus  on  a  credible  repair  of  the  banking  system,  improved  governance  structures, 
privatisation, withdrawal of barriers to FDI, improvements to the business environment, cost-
competitiveness  developments  supportive  of  adjustment  and  the  enhancement  of  adjustment 
capacity  at  the  microeconomic  level.  The  communication  called  on  Slovenia  to  proceed 
swiftly and decisively to complete the reforms it has started and include comprehensive and 
detailed  policy  measures  in  its  2013  national  reform  programme  (NRP)  and  Stability 
Programme (SP).  

Against the background of the 2012 CSRs, the 2013 AGS, the 2012 AMR, and the 2013 IDR, 
Slovenia presented updates of its national reform programme (NRP) and stability programme 
(SP) on May 9, 2013. These programmes provide information on the progress made since July 
2012 and on the government's future plans. The information contained in these programmes 
provides the basis for the assessment made in this Staff Working Document (SWD). 

The  NRP  was  discussed  in  the  competent  committees  of  the  National  Assembly  and  the 
Economic and Social Council, with both organisations involving representatives of employee 
and  employer  associations.  The  SP  was  discussed  in  the  competent  committees  of  the 
National Assembly. 

In addition to these documents, on 23 May 2013 the Minister of Finance sent a letter to the 
Commission  recapitulating  key  commitments  in  the  NRP  and  adapting  or  clarifying  these 
commitments in six respects relating to sections 3.2 and 3.6 of this SWD (See Box 1).  

1  
COM (2012) 321 final of 30 May 2012. 
2  
OJ C 219 of 24 July 2012. 
3  
COM (2012) 750 final. 
4  
COM (2012) 751 final. 
5  
13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the 
AMR,  Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in  view  of  the 
advanced preparations for a financial assistance programme. 

5 

 
 
 
 
                                                 
Box 1: Key points of the letter of 23 May 2013  

from Minister of Finance to Vice President Olli Rehn 

• 

if required, the authorities stand ready to work with the Commission and the ECB to ensure 
asset quality reviews are conducted for a selection of banks, as long as these reviews do not 
impede the timely transfer of a first tranche of assets, planned before end June. The authorities 
would stand ready to cover any additional capital shortfall revealed in this process; 

•  measures to strengthen bank balance sheets will be followed by a phase in which the banking 

sector is consolidated;  

• 

• 

• 

the  government  commits  to  full  divestment  of  its  stakes  in  the  15  companies  that  the 
government earmarked for privatisation on 8 May and expects parliamentary approval before 
the end of the second quarter of 2013; 

the  NRP  commitment  to  submit  an  SOE  strategy  in  the  fourth  quarter  of  2013  is  brought 
forward to the end of the third quarter of 2013;  

any outlays of public funds on corporate restructuring will be offset against other expenditure 
items. 

Overall assessment  

The  analysis  in  this  SWD  leads  to  the  conclusion  that  Slovenia  has  made  partial  progress 
towards addressing the CSRs. The NRP, the additional measures announced by the authorities 
and the letter of 23 May 2013 contain important new commitments. While these are welcome 
steps  in  the  right  direction,  a  comprehensive,  detailed,  timebound  action  plan  would  be 
necessary to sustainably address the policy challenges described in the IDR, on the basis of 
which  the  Commission  concluded  that  Slovenia  is  facing  excessive  imbalances,  and  to 
improve market confidence.  

Positive action has been taken to consolidate public finances in the short-term. In spite of the 
expenditure-based  consolidation  envisaged  in  the  SP,  not  all  expenditure  measures  are 
specified and various are not of a structural nature. The fiscal effort is strongly concentrated 
in  2014,  while  for  2013  the  programme  envisages  only  a  marginal  improvement  in  the 
structural  balance.  Projections  are  subject  to  important  risks,  jeopardising  the  planned 
correction of the excessive deficit by 2014 and the achievement of the medium-term objective 
(MTO) by 2017. 

By  adopting  a  constitutional  basis  for  establishing  a  general  government  budget 
balance/surplus  rule  in  structural  terms  the  authorities  did  a  first  step  towards  strengthening 
fiscal  governance  in  line  with  EU  legislation.  However,  they  still  need  to  improve  the 
medium-term  budgetary  framework  and  the  fiscal  rule  that  would  underpin  an  appropriate 
medium-term  objective.  A  pension  reform  was  adopted  in  December  2012,  but  further 
reforms are needed to lower the burden on public finances in the period after 2020. Moreover, 
further measures need to be identified to put public debt and contingent fiscal liabilities on a 
downward path. In the context of necessary structural reforms, it is important that Parliament 
tightened rules to call and win a referendum on 24 May 2013. 

For  the  stabilisation  of  banks,  the  letter  of  23  May  2013  contains  important  additional 
commitments.  As  a  part  of  a  comprehensive  strategy  for  the  banking  sector,  the  authorities 
aim  to  implement  a  bank  asset  quality  review  for  a  selected  group  of  banks  in  a  phased 
manner  that  would  allow  them  to  move  forward  in  a  timely  fashion  with  the  necessary 
restructuring  of  NLB,  the  largest  domestic  bank,  which  is  already  subject  to  a  state  aid 
procedure.  The  objective  of  this  strategy  is  to  improve  corporate  governance  of  banks  and 
create a well-capitalised and profitable banking system which can support the real economy. 

6 

 
 
 
 
To ensure this, the authorities stand ready to provide the necessary financial backstop if banks 
require  further  capital  injection.  They  also  expressed  their  willingness  to  work  closely  with 
the  Commission  and  the  ECB  to  ensure  that  the  review  meets  the  highest  international 
standards.  If  these  important  new  measures  are  integrated  into  a  time-bound  and 
comprehensive  action  plan  and  implementation  goes  ahead  in  a  determined  fashion,  this 
would result in the necessary rehabilitation of the banking sector and a lasting improvement in 
market confidence. 

A  comprehensive  strategy  should  also  identify  measures  to  strengthen  bank  management, 
governance and supervision. In addition to the welcome decision of the government to sell its 
stake in NKBM, the second largest bank, a commitment to improve the ownership strategy, 
governance and management of NLB, the largest state-owned bank, with a view to eventual 
privatisation, would greatly enhance the credibility of the reforms in this area. 

Regarding  state  ownership,  a  comprehensive  strategy  and  appropriate  supporting  measures 
would greatly help addressing the challenges that were identified in the IDR. While welcome 
amendments to the Slovenian Sovereign Holding (SSH) law strengthen reporting and auditing 
requirements,  further  measures  are  necessary  to  ensure  a  fast  and  efficient  privatisation 
processes.  In  the  letter,  the  authorities  committed  to  bringing  forward  the  completion  of  a 
comprehensive privatisation strategy and classification of assets to the third quarter of 2013, 
which  should  fully  address  the  remaining  issues  in  this  area.  Separately,  the  government 
proposed  to  parliament  on  May  8,  2013  a  list  of  15  companies  to  privatise,  including  the 
second  largest  bank  and  the  telecommunications  incumbent  and  some  small  companies  and 
minority stakes, and expects parliamentary adoption by the end of the second quarter of 2013, 
according to the letter. Experiences in the last decades underline significant implementation 
risks,  which  may  be  exacerbated  by  announced  amendments  to  the  SSH  law.  Defining  a 
realistic but ambitious timetable for the privatization of these companies after parliamentary 
approval would help further enhance credibility and mitigate implementation risks.  

Legal  changes  to  insolvency  legislation  adopted  by  the  government  in  April  2013  will 
improve  the  insolvency  framework,  but  further  measures  may  be  be  needed  to  bring  about 
sufficient  improvement  in  this  area.  Additional  legal  changes  to  facilitate  out-of-court 
restructuring and debt conversion are not described in detail in the NRP. The law on state aid 
was modified. It clarifies and broadens eligibility criteria, and foresees a role for independent 
evaluation.  These  legal  changes  however  may  lead  to  further  increases  in  contingent  fiscal 
liabilities, and could possibly disincentivise private restructuring deals. 

The recently adopted labour market reform goes in the right direction but a significant impact 
on labour market segmentation and flexibility is not yet ensured. Moreover, a study to analyse 
the  parallel  labour  market  caused  by  student  work  is  envisaged  as  a  basis  for  determining 
what  regulation  will  be  required.  Concerning  wage  cost  competitiveness,  reduced  public 
sector wages will help promote the necessary adjustment in the private sector. The NRP states 
the welcome objective of revising minimum wage setting but the corresponding measures to 
achieve this objective remain to be identfied. Finally, further progress is needed on matching 
of skills supply with labour market needs to promote employment and new investment.  

Further improvements in the business environment are envisaged. The NRP presents a set of 
targets to improve the length of judicial proceedings and reduce the number of enforcement 
cases. To ensure sufficient progress in this important area, underpinning measures should be 
fully  spelled  out.  The  NRP  also  announces  further  measures  to  streamline  spatial  planning 
procedures. The process of deregulating professional services has started, although with some 
delay. Finally, an independent competition authority was established, but its budget has been 
cut which hinders its proper functioning. 

7 

 
 
 
2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. 

Recent economic developments  

Recent economic developments 

Slovenia  slipped  back  into  recession  in  2012  with  a  2.3%  drop  of  real  GDP.  The  first 
phase of the recession in 2009 hit an economy on the verge of overheating and spread from 
the  trade  channel  quickly  to  gross  fixed  capital  formation,  which  declined  by  23%.  The 
continued  fall  in  gross  fixed  capital  formation  stifled  the  short-lived  export-led  recovery  in 
2010-11. The main drivers behind the deterioration of growth in 2012 were a sharp decline in 
private  consumption  and  the  protracted  weakness  in  investment.  This  means  the  recent 
positive  adjustment  in  the  current  account  is  likely  to  be  mostly  cyclical,  arising  from 
markedly  lower  domestic  demand  and  employment,  while  cost-competitiveness  losses  have 
not  been  reversed.  Export  market  shares  have  been  lost  and  export  performance  is 
substantially weaker than in peer countries with growth of merely 0.3% in 2012.   

Domestic demand has remained weak since 2009. Private consumption fell by almost 3% 
in 2012 and investment continued to drop at a high rate, falling 9% overall in 2012 as a result 
of a 12.6% fall in construction and a 5.9% fall in equipment, although these declines were not 
as sharp as in 2011. Government spending also contracted by 1.6%. This consolidation was 
necessitated  by  the  pro-cyclicality  of  spending  in  the  years  before  the  crisis.  Delays  in 
urgently  required  enterprise  restructuring  and  increasing  unemployment  were  amongst  the 
main contributors to the sharp drop of domestic demand. Deleveraging needs concentrated in 
the corporate sector as a result of the build-up of internal and external imbalances, depressed 
profit margins and constrained economic activity. Many companies, especially those targeting 
the local market, had difficulties with servicing debt and paying taxes on time. Banking sector 
rescue measures and the restructuring of the highly indebted corporate sector were postponed 
to  2013,  pending  which  banks'  cannot  offer  new  credit  to  firms  in  sufficient  amounts. 
Unemployment  has  been  rising  driven  by  the  on-going  consolidation  in  both  public  and 
private sectors, while legal rigidities in the labour market (particularly but not only in relation 
to permanent contracts) hinder adjustment at firm level and distort job creation.  

The transmission of financial distress from firms to banks, and from banks to the state 
has  intensified,  limiting  funding  options  for  banks,  firms  and  the  sovereign.  Economic 
contraction  has  further  hindered  balance  sheet  repair  and  inevitably  left  banks  increasingly 
exposed to problematic loans. Non-performing loan ratios reached 14.4% in 2012 for all types 
of loans and 24.5% for corporate loans. As a result, banks were faced with 40% higher losses 
on their loan portfolios on aggregate level in 2012. Difficulties in the interbank market have 
left  banks  increasingly  dependent  on  ECB  funding  and  government  deposits.  Five  of  the 
largest  domestic  banks  were  downgraded  by  Fitch  in  April  2013  as  a  result  of  delays  in 
tackling the problems of the banking sector and their exposure to the over-levered corporate 
sector.  Slovenia's  access  to  sovereign  debt  was  limited  for  most  of  2012,  though  market 
access was regained through a sizeable US-dollar issue in October 2012. The sovereign was 
able to refinance itself again, in early May 2013 on the back of ample liquidity in international 
capital  markets.  However,  this  bond  issuance,  which  was  completed  before  delivery  of  key 
reforms  and  before  adoption  of  the  supplementary  budget,  has  proven  rather  expensive. 
Insufficient reform progress so far, the complexity of state ownership and lingering doubts as 
to the true scale of contingent liabilities continue to weigh on economic recovery in Slovenia 
and jeopardize the sustainability of public finances.  

Economic outlook  

Slovenia’s  recession  is  deepening  with  continuously  rising  unemployment  and  growth 
forecasts being revised downwards. Real GDP is expected to drop a further 2% in 2013 on 

8 

 
 
 
the back of steadily declining domestic demand and to at best stabilise in 2014. The protracted 
weakness of the economy and domestic consumption has subdued inflation, labour costs and 
credit growth, and is pushing the current account further into surplus. Existing imbalances in 
the  banking  and  corporate  sectors  are  expected  to  continue  weighing  on  growth  and  fiscal 
adjustment  both  in  2013  and  2014.  Accordingly,  the  excessive  deficit  is  not  expected  to  be 
corrected  by  2013  and  the  government  debt  is  projected  to  rise  swiftly  above  the  60% 
threshold. Further delays in resolving the banking crisis and restructuring the highly indebted 
corporate  sector  have  already  resulted  in  a  downward  revision  of  growth  forecasts.  Any 
postponement  of  the  wide-ranging  structural  reforms  that  are  required  and  which  have  only 
partly been initiated would lead to a further deterioration of growth prospects.  

Strong deterioration of private consumption and subdued investment remain the main 
drag on growth, while exports show signs of a modest recovery. Private consumption is set 
to  fall  by  3.7%  in  2013  and  by  1.9%  in  2014  on  the  back  of  weak  fundamentals,  despite  a 
slight  improvement  in  consumer  confidence  in  the  first  few  months  of  2013.  A  further 
increase in unemployment, which is set to reach 10% in 2013 and 10.3% in 2014, is one of the 
main  contributors  to  the  negative  trend  in  consumption.  The  forecast  for  gross  fixed  capital 
formation  for  2013,  though  still  negative,  has  been  revised  somewhat  upwards  to  a  drop  of 
5%, due to anticipated one-off investment in machinery for a recently constructed coal-fired 
power station and increased absorption of EU funds in 2013. Nevertheless, fixed investment 
continues to decline, in line with the corporate sector's deleveraging needs, pressure on banks' 
balance  sheets  and  limited  access  to  credit.  Positive  signs  in  export  data  point  at  a  gradual 
recovery  of  volumes  with  anticipated  growth  of  1¼%  in  2013  and  3¼%  in  2014,  and  a 
gradual shift towards faster growing markets outside the EU. However, Slovenia continues to 
lose market shares against other trading partners in the EU due to existing frictions in labour 
and capital markets, and slow adjustment of cost competitiveness.     

The  macroeconomic  scenario  underlying  the  budgetary  projections  of  the  stability 
programme  and  the  national  reform  programme  was  revised  downwards  in  March 
2013.  According  to  the  projections  of  the  Institute  of  Macroeconomic  Analysis  and 
Development (IMAD), real GDP will continue to drop in 2013 by 1.9% and will stabilise and 
strengthen  gradually  from  2014  onwards.  Assessed  against  currently  available  information, 
including  Commission  services’  2013  Spring  Forecast  and  internal  projections  for  growth 
beyond 20146, IMAD's macro scenario for 2013 appears reasonable, but its scenario for 2014 
and  beyond  appears  optimistic  in  view  of  the  announced  consolidation  measures.  The 
difference  is  mainly  due  to  a  quicker  and  stronger  recovery  of  investments  in  the  IMAD 
forecast,  while  the  Commission  has  taken  a  more  cautious  view  given  the  delay  and 
uncertainty around bank and corporate restructuring.  

2.2. 

Challenges  

On the basis of the 2013 In-depth Review, the Commission concluded on 10 April that 
Slovenia is experiencing excessive economic imbalances that are rapidly building up. The 
10 April Commission Communication (see also Box 2) called on Slovenia to proceed swiftly 
and  decisively  with  reforms  and  include  comprehensive  and  detailed  policy  measures  in  its 
2013  National  Reform  Programme  and  Stability  Programme,  in  order  to  reverse  this  trend. 
Addressing these imbalances, which threaten the functioning of the economy and contribute 
to possible adverse effects to the monetary union, represents the highest priority challenge for 
Slovenia at the present time. More specifically, this entails: 

6 Internal projections for growth beyond 2014, underpinning the EDP, include consolidation measures.        

9 

 
 
 
                                                 
(i)  a  credible  repair  of  the  banking  system  through  a  balanced  set  of  measures  and 
maintenance  of  financial  stability  through  prudent  supervision  and  improved 
governance structures;  

(ii)  a  sounder  financing  of  the  NIIP  and  growth  through  FDI  facilitated  by  an 

improvement of the business environment;  

(iii) cost-competitiveness developments supportive of adjustment and helping to avoid the 
re-emergence  of  external  imbalances  through  continued  public  sector  wage  restraint, 
adaptation of the minimum wage setting and a set of labour market reforms; and  
(iv) the  enhancement  of  adjustment  capacity  at  the  microeconomic  level,  particularly  as 

regards state ownership and labour market institutions.  

The challenges highlighted under the Macroeconomic Imbalances Procedure in 2013 are 
broadly in line with those of the 2013 Annual Growth Survey and correspond closely to 
those identified in the 2012 SWD, namely: 

(i)  ensuring long-term sustainability of public finances, including by addressing the low 
employment rate of older workers. An additional focus for 2013 is long-term care; 

(ii)  repairing the financial sector;  
(iii) improving Slovenia’s external trade prospects, which are  hampered by past losses to 

its cost competitiveness; 

(iv) reducing  labour  market  segmentation,  including  that  arising  from  "student  work" 
(which is increasingly relevant for labour force participation and equality reasons);  
(v)  improving the overall business and competition framework, particularly in services;  
(vi) better  harnessing  research  and  development  and  meeting  the  needs  for  new  skills  to 
support growth and the upgrading of Slovenia’s production structure. A new emphasis, 
as budget pressures mount, is the need to focus resources on key priorities and to align 
and  promote  vocational  education  and  training  in  accordance  with  labour  market 
needs. 

Going beyond the challenges highlighted in 2012 and in the Annual Growth Survey, there are 
key issues in relation to:  

•  Energy,  where  Slovenia  could  capitalise  on  trade  possibilities  and  enhance  retail 
competition  while  going  further  to  achieve  targets  and  implement  the  third  energy 
package; 

•  The justice system, where greater efficiency could improve the business environment 

by fostering trust and stability; 

•  Environmental  sustainability,  where  the  issues  are  the  costs  of  environmental 

pollution, resource efficiency and green growth. 

Economic  policies  associated  with  these  challenges  require  a  comprehensive  reform 
agenda  with  mutually  reinforcing  positive  impact  on  employment,  economic  activity, 
financial  sector  stability  and  reduction  of  imbalances.  These  measures  should  complement 
measures to correct the excessive deficit and to ensure sustainable public finances in the long-
term. 

10 

 
 
 
Box  2.  Main  conclusions  from  the  2013  In-depth  Review  and  key  messages  from  Commission 
Communication, COM(2013) 199 final, 10.4.2013 

Based on the previous In-Depth Review (IDR), in May 2012, the Commission concluded in the 2012 
that  Slovenia  was  experiencing  macroeconomic  imbalances,  in  particular  as  regards  developments 
related  to  corporate  sector  deleveraging,  banking  stability  and  to  some  extent  also  external 
competitiveness. It highlighted the necessity of a prompt and thorough policy response to minimise the 
risk  of  existing  imbalances  becoming  excessive.  The  2013  IDR,  in  line  with  the  scope  of  the 
surveillance under the Macroeconomic Imbalance Procedure (MIP), finds that the negative economic 
trends and imbalances identified in the 2012 IDR have aggravated. Notably:  

•  The  level  of  total  private  debt  is  below  the  euro-area  average  and  the  alert  threshold  of  the 
scoreboard,  but  many  corporates  remain  over-indebted,  leading  to  further  rises  in  non-
performing loans. 

•  The  size  of  the  Slovenian  banking  sector  is  less  than  half  the  euro  area  average,  but  major 
domestic  banks  face  continued  deterioration  of  their  credit  portfolios  and  consequently 
recapitalisations  are  likely  to  be  needed.  Credit  is  contracting  and  the  interaction  between 
weak  banks  and  the  sovereign  has  intensified.  Corporate  balance  sheet  repair  and  growth  is 
hindered by a double-dip recession and poor prospects. 

•  Net external debt is relatively contained and the current account has turned into surplus due to 
historically  low  inward  investment  and  reduced  imports  from  lower  economic  activity  and 
employment.  Past  cost-competitiveness  losses  have  not  been  reversed.  Export  market  shares 
have been lost and export performance is substantially weaker than in peer countries. 

•  Policies to address the limited adjustment capacity of the economy have yet to fully develop. 
Important positive steps have been the enactment of a partial pension reform in the final weeks 
of 2012 as well as the labour market reform adopted early March. 

•  The  complex  nexus  of  state  ownership  limits  adjustment,  distorts  resource  allocation,  deters 

foreign-direct investment and is detrimental to the public finances. 

Framework  legislation  for  bank  restructuring  and  privatisation  was  passed  but  still  needs  to  be 
implemented effectively. 

The policy challenges stemming from these developments include: 

• 

the credible repair of the banking system through a balanced set of measures and maintenance 
of  financial  stability  through  prudent  supervision  and  improved  governance  structures, 
including the eventual privatisation of state-owned banks; 

•  a  sounder  financing  of  the  net  international  investment  positions  (NIIP)  and  growth  through 
foreign direct investment (FDI) facilitated by an improvement of the business environment;  

•  cost-competitiveness  developments  supportive  of  adjustment  and  helping  to  avoid  the  re-
emergence of external imbalances through continued public sector wage restraint, adaptation 
of minimum wage setting and a set of labour market reforms; 

• 

the enhancement of adjustment capacity at the microeconomic level, particularly in relation to 
state-ownership and labour market institutions. 

These  conclusions  were  reflected  in  the  Commission  Communication,  COM(2013)  199  final, 
10.4.2013,  which  stated  that:  SLOVENIA  is  experiencing  excessive  macroeconomic  imbalances. 
Urgent  policy  action  is  needed  to  halt  the  rapid  build-up  of  these  imbalances  and  to  manage  their 
unwinding. […]Slovenia should now proceed swiftly and decisively by completing the reforms it has 
started and include comprehensive and detailed policy measures in its forthcoming National Reform 
Programme and Stability Programme, in order to halt and reverse this trend.   

11 

 
 
 
 
The remainder of this SWD assesses the policy agenda in light of these challenges, with a 
particular emphasis on determining whether this agenda is sufficiently ambitious, time-
bound and detailed to credibly address the identified excessive imbalances. 

3.  ASSESSMENT OF POLICY AGENDA  

Overall,  the  NRP  demonstrates  that  Slovenia  has  made  partial  progress  towards 
addressing  the  CSRs  of  the  Council  Recommendation,  while  providing  only  limited 
detail  on  the  reforms  that  would  be  needed  to  address  the  excessive  imbalances  and 
policy challenges detailed in the In-Depth Review.  

It is positive that the Stability Programme announces a correction of the excessive deficit 
relying mainly on expenditure reductions and the strengthening of fiscal governance in 
line with EU legislation. However, the  fiscal effort is strongly concentrated in 2014,  while 
for 2013 the programme envisages only a marginal improvement in the structural balance.  

Programme  projections  are  subject  to  important  risks,  jeopardising  the  planned 
correction of the excessive deficit by 2014. The macroeconomic scenario underpinning the 
programme  seems  optimistic  especially  for  2014.  Budgetary  implications  of  some  revenue 
increasing  measures  are  difficult  to  assess,  because  they  are  not  supported  with  sufficient 
information  on  tax  rates,  tax  basis  and  possible  tax  exemptions.  In  spite  of  the  announced 
expenditure-based consolidation, not all expenditure measures are specified and many of them 
are not of a structural nature.  

Measures to put public debt and contingent fiscal liabilities on a downward path are not 
provided.  Achievement  of  the  medium-term  objective  (MTO)  by  2017  is  not  clearly 
demonstrated.  Moreover,  the  programme's  MTO  is  not  appropriate,  because  it  does  not 
adequately take into account the implicit liabilities related to ageing. While the recent pension 
reform is an important step, specific measures to contain age-related costs beyond 2020 have 
not been provided.  

For the stabilisation of banks, the letter of 23 May 2013 contains important additional 
commitments. As a part of a comprehensive strategy for the banking sector, the authorities 
aim to implement a bank asset quality review in a phased manner that would allow them to 
move  forward  in  a  timely  fashion  with  the  necessary  restructuring  of  NLB,  the  largest 
domestic bank, which is already subject to a state aid procedure. The objective of this strategy 
is  to  improve  corporate  governance  of  banks  and  create  a  well-capitalised  and  profitable 
banking  system  which  can  support  the  real  economy.  To  ensure  this,  the  authorities  stand 
ready  to  provide  the  necessary  financial  backstop  if  banks  require  further  capital  injection. 
They also expressed their willingness to work closely with the Commission and the ECB to 
ensure  that  the  review  meets  the  highest  international  standards.  If  these  important  new 
measures are integrated into a time-bound and comprehensive action plan and implementation 
goes  ahead  in  a  determined  fashion,  this  would  result  in  the  necesary  rehabilitation  of  the 
banking sector and a lasting improvement in market confidence. 

The  Bank  Asset  Management  Company  (BAMC)  remains  the  government's  preferred 
institutional platform for bank rehabilitation. The BAMC law allows for up to EUR 4bn 
state-guaranteed  BAMC  bonds  to  fund  asset  transfers  and  an  estimated  EUR  900m  for 
recapitalisations. The NRP includes a first attempt to quantify and describe plans for transfers 
to  the  BAMC  based  on  bottom-up  stress  tests  performed  by  the  Bank  of  Slovenia  (BoS). 
These in-house estimates of the BoS are based on a series of assumptions that are not made 
explicit  in  the  NRP  and  which  may  need  to  be  further  refined.  The  letter  specifies  that  the 
largest  bank,  NLB,  will  transfer  selected  assets  to  the  BAMC  and  states  that  the  authorities 
have already provided to the Commission the necessary files detailing the proposed transfers. 

12 

 
 
 
 
For the other two large state-owned banks, first a private solution is  sought. This important 
new  initiative  also  requires  a  reassessment  of  the  plans  for  asset  transfers  to  the  BAMC.  It 
would  also  be  important  to  explain  the  interaction  of  the  BAMC  with  other  corporate 
restructuring initiatives of the authorities.  

A  comprehensive  strategy  should  also  ensure  that  bank  management,  governance  and 
supervision are properly strengthened, as these elements are vital to prevent a repeat of 
past mistakes by rescued banks. There is no mention of this consideration in the NRP. NLB, 
the largest state-owned bank is set to benefit from the transfer of bad assets to the BAMC. A 
clear commitment to promptly improve the ownership strategy, governance and management 
of  this  bank,  with  a  view  to  eventual  privatisation,  would  be  important  and  would  usefully 
complement  the  8  May  2013  decision  of  the  government  to  sell  its  stake  in  NKBM,  the 
second largest bank in the country. Without the prospect of an eventual sale of cleaned banks, 
as  soon  as  the  general  market  conditions  are  acceptable,  the  rationale  for  BAMC  approach 
favoured by the government remains unclear. 

A  comprehensive  strategy  and  supporting  measures  regarding  state  ownership  in  the 
real  economy  would  be  necessary  to  address  the  challenges  identified  in  the  In-Depth 
Review in this area. There is a dearth of new measures compared with the time section 3.2 of 
the In-Depth Review was drafted and on the basis of which the Commission concluded that 
Slovenia  is  facing  Excessive  Imbalances.  The  announced  privatisation  strategy  and 
classification  of  assets  is  scheduled  for  the  third  quarter  of  2013  (according  to  the  letter). 
While  formulating  a  comprehensive  strategy  will  need  more  time,  it  would  be  important  to 
state the principles and objectives that will underpin this strategy as early as possible. In the 
absence of an overall strategy, the NRP announces ad-hoc privatisations in May 2013 and this 
announcement is substantiated by the proposal to privatise 15 companies sent to parliament on 
May 8, 2013, with adoption expected by the end of the second quarter of 2013, according to 
the letter. This list includes some important companies like the second largest bank and the 
telecommunications  incumbent,  but  also  minority  stakes  and  small  companies.  Defining  a 
realistic but ambitious timetable for the privatization of these companies after parliamentary 
approval would help further enhance credibility and mitigate apparent implementation risks. 

Action to improve corporate governance of companies under state ownership has been 
delayed.  While  some  amendments  to  the  sovereign  holding  (SSH)  law  strengthen  reporting 
and  auditing  requirements,  these  are  not  sufficient  to  ensure  fast  and  efficient  privatisation 
processes.  Experiences  in  the  last  decades  underline  significant  implementation  risks. 
Announced  amendments  to  the  SSH  act  envisage  reinstating  the  dispersion  of  ownership 
across  public  and  quasi-public  institutions,  which  will  not  facilitate  the  privatisation 
processes. 

Legal  changes  to  insolvency  legislation  adopted  by  the  government  in  April  2013  are 
improving  the  insolvency  framework,  but  further  measures  may  be  needed  to  bring 
about  sufficient  improvement  in  this  area.  A  suitable  system  of  incentives  for  owners, 
creditors and managers would be essential for the reform to succeed. Creating such incentives 
could  be  an  important  step  forward  to  facilitate  corporate  restructuring  and  stabilise  the 
banking sector. The Ministry of Justice aims at proposing additional legal changes to facilitate 
out-of-court restructuring and debt conversion by the end of May 2013. However, the level of 
detail of the proposals in the NRP is not sufficient to assess whether the new legislation can 
achieve  its  objectives.  Some  limitations  in  the  law  on  state  aid  have  been  lifted,  potentially 
leading  to  further  increases  in  contingent  fiscal  liabilities,  and  possibly  disincentivising 
private restructuring deals. The NRP lists some guiding principles in the granting of state aid 
but provides few operational details.  

13 

 
 
 
The recent labour market reform goes in the right direction, but it remains to be seen 
whether it will have a significant impact on labour market segmentation and flexibility. 
The reform's impact on the labour market will be monitored and will be used as a basis for 
potential legal changes. There is a plan to conduct an analysis of student work as a basis for 
determining  what  regulation  will  be  required,  including  introduction  of  social  security 
contributions, regulation of the minimum hourly pay and prevention of abuse. The NRP states 
the  objective  of  revising  minimum  wage  setting  but  does  not  clearly  define  corresponding 
measures. 

Further  improvements  in  business  environment  are  envisaged.  The  Competition 
Protection Agency has been set up in 2013 and the NRP presents a set of targets to improve 
the length of  judicial proceedings and reduce the number of enforcement cases.  Concerning 
the  latter,  targets  are  not  always  underpinned  with  concrete  measures.  In  addition,  the  NRP 
announces  further  measures  to  streamline  spatial  planning  procedures.  Finally,  a  plan  for 
deregulation of professional services is presented.  

3.1. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

The  main  objectives  of  the  budgetary  strategy  described  in  the  programme  are  to  correct 
the  excessive  deficit,  achieve  a  balanced  budget  position  in  structural  terms  by  2017  and 
stabilise the debt ratio below 55% of GDP. The programme projects correction of the excessive 
deficit in 2014. The headline deficit is targeted to gradually decline from 7.9% of GDP in 2013 
(4.2% of GDP without bank recapitalisations) to 2.6%, 2.1% and 1.4% of GDP over 2014 – 2016. 
According to the programme, these headline targets represent adjustments in the recalculated ratio 
of the structural balance to GDP7 by 0.1 pp., 1.2 pps, -0.1 pp. and 0.0 pp. of GDP over 2013 – 
2016. The MTO is defined as a balanced position in structural terms like in the previous update. 
This  MTO  does  not  appear  to  take  the  implicit  liabilities  related  to  ageing  sufficiently  into 
account.8 The programme foresees the achievement of the MTO in 2017, two years later than in 
the previous update. However, the current budgetary plans are unlikely to allow Slovenia to attain 
its objective to reach the MTO by 2017 without implementing additional consolidation measures. 

The  general  government  deficit  declined  markedly  to  4.0%  of  GDP  in  2012  from  6.4%  of 
GDP  in  2011.  Lower-than-planned  revenue  growth  (-0.7%  vs.  0.4%),  resulting  mainly  from 
shortfalls  in  taxes  on  income  and  wealth  and  capital  transfers  received,  largely  explains  the 
difference  to  the  deficit  target  of  3.5%  of  GDP9  from  the  previous  update.  Total  expenditure 
declined marginally more than budgeted (-5.4% vs. -5.3%). A combined significant cut in public 
investment and lower-than-budgeted interest expenditures from postponed bond issuances offset 
overruns in compensation of employees, intermediate consumption and capital transfers, including 
the recapitalisation of the largest bank. The fiscal consolidation recommended in the 2012 CSR 
was implemented. Although the 2012 deficit target at 3.5% of GDP was not achieved, the ratio of 
the structural balance to GDP improved by a significant 2.0 pps. The May 2012 Act on Balancing 
Public  Finances  is  the  most  far-reaching  consolidation  act  adopted  since  2009  and  its  positive 
budgetary implications  continue into 2013. In addition, further revenue increasing consolidation 
measures were adopted for 2013. 

7 Cyclically adjusted balance net of one-off and temporary measures, recalculated by the Commission services 
on the basis of the information provided in the programme, using the commonly agreed methodology. 
8 The Commission services calculated the MTO for Slovenia at ¼% of GDP in autumn 2012. The EPC reviewed 
the  Slovenia's  pension  reform  enacted  in  2012  on  28  May  2013.  Thus,  the  Commission  services  intend  to 
recalculate a MTO for Slovenia in the following weeks. 
9 The October 2012 EDP notification revised the 2012 deficit target upwards to 4.2% of GDP mainly because of 
a  downward  revision  in  taxes  on  income  and wealth  and  upward revisions  in  compensation of  employees  and 
intermediate consumption. 

14 

 
 
 
                                                 
The  headline  deficit  target  for  2013  at  7.9%  of  GDP  incorporates  anticipated  bank 
recapitalisations.  Bank  recapitalisation  needs  are  estimated  at  EUR  1.3bn  or  3.7%  of  GDP, 
whereas the Commission's 2013 Spring Forecast, finalised at end April 2013, includes the amount 
of EUR 420m or 1.2% of GDP for the largest two banks. Without these operations, the headline 
deficit  target  in  the  programme  would  stand  at  4.2%  of  GDP.  Thus,  the  2013  deficit  target10  is 
higher than in the March 2013 EDP notification and previous update (which set it at 3.0% of GDP 
and 2.5% of GDP respectively). On top of the base effect from 2012, the 2013 revision stems to a 
large  extent  from  social  transfers,  especially  pension  expenditure,  as  compared  to  the  previous 
update. The Commission's 2013 Spring Forecast projects the headline deficit for 2013 at 4.1% of 
GDP.  However,  relative  to  the  programme  it  does  not  incorporate  an  increase  in  interest 
expenditures from May 2013 bond issuances and forecasts lower capital transfers (excluding bank 
recapitalisations) in line with a falling trend in this item over past years. These two factors largely 
explain  why  the  Commission  and  programme  forecasts  for  the  2013  deficit  are  almost  at  par, 
despite additional consolidation measures in the programme. 

The consolidation path over the programme horizon is concentrated to 2014. Headline deficit 
targets for 2014 and afterwards are higher relative to the previous programme mainly as a result of 
the base effect from 2013. The headline deficit targets for 2013 and 2014 (7.9% and 2.6% of GDP 
respectively) imply a substantial 5.3 pps. of GDP reduction (a 1.6 pps. of GDP reduction without 
bank recapitalisations). The targets for the outer years imply smaller declines by 0.5 pp. of GDP 
in 2015 and 0.7 pp. of GDP in 2016. Adjustments in primary balances will be slightly larger as 
interest expenditure keeps increasing.11 Relative to the previous programme, the reduction of the 
headline  deficit  in  2014  is  more  ambitious,  while  in  2015  it  is  less  so.  The  consolidation 
announced  in  the  programme  falls  mainly  on  the  expenditure  side  while  the  revenue  side 
contributes around one third of consolidation. The revenue-to-GDP ratio is projected to increase 
by 0.6 pp. from 2012 to 2016 (excluding a one-off12 in 2012). In particular, taxes on income and 
wealth are projected to rise as share of GDP. The expenditure-to-GDP ratio is targeted to drop by 
2.1  pps.  (excluding  one-offs13  recorded  in  2012)  over  the  same  period  with  a  focus  on  falls  in 
compensation of employees, intermediate consumption and social transfers as a share of GDP. 

Revenue  increasing  measures  are  identified  more  concretely  than  expenditure  decreasing 
measures,  but  details  on  both  are  lacking14.  In  addition,  the  former  are  of  a  more  structural 
(permanent)  nature  than  the  latter.  Budgetary  implications  of  most  envisaged  measures  are 
quantified both for 2013 and 2014 (see Box 3). By contrast, measures and their implications are 
missing  for  2015  and  2016.  Furthermore,  the  programme  underlines  various  envisaged  steps  to 
fight the grey economy and improve the collection of taxes, but these are difficult to assess and 
are not included in the programme projections.  

10 This and further references to the headline deficit target for 2013 in the fiscal section mean the headline deficit 
excluding bank recapitalisations. 
11  Projected  interest  expenditure  at  3.0%  of GDP  will  have  nearly  tripled  by  2013  relative  to  2008  when  they 
stood at 1.1% of GDP. 
12 These were revenue increasing super-dividends from energy companies amounting to 0.15% of GDP. 
13 Recapitalisation of the largest bank increased expenditure by 0.2% of GDP. 
14 The list of envisaged revenue and expenditure consolidation measures up to 2014 is attached in the Annex to 
the programme. 

15 

 
 
 
                                                 
Box 3. Main measures  
The programme identifies increased VAT rates, amended real estate taxation and possible crisis personal income 
tax as the key sources of the consolidation on the revenue side. On the expenditure side, the public sector wage 
bill will be further cut in 2013. This cut will expire on 31 December 2014. By contrast, other expenditure side 
measures are less clear. There is an intention to continue with freezes in indexation arrangements, slightly reduce 
some social benefit rates and cut capital expenditure. Additional unspecified expenditure consolidation measures 
are planned for 2014 in order to avoid the crisis personal income tax. Detailed annual budgetary impacts of major 
macro-structural reforms (e.g. pension reform) over the programme horizon are not presented. 

  Revenue 

Expenditure

Main budgetary measures 

•  Reduction  in  the  corporate  income 
tax  rate  from  20%  to  18%  and 
investment 
higher  R&D 
allowances 
and 
personal 
for 
corporate income tax (-0.5%) 

and 

•  Higher  excise  duty 

rates  on 
tobacco,  alcohol  and  mineral  oils 
(0.25%) 

•  New  CO2  charge  on  mineral  oils 

(full year impact 0.2%) 

•  Higher  charges  (concession  fees) 
on  student  work  (full-year  impact 
0.1%) 

•  Reduction  in  the  corporate  income 

tax rate to 17 % (-0.1%) 

•  Higher  road  user  charge  (full-year 

impact 0.1%)  

•  New  tax  on  financial  services  and 
amended bank assets tax (0.1%) 
Increase in VAT rates to enter into 
force  on  1  July  (full  year  impact 
0.7%) 

• 

•  New taxes on sugar and sweeteners 
in  beverages  and  lottery  tickets  to 
enter  into  force  on  1  August  (full 
year impact 0.1%) 

2012 

•  Canceled indexation of social benefit rates (until end-2014) 

(total impact in 2012 and 2013 -0.3%) 
•  Public  sector  wage  bill:  net  cut 

in  wages  by  3% 
(permanent),  cancelled  indexation  of  public  sector  wages, 
postponement of payment for promotions (until June 2013) 
(full-year  impact  -0.85%),  and  permanent  cancellation  of 
third  and  fourth  instalments  of  the  public  sector  wage 
increase envisaged back in 2008 (-0.6%) 

•  Lower recreational allowance for pensioners (until the year 
after  the  year  in  which  real  GDP  growth  exceeds  2.5%) 
(full-year impact -0.15%) 

•  Canceled indexation of pensions (2012) (-0.1%) 
•  Lower  child  benefits  for  higher  income  families  (until  the 
year after the year in which real GDP growth exceeds 2.5%) 
(full-year impact -0.2%) 

•  Lower increase in minimum income for socially vulnerable 

people (until 2015) (-0.1%)  

•  Various  cuts  in  social  transfers  (permanent)  (e.g.  veteran 

entitlements and scolarships) (full-year impact -0.1%) 

2013 

•  Cut in public sector holiday allowance (-0.15%) 
•  Cancelled 
(-0.15%) 

indexation  of  public  sector  wages  (2013) 

•  Cancelled promotions for 2013 (-0.15%) 
•  Higher meals allowance for students (permenent) (0.1%)  
•  Additional  measures  to  curb  the  public  sector  wage  bill  to 

enter into force on 1 June (full year impact -0.2%) 

•  Lower unemployment benefits to enter into force on 1 July 

(full year impact -0.05%) 

•  Lower capital expenditure (full year impact -0.3%) 
•  Lower intermediate consumption (full year impact -0.1%) 

2014 

•  Real estate tax (0.7%) 
•  Crisis personal income tax1 (0.8%) 

•  Cancelled indexation of pensions (-0.1%) 
•  Cancelled promotions for 2014 (-0.15%) 

  Note:  The  budgetary  impact  in  the  table  is  the  impact  reported  in  the  programme,  i.e.  by  the  national 
authorities. A positive sign implies that revenue / expenditure increases as a consequence of this measure.  
The degree of detail reflects the type of information made available in the stability programme and other 
budget documents. 
1  The  crisis  personal  income  tax  will  be  introduced  if  no  political  agreement  on  structural  expenditure 
measures is achieved by 2014. 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The balance of risks to projected deficit targets is significantly tilted to the negative side. For 
2013, the achievement of the headline target at 4.2% of GDP (excluding bank recapitalisations) 
appears  within  reach.  However,  this  does  not  seem  to  be  the  case  for  2014  and  onwards  for 
several reasons. First, the macroeconomic scenario underpinning the programme was prepared in 
mid-March, but the envisaged composition and size of the consolidation measures was disclosed 
only  in  early  May.  It  is  not  clear  to  what  extent  it  incorporates the  impact  of  the  consolidation, 
such as on private consumption, which is likely to be impacted by higher VAT rates, real estate 
tax  and  a  possible  crisis  personal  income  tax.  The  Commission's  2013  Spring  Forecast  projects 
that GDP will drop by 0.1% in 2014 based on a no-policy-change assumption, a scenario which 
only takes into account measures that have been adopted and hence forecasts a deficit of 4.9% of 
GDP.  In  view  of  this,  the  programme  macroeconomic  scenario  might  be  seen  as  optimistic 
especially for 2014. Second, the projected yield of the real estate tax and possible crisis personal 
income tax is not underpinned with sufficient information on tax rates, tax basis and exemptions15. 
Third,  expenditure  consolidation  measures  agreed  upon  with  social  partners  are  mostly  of  a 
temporary  nature  and  many  of  them  need  to  be  (re-)negotiated  annually  to  prevent  expenditure 
growth  from  reviving.  Furthermore,  the  announced  possible  crisis  personal  income  tax  might 
weaken incentives to agree on structural expenditure cuts. Fourth, the past track record indicates 
possible  expenditure  overruns  especially  in  compensation  of  employees  and  intermediate 
consumption.  Higher  compensation  of  employees  in  2013  might  stem  also  from  a  court 
judgement,  still  challenged  by  the  government,  stipulating  the  payment  of  the  postponed  wage 
increase to public employees from October 2010. Fifth, in Slovenia any legal act change has been 
until  recently  subject  to  referenda  risks16.  Finally,  additional  capital  support  operations  might 
materialise, mainly to banks and to companies calling guarantees, including guarantees yet to be 
granted according to the planned government schemes to assist the restructuring of overleveraged 
non-financial  corporations17.  The  letter  clarifies  that  any  additional  outlays  arising  from  newly 
granted guarantees will be offset against other expenditure items, without detailing how sufficient 
budget flexibility would be achieved within a given fiscal year. 

The above negative risks might be partially offset by factors not specified in the programme. 
First, emerging overruns in primary current expenditure may to some extent be offset by higher-
than-planned cuts in public investment, as has happened before. However, after public investment 
has fallen by 45% in real terms since 2009, room for that is tighter, not to mention the impact on 
long-term  growth  of  further  retrenchment  in  public  investment.  Second,  programme  projections 
do  not  incorporate  the  budgetary  implications  of  measures  to  (i)  broaden  the  base  for  health 
insurance  contributions;  (ii)  improve  collection  of  taxes  and  fight  the  grey  economy;  and  (iii) 
legalise  illegal  buildings.  Finally,  subject  to  as  yet  unspecified  implementation  provisions,  the 
general  government  budget  balance/surplus  rule  in  structural  terms  is  likely  to  have  positive 
impacts on the consolidation. 

The planned adjustments in the recalculated structural balance are too low over the entire 
programme horizon, except in 2014. According to the information provided in the programme, 
the  growth  rate  of  government  expenditure,  net  of  discretionary  revenue  measures,  in  2016  is 
expected to contribute to an annual structural adjustment towards the MTO. This is because the 
growth  rate  of  expenditures  excluding  one-offs  is  below  -0.51%,  the  lower  reference  rate 

15 For instance, the Act on Balancing Public Finances projected in May 2012 annual revenue of €160m from the 
new crisis real estate tax, which was temporary introduced in July 2012, but this projection was later on revised 
to revenue of around €5m. 
16  Parliament  approved  constitutional  amendments,  which  tighten  criteria  to  call  and  win  a  referendum  on  24 
May 2013. These amendments ban referenda about inter alia tax and other revenue increasing measures, but it 
remains to be seen how they will impact possible calls for referenda against potential expenditure consolidation 
measures. 
17  The  programme  explains  (see  Section  5.2.)  that  a  relatively  high  share  of  guarantees  granted  to  private 
companies in difficulties is being called. 

17 

 
 
 
                                                 
applicable  to  Slovenia  under  the  expenditure  benchmark.  However,  the  recalculated  ratio  of  the 
structural balance to GDP is projected to improve by 0.1 pp., 1.2 pps., -0.1 pp. and 0.0 pp. over 
2013 – 2016.18 It appears that a revenue shortfall in 2016 from non-standard behaviour of revenue 
elasticities – the revenue-to-GDP ratio declines by 0.5 pp. – partially explains a deviation from the 
adjustment  towards  the  MTO  for  the  change  in  the  structural  balance  indicator.  That  said, 
following an overall assessment of Slovenia’s budgetary plans after the planned correction of the 
excessive  deficit,  with  the  structural  balance  as  a  reference  and  including  an  analysis  of 
expenditure net of discretionary revenue measures, a deviation from the adjustment path towards 
the  MTO  is  to  be  expected  in  2016.  To  this  end,  the  part  of  the  2012  CSR1  recommending 
progress towards an appropriate MTO has not been implemented. 

At the current level of information, the programme consolidation measures do not appear 
sufficient  for  the  correction  of  the  excessive  deficit  by  2014  in  a  credible  and  sustainable 
manner. The identified risks, especially the optimistic macroeconomic scenario for 2014 and lack 
of  information  on  tax  basis,  tax  rates  and  tax  exemptions  for  the  real  estate  tax  and  a  possible 
crisis  personal  income  tax,  raise  doubts  on  revenue  programme  projections.  Expenditure 
projections do not yet seem fully underpinned with measures, which are warranted in particular 
for 2015 after the expiry of the possible temporary crisis personal income tax and temporary cuts 
in  the  public  sector  wage  bill  agreed  upon  with  social  partners  in  May  2013.  The  planned 
composition  of  the  consolidation  is  also  somewhat  unfavourable.  While  some  taxes  are  notably 
below the EU average, for example real estate taxation, the proposed crisis personal income tax 
does not support creation of jobs, is not growth-friendly and might run counter to the fight against 
the grey economy. Furthermore, reliance on tax increases cannot indefinitely postpone the need to 
tackle expenditure dynamics. For instance, higher interest expenditure and growth in the number 
of old age pensioners have together led to an increase in total expenditure by around ½% of GDP 
on  average  over  2010-2012.  Both  the  Commission's  2013  Spring  Forecast  and  the  programme 
project an even larger increase (¾% of GDP) for 2013. Against this background, there appears a 
need  for  additional  consolidation  efforts  through  structural  expenditure  cuts,  including  also  an 
improved  systematic  evaluation  of  public  spending  based  on  clear  performance  criteria19.  This 
would  also  contribute  to  the  efficient  enforcement  of  the  binding  medium-term  budgetary 
framework. 

18 On a no-policy change assumption, the Commission's 2013 Spring Forecast projects adjustments of 0.3% and -
0.9% of GDP in 2013 and 2014, respectively. 
19 The 2011 stability programme announced that the government started a project of "target-oriented budgeting" 
for  the  central  government  budgets  for  2010  and  2011.  However,  no  concrete  information  on  its  actual 
implementation and budgetary impacts are publicly available. 

18 

 
 
 
                                                 
Box 1. Excessive deficit procedure for Slovenia 

On  2  December  2009,  the  Council  decided  that  an  excessive  deficit  existed  in  Slovenia.  The 
Council  recommended  that  Slovenia's  authorities  should  put  an  end  to  the  excessive  deficit 
situation  by  2013.  Specifically,  to  this  end,  the  Slovenian  authorities  should:  (a)  implement  the 
fiscal consolidation measures in 2010 as planned; (b) ensure an average annual fiscal effort of ¾% 
of  GDP  over  the  period  2010-2013;  (c)  specify  the  measures  that  are  necessary  to  achieve  the 
correction  of  the  excessive  deficit  by  2013,  cyclical  conditions  permitting,  and  accelerate  the 
reduction  of  the  deficit  if  economic  or  budgetary  conditions  turn  out  better  than  currently 
expected. To reduce the risks to the long-term sustainability of public finances, Slovenia should 
further  reform  the  pension  system  with  a  view  to  curbing  age-related  expenditures  as  soon  as 
possible. Furthermore, the Council invited the Slovenian authorities to implement reforms with a 
view to raising potential GDP growth. That included reforms conducive to enhancing the quality 
of public finances. In particular, in view of higher-than-budgeted expenditure growth in the period 
2006-2008 and the reliance of the consolidation strategy on expenditure restraint, Slovenia should 
strengthen the enforceable nature of its multi-annual budgetary plans and improve public spending 
efficiency and effectiveness. 

An  overview  of  the  current  state  of  excessive  deficit  procedures,  including  also  additional  EDP 
steps  adopted  after  the  finalisation  of  this  staff  working  paper,  is  available  on  (see  the  country 
sections at the bottom of the page): 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm 

The  programme  projects  the  general  government  gross  debt  will  breach  the  60%  of  GDP 
reference value in 2013. Debt is projected to rise from 54% of GDP in 2012 to 63% of GDP in 
2014  and  2015  before  dropping  marginally  to  62%  at  the  end  of  the  programme  period. 
Importantly,  this  projection  does  not  include  debt  accumulation  from  envisaged  transfers  of 
impaired  banking  assets  to  the  Bank  Asset  Management  Company  (BAMC)20.  The  snowball 
effect increases the debt ratio over the entire period but at a decelerating pace. The primary deficit 
adds to the debt only in 2013, while stock-flow adjustments are projected to reduce debt over the 
entire  horizon.  Debt  projections  in  previous  programmes  have  markedly  underestimated  debt 
increases,  thus  risks  to  the  debt-to-GDP  ratio  are  tilted  towards  higher  debt  ratios.  These  risks 
arise  from  the  factors  listed  above  in  relation  to  the  deficit  targets  and  from  stock-flow 
adjustments21  with  regard  to  asset  transfers  to  the  BAMC.  Possible  privatisation  proceeds,  not 
included in the programme, constitute a positive risk. Under a no-policy-change assumption, the 
Commission's  2013  Spring  Forecast  projects  the  debt  ratio  will  rise  to  66%  of  GDP  in  2014, 
principally due to primary deficits and accelerating interest expenditure. Following any abrogation 
of the EDP, Slovenia would be in a transition period of the debt criterion introduced by the "6-
Pack"  and,  according  to  the  programme  scenario  its  plans  would  ensure  sufficient  progress 
towards compliance with such a criterion in 2016. 

Long-term sustainability 

Slovenia  faces  high  sustainability  risks  in  the  medium  and  long  term,  mainly  due  to  the 
budgetary impact of ageing costs. Government debt (54.1% of GDP in 2012) is expected to rise 
to 66.5% in 2014, above the 60% of GDP Treaty threshold. Risks would be higher in the event of 
the structural primary balance reverting to lower values observed in the past, such as the average 
for the period 1998-2012. This implies a need for a focus on resolutely continuing to implement 
sustainability-enhancing  measures  that  avert  potential  risks  to  fiscal  sustainability.  Further 

20 The December 2012 Banking Stability Act caps these transfers to EUR 4bn (11.4% of GDP). 
21 Usual pre-financing of bonds maturing in following years only front-loads the debt profile without impacting 
its size (interest impacts excluded). 

19 

 
 
 
                                                 
containing age-related expenditure growth, including through pension reform, appears necessary 
to contribute to the sustainability of public finances in the long term. The full implementation of 
the fiscal plans in the stability programme would increase the debt-to-GDP ratio by 23.7pps 
from 54.1% in 2012 to 77.8% in 2030. 

As  recommended,  Slovenia  adopted  a  pension  reform  in  December  2012  but  the  reform 
stabilises pension expenditures only until 2020. The reform took effect as of January 2013. The 
reform increases and equalises the statutory retirement age for men (from 63) and women (from 
61) by 2020 to the age of 65, revises the indexation system for pensions and introduces measures 
to increase the low effective retirement age by reducing early retirement eligibility and generosity. 
While  the  reform  goes  in  the  right  direction,  national  public  pension  expenditure  projections 
indicate  a  curbing  effect  only  until  2020.  Thereafter,  pension  expenditures  are  projected  to 
increase well above the EU average trend, thus challenging fiscal sustainability in the future and 
necessitating  additional  reform  efforts.  Further  pension  expenditure  reductions  with  a  positive 
effect  on  sustainability  in  the  medium  and  long  run  can  be  achieved  by  aligning  the  statutory 
retirement  age  with  gains  in  life  expectancy  and  by  introducing  further  restrictions  on  early 
retirement.  Other  measures  such  as  pension  indexation  and  changes  to  the  pension  benefit 
calculation  method  are  not  considered.  The  NRP  envisages  that  discussions  on  several  of  these 
measures will take place in 2013 with an analysis to be presented in 2014 to serve as a basis for a 
potential additional reform.   

Containment  of  a  strong  projected  increase  in  long-term  care  expenditure  is  also  relevant 
for  ensuring  long-term  sustainability.  The  2012  Ageing  Report  and  long-term  expenditure 
projections  for  long-term  care  (LTC)  indicate  an  expected  increase  of  the  expenditure-to-GDP 
ratio of 1.9 pps. of GDP from 1.4% in 2010 to 3.3% in 2060. Demand for these services outstrips 
supply and around two thirds of needs are met in institutions, while Slovenia still lags behind in 
the provision of community-based care. Therefore, to ensure the sustainability of public finances, 
age-related  expenditure  increases  on  LTC  can  be  contained  by  changing  the  focus  of  LTC 
provision from institutional to home care. This can be done through further development of home 
care services, a relatively greater use of cash benefits in support of home care, as well as reduction 
in the unit costs of home care services, which are currently relatively high. Furthermore, a more 
targeted  and  means-tested  access  to  publicly  funded  LTC  benefits  is  particularly  important  in 
view  of  the  combination  of  the  fiscal  challenge,  high  provision  costs  and  existing  demand.  The 
strong  increase  in  demand  for  LTC  can  also  be  mitigated  by  policies  to  reduce  disability/ 
dependency,  via  health  promotion,  disease  prevention,  rehabilitation  and  independent  living. 
Slovenia is, for the first time, in the process of preparing a comprehensive approach to regulate 
the system of LTC and the draft law is scheduled to be presented to the Parliament by the end of 
2013.  The  Act  will  seek  to  ensure  the  transition  from  institutional  to  community-based  care. 
Improving  accessibility  to  LTC  and  ensuring  a  more  efficient,  effective  and  sustainable  use  of 
resources would be an essential component of the reform. 

Fiscal framework 

The  constitution  has  been  chosen  as  the  legal  instrument  for  transposing  the  structural 
budget  balance  rule  from  the  Treaty  on  Stability,  Coordination  and  Governance  (TSCG). 
Slovenia  ratified  the  TSCG  on  19  April  2012,  and  on  24  May  2013  Parliament  adopted  a 
constitutional basis for establishing a general government budget balance/surplus rule in structural 
terms.  The  provision  stipulates  among  others  that  i)  general  government  budget  revenues  and 
expenditures shall in the medium term be balanced without borrowing, or that ii) revenues shall 
exceed  expenditures.  A  temporary  derogation  from  this  principle  would  only  be  allowed  in 
exceptional  circumstances.  The  complete  transposition  of  provisions  of  the  Fiscal  Compact 
(budget  rule,  independent  body  for  monitoring,  exceptional  circumstances  and  correction 
mechanism) is foreseen in a special constitutional implementation act, to be approved with a two 
thirds majority of all members in Parliament by November 2013. Other provisions, including from 

20 

 
 
 
EU legislation, to improve fiscal governance will be enshrined in the amended Public Finance Act 
and Accounting Act. Relevant legislation is expected to be approved by end-2013. 

The  medium-term  budgetary  framework  still  remains 
insufficiently  binding  and 
transparent. For instance, there are no enforcement mechanisms in case of deviation from fiscal 
targets. Thus, medium-term fiscal targets can be revised, which can lead to uncorrected slippages 
on  the  expenditure  side.  The  medium-term  budgetary  framework  and  expenditure  rule  are 
insufficiently focused on achieving the MTO and securing long-term sustainability.22 In addition, 
budget constraints on certain general government units, especially indirect budgetary users,23 do 
not appear to be fully enforced. Finally, the Fiscal Council does not contribute to the development 
of fiscal strategy and its role and visibility have actually gradually declined since 2010.24 

The  integration  of  the  financing  of  indirect  budgetary  users  into  the  medium-term 
budgetary  framework  appears  to  be  incomplete.  Around  1500  indirect  budgetary  users  are 
established  by  the  state  and  municipalities.  They  are  mainly  financed  with  current  and  capital 
transfers from the central government25 or local government budgets, but it appears that budgetary 
discipline  is  not  strictly  imposed.  Consequently,  there  are  indications  of  expenditure  overruns 
occurring  especially  in  compensation  of  employees  which  are  covered  either  with  additional 
budgetary transfers or redistribution of funds among budgetary items (e.g. from investment into 
wages)  for  an  individual  user.  The  authorities  could  review  financing  and  spending  of  indirect 
budgetary  users26  and  correct  identified  shortcomings,  including  through  possible  mergers  of 
some positions, improved transparency of aggregate spending and setting-up of expenditure sub-
rules for them. This could contribute to strengthened coherence of indirect budgetary users with 
the  central  and  local  government  budgets  and  facilitate  their  compatibility  with  the  overall 
medium-term budgetary framework. 

Tax system 

The tax-to-GDP ratio in Slovenia is the highest of the new Member States, but at 37.2% in 
2011 it remains below the EU average (38.8%). The tax burden is above the average in relation 
to consumption, average in relation to labour and below average on capital. A specific feature of 
the tax system is the relatively high share of social contributions, including at the minimum wage, 
which offsets a relatively lower share of labour income taxes. Overall, taxation on consumption 
has  remained  stable  since  2000  with  the  implicit  tax  rate  oscillating  around  24%.  Taxation  on 
labour has declined, as shown by a drop of the implicit tax rate on labour from 37.3% in 2006 to 
35.2 % in 2011. The low tax burden on capital is evident in the low implicit tax rate on capital, 
which was 20.5% in 2011 (EU-25: 29.4%).  

The  previous  government  implemented  changes  in  the  tax  system  that  further  reduced 
taxation  of  capital  and  slightly  increased  taxation  of  consumption.  A  new  multi-annual 
programme of corporate income tax rate reductions started in 2012, which decreased the rate from 
20% in 2011 to 17% in 2013. The personal and corporate income tax investment allowance was 

22 See Fiscal Frameworks across Member States: Commission services country fiches from the 2011 EPC peer 
review. European Economy, Occasional Paper 92, European Union, 2012. 
23 These are mainly public institutes operating in areas of education, health, social care, culture and sport and are 
part of the general government. 
24 The Fiscal Council has not published the Annual Report for 2013 by 30 April 2013 as stipulated in the Public 
Finance Act. 
25 Around 20% of total expenditure in the central government budget in cash terms is used for transfers to public 
institutes established by the state. 
26  The  national  document  Exit  Strategy  2010-2013  from  February  2010  envisaged  a  reform  of  the  system  for 
provision  of  non-commercial  public  services,  including  of  their  financing.  Information  on  this  reform  has  not 
been communicated. 

21 

 
 
 
                                                 
increased to 40% (from 30%) and the R&D allowance to 100% (from 40%) in 2012. Moreover, in 
2013 the threshold for the personal income tax bracket at 41% is lifted from 1.3 times to 1.5 times 
the average wage and a new tax bracket at 50% is introduced for high-wage earners. A simplified 
gross flat tax scheme for small taxpayers (sole proprietors) in the personal and corporate income 
tax  was  expanded  in  2013.  Finally,  a  transaction  tax  on  financial  services  charged  on  fees 
(compensation)  paid  for  the  provision  of  financial  services  which  are  not  subject  to  VAT  was 
introduced,  excise  duty  rates  increased  and  environmental  charges  broadened.  These  changes 
would  have  been  expected  to  increase  growth-friendliness  of  the  tax  system.  However,  their 
growth implications are likely to be muted in conditions of falling investment for four consecutive 
years. Furthermore, some changes might increase distortions in the tax system (e.g. gross flat tax 
scheme). The new government announced higher VAT rates, a new tax on sugar and sweeteners 
in beverages, a new tax on lottery tickets and broader, higher real estate taxation from 2014. The 
government also announced the cancellation of the further cuts in the corporate income tax rate to 
15% (currently 17%) which were planned for 2014 and 2015. A new crisis personal income tax 
might also be introduced for 2014 only. 

There remains further scope for growth-friendly and revenue-neutral tax shifting that also 
facilitates  green  growth.  In  this  context,  immovable  property  stands  out  as  the  most  obvious 
candidate for tax increases, also taking distributional considerations, limited scope for evasion and 
low  current  taxation  into  account.  The  new  government  is  tackling  this  with  the  amended  real 
estate  taxation.  Slovenia  applies  the  reduced  VAT  rate  to  almost  all  categories  of  goods  and 
services  allowed  for  by  the  VAT  Directive  2006/112/EC.  Thus,  there  is  potential  for  realising 
revenue  increases  by  limiting  the  application  of  the  reduced  VAT  rate.  In  addition,  corporate 
income taxation, while being rather low, is subject to a large number of tax expenditures resulting 
in significant distortions. An overhaul of the corporate income tax could improve efficiency and 
resource allocation without discouraging investment. 

There appears to be room for improving tax compliance. Available estimates of the size of the 
shadow  economy  vary  greatly  from  8%  of  GDP  (National  Statistical  Office)  to  around  24%  of 
GDP. Estimates collected by European Employment Observatory point to a share of undeclared 
work of around 17%. Despite the discrepancy between available estimates, the indicators suggest 
that the size of the shadow economy in Slovenia is above EU average27. To improve tax collection 
and  free  up  resources  to  fight  the  shadow  economy,  Slovenia  could  improve  the  use  of  e-
government,  including  expanding  the  use  of  third-party  information  to  pre-fill  tax  returns  and 
further  upgrading  the  tax  administration's  IT  system  EDIS.  In  addition,  Slovenia  could  broaden 
mandatory electronic payments for purchases over a certain threshold and possibly use electronic 
data on consumption patterns to detect individuals who under-declare income. In this context, the 
programme indicates several envisaged measures to improve the tax collection. 

3.2. 

Financial sector 

Slovenian banks face increasing challenges. The large, state-owned banks, and some other 
banks, need additional capital again. The necessary bank deleveraging process is accelerating 
as wholesale lenders are repaid. Credit quality has deteriorated further, leading to higher loan-
losses  now  and,  due  to  the  lagged  booking  of  impairments,  also  through  the  remainder  of 
2013.  Downward  revisions  of  economic  forecasts  imply  an  additional  deterioration  of  loan 
portfolios also in the future. Newly available estimates of stress loan losses point to possible 
additional  recapitalisation  needs.  Work-out  of  bad  and  doubtful  assets  remains  challenging. 
These developments and the related policy development challenges are described in detail in 
the 2013 IDR. 

27 European Commission (2012), Tax Reforms in EU Member States 2012, European Economy 6/2012. 

22 

 
 
 
                                                 
The  government  has  accelerated  its  policy  response  to  the  banking  sector’s  problems 
since  May  2012,  partially  covering  some  of  the  areas  of  the  third  2012  CSR.  Efficient 
implementation will require a sound strategy and patient work on important technical details. 
A range of tools including a bank asset management company (BAMC) have been established 
to carve problematic assets out of banks’ balance sheets, and there has been an upgrade to the 
legal  framework  for  banking  and  bank  supervision.  The  policy  agenda  now  foresees 
implementation  of  balance  sheet  cleaning  and  further  state  recapitalisations  prompted  by 
regulatory  requirements.  These  elements  were  evaluated  in  the  IDR,  which  concluded  that 
important  strategic  questions  remain,  that  efficient  implementation  will  be  challenging  and 
that technical expertise will be key. The 2013 IDR indicated three banking policy priorities: i) 
a  new,  independent  and  transparent  assessment  of  banks,  as  a  foundation  for  balance  sheet 
cleaning and a wider banking sector strategy; ii) improved governance, ultimately leading to 
privatisation; iii) strengthened supervisory and regulatory frameworks and actions. 

For the stabilisation of banks, the letter of 23 May 2013 contains important additional 
commitments. As a part of a comprehensive strategy for the banking sector, the authorities 
aim to implement a bank asset quality review in a phased manner that would allow them to 
move  forward  in  a  timely  fashion  with  the  necessary  restructuring  of  NLB,  the  largest 
domestic bank, which is already subject to a state aid procedure. The objective of this strategy 
is  to  improve  corporate  governance  of  banks  and  create  a  well-capitalised  and  profitable 
banking  system  which  can  support  the  real  economy.  To  ensure  this,  the  authorities  stand 
ready  to  provide  the  necessary  financial  backstop  if  banks  require  further  capital  injection. 
They also expressed their willingness to work closely with the Commission and the ECB to 
ensure  that  the  review  meets  the  highest  international  standards.  If  these  important  new 
measures are integrated into a time-bound and comprehensive action plan and implementation 
goes  ahead  in  a  determined  fashion,  this  would  result  in  the  necesary  rehabilitation  of  the 
banking sector and a lasting improvement in market confidence. 

The  Bank  Asset  Management  Company  (BAMC)  remains  the  government's  preferred 
institutional platform for bank rehabilitation. The BAMC law allows for up to EUR 4bn 
state-guaranteed  BAMC  bonds  to  fund  asset  transfers  and  an  estimated  EUR  900m  for 
recapitalisations. The NRP includes a first attempt to quantify and describe plans for transfers 
to the BAMC based on bottom-up stress tests performed by Bank of Slovenia. These in-house 
estimates of BoS are based on a series of assumptions that are not made explicit in the NRP 
and which may need to be further refined. The letter specifies that the largest bank, NLB, will 
transfer selected assets to the BAMC and states that the authorities have already provided to 
the Commission the necessary files detailing the proposed transfers. For the other two large 
state-owned banks first a private solution is sought.  

However, it may be difficult to keep to the ambitious timescale for commencing transfer 
of  assets  to  the  BAMC  that  is  envisaged  by  the  authorities.  Effecting  a  first  transfer  by 
end-June  seems  too  ambitious  in  light  of  state-aid  procedures  as  the  European  Commission 
has not yet received all information needed. In a final restructuring decision, i.e. before any 
asset transfer to the BAMC can take place, the Commission needs to approve for each bank (i) 
the  assets  to  be  transferred  to  the  BAMC  and  corresponding  valuations,  (ii)  the  public 
recapitalisation amounts and (iii) the restructuring plans of the participating banks. Slovenia 
commits, in line with the state aid rules, that assets will be transferred to the BAMC only after 
receiving  the  Commission’s  final  approval  of  the  restructuring  plans.  The  potential 
simultaneous  restructuring  of  several  large  banks  will  imply  the  need  to  ensure  collectively 
rational restructuring plans that strike a balance between necessary deleveraging and servicing 
the economy, and rely on realistic assumptions about retail deposits. Here, the announcement 
in the letter that the balance sheet cleaning phase will be followed by a sector consolidation 
phase is relevant and important but it needs to be further specified as there is no information 

23 

 
 
 
in the NRP on operational restructuring of banks or improvements to credit and risk processes 
and bank efficiency.  

Thorough implementation and full compliance with state aid rules is key to credibility 
and  would  fully  justify  a  somewhat  later  start  of  the  process.  The  announcement  of 
credible external adviser, process and methodology, with appropriate sequencing of portfolio 
and bank coverage and publishing of interim reports will also help rebuild market confidence. 
Current standards of transparency for such exercises include publishing of capital needs for all 
the  banks  concerned,  publishing  of  other  key  findings  and  sharing  of  full  findings  with  the 
European Commission and the European Central Bank on a confidential basis. 

Beyond the announced full privatisation of NKBM, there is no commitment in the NRP 
to improve the ownership strategy and  governance of  state-controlled  banks. The 2013 
IDR detailed the poor performance and governance concerns that undermine the state-owned 
banks.  Appropriate,  arm’s-length  management  of  state-controlled  banks,  underpinned  by 
transparent selection of key personnel and disclosure of financial interests, would have been a 
key element to ensure and demonstrate a break from past mistakes. This omission leaves the 
overall strategy somewhat inconsistent, since the strongest argument in favour of the BAMC 
approach is that cleaned banks are then easier to sell. On 8 May, the government agreed to a 
complete  sale  of  its  stake  in  NKBM,  the  second-largest  bank.  This  decision  will  require 
approval by parliament, expected by the end of the second quarter in 2013 according to the 
letter,  followed  by  swift  progress  in  sale-related  activities.  An  ambitious  timetable  for 
divestment of direct and indirect shareholdings down to significantly below blocking minority 
share  as  a  first  step  would  be  key  to  the  overall  strategy.  There  has  apparently  been  no 
decision as regards other state-controlled banks (NLB, Abanka, and Gorenjska banka).  

The NRP does not describe any new initiative to strengthen bank supervision, which was 
identified as necessary in the 2013 IDR28. In terms of supervisory actions vis-à-vis banks, 
the only new information in the NRP relates to the new Bank of Slovenia stress tests. A range 
of regulatory rules and structures could usefully have been re-examined, including appropriate 
macro-prudential  policies,  readying  the  banking  sector  for  the  transposition  of  CRD  IV, 
developing a workable recovery and resolution regime29, progressively introducing a robust, 
best  ex-ante  financed  Deposit  Guarantee  Scheme,  enhancing  supervisory  resources  and 
processes,  making  provisioning  and  pillar  II  capital  rules  more  stringent,  making  statistical 
reporting  and  disclosure  more  transparent  and  granular  and  upgrading  credit  registries  to 
ensure access to all relevant information.  

3.3. 

Labour market, education and social policies 

Labour  market  and  social  conditions  have  worsened.  Employment  continues  to  fall.  The 
employment rate fell further, by 0.3pp to 64.1% in 2012 and youth unemployment rate increased 
sharply,  by  4.9  pps.  to  20.6%.  Long-term  unemployment  is  rising  and  becoming  structural  (the 
long-term unemployment rate stood at 4.6% in Q32012), comprising predominantly older workers 
and the low skilled. Wage dynamics have been moderate in 2012. The nominal and real growth 
rates in compensation per employee were negative in 2012 (-0.4% and -0.8%, respectively) as a 
result of cuts in public sector wages and decelerating private sector wage growth. 

28 The IDR discussed the changes arising from the modifications to the Act on Banking that came into force in 
December  2012.  These  changes  are  beneficial  in  that  they  allow  for  more  forward-looking  action,  but  it  still 
remains  to  be  seen  how  these  new  powers  will  be  used.  Furthermore,  the  recovery  and  resolution  powers 
available  in  this  law  could  require  further  strengthening,  as  discussed  also  in  the  OECD's  2013  Survey  of 
Slovenia. 
29  Along  the  lines  of  the  proposed  Directive  on  Recovery  and  Resolution  of  Credit  Institutions,  which 
emphasises the importance of effective tools to ensure preparation, prevention, early intervention and resolution. 

24 

 
 
 
                                                 
The  2012  European  Semester  identified  several  challenges  related  to  labour  market, 
education  and  social  policies,  in  the  perspective  of  improving  cost  competitiveness, 
enhancing adjustment capacity and supporting employment. These challenges were reflected 
in the Council Recommendations for Slovenia on pensions, employment of older workers, labour 
market  segmentation,  skills  mismatch  and  wages.  All  recommendations  have  been  partially 
implemented, broadly in line with the 2013 Annual Growth Survey priorities.  

Policy  action  to  improve  cost-competitiveness  has  been  limited  so  far.  In  2012,  the 
government  cut  nominal  gross  wage  per  employee  in  the  public  sector  by  around  3%  and  real 
wage growth overall became negative. A further reduction of labour costs in the public sector was 
agreed  in  mid-May  2013.  The  minimum  wage  continues  to  increase  automatically  at  the 
beginning  of  every  year  by  the  level  of  inflation  in  the  previous  year  and  these  increases 
compound the large discretionary increase in 2010. Slovenia is among the EU countries with the 
highest minimum wage relative to the average wage in both gross and net terms. This is despite a 
level  of  the  average  wage  that  does  not  appear  particularly  low  in  comparison  to  other  EU 
countries (including relative to living costs). The net income of minimum wage workers does not 
reach the at-risk-of-poverty threshold while risks of in-work poverty, though increasing, are low 
in comparative perspective, including among workers with low education who tend to be low-paid 
workers.30  

Sustained progress in reducing unit labour costs can help in regaining cost competitiveness. 
Despite  the  negative  growth  in  nominal  compensation  per  employee,  nominal  unit  labour  cost 
(NULC) registered a moderate positive growth in 2012 (0.7%) due to more negative productivity 
growth (-1.1%). However, until Slovenia can sustain nominal unit labour costs (NULC) and price 
growth below that of its trading partners, it will not repair previous cost-competitiveness losses, 
especially  from  the  2007-09  period.  There  are  strong  built-in  dynamics  in  both  public  and 
minimum  wages  that  could  reignite adverse  trends  in  the  coming  years. Pressures on wages are 
expected to pick up once economic growth resumes as employees seek to re-establish differentials 
that  were  compressed  in  2010  by  a  hike  in  minimum  wages  and  by  subsequent  inflation-
indexation based minimum wage increases. The NRP announces adjustments to minimum wage 
setting in 2013 in consultation with social partners to support competitiveness and fairness, but no 
detailed measures are reported. 

The 2012 pension reform is a valuable first step to increase the very low employment rate of 
older  workers  in order to  come  closer  to the Europe  2020 employment  target and to  close 
the gap between the effective and statutory retirement age.31 The reform is likely to increase 
labour  supply  as  it  incentivises  employees  to  prolong  their  working  lives.  In  addition,  several 
recently  adopted  legal  acts  support  labour  demand  by  introducing  financial  incentives  for 
employers  to  hire  older  workers.  Protection  of  older  workers  was  reduced  by  the  new 
Employment  Relationship  Act,  though  older  workers  still  remain  a  protected  group  in  terms  of 
dismissals  and  working  time  arrangements.  The  employment  rate  of  older  workers  could  be 
further  increased  by  restricting  the  remaining  opportunities  for  early  retirement  and  providing 
additional incentives to remain in work until reaching the statutory retirement age or even beyond. 
In addition, the employability of older workers could be enhanced by further strengthening their 
participation  in  targeted  active  labour  market  policies  and  lifelong  learning  measures.  No 
measures have been taken so far to adapt work environments to longer working lives despite the 
observed lower than the EU average healthy life expectancy (50 years).  

A reform of employment protection legislation was adopted in March 2013 to reduce labour 
market segmentation and increase flexibility. In line with the 2012 CSR to reduce asymmetries 

30 See Stoviček, K. (2013), "Minimum wages in Slovenia", Country Focus, DG ECFIN, European Commission, 
and  European  Commission  ,  Macroeconomic  Imbalances:  Slovenia  2013,  European  Economy,  Occasional 
Paper142, (forthcoming). 
31 For the impact of the pension reform on the sustainability of public finances see section 3.1. 

25 

 
 
 
                                                 
between permanent and temporary contracts, the reform reduces protection of permanent contracts 
by simplifying dismissal procedures. However, dismissal costs remain broadly unchanged for the 
majority of workers, i.e. they are reduced noticeably only for workers with contribution periods 
above 25 years or less than one year. At the same time the protection of fixed-term contracts is 
increased to prevent abuse and increase the rights stemming from such contracts. The reform also 
introduces  occasional  work  for  retired  persons  and  ensures  support  to  both  employers  and 
employees during the notice period in case of consensual dismissals. While the reform goes in the 
right  direction,  it  remains  to  be  seen  whether  the  reform  is  sufficiently  ambitious  to  have  a 
significant  impact  on  labour  market  segmentation  and  flexibility,  and  improve  Slovenia's  FDI-
attractiveness.  New  restrictions  on  temporary  agency  work  may  have  a  negative  impact  on  job 
creation.  The  NRP  announces  that  the  impact  of  the  reform  on  the  labour  market  will  be 
monitored and, if needed, legal changes will be enacted. While no systemic measures have been 
taken to address the widespread and unprotected student work available to pupils and students, the 
financial  incentive  to  use  this  labour  market  status  has  been  reduced  by  cutting  the  student 
allowance  for  personal  income  tax  by  one  quarter  in  2013.  In  addition,  it  is  announced  that 
analysis will be conducted into labour market segmentation and abuse of the student work status. 
Underpinned by this analysis there would then be regulation of student work on a similar basis as 
other types of work, but details are not provided.  

Sufficient  and  concrete  measures  to  improve  the  matching  of  skills  with  labour  market 
demand  would  help  Slovenia  to  reach  the  employment  rate  target  of  75%  set  for  2020. 
Measures  to  reinforce  career  guidance  throughout  the  whole  educational  cycle  have  been 
implemented; however, there is still no effective system to forecast labour market needs. A pilot 
project  that  is  currently  being  carried  out  by  the  Public  Employment  Service  could  be  used  for 
prioritising  and  assessing  labour  market  needs.  The  tertiary  and  vocational  education  systems 
remain insufficiently oriented towards emerging labour market needs, which results in skills gaps.  

Only partial measures have been introduced to improve the matching of skills with labour 
demand  for  tertiary  graduates,  who  face  difficulties  to  enter  the  labour  market.  The 
government  took  measures  to  re-direct  enrolment  in  general  secondary  education  and  to  limit 
enrolment to social sciences at tertiary level, introduced a database on enrolment at tertiary level, 
and  reduced  the  duration  of  the  special  student  status.  In  addition,  amendments  to  the  Law  on 
Higher Education were adopted in December 2012 addressing the criteria for transnational higher 
education,  introducing  accreditation  systems  for  institutions  and  programmes,  and  introducing 
greater  autonomy  of  universities  in  changing  the  mandatory  contents  of  study  programmes. 
According  to  the  NRP,  measures  presented  in  the  Resolution  on  the  National  Programme  of 
Higher Education 2011-2020 are to be implemented, but no explicit timetable is presented.  

Progress on enhancing the role of vocational education and training has remained slow. A 
key  challenge  is  the  introduction  of  a  dual  vocational  education  and  training  system.  Other 
relevant  challenges  remain  to  counter  the  decline  in  enrolment  in  vocational  upper  secondary 
programmes,  to  increase  the  attractiveness  of  vocational  education  and  training  as  a  whole  and, 
finally,  to  intensify  the  involvement  of  employers  both  in  defining  curricula  and  providing 
apprenticeship places. Slovenia performs very well in preventing early school leaving. The NRP 
announces  amendments  to  the  Vocational  Education,  General  secondary  Education  Act  and  the 
Slovenian Qualifications Framework Act, which will be made on the basis of discussions that will 
start in the second half of 2013. 

Worsening  labour  market  developments  underline  the  need  for  effective  active  labour 
market policies. Despite the rising unemployment rate, participation of the unemployed in active 
labour market policy programmes32 decreased according to the preliminary national data for 2012. 
The "Plan for the Implementation of Active Labour Market Policy Measures" for 2013 and 2014 
is light on new approaches to fight unemployment with the exception of a job sharing programme 

32 These are largely co-financed by the European Social Fund. 

26 

 
 
 
                                                 
(to be developed in 2013). Another new element is mentoring schemes (to be introduced in 2013). 
The  effectiveness  of  active  labour  market  policy  measures  can  be  improved  by  introducing 
innovative  tailor-made  approaches  that  focus  on  the  needs  of  specific  target  groups  and  by 
conducting  regular  evaluations  of  existing  programmes  to  make  policy  making  more  evidence-
based.  The  announced  "Strategy  for  Developing  Social  Entrepreneurship"  may  have  a  positive 
effect  on  keeping  those  furthest  away  from  the  labour  market  active  if  it  is  well  designed  and 
effectively implemented. 

Since  2010,  the  social  situation  in  Slovenia,  including  that  of  children  and  that  of workers 
with  temporary  contracts,  has  been  worsening,  although  it  remains  better  than  the  EU 
average.  The  new  social  legislation  implemented  in  2012  rationalised  social  expenditures.  A 
wider  definition  of  means-tested  income,  improved  targeting  and  restricted  access  to  benefits 
reduced the number of beneficiaries, notably among pensioners, recipients of child allowance and 
recipients of exceptional financial assistance.33 This new legislation will be amended by the end of 
2013, according to the NRP, in order to further simplify decision making procedures and redefine 
property  in  deciding  on  eligibility  for  transfers.  Several  discretionary  measures  in  the  last  years 
have  reduced  or  frozen  the  indexation  of  pensions  and  temporarily  cut  the  yearly  recreational 
supplement, thus having an impact on the income position of pensioners. Pension policy priorities 
need  to  find  a  suitable  balance  between  the  objectives  of  ensuring  sustainability  of  the  public 
finances, incentivising labour market participation and ensuring pension adequacy.  

3.4. 

Structural measures promoting growth and competitiveness 

The Slovenian economy is characterised by a low FDI stock and weak export performance. 
Slovenia's inward FDI stock stood at 31% of GDP in 2012, which is one of the lowest among new 
EU Member States, despite having a high-quality workforce and being located close to main EU 
markets. In addition, despite economic catch-up potential, Slovenia is losing world export market 
shares  (6.4%  in  the  last  three  years).  As  discussed  in  the  2013  IDR,  weak  export  performance 
reflects not only weaknesses in cost competitiveness but also non-cost competitiveness given that 
Slovenia's  industrial  structure  is  still  dominated  by  low-to-medium  technology  and  labour 
intensive  products.  FDI,  company  development  and  exports  are  held  back  by  the  business  and 
competition environment, including by the role of public ownership in Slovenia.  

In  2012,  the  Council  Recommendation  for  Slovenia  contained  a  CSR  on  streamlining 
regulated professions and on improvement of the administrative capacity of the Competition 
Protection  Office.  In  addition,  in  line  with  the  Annual  Growth  Survey,  the  business  and 
competition environment in Slovenia could be improved by adjusting the regulatory framework, 
notably in case of network industries, and improving the way spectrum is awarded to operators for 
the rollout of mobile broadband. Slovenia's growing importance as a transit country increases the 
need for infrastructure improvements in the energy and transport sectors. Measures in these areas, 
including  those  that  moderate  unit  labour  cost  developments  and  address  skills  mismatch  (see 
Section 3.3), could help Slovenia to regain competitiveness.  

Limited  progress  was  achieved  in  2012  regarding  structural  measures  for  growth  and 
competitiveness.  The  government  adopted  a  "Slovenian  Industrial  Policy"  which  outlines 
priorities over the period 2014-2020 and aims at increasing productivity from 60% to 80% of the 
EU  average.  However,  the  document  lacks  the  necessary  implementation  plans  and  is 
insufficiently coordinated with other related policies. In April 2013 the Government appointed an 
inter-ministerial committee to prepare strategic guidelines for attracting FDI. In the environment 
of tight funding conditions, financial engineering products of the Slovenian Enterprise Fund and 
SID bank have helped SMEs by providing targeted public guarantees and venture capital. 

33 The reform converted the minimum pension support into the means-tested income support. 

27 

 
 
 
                                                 
Internal market and competition environment 

The  Slovenian  authorities  launched  a  reform  process  to  review  numerous  regulated 
professions in 2012. An inter-ministerial group was setup in September 2012 to review regulated 
professions (of which there are over 300 in Slovenia) with the objective to better define existing 
regulated professions, reduce the administrative cost and simplify access to professions. A first set 
of laws in the field of craft, tourism and construction was due to be adopted by Parliament in early 
2013.  However,  the  reform  is  behind  schedule  except  for  the  craft  sector  where  the  Small 
Business Act was adopted on 28 March and entered into force on 27 April. Secondary legislation 
defining which craft activities will remain regulated (and under which conditions) is to be adopted 
by  end  July  2013  at  the  latest.  As  to  the  tourism  and  the  construction  sectors,  the  adoption  of 
revised  legislation  is  now  tabled  for  June  and  end-September  2013,  respectively.  By  end-
September  2013  Slovenia  also  plans  to  revise  legislation  for  a  number  of  other  activities  and 
professions including those related to private investigation, real estate brokerage, driving schools, 
lawyers  and surveying  activities.  The  revision  of  other  sectors will  follow  in  the  second  half  of 
2013  and  in  2014.  The  swift  de-regulation  and  a  significant  reduction  of  entry  barriers  are  of 
importance given the expected positive effects on employment and competition.  

Slovenia could benefit from a more ambitious implementation of the Services Directive. 18 
sector-specific legal acts have been amended. Professional services accounting for about 10% of 
GVA  remain  heavily  regulated,  which  limits  the  growth  potential  of  the  Slovenian  economy. 
Slovenia has developed its Point of Single Contact (PSC) separately for foreign users and national 
users.  Despite  some  progress  in  2012,  the  information  currently  provided  through  the  PSC  is 
focused  on  a  limited  number  of  regulated  activities  (e.g.  crafts,  construction)  while  online 
completion of procedures is not yet possible for foreign operators.   

Based  on  legislative  changes  made  in  late  2011,  the  independent  Competition  Protection 
Agency  (CPA)  was  established  on  January  1,  2013.  The  CPA  replaces  the  previous 
Competition  Protection  Office,  which  operated  under  the  responsibility  of  the  Ministry  of 
Economic Development and Technology. Whilst additional staff was transferred to the CPA, the 
authority suffers from limited financial resources which are compounded by budget cuts for 2013. 
Effective exercise of its competition enforcement powers cannot be ensured without sufficient and 
autonomous financing. 
Slovenia  has  not  yet  fully  transposed  the  3rd  Energy  Package  Directives,  which  promotes 
among  other  objectives  the  effective  unbundling  of  operations  to  improve  market 
functioning and the protection of consumers. Two related infringement procedures have been 
referred to the Court of Justice. The Slovenian authorities aim at transposing the the 3rd Energy 
Package  Directives  by  September  2013.  Although  there  are  no  foreign  providers  in  the  retail 
segment of electricity, prices for end-users are close to the EU average and the switching rate is 
increasing. In contrast, in the gas market, prices are among the highest in the EU. Early 2013, the 
Competition Protection Agency launched an investigation to verify the existence of price fixing 
for  households  between mainly  municipality-owned  gas  distributors.  The  investigation  followed 
the  entrance  of  a  newcomer  to  the  gas  market  in  2012,  which  led  to  a  substantial  reduction  in 
retail prices. The investigation has not been concluded yet. 

Slovenian  railways  are  dominated  by  one  state-owned  holding.  Railway  infrastructure  and 
transport  operators  are  not  fully  separated.  The  domestic  rail  passenger  transport  market  is  not 
open to competition and almost the entire Slovenian network is awarded to the incumbent railway 
company without competitive public tender. Conversely, the rail freight transport market is open 
to competition; however the market share of the incumbent rail company exceeded 90% in 2010. 
The  loss-making  national  railway  holding  is  a  heavy  burden  for  public  finances  and  prices  of 
passenger transport are subsidised by the state.  

28 

 
 
 
Research and innovation 

In 2013, the main challenge will consist in preparation of an innovation strategy for smart 
specialization  to  harness  the  potential  for  smart  growth  and  the  knowledge  economy.  This 
strategy will be instrumental for investments under the European Investment and Structural Funds 
for 2014-2020, also in light of decreasing national public spending on R&D. R&D intensity has 
exceeded the EU average since 2009 due to a strong growth in expenditure by businesses. The EU 
2020 research and development intensity target of 3% seems achievable. The measures outlined in 
the  2011  Research  and  Innovation  Strategy  and  the  above-mentioned  National  Programme  for 
Higher  Education  are  yet  to  materialise.  The  main  challenges  remain  the  consistency  and 
coordination  of  the  policies  to  provide  support  to  research  and  to  stimulate  innovation,  the 
effective  implementation  of  these  policies,  and  the  efficient  deployment  of  available  resources 
(including  from  the  European  Regional  Development  Fund).  Improved  governance  and  clear 
prioritization are essential to address these challenges. Research vouchers have been introduced in 
2012  to  help  enterprises  to  commission  research  at  research  institutes  and  higher  education 
organisations.   

Slovenia  is  lagging  behind  in  the  award  of  spectrum  to  operators  for  the  rollout  of  mobile 
broadband.  In  addition,  Slovenia  has  a  low  fixed  broadband  coverage,  compared  to  the  EU 
average. A low broadband take-up is limiting the growth potential of ICT-led innovation through 
the economy. 

Environment and climate issues, including infrastructure 

Energy and transport infrastructure is of high relevance for Slovenia given its importance 
as a transit country. There are gaps in the electricity network (e.g. the missing link with Hungary 
is currently under construction) and the most used routes require strengthening (e.g. the link with 
Italy).  In  addition,  there  is  untapped  potential  to  increase  absorption  of  renewables  and  the 
efficiency of the grid through the deployment of smart grids, which could enhance the functioning 
of  the  electricity  market.  Slovenia  improved  its  gas  connection  to  Austria  and  Croatia.  The  gas 
connection  with  Hungary  is  under  consideration.  Lack  of  administrative  capacity  to  prepare  a 
comprehensive 
the  railway 
infrastructure. The one-tier Divača-Koper railway line poses the main logistic bottleneck for the 
port of Koper.  

transport  strategy  contributes 

the  underdevelopment  of 

to 

Slovenia will probably fail to reach the target on greenhouse gas (GHG) emissions in sectors 
not covered by the Emission Trading System. GHG emissions are projected to increase by 5% 
(compared to 2005) by 202034, based on existing measures, thus exceeding the 4% target. While 
several  measures  were  put  in  place  such  as  introduction  of  a  carbon  tax  to  the  transport  sector, 
there is room  to build upon these measures and expand recent initiatives to foster use of public 
transport.  GHG  emissions  from  transport  accounted  for  27%  of  Slovenia’s  total  emissions  in 
2010,  the  third  highest  share  in  the  EU,  which  is  related  to  the  significant  transit  traffic  that 
crosses the country (in particular road freight transport). Slovenia can achieve the GHG emissions 
target only if emissions from transport are tackled effectively and high-density road transport is 
shifted to railway. GHG emissions could also be reduced by addressing distortions generated by 
differential  taxation  across  fuel  types.  The  NRP  announces  an  action  plan  to  reduce  GHG 
emissions over the period 2013-2020 in view of reaching the target of 4% by 2020.  

A  comprehensive  set  of  measures  has  been  announced  to  improve  energy  efficiency; 
however, their success will depend on policy commitment and available funding. The energy 
efficiency target notified by Slovenia is not in line with the requirements of Articles 3 and 24 of 
the  Energy  Efficiency  Directive.  The  target  of  25%  share  of  renewable  energy  in  gross  final 
energy consumption by 2020 can only be achieved if further measures are put in place to develop 
more  renewable  energy  sources.  There  has  been  some  progress  in  the  heating  and  electricity 

34 European Environmental Agency greenhouse gas emission projections 2013. 

29 

 
 
 
                                                 
sectors, but more is needed. Special attention has to be given to the transport sector, as its share of 
renewable energy sources remains low (at 2.9% in 2010, against a target of 10% in 2020).  

Wastewater,  waste  management  and  air  quality  in  urban  cities  pose  environmental 
challenges.  Challenges  related  to  wastewater  and  waste  management  described  in  the  Staff 
Working Document 2012 remain. While the number of landfill sites is decreasing and the low rate 
of  landfill  tax  does  not  provide  incentives  to  start  moving  waste  management  up  the  waste 
hierarchy towards recycling, reuse and reduction. Measures have been taken recently to promote 
resource efficiency in the water sector. Another challenge, in particular in urban areas, is poor air 
quality  that  carries  direct  public  health  costs  and  also  reduces  crop  production.  As  a  response, 
Slovenia continues to put in action regional air quality plans. The effectiveness of these measures 
remains to be demonstrated and requires continuous monitoring.  

3.5.  Modernisation of public administration  

Challenges are  concentrated  in  the  area  of  the  justice  system.  Despite recent progress and a 
distinct positive trend, judicial proceedings at first instance in litigious civil and commercial cases 
remain  long  (disposition  time  in  2010  was  431  days35). The  rate  of  resolving  litigious  civil  and 
commercial  cases  is  low  (in  2010,  the  clearance  rate  was  98%36)  while  the  number  of  pending 
non-criminal cases per inhabitant is high (in 2010, it was the highest among the Member States37), 
although there has been a positive sign of advancement recently, particularly in the clearance rate. 
The AGS outlines also other priorities in the area of public administration, which are relevant for 
Slovenia  such  as  developing  e-procurement  capacities  and  simplifying  business  licences 
procedures. Additional challenges stem from municipal fragmentation.  

Justice system  

Justice  systems  that  ensure  predictable,  timely  and  enforceable  decisions  can  improve  the 
business  environment  and  support  FDI.  Long  proceedings  in  litigious  civil  and  commercial 
cases  can  be  addressed  by  additional  measures,  including  those  identified  as  promising  through 
pilot  projects.  One  such  project  is  the  Triaža  project  for  commercial  disputes  introduced  by  the 
Ljubljana District Court, which focuses on organisational changes, with partial rollout to at least 
three additional district courts planned in 2013 before complete nationwide rollout in 2014. The 
high  number  of  pending  non-criminal  cases  indicates  further  scope  for  improvement.  Recently, 
considerable progress has been achieved in the reduction of the pending land register cases. The 
high  number  of  pending  enforcement  cases  constitutes  approximately  two  thirds  of  all  pending 
non-criminal  cases.  A  more  detailed  analysis  of  the  roles  of  different  actors  in  the  enforcement 
procedure would be needed to identify the remedial measures necessary. The introduction of an 
electronic  automated  enforcement  of  authentic  documents  (COVL)  in  2008  has  led  to  good 
results. Targets to increase the number of resolved enforcement cases by 5% in 2013 and a further 
5% in 2014 are set as a means of reducing the number of pending cases; however, there are no 
details  provided  on  the  concrete  measures  for  attaining  these  target  values  (e.g.  regarding  the 
legislative amendments to the enforcement legislation planned for 2014). 

Other administrative challenges 

In the area of public procurement, Slovenia has not yet adopted a plan for transition to e-
procurement. Slovenia is one of the EU Member States with the least developed corresponding 
infrastructure.  Although  the  new  electronic  portal  was  introduced  recently,  electronic  tenders 
cannot  be  submitted.  Thus,  the  benefits  of  e-procurement  such  as  greater  transparency,  more 
competition and faster procedures cannot be fully exploited in practice.  

35 The EU Justice Scoreboard: a tool to promote effective justice and growth, COM(2013) 160 final, p. 6. 
36 The EU Justice Scoreboard: a tool to promote effective justice and growth, COM(2013) 160 final, p. 8. A rate 
below 100% means that the backlog of unresolved cases in the court systems keeps growing. 
37 The EU Justice Scoreboard: a tool to promote effective justice and growth, COM(2013) 160 final, p. 10. 

30 

 
 
 
                                                 
Governance  of  spatial  planning  and  provision  of  services  at  municipal  level  deliver  sub-
optimal outcomes. Problems linked to the management of air quality, waste and water are largely 
linked to the problem of municipal fragmentation that often fails to build on economies of scale. 
Municipal  fragmentation  also  contributes  to  inefficient  spatial  planning.  In  2012,  legal  changes 
were adopted to streamline and shorten spatial planning procedures. The NRP announces a set of 
additional  measures  in  2013  and  2014  to  this  end.  Monitoring  of  implementation  of  these 
measures is needed to assess the efficiency of policy action.  

Complex  business  licensing  procedures  hinder  investment,  including  from  abroad,  and 
weigh on business dynamism. Although Slovenia performs well as far as starting up a business is 
concerned, it is one of the EU countries with the most complex business-licences procedures in all 
dimensions (costs, time, and number of licences).38 This means that even after successfully been 
setting-up, new companies experience delays before they can start their operations, thus making 
Slovenia less attractive for investments.  

The  public  perception  of  corruption  is  negative  and  deteriorating  as  a  result  of  recent 
corruption  events.  Relevant  measures  have  been  taken  to  improve  transparency  of  public 
spending  by  the  Slovenia's  anti-corruption  watchdog  (the  Commission  for  Prevention  of 
Corruption).  However,  further  measures  are  needed  to  improve  the  enforcement  of  public 
procurement rules and increase effectiveness of control mechanisms. 

3.6. 

State ownership and corporate restructuring 

Many Slovenian non-financial corporations are over-indebted and face financial distress in 
current market conditions. The 2013 IDR outlined the economic outcomes in relation to state 
ownership,  in  terms  of  direct  and  contingent  fiscal  costs,  and  in  terms  of  distortion  of  normal 
commercial operations, while the only drawback to the state's conduct as an owner and manager 
of  non-financial  enterprises  recognised  in  the  NRP  is  lack  of  co-ordination.  As  an  alternative 
focus, the NRP goes into some detail on the need for policies to foster deleveraging and avoid the 
poor  outcomes  associated  with  current  insolvency  procedures,  including  through  'pre-court 
restructuring'.  While  some  deleveraging  is  clearly  necessary,  and  the  financial  distress  of  some 
companies is known (particularly those in state ownership)39, there is no systematic information in 
the NRP to quantify this challenge and to properly diagnose how it has arisen. 

The  NRP  outlines  policy  priorities  in  the  areas  of  state  ownership  and  corporate 
deleveraging. Common solutions are likely to be found in private investment, both domestic and 
foreign, in privatisation, in creating the right incentives and conditions for debt restructuring (hard 
budget  constraints)  and  in  strengthening  corporate  governance.  In  addition,  the  state  is  in  an 
exceptionally  strong  position  to  engineer  and  –  if  needed  –  to  force  financial  and  operational 
restructuring  in  many  private  and  state-controlled  firms.  This  strength  arises  from  the  state's 
position as a major direct owner, a major indirect owner, a major direct creditor (in the form of 
unpaid tax liabilities) and a major indirect creditor (through state-controlled banks). Provided that 
the  compatibility  conditions  of  the  European  rules  are  met,  the  state  can  also  use  state  aid  in 
pursuit of these objectives, although this has some drawbacks as discussed below. The remainder 
of section assesses the policy response to state ownership and corporate indebtedness separately. 

Policies related to state ownership 

State-owned  enterprises  (SOEs)  present  an  important  part  of  the  Slovenian  economy  and 
face multiple challenges.40 SOEs accounted for one sixth of total value added of the Slovenian 

38 Business Dynamics (2011). The analysis is based on a sample of selected companies.  
39  See  European  Commission  (2013),  Macroeconomic  Imbalances:  Slovenia  2013,  European  Economy, 
Occasional Paper142, April 2013. 
40  See  Georgieva,  S.,  D.  Marco  Riquelme  (2013),  "Slovenia:  State  Ownership  Holding  Back  Development", 
Country  Focus,  European  Commission  (forthcoming),  and  European  Commission  (2013),  Macroeconomic 
Imbalances: Slovenia 2013, European Economy, Occasional Paper142, April 2013. 

31 

 
 
 
                                                 
economy,  accounted  for  around  half  the  total  losses  in  the  Slovenian  corporate  sector  and 
employed one out of eight people in the private sector in 2011. As detailed in the 2013 IDR, SOEs 
are frequently characterised by sub-optimal corporate governance. State ownership encompasses a 
complex  matrix  of  frequently  financially-troubled  banks,  insurance  groups  and  non-financial 
corporations,  which  own  each  other.  State  ownership  and  influence  on  those  SOEs  that  are 
relatively strong performing are used to reshuffle assets and indirectly recapitalise other SOEs in 
economic difficulties. This thwarts the privatisation process required to boost productivity, deepen 
capital  markets  and  enhance  technological  spill-overs  from  FDI.  A  number  of  SOEs  face 
challenging  financial  conditions  that  might  even  aggravate  given  the  expected  continued 
economic  downturn.  Most  companies  are  highly  levered  and  have  been  recapitalised.  Overall, 
Slovenia is considerably behind its peers in large-scale privatisations, corporate governance and 
privatisation  of  the banking  sector  (EBRD, 2012).41  State  ownership  has  already  had  a  negative 
impact  on  public  finances.  Capital  transfers  to  loss-making  SOEs  contributed  1.4  pps  to  the 
budget  deficit  of  6.4%  of  GDP  in  2011.  The  total  debt  of  non-bank  SOEs  was  at  least  30%  of 
GDP, with 5.4 pps attributable to companies consolidated with general government accounts. In 
addition,  SOEs  are  the  main  beneficiaries  of  state  guarantees  worth  25%  of  GDP,  which  is  a 
contingent liability for the general government42.  

Overall,  while  containing  some  positive  elements,  the  state-ownership  and  privatisation 
policies presented in the NRP fall short of what was identified as necessary in the 2013 IDR. 
Credible, detailed, time-bound commitments in the following areas in the NRP would have been 
important  to  address  the  challenges  identified  in  the  IDR.  In  particular,  there  would  have  been 
value  in  establishing  a  specific  complete  timetable  for  the  announced  privatisations  to 
capitalise on confidence effects. Measures to consolidate the state's non-core ownership stakes 
and specific measures to ensure a privatisation-oriented governance and management would have 
lent credibility to privatisation intentions. At the same time, there will be companies remaining in 
state ownership and it would be important to detail measures how these will be run and how to 
ensure a smooth interlinkage between policy and economic considerations in related areas. 

Some first steps have been taken to improve corporate governance, as recommended in the 
CSRs, and to privatise some SOEs. Legislation setting up the new Slovenian Sovereign Holding 
(SSH) was enacted. The new holding is intended to consolidate management and ownership of all 
investments  by  the  Republic  of  Slovenia  and  the  state  funds  within  one  structure  and  allow  for 
privatisation of some of these assets. To this purpose, two asset classifications underpinning the 
privatisation strategy of the SSH was adopted by the outgoing government in early 2013, though 
not approved by parliament. The NRP announces amendments to the SSH Act, in line with the 13 
March  coalition  agreement,  to  repeal  the  provisions  on  centralisation  of  ownership,  i.e.  while 
management  of  state  assets  would  remain  centralised  under  the  SSH  the  ownership  would  be 
dispersed across Republic of Slovenia and various funds. It is questionable whether the setting up 
of the SSH in itself will help overcome the slow privatisation process produced by previous state 
ownership  structures  such  as  the  Capital  Assets  Management  Agency  (AUKN,  the  immediate 
predecessor of the SSH) over the previous years. Moreover, the envisaged ownership split is not 
facilitating the process. 

The letter announces there will be a privatisation strategy submitted by the end of the third 
quarter  of  2013,  but  neither  the  letter  nor  the  NRP  provides  insight  into  the  intended 

41  Comparative  analysis  with  peers  has  been  done  on  the  basis  of  EBRD  transition  and  structural  indicators. 
Comparisons are based on Slovenia's average position during the transition period and its position according to 
latest data (2012). Slovenia was compared against the average of three groups of CEE countries: (i) Eight EU 
Member States from the CEE region and Croatia, (ii) Six EU Member States which entered the EU in 2004 and 
(iii) the two euro-area members from the region. 
42  See  Georgieva,  S.,  D.  Marco  Riquelme  (2013),  "Slovenia:  State  Ownership  Holding  Back  Development", 
Country  Focus,  European  Commission  (forthcoming),  and  European  Commission  (2013),  Macroeconomic 
Imbalances: Slovenia 2013, European Economy, Occasional Paper142, April 2013. 

32 

 
 
 
                                                 
strategic  objectives  and  principles.43  The  NRP  does  not  report  the  classification  of  assets  and 
underlying criteria that is supposed to underpin this strategy. A split is envisaged into "strategic" 
assets  (where  the  state  could  keep  both  either  majority  or  minority  shares)  and  other  assets, 
destined  for  privatisation.  No  further  details  are  reported  on  the  envisaged  criteria  used  for 
selecting "strategic" assets and later on managing these assets. In the absence of the key elements 
of this strategy, it is difficult to judge whether this plan will be sufficient to address the challenges 
identified in this area in the IDR.  

The  conduct  of  any  privatisation  process  is  likely  to  face  numerous  obstacles,  such  as 
thwarted  previous  processes  over  the  past  two  decades.  Regulatory,  administrative  and 
political obstacles are all potentially present.44 These could be reduced by ensuring a competition-
friendly  environment45  and  by  abstaining  from  restrictive  criteria  relating  to  the  identity  of 
purchasers, purchase prices and future business conduct when approving sales. There is currently 
no  regularly  published,  detailed  register  of  the  financial  interests  of  parliamentarians,  ministers 
and senior officials involved in state-owned assets, which risks undermining the transparency and 
public trust in privatisation-related decisions. Such a register could be a basis for enforcing strict 
rules  on  managing  possible  conflicts  of  interests  and  prohibiting  interference  by  ministers  in 
ongoing commercial transactions.  

Pending the elaboration of an overall strategy, the NRP announces that the government will 
declare  some  first  companies  for  privatisation  in  May  2013.  Accordingly,  the  government 
announced on May 8 a list of 15 companies to be privatised and submitted it to Parliament. The 
letter states that the state's stakes in these companies will be put on sale in their entirety and that 
parliamentary  adoption  is  expected  by  the  end  of  the  second  quarter  of  2013.  This  list  includes 
larger  and  smaller  companies,  majority  and  minority  stakes,  including  the  second  largest  bank 
NKBM  and  the  telecommunications  incumbent.  No  detailed  timetable  is  suggested.  Rapid 
progress with these privatisations would send a strong signal to investors that Slovenia is open for 
business and moving towards a new way of operating. However, the NRP also stresses there may 
be reasons to depart from commercial considerations when deciding on privatisations. While there 
may  be  justifications  for  some  limited  departures  from  commercial  considerations  in  specific 
instances  like  network  industries,  it  would  be  economically  problematic  if  such  considerations 
were  also  present  in  other  decisions.  Basing  decisions  on  such  considerations  would  also  be 
problematic under the state-aid rules. 

There is no new detail in the NRP regarding the strategic orientation for companies that will 
remain in state ownership. In this respect, it would have been useful to consider sector-specific 
strategies and measures for improving profitability by realising efficiency gains and streamlining 
business  models  where  possible.  Efficient,  transparent  and  professional  management  would  be 
important  to  ensure  for  all  core  state  assets.  In  this  regard,  there  is  currently  no  obligatory  and 
publicly available register of appointments, with requirements for disclosure of interests (e.g. real 
and financial property, business relationships). Efficient budgeting and auditing processes under 
the control of the Ministry of Finance might also help.  

Corporate restructuring  

The NRP asserts the need to rescue and restructure non-financial corporations in financial 
distress.  While  corporate  over-indebtedness  in  Slovenia  is  problematic  and  specific  firms 
certainly  face  financial  distress,  important  details  have  not  been  described  in  the  NRP.  Ideally, 
existing  impediments  to  successful  restructuring  deals  would  be  identified  and  overall 

43 The statement that this strategy would be modelled on similar strategies in OECD countries does not say what 
is  actually  envisaged.  Pending  the  adoption  of  such  a  strategy,  a  clear  statement  of  principles  and  objectives 
would have added greater credibility.  
44  See  section  3.2  in  European  Commission  (2013),  Macroeconomic  Imbalances:  Slovenia  2013,  European 
Economy, Occasional Paper142, April 2013. 
45 E.g. Slovenia has not fully transposed the 3rd Energy Package. 

33 

 
 
 
                                                 
restructuring needs quantified46. Outside of the NRP, the authorities have described the situation 
in general terms and highlighted the contributory problem of 'passive owners', unwilling or unable 
to  inject  fresh  capital  and  prepared  to  'wait  and  see'  rather  than  accepting  dilution  of  their 
ownership interests by new investors or filing for insolvency47. Such an approach is permitted by 
banks that may be prepared to 'wait and see' rather than negotiate haircuts (e.g. in a distressed sale 
context),  and  to  refrain  from  initiating  proceedings  against  non-payers  (see  section  on  the  legal 
framework below). The extent of tax and social security contribution arrears may indicate that the 
tax  authorities  also  refrain  from  initiating  proceedings  against  non-payers.  If  confirmed,  such  a 
behaviour would be problematic under the state-aid rules. 

The  NRP  presents  a  three-step  approach  to  restructure  illiquid  and  thinly  capitalised  but 
ostensibly  deserving  companies.  In  the  first  step,  existing  owners  and  creditors  would  be 
responsible for agreeing appropriate restructuring deals (as is already the case). In the second step, 
external  private  investors  would,  if  necessary,  be  sought,  including  among  international 
institutions  such  as  EBRD  and  IFC  (as  is  in  principle  already  the  case;  these  institutions  would 
have their own procedures to satisfy before going ahead with further investments in Slovenia). In 
the  third  step,  the  state  would  intervene  and  provide  additional  financial  support48  to  stimulate 
restructuring negotiations between market players and to ensure sufficient resources. Despite the 
overlap  in  terms  of  counterparts  and  aims,  the  necessary  co-ordination  between  this  three-step 
approach and the BAMC (see section 3.2) is not explained in the NRP. E.g. it is not explained if 
companies are to be restructured following this three-step approach prior or after the transfer of 
related assets to the BAMC. 

The  NRP  provides  limited  details  regarding  the  granting  of  potential  state  aid.  The 
legislation on state aid was amended and relaxed in April 2013 in order to provide more types of 
aid,  in  larger  amounts,  including  to  state-controlled  companies.  According  to  the  NRP,  these 
amendments  introduce  non-cash  equity  investments  as  a  form  of  state  aid,  in  addition  to  other 
forms of aid previously authorised (such as loans and guarantees) within the EU legal framework. 
Rescue  aid  has  already  been  notified  to  one  'pilot'  company  and  further  notifications  are  in  the 
pipeline. The NRP sets out some welcome guiding principles on limiting such state aid but does 
not clarify how the government will bind itself to these principles. However, the reference to the 
SP  in  this  respect  is  not  reciprocated  in  the  SP  itself.  The  SP  does  not  include  specific 
compensating  measures  to  ensure  compliance  with  fiscal  targets,  if  guarantees  are  called,  while 
amounts  might  be  macro-economically  significant.  In  this  respect,  the  letter  states  that  any 
additional outlays arising from newly granted guarantees will be offset against other expenditure 
items, without detailing how sufficient budget flexibility would be achieved within a given fiscal 
year. 

Affordability  considerations,  fiscal  discipline  and  the  rules  governing  state  aid  all  place 
constraints  on  granting  aid  via  state  guarantees,  loans  or  fresh  capital  to  non-financial 
corporations.  With  Slovenia  in  EDP,  recapitalisations  already  weigh  on  the  public  deficit  and 
debt levels as described above. In addition, Slovenia's sovereign guarantees are the third highest in 
the EU as a percentage of GDP49. A number of rating agencies and international investors have 
identified  this  as  one  of  the  main  factors  threatening  the  sustainability  of  public  finances  and 
international investor confidence in Slovenia. Cross ownership and inter-linkages between SOEs, 
state-owned banks and insurance companies amplify the fiscal and other risks related to sovereign 

46 Ideally, there would be a current and forward-looking assessment of the financial situation of companies not in 
state ownership that are reportedly in need of urgent financial restructuring, using independent and transparent 
criteria when assessing the viability of companies. 
47 In addition, it is worth noting that the state as owner can rectify over-indebtedness only within the applicable 
fiscal and state aid constraints – i.e. it is not in a position to be an active owner itself.    
48 This element was not known at the time the IDR was drafted. 
49 Eurostat (2011), Structure of Government Debt in Europe. Please note that data refers to the guarantees given 
by the central government only and does not include guaranteed interests. 

34 

 
 
 
                                                 
funding. Any discretionary expenditure and callable guarantee increases related to state aid add to 
the pressure on other areas of the general government budget.  

Overall, the policy challenge and the policy response regarding corporate restructuring need 
further  elaboration.  The  currently  envisaged  policies  entail  significant  risks  and  could  run 
counter to the objectives of consolidating the public finances and reducing the state's role in the 
economy.  The  NRP  implicitly  acknowledges  this  risk,  by  stressing  the  principle  that  the  state 
should  accelerate  the  sale  of  any  shares  acquired  in  this  process,  but  the  NRP  provides  no 
information  on  how  this  principle  is  to  be  operationalised.  FDI  could  play  a  key  role  in 
unblocking  current  bottlenecks  to  corporate  restructuring,  and  there  is  insufficient  focus  in  the 
NRP on how to attract such FDI. Public intervention needs to be duly and transparently justified 
while ensuring that bail-in would diminish moral hazard, preserve taxpayer resources, prevent the 
perpetuation of ownership models that have proven problematic and instil correct incentives for 
other  companies.  In  general,  the  appropriate  objective  for  such  a  policy  would  be  sale  of 
restructured  companies,  without  involvement  of  state  resources,  rather  than  maintaining  given 
employment levels, or keeping 'viable cores' of businesses in domestic ownership. 

Legal framework  

“Passive”  owners,  shortcomings  in  the  insolvency  framework  and  deficiencies  in  the 
enforcement of insolvency rules increase the repayment risks for creditors of over-indebted 
companies.  The  insolvency  framework  has  insufficient  incentives  and  sanctions  to  ensure 
companies file for insolvency at an early stage. The compulsory settlement procedures (in-court 
reorganisation)  are  complex  and  debtor-friendly,  particularly  for  SMEs  and  micro  companies. 
There are insufficient incentives for early, out-of-court, settlement. Early debt settlement (out-of-
court or in-court), which could help ensuring the continuation of viable businesses, are not being 
pursued (by debtors or by creditors), and companies tend to file for insolvency at a late stage. This 
is  due  to  the  absence  of  a  fully  credible  threat  from  insolvency  proceedings.  Correspondingly, 
recovery rates are relatively low, the number of insolvency procedures with insufficient assets is 
large and the repayment risks for creditors of over-indebted companies are elevated. An effective 
reform  would  facilitate  a  timely  rehabilitation  of  viable  companies,  speed  up  the  cleaning  of 
banks' balance sheets, facilitate access to finance and give a second chance to entrepreneurs. 

Slovenia  is  in  the  process  of  amending  legislation  to  increase  the  efficiency  of  insolvency 
procedures.  The  amendments  to  the  Financial  Operations,  Insolvency  Proceedings  and 
Compulsory  Dissolution  Act  (ZFPPIPP)  adopted  in  April  2013  aim  at  refining  the  definition  of 
insolvency and incentivising management to file for insolvency on time. As regards compulsory 
settlement, the main changes aim at strengthening the role of creditors, by modifying the voting 
rules, improving access to debtors' documentation, and facilitating debt-to-equity conversion and 
appointment  of  new  management.  For  micro  companies,  the  draft  law  envisages  fast-track, 
simplified compulsory settlement procedures. Relevant measures have been announced to speed 
up and increase the efficiency of insolvency procedures such as falling price ("Dutch") auctions 
and regulation of mediation for settlement of disputes arising from insolvency. 

However, further measures may be needed to improve enforcement of the legal obligation to 
file  for  insolvency.  Key  areas  are  changes  in  the  criminal  law  (and  law  enforcement)  and 
obligations  for  managers  to  provide  evidence  that  they  have  not  filed  for  insolvency  too  late. 
Additionally,  as  the  initiative  for  starting  compulsory  settlement  procedures  stays  with  debtors, 
the  reform  may  fail  to  substantially  increase  take-up.  Appropriate  prioritisation  of  pending 
litigation  directly  related  to  bankruptcy  could  be  an  additional  way  to  expedite  ongoing 
procedures (see also Section 3.5). Close monitoring will be important to determine the impact of 
the reform. 

Early financial restructuring of over-indebted companies is not currently regulated and new 
legislation has been announced to fill the gap. According to the NRP, legal changes to facilitate 
out-of-court restructuring and debt conversion will be proposed by the Ministry of Justice end of 
May 2013. The NRP does not provide details about the intended changes. It is thus not possible to 

35 

 
 
 
assess whether the new legislation can achieve its objectives. A legal framework with compatible 
incentives  for  creditors,  owners  and  management  would  be  essential  for  starting  any  urgent 
restructuring of illiquid and thinly capitalised but viable companies.  

36 

 
 
 
 
4.  OVERVIEW TABLE 

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

specified 

sufficiently 

CSR  1:  Implement  the  2012  budget,  and 
reinforce  the  budgetary  strategy  for  2013 
structural 
with 
measures,  standing  ready  to  take  additional 
measures so as to ensure a correction of the 
excessive deficit in a sustainable manner by 
2013  and  the  achievement  of  the  structural 
adjustment  effort  specified  in  the  Council 
recommendations under the excessive deficit 
procedure.  Thereafter,  ensure  an  adequate 
to  make 
structural 
sufficient  progress  towards  an  appropriate 
MTO  for  the  budgetary  position,  including 
meeting 
benchmark. 
Strengthen 
the  medium-term  budgetary 
framework,  including  the  expenditure  rule, 
by making it more binding and transparent. 

expenditure 

adjustment 

effort 

the 

increase 

CSR  2:  Take  urgent  steps  to  ensure  the 
the  pension 
long-term  sustainability  of 
system,  while  preserving  the  adequacy  of 
pensions,  by:  (i)  equalising  the  statutory 
retirement  age  for  men  and  women;  (ii) 
ensuring  an 
the  effective 
retirement age, including through linking the 
statutory  retirement  age  to  life  expectancy; 
(iii)  reducing  early  retirement  possibilities; 
and (iv) reviewing the indexation system for 
pensions.  Increase  the  employment  rate  of 
older  workers  also  by  further  developing 
active  labour  market  policies  and  lifelong 
learning measures. 

in 

CSR  3:  Take  the  required  steps  to  build 
sufficient  capital  buffers  in  the  banking 
sector  and  strongly  promote  the  cleaning  of 
balance sheets so that appropriate lending to 
productive  activities  can  resume.  Obtain 
fully-fledged 
third  party  verification  of 
systemically  important  banks'  stress  loan-
loss estimates. 

The CSR has been partially implemented.  

The May 2012 Act on Balancing Public Finances underpinning 
the 2012 supplementary budget has contributed to a significant 
improvement in the structural balance by 2.0% of GDP in 2012 
and its positive budgetary implications continue into 2013. Key 
measures 
limited  compensation  of  employees  and  social 
transfers, but many measures are not of a structural nature. The 
2013  budget  introduced  new  revenue  increasing  measures. 
According to the Commission's 2013 Spring Forecast, Slovenia 
is not expected to correct the excessive deficit by 2013. Limited 
progress has been achieved in other components of CSR1. The 
authorities  have  not  set  an  appropriate  MTO.  Parliament 
adopted  a  constitutional  basis  for  establishing  a  general 
government budget balance/surplus rule in structural terms, but 
no  other  action  has  been  taken  to  strengthen  the  medium-term 
budgetary  framework,  including  the  expenditure  rule,  by 
making it more binding and transparent. 

The CSR has been partially implemented.  

The pension reform was passed in December 2012 and entered 
into  force  in  January  2013.  The  reform  was  adopted  following 
intensive  negotiations  with 
social  partners.  Different 
intervention  acts  have  frozen  or  reduced  pension  indexation 
over 2012-2014. 

increases  and  equalises 

The  reform  addresses  challenges  identified  in  the  CSR  though 
not  sufficiently.  It 
the  statutory 
retirement age for both genders; however it does not introduce 
an  automatic  link  between  the  increase  in  life  expectancy  and 
statutory retirement age. It reduces early retirement possibilities 
and proposes changes to the indexation of pensions. The reform 
goes  in  the  right  direction  but  is  supposed  to  have  a  visible 
curbing  effect  on  pension  expenditure  increases  only  in  the 
short-run  (up  to  2020).  Further  reform  steps  are  needed  to 
ensure sustainability also in the medium and long-run.  

No  tailor-made  lifelong  learning  or  active  labour  market 
measures  have  been  adopted  to  increase  employment  of  older 
workers. 

The CSR has been partially implemented. 

Following  adoption  of  reform  bills  on  the  recovery  of  the 
banking  sector,  the  government  has  set  up  the  Bank  Assets 
Managing  Company  (BAMC)  and  the  Bank  Stabilisation  Fund 
to  repair  the  state-owned  banks.  However,  the  selection  of 
banks  and  balance  sheet  cleaning  tools  still  needs  to  be 
specified. An asset quality review is planned in 2013. 

Jurisdiction  of  Bank  of  Slovenia  was  strengthened  so  that  the 
Bank of Slovenia can intervene faster, with more of a forward-
looking justification, though implementation of the new powers 
of  the  bank  of  Slovenia  is  yet  to  be  demonstrated.  The 

37 

 
 
 
supervisory  and  resolution  framework  has  been  strengthened, 
but  more  measures  are  required  on  some  of  the  supervisory 
tools (e.g. provisioning) and effective action has to follow.  

Third  party  due  diligence  was  concluded  in  the  two  largest 
banks  (state-owned  NLB  and  NKBM)  in  summer  2012  and  in 
autumn  2012  for  the  third  largest  bank  (state-owned  bank 
Abanka),  however  these  reports  are  now  outdated  and  a  more 
cautious  assessment  is  required  to  dispel  market  doubts.  NLB 
was  recapitalised  with  a  EUR  320mn  contingent  convertible 
bonds  (CoCo  bonds,  a  hybrid  debt-equity  instrument)  in  July 
2012,  which  was  triggered  and  converted  into  equity  in 
February 2013, and further recapitalisation needs for 2013 were 
announced by the bank in the amount of c. 367 m EUR. NKBM 
was  recapitalised  with  a  EUR  100mn  contingent  convertible 
bonds (CoCo bonds, a hybrid debt-equity instrument) in January 
2013, which was also triggered and converted into equity soon 
after.  In  addition  recently  the  management  board  of  NKBM 
have proposed to shareholders to approve a capital injection of 
up  to  EUR  400m  over  the  next  five  years.  Both  banks  were 
recapitalised  in  order  to  meet  European  Banking  Authority 
capital requirements. 

The CSR has been partially implemented.  

A  reform  of  employment  protection  legislation  was  adopted  in 
March 2013 to reduce labour market segmentation and increase 
its  flexibility.  The  reform  reduces  protection  of  permanent 
contracts  by  simplifying  dismissal  procedures.  However, 
dismissal  costs  remain  broadly  unchanged  for  the  majority  of 
workers, i.e. they are reduced noticeably only for workers with 
contribution periods above 25 years and less than a year. At the 
same time the protection of fixed-term contracts is increased to 
prevent  abuse  and  increase  the  rights  stemming  from  such 
contracts.  Whereas  the  reform  goes  in  the  right  direction,  it 
remains to be seen whether the reform is sufficiently ambitious 
to have a significant impact on the labour market segmentation 
and  flexibility,  also  in  light  of  Slovenia's  needs  to  attract  FDI. 
New restrictions on temporary agency work contracts may have 
a  negative  impact  on  job  creation.  The  NRP  announces 
monitoring the impact of the reform on the labour market and, if 
needed, to enact legal changes. 

While  no  systemic  measures  have  been  taken  to  address  the 
widespread  and  unprotected  student  work  available  to  pupils 
and students, student allowance for personal income tax was cut 
by one quarter in 2013. In addition, regulation of student work 
similar to other types of work is announced in the NRP without 
providing  details,  on  basis  of  an  announced  analysis  to  reduce 
labour market segmentation and prevent its abuses. 

The CSR has been partially implemented.  

A pilot project on how to evaluate labour market needs is being 
carried out at the Public Employment Service. The first results, 
which will be used as a basis for policy design, are expected for 
the second half of 2013. The newly-adopted Industrial Strategy 
labour  market  needs. 
could  also  be  used  for  assessing 
the  aim  of 
Additional  career  orientation  measures  with 
strengthening  the  human  resource  management  function  in 
small and medium size enterprises are also being implemented. 

38 

CSR  4:  Adjust  employment  protection 
legislation as regards permanent contracts in 
order to reduce labour market segmentation, 
in  consultation  with  social  partners  and  in 
accordance  with  national  practices.  Further 
tackle  the  parallel  labour  market  caused  by 
student work. 

CSR 5: Improve the matching of skills with 
labour  market  demand,  particularly  of  low-
skilled  workers  and  tertiary  graduates,  and 
continue  reforms  of  vocational  education 
and training. 

 
 
 
speed  up 

implementing 

CSR  6:  Take  further  steps  to  strengthen 
the 
market  opening 
and 
reorganisation  of  professional 
services. 
Improve  the  business  environment  through: 
the 
the 
(i) 
Competition 
(ii) 
Protection 
establishing  a  framework  for  state-owned 
enterprises 
arms-length 
guaranteeing 
management and high standards of corporate 
improving  bankruptcy 
governance 
procedures, 
terms  of 
timeliness and efficiency. 

(iii) 
in  particular 

reform  of 
Office 

in 

There  is  only  some  progress  in  addressing  the  skills  gap  in 
links  with  enterprises  have  not  been 
tertiary  education; 
strengthened.  Reforms  of  vocational  education  and  training 
show  limited  progress  and  the  role  of  employers  has  not  been 
strengthened. 

The CSR has been partially implemented.  

A reform of professional services has been launched mid-2012. 
An  inter-ministerial  group  was  setup  in  September  2012  to 
review regulated professions. A first set of laws in the field of 
craft,  tourism  and  construction  was  due  to  be  adopted  by 
Parliament early 2013. However, the reform is behind schedule 
except  for  the  craft  sector.  As  to  the  tourism  and  the 
construction  sectors,  the  adoption  of  revised  legislation  is  now 
tabled for June and end-September 2013, respectively. By end-
September 2013 Slovenia plans also to adopt revised legislation 
for a number of other activities and professions including those 
related  to  private  investigation,  real  estate  brokerage,  driving 
schools, lawyers and surveying activities. The revision of other 
sectors will follow in the second half of 2013 and in 2014. The 
swift de-regulation and a significant reduction of entry barriers 
are  of  importance  given  the  expected  positive  effects  on 
employment and competition. 

(i)  The  Competition  Protection  Agency  (CPA)  was  established 
on  January  1,  2013  and  replaced  the  previous  Competition 
Protection Office. Whilst additional staff was transferred to the 
CPA, the authority suffers from limited financial resources, also 
in light of budget cuts for 2013. Further measures are warranted 
to ensure its sufficient and autonomous financing. 

(ii) The government abolished the Agency on Managing Capital 
Assets  and  replaced  it  with  the  new  Slovenian  Sovereign 
Holding  (SSH).  The  new  holding  is  intended  to  consolidate 
management and ownership of all investments by the Republic 
of  Slovenia  and  the  state  funds  under  one  structure  and  allow 
for  privatisation  of  some  of  these  assets.  To  this  purpose,  the 
asset classification underpinning the privatisation strategy of the 
SSH  was  adopted  by  the  outgoing  government  in  early  2013, 
though  not  approved  by  parliament.  The  NRP  announces 
amendments to the SSH Act, in line with the 13 March coalition 
agreement,  to  withdraw  centralisation  of  ownership,  i.e.  while 
management of state assets would remain centralised under the 
SSH  the  ownership  would  be  dispersed  across  Republic  of 
Slovenia  and  various  funds.  These  amendments  risk  repeating 
the  slow  privatisation  outcomes  achieved  by  previous  state 
ownership structures over the years, such as the Capital Assets 
Management Agency (AUKN, the immediate predecessor of the 
SSH).  The  state’s  withdrawal  from  the  economy  is  important 
not  only  for  decreasing  debt,  but  also  for  ensuring  the  more 
efficient  performance  and  corporate  governance  of  companies. 
There  would  be  also  a  positive  impact  on  market  functioning 
and FDI. 

Insolvency 

Proceedings 

(iii)  The  government  adopted  an  amended  law  on  Financial 
Operations, 
and  Compulsory 
Dissolution Act (ZFPPIPP) in April 2013. The amendments aim 
at refining definition of insolvency and incentivise management 
to file for insolvency on time. However, further measures may 
be needed to improve enforcement of the legal obligation to file 
insolvency.  As  regards  compulsory  settlement,  main 
for 

39 

 
 
 
changes aim at strengthening the role of creditors, by modifying 
the  voting  rights,  improving  access  to  debtors’  documentation, 
and  facilitating  debt-to-equity  conversion  and  appointment  of 
new management. For micro companies, the draft law envisages 
fast-track 
settlement  procedures. 
Relevant  measures  have  been  announced  to  speed  up  and 
increase the efficiency of insolvency procedures such as falling 
price  ("Dutch")  auctions  and  regulation  of  mediation  for 
settlement of disputes arising from insolvency. 

simplified  compulsory 

The CSR has been partially implemented.  

The  government  has  cut  nominal  gross  wage  per  employee  in 
the public sector by around 3% in 2012 and agreed with social 
partners  to  cut  the  wage  bill  further  in  2013.  The  real  average 
wage  decreased  in  2012  compared  to  2011  while  the  nominal 
unit labour cost (NULC) registered a moderate positive growth 
in  2012  (0.7%)  due  to  negative  productivity  growth  (-1.1%). 
However,  until  Slovenia  can  sustain  NULC  growth  below  that 
of  its  trading  partners  it  will  not  repair  previous  cost-
competitiveness losses, especially from the 2007-2009 period. 

in  consultation  with  social  partners 

No  measure  has  been  taken  to  adapt  the  minimum  wage.  The 
NRP  announces  adjustments  in  the  minimum  wage  setting  in 
2013 
to  support 
competitiveness and fairness, however, no detailed measures are 
reported. There are strong built-in dynamics in both public and 
minimum  wages  that  could  reignite  adverse  trends  in  the 
coming years. Pressures on wages are expected to pick up once 
economic  growth  resumes  as  employees  seek  to  re-establish 
differentials  that  were  compressed  in  2010  by  a  hike  in 
minimum  wages  and  by  its  subsequent  inflation-indexation 
based increases. 

CSR  7:  Following  consultation  with  social 
partners  and  in  accordance  with  national 
practice, ensure that wage growth, including 
supports 
adaptation, 
minimum  wage 
competitiveness and job creation. 

Europe 2020 (national targets and progress) 

Employment rate target: 75% 

R&D target: 3% 

Greenhouse  gas  (GHG)  emissions  target: 
+4% (compared to 2005, ETS emissions are 
not covered by this national target 

The employment rate fell from 71.9% in 2009 to 68.4% in 2011 
and stagnated in 2012 (68.3%). Slovenia is moving away from 
the target. 

Spending  on  R&D  rose  significantly  from  2.11%  in  2010  to 
2.47% in 2011, so clear progress is being made towards the EU 
2020 target. 

Change  in  non-ETS  greenhouse  gas  emissions  between  2005 
and 2011: -1%. 

According  to  the  latest  national  projections  submitted  to  the 
Commission  and  based  on  existing  measures  GHG  emissions 
are  projected  to  increase  by  5%  (compared  to  2005)  by  2020, 
leading to a shortfall of the target by 1pp. 

Renewable energy target: 25% 

Share  of  renewable  energy  in  the  transport 
sector: 10% 

total  renewable  energy 

Share  of 
in  gross  final  energy 
consumption  was  18.8%  in  2011  and  2.1%  in  the  transport 
sector.  (Source:  Eurostat.  April  2013.  For  2011,  only  formally 
reported  biofuels  compliant  with  Art.  17  and  18  of  Directive 
2009/28/EC are included). 

40 

 
 
 
National  indicative  energy  efficiency  target 
for 2020: 10,809 GWh savings by 2020 

Early school leaving target: 5% 

Tertiary education target: 40% 

Slovenia has set an indicative national energy efficiency target 
in  accordance  with  Articles  3  and  24  of  the  Energy  Efficiency 
Directive (2012/27/EU). However, it has neither expressed it, as 
required,  in  terms  of  an  absolute  level  of  primary  and  final 
energy consumption in 2020, nor has it provided information on 
the basis on which data this has been calculated. 

Early  school  leaving,  measured  by  the  percentage  of  the 
population aged 18-24 with at most lower secondary education 
and not in further education or training, fell from 5.3% in 2009 
to  4.4%  in  2012.  Slovenia  is  the  best  achiever  in  terms  of 
preventing early school leaving. The target has been achieved. 

Tertiary  educational  attainment  rose  markedly  between  2009 
and  2012,  from  31.6%  to  40%.  The  target  has  therefore  been 
achieved. 

Target for reducing the population at risk of 
poverty  or  social  exclusion  (in  number  of 
persons): 40,000 

The  number  of  people  at  risk  of  poverty  or  social  exclusion, 
which  is  relatively  low  compared  to  the  EU  average,  rose 
markedly  between  2010  and  2011,  from  366 000  to  386  000. 
This indicates that Slovenia is moving away from the target. 

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.  ANNEX 

Table I. Macroeconomic indicators  

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

4.3
0.2
8.1
6.2
7.1
23.9
23.8

-3.4
22.0
n.a
43.1
46.5
2.2

3.7
0.8
6.9
3.1
6.4
24.7
24.6

-3.0
27.0
12.2
43.4
46.4
2.1

2.5
2.4
3.0
1.9
5.5
26.3
25.4

-2.2
26.6
9.0
43.0
45.2
1.3

1.2
-2.7
2.1
-0.2
7.3
20.1
20.6

-5.9
38.6
0.7
44.5
50.4
1.6

0.6
-1.5
2.1
-0.7
8.2
18.5
20.3

-6.4
46.9
-2.2
44.4
50.8
1.9

-2.3
-2.8
2.8
-5.7
8.9
17.4
19.7

-4.0
54.1
n.a
45.0
49.0
2.1

-2.0
-3.7
2.2
-4.5
10.0
16.7
20.4

-5.3
61.0
n.a
45.0
50.3
2.3

-0.1
-3.4
1.4
-1.2
10.3
16.8
20.4

-4.9
66.5
n.a
44.2
49.1
2.8

-1.6

-3.4

-6.3

0.6

2.1

2.1

4.6

4.0

n.a
n.a
9.5
18.0

n.a
n.a
10.8
17.3

n.a
n.a
9.2
17.6

n.a
n.a
15.4
14.5

-93.0
7.3
16.9
16.8

4.1
n.a
46.5
1.1
21.6
7.0

3.8
n.a
46.7
1.3
20.0
8.9

-118.6
6.3
12.3
17.8

-124.8
4.5
12.1
17.4

-113.4
3.9
18.3
18.7

4.8
74.3
47.1
0.7
21.1
8.9

5.3
73.8
44.9
1.1
19.4
10.3

4.9
67.9
45.7
1.6
21.0
10.3

4.1
70.0
46.3
0.9
21.6
7.7

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-0.3
46.3
1.0
-1.6
0.1
43.7
43.3
5.7
109.4
98.7
105.0

2.5
n.a
4.0
-1.3
-0.1
45.8
41.0
4.8
105.3
96.1
107.5

-0.2
45.5
1.2
-1.4
-0.3
45.0
42.0
5.2
107.9
97.1
106.7

-1.2
n.a
-1.9
0.5
0.0
47.5
38.7
5.6
102.4
100.9
87.7

-3.2
27.0
-0.6
-1.7
-0.2
46.0
41.6
6.7
103.3
100.3
105.9

5.2
n.a
7.3
-1.9
0.5
n.a
n.a
n.a
103.5
95.9
105.6

4.8
n.a
6.5
-1.5
0.0
n.a
n.a
n.a
104.8
96.2
107.6

-1.5
5.9
-0.9
-0.4
-0.3
47.2
40.1
5.5
98.0
101.3
91.1

6.1
n.a
45.7
1.2
22.3
8.9

5.4
n.a
46.0
1.2
22.2
8.1

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

42 

 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Private consumption (% change)

Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:

- Final domestic demand

- Change in inventories

- Net exports
Output gap1
Employment (% change)

Unemployment rate (%)

Labour productivity (% change)

HICP inflation (%)

GDP deflator (% change)

Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2012

2013

2014

2015

2016

COM SP

COM SP

COM SP

-2.3

-2.9

-9.3
0.3
-4.3

-3.7

-1.9

3.3

-2.8
-1.3

8.9

-1.1

2.8

0.4

-0.4
2.5

-2.3

-2.9

-9.3
0.3
-4.3

-5.6

-1.9

3.3

-2.7
-1.3

8.9

-1.1

2.6

0.4

-0.5
2.5

-2.0

-3.7

-4.9
1.3
-2.1

-3.5

-0.8

2.4

-3.7
-1.6

10.0

-0.3

2.2

1.4

0.1
4.8

-1.9

-4.0

-0.5
1.2
-0.7

-3.3

-0.2

1.4

-3.5
-1.6

10.0

-0.2

2.1

1.3

0.0
n.a.

-0.1

-1.9

0.1
3.2
2.0

-1.1

0.0

1.1

-3.4
-0.6

10.3

0.5

1.4

1.0

0.7
5.2

0.2

-1.3

0.8
3.3
2.4

-0.6

0.2

0.8

-2.7
-0.8

10.0

1.0

1.6

1.1

0.7
n.a.

SP

1.2

0.5

1.5
4.9
4.4

0.6

0.1

0.6

-1.3
0.0

9.4

1.2

1.9

1.8

2.1
n.a.

SP

1.6

1.0

1.5
5.3
4.9

1.0

0.1

0.7

0.3
0.2

9.1

1.5

2.0

1.9

2.6
n.a.

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source :

Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

43 

 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue

of which:

- Taxes on production and imports

- Current taxes on income, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

of which:

Compensation of employees

Intermediate consumption

Social payments

Subsidies

Gross fixed capital formation

Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures
GGB excl. one-offs

Output gap

2

Cyclically-adjusted balance

2

3
Structural balance (SB)
Change in SB

Two year average change in SB 

Structural primary balance
Change in structural primary balance

3

Expenditure benchmark

Applicable reference rate

4

5

Deviation
Two-year average deviation (% GDP)

 (% GDP)

2012

2013

2014

2015

2016

COM COM

45.0

45.0

14.6

7.7

15.5

7.3

49.0

14.6

7.6

15.3

7.5

50.3

SP

45.5

15.0

7.6

15.4

7.5

53.4

1
COM

44.2

14.5

7.5

15.1

7.1

49.1

SP

46.8

15.6

8.8

15.2

7.2

49.4

SP

45.8

14.7

8.7

15.0

7.4

47.9

SP

45.3

14.6

8.6

14.9

7.2

46.7

46.9

47.9

50.7

46.3

46.5

45.1

43.7

12.6

6.9

19.7

1.3

2.9

3.4

2.1

-4.0

-1.9
0.0

-4.0

-2.8

-2.7

-2.7

2.0

1.0

-0.6

0.63

-4.1

-1.6

12.3

6.7

20.4

1.3

3.3

4.0

2.3

-5.3

-2.9
-1.2

-4.1

-3.7

-3.6

-2.4

0.3

1.1

0.0

0.5

0.63

-2.9

-3.5

12.0

6.8

20.2

1.3

3.2

7.2

2.7

-7.9

-5.2
-3.7

-4.2

-3.5

-6.3

-2.6

0.1

1.0

0.1

0.7

0.63

1.5

-1.7

12.2

6.7

20.5

1.3

2.8

2.9

2.8

-4.9

-2.1
0.0

-4.9

-3.4

-3.3

-3.3

-0.9

-0.3

-0.5

-0.5

11.8

6.7

20.0

1.1

4.1

2.8

2.9

-2.6

0.3
0.0

-2.6

-2.7

-1.4

-1.4

1.2

0.7

1.5

1.4

11.5

6.5

19.6

1.0

3.7

2.9

2.8

-2.1

0.7
0.0

-2.1

-1.3

-1.5

-1.5

-0.1

0.5

1.3

-0.2

11.1

6.3

19.0

0.9

3.6

2.8

3.0

-1.4

1.6
0.0

-1.4

0.3

-1.5

-1.5

0.0

-0.1

1.5

0.2

-0.51

-0.51

-0.51

-0.51

-0.5

-1.7

-7.0

-2.8

0.5

-3.2

-0.2

0.2

Change: 
2012-2016

SP

0.3

0.0

0.9

-0.6

-0.1

-2.3

-3.2

-1.5

-0.6

-0.7

-0.4

0.7

-0.6

0.9

2.6

3.5
0.0

2.6

3.0

1.2

1.2

-

-

2.1

-

-

-

-

Notes:

1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

Source :

Stability programme (SP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

44 

 
 
 
 
Average
2007-2011

33.1

4.1

2.6

0.7

1.5

-0.2

-0.5

0.8

Table IV. Debt dynamics  

(% of GDP)

1
Gross debt ratio
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

5,6

Gap to the debt benchmark
7
Structural adjustment
To be compared to:
Required adjustment8

Notes:

2012

54.1

7.2

1.9

3.0

2.1

1.1

-0.2

2.3

2012

n.r.
n.r.

n.r.

2013

2014

COM

61.0

6.9

2.9

2.7

2.3

1.1

-0.8

1.3

SP

61.8

7.7

5.2

3.0

2.7

1.0

-0.7

-0.5

COM

66.5

5.4

2.1

2.2

2.8

0.0

-0.6

1.2

SP

63.2

1.4

-0.3

2.0

2.9

-0.1

-0.7

-0.3

2015
SP

63.2

0.0

-0.7

1.0

2.8

-0.7

-1.1

-0.3

2016
SP

61.8

-1.4

-1.6

0.9

3.0

-1.0

-1.1

-0.7

2013

2014

2015

2016

COM / 
3

SP
n.r.
n.r.

4

SP

n.r.
n.r.

COM / 
3

SP
n.r.
n.r.

4

SP

n.r.
n.r.

n.r.

n.r.

n.r.

n.r.

SP

n.r.
n.r.

n.r.

SP

n.r.
0.0

0.0

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years 
following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections for the previous years are achieved.

Source :

Stability programme (SP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

45 

 
 
 
 
 
Table V. Sustainability Indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

SI

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

8.6

1.7

6.9

4.8

0.8

1.0

0.2

4.2

2.4

0.4

1.4

6.5

-0.4

6.9

4.8

0.8

1.0

0.2

1.3

-0.5

0.2

1.6

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

0.23

54.1

23.8

:

87.0

25.8

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the sustainability gap 
under the assumption that the budgetary plans in the programme are fully implemented.
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.              
** The critical threshold for the S0 indicator is 0.44. 

Source : 
Commission services; 2013 stability programme.                                                                                                                               

(% of GDP)

140

Gross debt as % of GDP - SI - Medium term debt projections

120

100

80

60

40

20

0

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

COM no-policy change scenario
COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)
COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)
COM consolidation scenario (0.5% per year on SB) in order to achieve MTO
COM consolidation scenario (1% per year on SB) in order to achieve MTO
SCP scenario

46 

 
 
 
 
  
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

37.8

38.3

37.3

37.3

37.8

37.2

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

13.7

13.2

13.4

14.0

14.3

14.0

8.5

0.9

2.6

1.6

8.5

1.1

2.3

1.3

8.5

1.1

2.3

1.5

8.4

1.3

2.9

1.4

8.6

1.3

3.0

1.4

8.4

1.4

2.8

1.3

19.8

19.4

18.5

18.6

18.7

18.4

0.7

2.8

0.9

3.3

0.7

4.3

0.9

3.0

0.6

4.0

0.9

3.0

0.8

3.2

0.9

3.5

0.9

3.2

0.9

3.6

0.9

3.1

0.9

3.4

64.4

67.6

68.3

62.7

63.0

60.0

Note: 
1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.

2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

47 

 
 
 
 
Table VII. Financial market indicators 

2008

2009

2010

2011

2012

Total assets of the banking sector (% of GDP)

131.6

150.2

148.8

144.9

143.2

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1)
              - capital adequacy ratio (%) 1)
              - return on equity (%) 1)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities

Banks' exposure to countries receiving official financial assistance  (% of GDP)

Private debt (% of GDP)
Gross external debt (% of GDP)2)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

1) Latest data (September 2012).
2) Latest data 2012Q3.

59.1

30.8

4.2
11.7

8.1

17.3

23.0

162.8

2.7

…

84.6

10.0
37.6

0.6

…

59.7

29.1

5.8
11.7

3.9

2.3

16.0

159.0

4.5

…

91.6

18.5
38.8

1.2

…

59.3

…

8.2
11.3

-2.2

1.6

18.4

59.3

…

11.8
11.9

-11.7

-2.3

6.2

…

…

15.0
11.9

-2.5

-4.1

1.8

157.2

149.3

143.5

1.4

…

94.0

22.8
39.6

1.1

…

3.8

…

90.0

24.0
41.5

2.4

…

8.5

…

87.0

24.7
43.4

4.3

…

* M easured in basis points.

Source :

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

48 

 
 
 
Table VIII. Labour market indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

72.4

73.0

71.9

70.3

68.4

68.3

3.3

67.1

77.5

33.5

9.3

2.6

68.5

77.4

32.8

9.0

11.3

11.4

7.7

7.1

-1.8

67.9

75.6

35.6

10.6

13.2

8.4

-2.2

66.5

74.0

35.0

11.4

14.7

8.6

-1.6

64.8

71.8

31.2

10.4

13.3

7.9

-1.3

64.6

71.8

32.9

9.8

13.1

7.0

18.5

17.4

16.4

17.3

18.2

17.1

4.6

4.9

2.2

3.5

4.4

1.9

3.5

5.9

1.8

4.0

7.3

3.2

3.1

8.2

3.6

:

8.9

4.3

10.1

10.4

13.6

14.7

15.7

20.5

6.7

4.1

6.5

5.1

7.5

5.3

7.1

5.0

7.1

4.2

9.3

4.4

31.0

30.9

31.6

34.8

37.9

39.2

3.0

27.0

3.5

-0.8

4.3

1.9

2.6

-1.6

4.0

27.0

0.8

0.9

-0.1

2.9

6.4

2.1

4.0

4.0

3.0

27.0

33.0

34.0

-6.1

0.0

-6.1

-1.7

8.5

4.7

3.5

0.3

3.1

5.0

0.4

1.5

2.2

-1.6

3.9

0.6

-0.6

-1.6

:

:

-1.1

-0.6

-0.5

-0.8

0.7
0.3  

49 

 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

Notes:

2006

2007

2008

2009

2010

7.12

1.88

10.10

1.90

0.61

0.02

22.17

2.02

6.67

1.69

9.73

1.73

0.43

0.01

20.74

1.79

7.02

1.64

9.61

1.78

0.38

0.01

20.87

1.77

7.78

1.76

10.89

2.09

0.59

0.01

23.64

2.02

7.86

1.76

11.24

2.16

0.67

0.01

24.27

0.00

2007

2008

2009

2010

2011

17.1

14.7

22.4

11.5

5.1

7.2

4.7

18.5

15.3

24.4

12.3

6.7

6.7

5.1

17.1

15.1

23.3

11.3

6.1

5.6

4.8

18.3

15.2

22.8

12.7

5.9

6.9

5.3

19.3

17.3

24.2

13.6

6.1

7.6

6.0

50.2

46.5

48.6

47.5

43.8

5944

6299

6501

6376

6385

21359

22911

23060

23340

23663

19.4

19.3

20.2

20.2

19.9

1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).

2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

50 

 
 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

2003-
2007

4.1

6.9

4.4

3.6

2008

2009

2010

2011

2012

0.8

0.7

3.2

-6.1

3.5

-8.5

14.4

2.2

3.7

-1.1

0.7

-8.1

1.1

-3.4

n.a.

-6.5

-14.1

-9.2

1.2

-3.7

101.5

133.3

143.0

158.8

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007

1386

60

1.4

2008

2009

2010

2011

2012

1350

1290

1290

1290

19

1.7

6

1.9

6

2.1

6

2.5

26.5

30.9

31.6

34.8

37.9

1290

6
n.a.

39.4

5.63

5.20

5.66

5.66

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.5

0.9

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.7

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

51 

 
 
 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.29
0.81
1.53
n.a.
-3.9%
n.a.
n.a.
15.7%
8.4%

0.23
13.8
n.a.
n.a.
n.a.
n.a.
31.5%
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.25
0.71
1.64
n.a.
-4.7%
13
0.2
15.9%
8.0%

0.20
13.4
0.09
0.03
0.01%
0.01%
40.3%
43.7%
0.78
2.32

52.5%
0.25
0.24
10.0%

0.26
0.71
1.40
0.17
-6.3%
13
8
15.7%
8.1%

0.19
13.3
0.10
0.04
0.01%
0.02%
38.0%
41.4%
0.86
2.57

55.1%
0.23
0.26
11.0%

0.26
0.70
1.25
n.a.
-4.0%
12
-5.1
18.5%
9.6%

0.18
12.1
0.10
0.04
0.01%
0.02%
39.9%
41.5%
0.82
2.48

48.1%
0.25
0.25
14.2%

0.26
0.69
n.a.
0.18
-5.1%
14
11.5
18.3%
9.5%

0.18
n.a.
0.10
0.04
0.01%
0.02%
47.0%
41.7%
n.a.
n.a.

49.4%
0.21
0.24
14.6%

0.26
n.a.
n.a.
n.a.
-6.3%
14
7.8
n.a.
n.a.

n.a.
n.a.
0.10
0.05
0.03%
0.02%
n.a.
41.0%
n.a.
n.a.

48.3%
n.a.
0.24
13.0%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

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