COMMISSION STAFF WORKING DOCUMENT Country Report Slovenia 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Slovenia, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 89 final   COMMISSION STAFF WORKING DOCUMENT Country Report Slovenia 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}  
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Summary of the main findings from the MIP in-depth review 

4. 

Reform priorities 

4.1.  Public finances and taxation 

4.2. 

Financial sector 

4.3. 

Labour market, education and social policies 

4.4. 

Investment 

4.5.  Public administration 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key economic, financial and social indicators - Slovenia 

Summary Table in 2016 CSR assessment 

3.1.  MIP Assessment Matrix - Slovenia 2017 

4.1.1.  Cross-country comparison of some pension parameters 

4.2.1.  Financial soundness indicators, all banks 

B.1. 

The MIP scoreboard for Slovenia 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

1 

4 

10 

13 

17 

17 

29 

34 

39 

45 

48 

54 

55 

60 

9 

11 

15 

21 

29 

54 

55 

56 

57 

58 

59 

 
 
 
 
LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

1.7. 

1.8. 

3.1. 

GDP and contributions 

Differences in price growth between Slovenia and the euro area 

Price growth and confidence indicator 

Export market share (EMS) 

Real effective exchange rate based on ULC, IC-37 (a group of 37 industrial countries) 

Decomposition of external position (current and capital accounts) 

NIIP by sectors 

Decomposition of credit flows 

Decomposition of debt by sector 

4.1.1.  Gross debt % of GDP - DSA 

4.1.2.  Gross debt % of GDP - SGP and SCP scenarios 

4.1.3.  Net Theoretical Replacement Rates of pensions, for average earners, by career length, in 

%, in 2053 

4.1.4.  Number of all patients waiting for specific procedures and the share of patient waiting 

above threshold time 

4.1.5.  Waiting times for specific procedures 

4.1.6. 

The impact of the tax reform (by tax brackets) 

4.1.7. 

The impact of the tax reform (by wage decile) 

4.1.8. 

The impact of the tax reform on work incentives 

4.2.1.  Evolution of NPL categories 

4.2.2.  Net NPLs to own funds (%) 

4.2.3.  NFC funding 

4.3.1.  Employment rate, by age groups, 2015 

4.4.1.  Debt of non-financial corporations 

4.4.2.  Debt of households 

4.4.3.  Private and public investment 

4.4.4.  Contributions to potential growth 

4.4.5.  Barriers to FDI as seen by foreign businessmen 

4.4.6. 

Time and cost needed to obtain a building permit 

4.4.7.  Restrictiveness indicator: Slovenia and the EU weighted average (2016) 

LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in Slovenia 

4.2.1.  Selected highlight: reforms of the banking sector 

4.4.1. 

Investment challenges and reforms in Slovenia 

4.4.2.  Productivity 

4 

5 

5 

5 

6 

6 

7 

7 

14 

19 

19 

20 

24 

24 

26 

26 

27 

29 

29 

31 

34 

39 

39 

40 

40 

41 

42 

42 

12 

33 

43 

44 

 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Slovenia’s  economy  in  the 
light  of 
the  European  Commission’s  Annual 
Growth  Survey  published  on  16  November  2016. 
In the survey the Commission calls on EU Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy — boosting investment, pursuing structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should 
focus  on 
enhancing social fairness to deliver more inclusive 
growth.  At 
the  Commission 
published the Alert Mechanism Report (AMR) that 
initiated  the  sixth  round  of  the  macroeconomic 
imbalance  procedure.  The  in-depth  review,  which 
the  2017  AMR  concluded  should  be  undertaken 
for  the  Slovenian  economy,  is  presented  in  this 
report. 

the  same 

time, 

in  2016.  Economic  output 

The Slovenian economy continued to experience 
solid  growth 
is 
estimated to have expanded by 2.5 % in 2016, after 
a  2.3 %  growth  in  2015.  The  rebound,  which 
started  in  2014,  was  initially  driven  by  strong 
export  performance  supported  by  improved  cost 
competitiveness.  Subsequently,  the  recovery  has 
spread  as  private  consumption  has  picked  up, 
boosted  by  an  improving  labour  market,  rising 
consumer  confidence  and  continued  low  energy 
prices.  Growth  is  forecast  to  increase  to  3.0  %  in 
2017  and  2018,  and  remain  broad-based  with  a 
further  shift  from  external  to  domestic  demand. 
The  general  government  deficit  is  estimated  to 
have  decreased  to  2.0 %  of  GDP  in  2016  and  to 
decline further to 1.7 % in 2017 and 1.4 % in 2018. 
Public debt peaked at 83.1 % of GDP in 2015 and 
is projected to gradually decline to 76.7 % of GDP 
in 2018. 

The  positive  labour  market  and  social  trends 
continued into 2016. Over a quarter of the people 
who found employment in the first quarter of 2016 
were  either  long-term  unemployed,  low-skilled  or 
young.  However,  long-term  unemployment  is still 
above  pre-crisis  levels  and  represents  more  than 
half  of  all  people  who  are  unemployed.  Slovenia 
has  one  of  the  lowest  levels  of  income  inequality 
in the EU. In addition, the rate of people at risk of 
poverty  and 
to 
decrease. 

social  exclusion  continued 

indicative of how important the tradable sector has 
been  in  supporting  the  economic  recovery.  While 
the  economy  is  growing  at  a  solid  rate,  state-
owned  entities  have  underperformed  compared  to 
their  privately  owned  peers 
terms  of 
productivity  and  profitability.  Although  several 
important  state-owned  enterprises  have  been 
privatised  and  a  comprehensive  framework  to 
manage  state-owned  enterprises  has  been  put  in 
place, 
corporate 
governance  in  state-owned  enterprises  still  have 
some  negative  impact  on  private  investment  and 
growth.  

remaining  weaknesses  of 

in 

the 

2016 

further  delayed  and 

Overall,  Slovenia  has  made  some  progress  in 
addressing 
country-specific 
recommendations.  Limited  progress  has  been 
made  in  ensuring  the  long-term  sustainability  of 
public  finances.  The  appointment  of  the  Fiscal 
Council  has  been 
the 
amendments to the Public Finance Act still need to 
be  adopted  by  the  Parliament.  The  government 
published a white paper on pensions in April 2016, 
opening  a  wide  public  consultation  on  possible 
solutions for the new pension reform. The work on 
reforms  in  healthcare  has  yielded  some  progress 
with  proposals  to  reform  the  health  care  system 
now  in  public  consultation.  Work  on  long-term 
care  reform  is  advancing  with  limited  progress. 
Limited  progress  has  been  made  regarding  the 
employability of vulnerable groups. An action plan 
on  increasing  the  employment  rate  for  older 
workers  was  adopted.  Some  progress  has  been 
made  implementing  several  policy  measures  to 
enable  the  durable  reduction  of  non-performing 
loans  but  only  limited  progress  in  improving 
access to alternative financing sources for business 
with  relevant  instruments  still  in  preparation.  In 
addition,  revisions  to  the  legislative  framework 
the  corporate  restructuring 
further  reinforced 
capacity  of 
the  Bank  Asset  Management 
Company. Thus, overall, some progress was made 
on this recommendation. Some progress was made 
on  modernising  public  administration,  reducing 
administrative  burden  and  also  on  improving  the 
governance of state-owned enterprises. Concerning 
the  latter,  the  new  comprehensive  framework  for 
the  management  of  state-owned  enterprises  was 
implemented for the first time in 2016.  

Exporting  sectors  are  more  competitive  than 
sectors  dominated  by  state-owned  enterprises. 
The high and growing share of exports in GDP is 

Regarding progress in reaching the national targets 
under  the  Europe  2020  strategy,  Slovenia  has 
already achieved its national targets to reduce early 

1 

 
 
Executive summary 

available to small and medium-sized businesses 
but  their  access  to  alternative  financing  is  still 
limited.  This  could  help  to  diversify  funding 
sources  and  reduce  vulnerability  to  credit 
market  developments.  Lending  to  households 
turned positive in 2016. 

to  modernise  and 

  The  business  environment  is  improving  but 
continues to be an obstacle for more private 
investment.  Barriers  to  doing  business  are 
mainly  linked  to  the  public  administration 
inefficiencies  and  complex  and 
lengthy 
administrative  procedures,  especially  in  the 
field  of  construction  and  spatial  planning.  A 
strategy 
the 
efficiency  of  public  administration  is  being 
implemented with expected completion by end 
of  2017  or  shortly  after.  Private  investment  is 
increasing  but  remains  still  relatively  low  and 
public investment is strongly dependent on EU 
funds.  Private  investment  declined  sharply 
below  the  euro  area  average  during  the  crisis 
and  has  continued  to  decrease  since  then.  At 
the  same  time,  foreign  direct  investment  in 
Slovenia  has  grown  markedly  in  the  last  two 
years, partly supported by privatisation. 

increase 

  The performance of state-owned enterprises 
has  started  to  improve,  underpinned  by  a 
new corporate governance system, but risks 
remain.  The  profitability  of  state-owned 
enterprises  improved  in  2015,  albeit  falling 
short  of  the  intermediate  target  set  in  the 
management strategy. State ownership remains 
the  privatisation  programme 
high  despite 
implementation  of 
initiated 
professional  and  prudent  policies  on 
the 
management  of  state-owned  enterprises  are 
expected  to  reduce  contingent  liabilities  to  the 
general government budget from this area. 

in  2013.  The 

  A  prolonged 

recession 

coupled  with 
significant  bank 
recapitalisations  has 
resulted  in  a  sharp  rise  in  public  debt  in 
recent years. While the government deficit has 
been reduced and is no longer excessive, fiscal 
consolidation  measures 
recent  years, 
particularly on the expenditure side, have been 
of  a  temporary  nature.  The  fiscal  framework 
reform, which provides an important anchor for 
sustainable  public  finances,  is  yet  to  be  fully 
implemented.  

in 

school leaving and to increase tertiary educational 
attainment.  Poverty  and  social  exclusion  declined 
in 2015. However, the number of people at risk of 
poverty  or  social  exclusion  is  still  considerably 
higher  than  the  intended  target.  While  Slovenia 
appears to be on track to achieve its national target 
for renewable energy and greenhouse gas emission 
by  2020,  additional  efforts  would  be  needed  to 
reach the national target regarding the employment 
rate  and  to  remain  on  track  towards  the  energy-
efficiency target. In 2015, Slovenia moved further 
away from its R&D intensity target. 

findings  of 

The  main 
review 
contained  in  this  report,  and  the  related  policy 
challenges, are as follows:  

in-depth 

the 

  Risks 

to 

external 

sustainability  have 
receded.  Gains  have  been  recorded  in  price 
and cost competitiveness and in export market 
shares.  After  the  peak  in  2015,  the  current 
account  surplus  remained  high,  at  7.4 %  of 
GDP  in  2016  and  net  external  liabilities 
continued to decrease below 40 % of GDP. As 
domestic  demand  gradually  strengthens,  the 
current account surplus is expected to decrease 
but remain high in the medium term. Although 
it  is  already  at  a  moderate  level,  the  country's 
negative  net  international  investment  position 
is expected to improve further. 

  The  profitability  of  the  banking  sector  has 
continued  to  improve,  due  to  increasing 
asset  prices  and  better  risk  management.  
Banks are well capitalised, with solvency ratios 
above  EU  average,  and  have  access 
to 
sufficient  liquidity.  All  banks  are  profitable; 
however the recent increase in net income is in 
large part due to a release of loan loss reserves 
that  were  built  up  over  previous  years.  Non-
performing  loans  have  declined  substantially 
and  are  expected  to  decline  further,  although 
they remain high.  

  Pressures to reduce debt have started to ease 
and external financing for firms is becoming 
more  available.  While  household  debt  is 
among  the  lowest  in  the  EU,  corporate debt  is 
much  higher.  The  corporate  sector  has 
considerably  reduced  its  debt  ratio  since  its 
peak in 2010 and is expected to continue to do 
so. Debt instruments are becoming increasingly 

2 

 
 
  Population 

puts 

ageing 

considerable 
pressure on the long-term sustainability and 
adequacy  of  the  pension  system.  Despite  the 
2012  pension  reform,  major  long-term  risks 
remain.  Slovenia  has  a  very  strong  projected 
impact  of  age-related  public  spending 
in 
particular  for  pensions.  Workers  with  shorter 
careers  and  longer  career  breaks  can  expect 
income  adequacy  problems 
in  old  age. 
Currently,  a  new  pension  reform  is  under 
preparation.  

care 

health 

insurance, 

the  single 

insurer 
and 

system,  management 

  The  authorities  presented  the  proposals  to 
reform  the  health  care  system  while  the 
reform  of  long  term  care  has  been  delayed. 
A  central  piece  of  health  care  legislation  is  in 
public  consultation.  It  presents  an  important 
step towards reforming the health care system. 
The  major  changes  concern  funding  of  the 
and 
health 
for 
responsibilities  of 
compulsory 
the 
contracting process with health care providers. 
In addition, the authorities aim to prepare act to 
improve  governance  and  performance  of 
hospitals.  Remaining 
concern 
primary care as a gatekeeper for in-patient care, 
hospital  payment  systems,  health  technology 
information  systems.  In 
assessments,  and 
addition,  the  benefits  from  centralised  public 
procurement  of  medical  products  and  services 
remain  largely  untapped.  The  accompanying 
long-term care reform, which aims to achieve a 
sustainable,  high  quality  and  affordable  care 
system has been delayed.  

challenges 

Other key economic issues analysed in this report 
facing 
which  point 
Slovenia’s economy are as follows: 

to  particular  challenges 

  The  improving  labour  market  offers  an 
opportunity  to  provide  employment  for 
older  workers.  After  five  years  of  rising 
unemployment, the trend reversed in 2014 and 
the  labour  market  conditions  have  improved 
further  since  then.  Nevertheless,  structural 
challenges  in  the  labour  market  remain.  Long-
term  unemployment 
the 
employment rate of older workers is the lowest 
in the EU. In view of the rising labour demand 
and  labour  becoming  increasingly  scarce  there 
is an opportunity to increase the labour market 

is  high 

and 

Executive summary 

participation  of  older  workers.  This  is  also 
relevant in the context of the current discussion 
on the future pension reform. 

3 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

The  Slovenian  economy  expanded  steadily  in 
2016. GDP growth of an estimated 2.5 % in 2016 
was  driven  by  rising  exports  and  consumption, 
showing resilience despite a significant contraction 
in  public  investment.  It  is  the  third  year  of 
consecutive  growth  above  2%,  following  double-
dip  recession  between  2008  and  2013  which 
caused  a  cumulative  loss  of  more  than  9 %  of 
GDP.  Strong  export  performance,  boosted  by 
initial 
improved  competitiveness,  drove 
recovery,  later  supported  by  the  strengthening  of 
domestic demand. Private consumption and private 
investment grew strongly in the first half of 2016, 
supported  by  an  improving  labour  market,  rising 
consumer  confidence  and  persistently  low  energy 
prices.  Overall  investment  contracted,  caused  by 
large  fall 
investment.  Government 
consumption  continued  to  contribute  positively  in 
2016, after falling in 2010-2014 period.  

in  public 

the 

Graph 1.1:  GDP and contributions 

Source: European Commission, 2017 winter forecast 

Momentum  in  economic  growth  is  expected  to 
be maintained. Real GDP is projected to grow by 
3.0 % in 2017 and 3.0 % in 2018 according to the 
Commission’s  2017  winter  forecast  (Graph  1.1). 
Private 
rising 
employment  and  increased  wages,  is  set  to  be  the 
principal  contributor  to  growth.  Both  private  and 
public  investments  are  expected  to  contribute  to 
GDP growth in 2017 and 2018. Private investment 
growth  is  expected  to  be  significantly  higher  than 

consumption, 

supported 

by 

public,  in  part  due  to  the  delayed  rebound  in  EU 
funding. Wages are expected to further increase in 
2017  and  2018,  mostly  due  to  the  reversal  of 
certain consolidation measures in the public sector. 
Exports  growth  is  expected  to  stay  resilient, 
although  exports  could  be 
the 
slowdown  of  demand  in  trading  partners.  The 
contribution  of  net  exports  to  GDP  growth  is 
forecast  to  fall,  as  rising  domestic  demand  fuels 
imports. 

impacted  by 

in  supporting 

the  economic 

the  economy 

Export  firms  are  driving  the  recovery,  while  a 
significant  part  of 
is  not 
contributing  to  the  growth.  The  high  and 
growing percentage of GDP represented by exports 
indicates  how  important  the  tradable  sector  has 
been 
recovery. 
Although  growing  at  a  solid  rate,  a  major  part  of 
the  economy,  namely  state-owned  firms  and  the 
sectors  that  they  dominate  is  not  adequately 
contributing  to  the  recovery.  Negative  spill-overs 
from  the  high  level  of  state  involvement  in  the 
economy  and  inefficient  corporate  governance  in 
state-owned firms distort resource allocation, harm 
the  business  environment  and  hamper  overall 
investment. Exporting companies started to borrow 
again  in  2014,  while  firms  in  the  non-tradable 
sectors continue to reduce debt. This is reflected in 
the  still  contracting  corporate  credit  growth  as 
exporters have access to loans at better conditions 
from abroad. 

Inflation  

Inflation  in  Slovenia  in  the  past  two  years  was 
among  the  lowest  in  the  euro  area.  Headline 
inflation  (HICP)  has  been  decreasing  since  mid-
2013 and slipped into deflation in December 2014. 
For  almost  two  years  the  growth  in  prices  was 
lower than in the euro area (Graph 1.2). The fall in 
global  oil  prices  had  a  stronger  effect  on  the 
Slovenian  headline  inflation,  due  to  the  higher 
weight  of  energy  in  the  consumer  basket.  The 
historically  low  core  inflation  was  due  to  weak 
domestic demand.  

4 

-15-10-50510010203040506070809101112131415161718%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth 
 
 
1. Economic situation and outlook 

Graph 1.2:  Differences in price growth between Slovenia 

Graph 1.3: 

Price growth and confidence indicator 

and the euro area 

Source: European Commission 

Low inflation supported real disposable income. 
The inflation rate was negative at -0.2 % in 2016, 
after  -0.8 %  in  2015.  However,  prices  started  to 
recover in the second half of 2016 due to, rebound 
in oil prices and private demand. The latter reflects 
the growth of real disposable incomes as a result of 
the 
higher 
employment and increasing public sector wages. 

labour  market 

improvement, 

Inflation is expected to pick up gradually in the 
coming  years.  Recovery  of  both  oil  and  other 
commodity  prices  is  expected  to  increase  their 
contribution  to  the  headline  inflation.  In  addition, 
increase in wages and consequent rise in domestic 
demand are expected to put some pressure on price 
growth and bring inflation closer to the position of 
Slovenia in the business cycle. However, inflation 
might slow down due to structural changes arising 
from  technological  innovations,  new  shopping 
behaviours  and  demographic  trends  in  the  long 
run.  

Source: European Commission, 2017 winter forecast 

Graph 1.4: 

Export market share (EMS) 

Source: Eurostat 

Competitiveness and external position 

to 

improve. 
continued 
Competitiveness 
Following  five  years  of  market  share  losses, 
Slovenia  gained  2.3 %  of  export  market  shares  in 
2013,  3.9 %  in  2014  and  0.4 %  in  2015  (Graph 
1.4).  This  increase  was  mainly  driven  by  gains  in 
exports  of  manufactured  goods.  Rebalancing  the 
economy  towards  tradable  sectors  and  improved 
cost competitiveness have been the key underlying 
factors.  Real  effective  exchange  rates  (Graph  1.5) 
deflated  by  nominal  unit  labour  costs  decreased 
significantly in the last two years. Competitiveness 

5 

-1.5-1.0-0.50.00.51.01.52.001-Jan-1301-Apr-1301-Jul-1301-Oct-1301-Jan-1401-Apr-1401-Jul-1401-Oct-1401-Jan-1501-Apr-1501-Jul-1501-Oct-1501-Jan-1601-Apr-1601-Jul-1601-Oct-16unprocessed foodprocessed foodother goodsenergyservicesHICP% and pps.-45-40-35-30-25-20-15-10-50-2-10123412131415161718Energy and unprocessed food (pps., lhs.)Core inflation (other components, pps., lhs.)HICP (lhs.)Consumer confidence, balance (rhs.)% and pps.forecast-15-10-5051001020304050607080910111213141516Rate of change y-o-y (%)Contribution to EMS: goodsContribution to EMS: servicesExport market share growth yoy 
 
 
 
 
1. Economic situation and outlook 

improved  due  to  both  productivity  gains  and 
continued wage moderation. 

Graph 1.6:  Decomposition of external position (current 

and capital accounts) 

Graph 1.5: 

Real effective exchange rate based on ULC, 
IC-37 (a group of 37 industrial countries) 

Source: Eurostat 

Source: Commission services (AMECO) 

After  peaking  in  2015,  the  current  account 
surplus  stayed  high  in  2016,  supported  by 
strong export performance (Graph 1.6). Services 
have traditionally been a positive contributor to the 
trade balance. However, the recent increase in the 
trade  balance  surplus  was  mainly  driven  by  the 
rapidly  increasing  surplus  in  goods,  which  was 
supported  by  favourable  terms  of  trade,  high 
growth  in real exports and  subdued  import  due  to 
sluggish  domestic  demand  prior  to  2016.  Both 
goods  and  services  balances  have 
reached 
historically  high  levels.  As  domestic  demand 
gradually  strengthens,  it  is  expected  that  the 
current  account  balance  will  start  falling  but  will 
remain  in  significant  surplus  in  the  medium  term. 
The  primary  income  deficit  might  deteriorate  due 
to  higher  dividend  payments  to  foreign  owners  of 
non-financial  corporations  while  the  secondary 
income  balance  is  expected  to  remain  stable.  The 
main  underlying  reason  for  the  high  current 
account  surplus 
that  Slovenian  companies 
continue  to  deleverage  and  retain  cash  balances 
them  (see  Section  4.4 
instead  of 
Investment). 

investing 

is 

international 

is  gradually 

investment  position 
The  net 
(NIIP) 
improving.  The  NIIP 
worsened  during  the  crisis,  hitting  a  trough  of  -
49.9 % of GDP in 2012. The trend was reversed in 
2013,  reflecting  the  adjustment  in  the  corporate 
sector  behaviour.  It  is  expected  that  the  NIIP  will 
continue  to  improve  in  the  coming  years.  Thus, 
risks  to  the  external  position  are  reduced.  The 
structure  of  the  NIIP  has  changed.  The  monetary 
and 
significantly 
reduced their net foreign liabilities since the height 
of the crisis, while the general government position 
had  worsened  until  2015.  The  government’s  net 
borrowing,  apart  from  financing  the  deficit,  was 
used mainly to recapitalise banks. 

institutions  have 

financial 

6 

7080901001101201301401500001020304050607080910111213141516*17*1999=100SIEA19EU28-15-10-5051015990001020304050607080910111213141516*'% of GDPCapital account (KA)Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA) 
 
 
1. Economic situation and outlook 

Graph 1.7:  NIIP by sectors 

Graph 1.8:  Decomposition of credit flows 

Source: Eurostat 

Financial sector 

Financial  sector  assets  contracted  in  2015, 
driven  by  further  deleveraging  in  the  private 
sector. The financial sector has yet to fully benefit 
from  the  improvement  in  the  macroeconomic 
condition despite several encouraging signals, such 
as  the  banking  sector's  return  to  profitability  and 
the positive trend in demand for new loans. While 
net  credit  flows  remain  negative  for  corporations 
(Graph  1.8),  the  pace  of  credit  contraction  has 
diminished  and  households’  credit  flows  turned 
positive in 2015. Subdued lending to non-financial 
corporations is also linked to the high level of state 
involvement in certain sectors of the economy. It is 
also  affected  by  the  high  level  of  corporate  non-
performing loans on banks’ balance sheets and the 
ongoing  financial  and  operational  restructuring  in 
the corporate sector. However, the capitalisation of 
the  banking  sector  has 
the 
decrease in the percentage of non-performing loans 
loans 
has  gained  momentum  Non-performing 
(NPLs) have declined from 14.2 % in June 2015 to 
9.1 % in September 2016 and the trend is expected 
to continue (Section 4.2).   

improved  while 

Source: Eurostat 

Labour market and social developments 

The  better  macroeconomic  conditions  help  the 
labour  market.  The  increase  in  employment  and 
the  decrease  in  unemployment  seen  in  2015 
continued  in  the  first  half  of  2016  with  more 
people  finding  work  than  becoming  unemployed. 
In  the  first  half  of  2016,  5.9 %  of  unemployed 
moved  into  employment,  of  whom  13.8  %  were 
long-term  unemployed,  7.6 %  low  skilled and 5.1 
%  young.  The  employment  rate  (in  20-64  age 
group)  increased  by  0.2  pps  from  Q3  2015  to  Q3 
2016.  The  increase  was  most  significant  for  the 
age-group  25-29  (4.3  pps).  Manufacturing  was 
particularly  strong  while  the  only  sectors  not  to 
witness 
increase  were 
construction,  insurance,  and  financial  services. 
Despite  declining  in  the  first  half  of  2016,  long-
term unemployment still represents more than half 
of  all  unemployed.  It  is  still  more  than  10  pps 
(55.2% in Q2 2016) higher than before the crisis.  

employment 

an 

Income inequality remains among the lowest in 
the EU despite its increase during the recession. 
In  2015  income  inequality  started  to  decline; 
however it remained above the pre-crises level. (1)  

(1)  As  measured  by  the  Gini  coefficient  and  by  the  income 
quintile  share  ratio.  The  Gini  coefficient  takes  values 
between  0  and  100  with  higher  values  indicating  a  higher 
degree  of  income  inequality.  The  income  quintile  share 
ratio  (80/20)  is  the  ratio  of  total  income  received  by  the 
20%  of  the  population  with  the  highest  income  to  that 
received  by  the  20%  of  the  population  with  the  lowest 
income. 

7 

-200-150-100-5005010015008Q2'09Q210Q211Q212Q213Q214Q215Q216Q2Assets & liabilities, % of GDPLiabilities, Private sectorAssets, Private sectorLiabilities, MFI (excl central bank)Assets, MFI (excl central bank)Liabilities, General GovernmentAssets, General GovernmentLiabilities, Central Bank (incl reserves)Assets, Central Bank (incl reserves)Net int'l investment position (NIIP)-15-10-50510152025300304050607080910111213141516% of GDPFinancial corporationsHouseholdNon financial corporationsGovernmentMIP ThresholdPrivate sector 
 
 
 
                                                           
1. Economic situation and outlook 

the  structural  deficit 

receipts.  Conversely, 
is 
expected  to  worsen  and  remains  above  the  euro 
area  average  (Section  4.1).  Public  debt  almost 
quadrupled from 2008 to 2015, but after peaking in 
2015 at 83.1% of GDP it is expected to decrease in 
the coming years. 

Specifically, the Gini coefficient of equivalised (2) 
disposable  income  remains  well  below  the  EU 
average at 24.5 in 2015 (EU: 30.9), even though it 
increased  by  1.8pps  over  2007  -  2014.  Similar 
developments  are  shown  by  the  income  quintile 
share  ratio  (80/20).  By  contrast,  net  wealth  (3)  is 
not as equally distributed as income, but is within 
the range observed in other EU countries for which 
data were collected in 2013-2014 (ECB 2016). 

The tax and benefit system further reduces the 
already 
income 
low  degree  of  market 
inequality.  Specifically,  the  Gini  coefficient  on 
market  income  (before  taxes  and  social  transfers) 
is  in  the  EU  bottom  quartile.  After  taxes  and 
transfers,  the  Gini  coefficient  drops  to  a  level 
which is among the lowest in the EU.   

The  elderly  are  at  the  highest  risk  of  poverty. 
The at-risk-of-poverty rate for elderly people over 
65  years  old  is  above  the  EU  average  before  and 
after  social  transfers  (including  pensions). Almost 
16%  of  them  are  at  a  persistent  risk  of  poverty, 
which is among the highest in the EU. (4)  The at-
risk-of-poverty  rate  for  the  age  group  55  to  64 
years is also among the highest in the EU due to its 
low employment rate (see Section 4.3). 

Public Finances 

General  government  deficit  and  debt  are 
projected  to  improve  gradually  reflecting  the 
favourable  macroeconomic  outlook.  Slovenia 
has taken welcome steps in recent years to reduce 
the deficit and improve the sustainability of public 
finances.  The  deficit  decreased  considerably  from 
2013  (-15  %  of  GDP)  to  2015  (-2.7  %  of  GDP), 
and  is  expected  to  decrease  to  -2.0  %  of  GDP  in 
2016.  The  general  government  deficit  is  expected 
to decline further to 1.7 % of GDP in 2017, mainly 
due  to  buoyant  tax  and  social  contributions 

(2)  The  total  disposable  household  income  is  "equivalised"  to 
take  into  account  differences  in  household  size  and 
composition.  The  equivalised  income  attributed  to  each 
member of the household is calculated by dividing the total 
disposable  income  of  the  household  by  the  equivalisation 
factor.  This  indicator  gives  a  weight  of  1.0  to  the  first 
person  aged  14  or  more,  a  weight  of  0.5  to  other  persons 
aged 14 or more and a weight of 0.3 to persons aged 0-13. 

(3)  Difference between total assets and total liabilities. 
(4)  The  at-persistent-risk-of-poverty  rate  is  defined  as  the 
percentage  of  the  population  living  in  households  where 
the  equivalised  disposable  income  was  below  the  at-risk-
of-poverty  threshold  for  the  current  year  and  at  least  two 
out of the preceding three years. 

8 

 
                                                           
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators - Slovenia 

(1) Sum of portfolio debt instruments, other investment and reserve assets. 
(2,3) domestic banking groups and stand-alone banks. 
(4) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
(*) Indicates BPM5 and/or ESA95 

Source: European Commission,  ECB 

9 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)4.9-7.81.20.6-2.7-1.13.12.32.53.03.0Private consumption (y-o-y)3.00.91.30.0-2.5-4.02.00.52.73.22.9Public consumption (y-o-y)3.12.4-0.5-0.7-2.2-2.1-1.22.52.31.51.9Gross fixed capital formation (y-o-y)7.6-22.0-13.3-4.9-8.83.21.41.0-4.55.36.4Exports of goods and services (y-o-y)11.3-16.610.26.90.63.15.75.66.44.34.7Imports of goods and services (y-o-y) 10.9-18.86.85.0-3.72.14.24.66.14.95.5Output gap3.9-3.2-2.6-2.2-4.8-5.7-3.2-1.7-0.31.32.7Potential growth (y-o-y)3.61.50.60.2-0.1-0.20.50.81.01.31.6Contribution to GDP growth:Domestic demand (y-o-y)4.2-5.6-2.7-1.2-3.6-2.11.20.90.92.93.1Inventories (y-o-y)0.5-4.01.90.6-2.00.20.60.40.70.00.0Net exports (y-o-y)0.11.92.01.33.00.81.41.10.80.1-0.1Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.10.1-0.1-0.2-0.1-0.30.20.20.30.20.2Capital accumulation (y-o-y)1.80.80.20.0-0.3-0.2-0.2-0.2-0.3-0.10.1Total factor productivity (y-o-y)1.60.60.50.40.40.40.50.71.01.21.3Current account balance (% of GDP), balance of payments-3.2-0.6-0.10.22.64.86.25.2...Trade balance (% of GDP), balance of payments-1.01.91.31.24.06.87.79.1...Terms of trade of goods and services (y-o-y)-0.83.5-4.0-1.4-1.10.81.01.31.9-1.0-0.2Capital account balance (% of GDP)-0.30.00.1-0.20.10.50.41.0...Net international investment position (% of GDP)-20.0-43.6-47.2-45.2-49.9-46.6-44.2-38.7...Net marketable external debt (% of GDP) (1)-18.8*-43.2-46.9-41.7-44.7-41.5-36.7-29.0...Gross marketable external debt (% of GDP) (1)78.1110.0110.3105.0110.5107.6114.9107.5...Export performance vs. advanced countries (% change over 5 years)34.118.86.42.8-11.5-10.5-5.9-1.53...Export market share, goods and services (y-o-y)3.2-2.6-9.9-1.7-7.22.63.7-0.8...Net FDI flows (% of GDP)0.41.4-0.3-1.7-1.3-0.1-1.6-3.2...Savings rate of households (net saving as percentage of net disposable income)9.37.76.15.42.85.45.46.9...Private credit flow, consolidated (% of GDP)14.32.92.00.4-2.8-4.1-4.8-5.1...Private sector debt, consolidated (% of GDP)85.6113.5115.2113.0112.5108.298.287.3...of which household debt, consolidated (% of GDP)21.328.530.430.030.930.028.527.8...of which non-financial corporate debt, consolidated (% of GDP)64.385.084.883.081.678.269.759.5...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.40.61.32.33.013.06.83.62.73.02.4Corporations, gross operating surplus (% of GDP)19.418.618.318.618.218.819.719.920.521.221.3Households, net lending (+) or net borrowing (-) (% of GDP)4.45.14.64.63.76.14.85.67.46.66.2Deflated house price index (y-o-y)10.5-10.3-1.30.9-8.2-6.0-6.61.5...Residential investment (% of GDP)3.93.83.12.82.52.42.22.3...GDP deflator (y-o-y)3.13.4-1.01.10.30.90.81.01.41.01.9Harmonised index of consumer prices (HICP, y-o-y)3.60.92.12.12.81.90.4-0.8-0.21.12.3Nominal compensation per employee (y-o-y)6.51.84.01.5-1.00.51.31.42.02.23.6Labour productivity (real, person employed, y-o-y)3.3-6.13.42.4-1.80.02.71.2...Unit labour costs (ULC, whole economy, y-o-y)3.18.50.6-0.80.80.4-1.30.30.70.31.7Real unit labour costs (y-o-y)-0.15.01.6-1.90.5-0.4-2.1-0.7-0.7-0.7-0.2Real effective exchange rate (ULC, y-o-y)0.75.7-0.9-1.3-2.10.7-1.7-1.9-0.1-0.80.0Real effective exchange rate (HICP, y-o-y)0.02.3-2.6-0.8-1.21.31.0-1.80.4-2.3.Tax rate for a single person earning the average wage (%)34.232.933.133.233.333.133.333.3...Tax rate for a single person earning 50% of the average wage (%)28.3*24.422.722.922.922.822.923.0...Total Financial sector liabilities, non-consolidated (y-o-y)18.64.7-2.5-2.1-3.4-10.16.1-2.2...Tier 1 ratio (%) (2).8.98.38.89.112.918.919.3...Return on equity (%) (3).-0.1-5.4-16.9-28.3-121.9-2.95.1...Gross non-performing debt (% of total debt instruments and total loans and advances) (4)....19.217.116.613.3...Unemployment rate5.65.97.38.28.910.19.79.07.97.06.2Long-term unemployment rate (% of active population)2.71.83.23.64.35.25.34.7...Youth unemployment rate (% of active population in the same age group)13.313.614.715.720.621.620.216.315.8..Activity rate (15-64 year-olds)70.971.871.570.370.470.570.971.8...People at risk of poverty or social exclusion (% total population)17.817.118.319.319.620.420.419.2...Persons living in households with very low work intensity (% of total population aged below 60)7.45.67.07.67.58.08.77.4...General government balance (% of GDP)-1.2-5.9-5.6-6.7-4.1-15.0-5.0-2.7-2.0-1.7-1.4Tax-to-GDP ratio (%)37.636.737.437.037.437.337.037.136.736.535.9Structural budget balance (% of GDP)..-4.4-4.6-1.8-1.8-2.4-1.8-1.9-2.1-2.6General government gross debt (% of GDP)24.834.638.446.653.971.080.983.180.978.976.7forecast 
 
 
 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

with 

implementing 

the 
Progress 
recommendations  addressed  to  Slovenia 
in 
2016 (5)  has  to  be  seen  as  part  of  a  progress 
which  started  with  the  introduction  of  the 
European Semester in 2011. Since then, Slovenia 
has  been  recommended  to  improve  the  long-term 
sustainability  of  its  pension  system.  While  a 
comprehensive pension reform has been prepared, 
it  was  outvoted  in  a  referendum  in  June  2011.  A 
parametric  pension  reform  was  adopted  in  2012 
but  the  revisions  do  not  safeguard  the  system's 
sustainability  post-2025.  Therefore  the  Council 
recommended adopting  the  necessary  measures  to 
ensure  the  long-term  sustainability  and  adequacy 
of the pension system by the end of 2017.   

Measures  have  been  adopted  to  improve  the 
employability of low skilled and older workers. 
the  Council  has 
Since  2011 
recommended 
the  employability  of  
increase 
to 
measures 
low-skilled  and  older  workers.  The  2013  labour 
market  reform  and  targeted  active  labour  market 
policies 
employment 
opportunities  for  older  and  low-skilled  workers, 
but their participation rate remains low.   

somewhat 

increased 

There  have  been  some  important  reforms  to 
reduce  the  weaknesses  in  the  banking  sector. 
The  situation  in  the  banking  sector  has  been 
severely  affected  by  the  crisis.  Consequently 
Council  recommendations  in  2013-14  have  been 
focused on this sector, including (i) the conduct of 
a  system-wide  bank  asset  quality  review,  (ii)  the 
transfer  of  assets  to  the  Bank  Asset  Management 
Company,  (iii)  the  improvement  of  governance 
and  risk  management  and  (iv)  the  privatisation  of 
state-owned banks. Since 2014 the banking sector 
has  stabilised.  Nonetheless,  although  gradually 
decreasing,  non-performing  loans  were  still  high 
compared 
the 
recommendation  to  enable  the  durable  resolution 
of  non-performing  loans  has  been  maintained  in 
2016.  

pre-crisis 

levels 

and 

to 

In  2013-14 

owned  enterprises 
the 
(SOEs). 
Commission's  analysis  concluded  that  the  high 
level  of  state  involvement  combined  with  weak 
corporate  governance  was  hampering  investment 
and growth and has spill over effects to the private 
sector.  While 
corporate 
governance system for state-owned enterprises has 
been  put  in  place  over  the  last  years,  its  effective 
implementation  will  be  essential.  After  the  initial 
progress  which  led  to  full  deregulation  of  40 
professions in the crafts sector and 4 in culture, the 
reforms slowed down and have not been finalised 
as initially planned.  

comprehensive 

a 

the 

to  ensure 

Overall, Slovenia has made some (6) progress in 
country-specific 
2016 
addressing 
recommendations.  Limited  progress  has  been 
made  to  reduce  fiscal  risks  and  sustain  public 
finances  (CSR  1).  The  appointment  of  the  Fiscal 
Council  and  the  revisions  to  the  Public  Finance 
Act  has  been  further  delayed.  The  pension  and 
long-term  care  reforms 
long-term 
sustainability  are  in  the  preparation  phase,  while 
the central act of the healthcare reform is in public 
consultation.  Limited  progress  can  be  observed  in 
addressing  the  employability  of  low-skilled  and 
older workers (CSR 2). An action plan to increase 
the  labour  market  activity  of  older  workers  was 
adopted. Some progress has been made to improve 
financing  conditions  for  creditworthy  business 
(CSR  3).  Limited  new  financial  instruments  were 
offered  to  SMEs  to  improve  their  access  to 
the 
alternative  equity  financing  sources  and 
authorities  initiated  several  measures  to  facilitate 
the  durable  reduction  of  non-performing  loans. 
Some  progress  has  been  made  to  reduce  the 
administrative  burden  on  business,  modernise 
public administration, and improve the governance 
of  state-owned  enterprises  (CSR  4).  While  the 
public  administration  action  plan 
is  slowly 
progressing,  some  specific  measures  have  been 
substantially  delayed.  The  new  comprehensive 
framework  for  the  management  of  state-owned 
enterprises was implemented for the first time. 

The  Slovenian  authorities  have  taken  some 
action  to  improve  the  business  environment. 
Specifically, 
reduction  of  administrative 
burden,  the  restriction  of  barriers  to  regulated 
professions,  and  better  governance  of  the  state-

the 

(5)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 4. 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

10 

 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary Table in 2016 CSR assessment 

* This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission. 

11 

Slovenia Overall assessment of progress with 2016 CSRs:  Some progress CSR 1*: Following the correction of the excessive deficit, achieve an annual fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2016 and in 2017. Set a medium-term budgetary objective that respects the requirements of the Stability and Growth Pact. Strengthen the fiscal framework by appointing an independent fiscal council and amending the Public Finance Act. Complete and implement the reform of the long-term care and healthcare systems, making them more cost-efficient to ensure long-term sustainability of accessible and quality care. By the end of 2017, adopt the necessary measures to ensure the long-term sustainability and adequacy of the pension system.(MIP relevant) Limited progress  Limited progress was made regarding the fiscal framework.  Some progress was made regarding healthcare reform.  Limited progress was made regarding the long term care.  Limited progress has been made regarding the long term sustainability and adequacy of pension system.   CSR 2: In consultation with social partners, increase the employability of low-skilled and older workers, including through targeted lifelong learning and activation measures. (MIP relevant)  Limited progress  Limited progress has been made regarding employability of low-skilled, older workers and active labour market policies. CSR 3: Improve the financing conditions for creditworthy business, including by facilitating durable resolution of non- performing loans and access to alternative financing sources. Ensure the proper implementation of the bank asset management company strategy. (MIP relevant) Some progress  Some progress has been made regarding the reduction of the level of non-performing loans.  Limited progress has been made regarding the access to the alternative financing sources  Some progress has been made regarding the implementation of the BAMC's strategy. CSR 4: Take measures to modernise public administration and reduce the administrative burden on business. Improve the governance and the performance of state-owned enterprises. (MIP relevant) Some progress   Some progress has been made regarding the modernisation of the public administration and reduction of the administrative burden.  Some progress has been made regarding the governance of SOEs.   
 
 
 
 
2. Progress with country-specific recommendations 

12 

 Box 2.1: Contribution of the EU budget to structural change in SloveniaSlovenia will receive EUR 3.01 billion over the period of 2014-2020 from the European Structural and Investment Funds (ESI Funds) (1). This is annually around 1.4 % of GDP and 32 % of national public investment (2). By 31 December 2016, about EUR 1 billion or 26 % of the total allocation for ESI Funds, have already been allocated to concrete projects (see Section 4.4.3. on contribution of EFSF to public investment). Another EUR 450 million is planned to be allocated through various forms of financial instruments, which is a near quadrupling compared to the 2007-13. In addition to ESI funds, Slovenia will receive financing under the Connecting Europe Facility (CEF), the European Fund for Strategic Investments (EFSI), Horizon 2020 and other directly managed EU funds. By end 2016, Slovenia has signed agreements for EUR 153 million for projects under CEF. The EIB Group approved financing under EFSI amounts to EUR 8 million, which is expected to trigger nearly EUR 387 million in total investments (as of end 2016).  Over the last two years, ESI Funds supported a number of structural reforms via ex-ante conditionalities (3) and targeted investment. One is the e-Spatial Planning Platform in the framework of the Digital Strategy for Slovenia, aiming at reducing administrative burden for businesses. Another, the Transport Development Strategy is the first national strategy covering all modes of transport, identifying main bottlenecks and investment priorities. Based on The National Health Care Resolution Plan 2016-2025 the strategic and legislative steps to improve the Slovenian healthcare system have been taken. Furthermore, the Public Administration Development Strategy 2015–2020 aims at modernising public administration by improving its efficiency, transparency and the quality of services. In addition, Slovenia is also benefiting from the Structural Reform Support Service, financed by the ESI Funds, and provided technical assistance to support the implementation of structural reforms.   CSRs targeting structural reforms were taken into account when designing the 2014-2020 programmes. A Smart Specialization Strategy (4) will improve access to finance and reduce administrative burden on SMEs. This will help support approximately 8 500 SMEs with the goal of boosting growth and jobs. Targeted employment programmes are supported by ESI Funds to improve the employability of the most vulnerable groups on the labour market and improve social inclusion and will enable people to work longer. In the field of long-term care, funds are earmarked for the development and implementation of the integrated community based services   ESI Funds also address other structural issues to growth and competitiveness.  The Funds enable Slovenia to move from a position of innovation follower to a more trend-setting role by increasing the proportion of high-tech intensive products and knowledge-intensive services in total export. ESI Funds support efforts to reach the Energy Union targets and to contribute to the Digital Agenda by equipping 70 % of households with 100 Mbps broadband access. More than EUR 500 million are earmarked for infrastructure in sectors with an investment gap, mainly in transport (rail) and environment (water). The Youth Employment Initiative created job opportunities by providing incentives to employ young people from eastern Slovenia (around 2900 young people were included by end of 2016).                                                             (1) https://cohesiondata.ec.europa.eu/countries/SI (2) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries. (3) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and conditions for the majority of public investments areas. (4) Establishes a framework for a strong entrepreneurial ecosystem through investments such as One-Stop-Shops for businesses.  
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

The  2017  Alert  Mechanism  Report  called  for 
further in-depth analysis to monitor progress in 
the  unwinding  of  the  imbalances  identified  in 
the 2016 MIP cycle. As Slovenia was identified to 
have  macroeconomic  imbalances  in  the  form  of 
weaknesses  in  the  banking  sector,  high  corporate 
indebtedness  and  fiscal  risks  last  year,  a  new  in-
depth review (IDR) is needed to assess how these 
imbalances evolved.  

This report provides the in-depth review of how 
the  imbalances  identified  have  developed.  In 
particular  IDR  relevant  analysis  is  found  in  the 
following  sections:  fiscal  risks  related  to  fiscal 
policy,  long-term  sustainability  and  state-owned 
enterprises (sections 4.1.1 to 4.1.5); vulnerabilities 
in  the  banking  sector  (sections  4.2.1);  labour 
market  and  older  workers  (section  4.3.1)  and 
(section  4.4.1). 
investment 
deleveraging  and 
Additional  IDR  relevant  topics  via  their  link  to 
sections  on  business 
investment 
environment 
public 
and 
administration (sections 4.5.1). 

the 
(section 

4.4.2) 

are 

3.1 Imbalances and their gravity 

Despite major improvements, the stock of non-
performing 
loans  remains  at  a  relatively 
elevated  level.  In  a  context  of  high  public  and 
private  indebtedness,  the  crisis  put  the  banking 
sector  under  significant  stress.  Between  2008  and 
2014,  profitability  tanked  while  asset  quality 
deteriorated quickly. Although asset quality in the 
existing  loan  portfolios  has  improved  since  then, 
the  share  of  non-performing  loans  decreased 
substantially but remains relatively high (9.1 % of 
total loans in September 2016), originating mostly 
from the corporate sector, notably SMEs.  

High  leverage  in  the  corporate  sector  holds 
back  investment  and  growth.  In  2015,  private 
debt fell to 87.3% of GDP, below EU average and 
in  2016  it  further  decreased.  High  leverage  is 
mostly present in a handful of large companies and 
among  SMEs  (European  Commission,  2015d). 
Conversely, household debt is among the lowest in 
the  EU  (27.8%  of  GDP  in  2015).  The  high 
indebtedness  in  the  corporate  sector  hampers 
investment growth. Weak private investment (16% 
of  GDP  in  2015)  has  in  turn  contributed  to  a 

significant  downward  shift  in  Slovenia’s  potential 
growth  (from  3-4%  prior  to  the  crisis  to  less  than 
1% after the crisis).  

Government  debt  has  risen  rapidly  between 
2007 and 2015 and ageing is expected to have an 
impact on public finances looking forward.  The 
public debt ratio almost quadrupled between 2007 
and 2015, to 83.1% of GDP. While public debt is 
projected  to  decline  in  2016  and  the  following 
three years, in the absence of reforms, Slovenia is 
projected  to  see  one  of  the  largest  increases  in 
public pension expenditure in the EU until 2060. 

implications. 

One-third of the increase of public debt can be 
attributed to fiscal and economic implications of 
state-owned  enterprises  (SOEs).  The  level  of 
state involvement remains high in relation to other 
Member  States.  Combined  with  weak  corporate 
governance,  this  has  had  considerable  fiscal  and 
economic 
it  has 
hampered  investment  and  growth.  SOEs  have 
underperformed compared to their privately-owned 
peers  in  terms  of  productivity  and  profitability 
(European 
The 
implementation  of  professional  and  prudent 
the  management  of  state-owned 
policies  on 
enterprises  are  expected  to  reduce  contingent 
liabilities  to  the  general  government  budget  from 
this area. 

In  particular, 

Commission, 

2015d). 

3.2 Evolution, prospects and policy responses 

sector  vulnerabilities  have  been 
Banking 
loans  (NPLs)  have 
reduced.  Non-performing 
declined  from  14.2 %  in  June  2015  to  9.1 %  in 
September  2016  and  the  trend  is  expected  to 
continue  (Section  4.2) (7).  They  remain  high 
compared 
levels  but  are  well 
provisioned  (coverage  ratio  of  69.2  %  in  June 
2016).  Banks  have  acquired  significant  capacities 
and  competences  in  the  workout  management  of 
NPLs.  The  sector's  profitability  has  improved 
supported  by  net  releases  of  impairments  and 

to  pre-crisis 

(7)  The post-2014 NPL figures in this section are based on the 
European  Banking  Authorities  definition  under 
the 
Implementing  Technical  Standard  on 
‘Supervisory 
and  Non-performing 
Reporting 
Exposures‘,  which  was  adopted  by  the  Commission 
Implementing  Regulation  (EU)  2015/227  on  9  January 
2015. 

Forbearance 

on 

13 

 
 
                                                           
3. Summary of the main findings from the MIP in-depth review 

government  deficit are  set  to put public debt  on  a 
downward  trend.  The  White  Paper  on  pension 
reform was published in April 2016. Its purpose is 
to begin a public debate on a new pension reform 
to ensure long-term sustainability and adequacy of 
the pension system. In addition, a central piece of 
health  care  legislation  is  in  public  consultation. 
The  proposed  measures  aim  at  diversifying 
funding  sources  of  the  health  care  system  and 
reducing pro-cyclicality of health care expenditure. 
The  reform  of  long  term  care  however  has  been 
delayed.  

improving 
and 

Profitability  of  SOEs  managed  by  the  Slovenia 
Sovereign Holding (SSH) has improved in 2015. 
The focus of the Slovenian Sovereign Holding has 
the  SOEs  corporate 
shifted  onto 
governance 
asset 
management strategy adopted in July 2015 sets the 
overall  profitability  target  of  the  state  portfolio  as 
measured by return on equity at 8% by 2020, with 
intermediate  targets  at  6.3%  in  2016  and  7.1%  in 
2017.  Several  important  state-owned  enterprises 
have been privatised in 2016.  

performance.  The 

3.3 Overall assessment 

Positive  macroeconomic  developments  and 
effective  policy  action  have  gradually  reduced 
the  remaining  vulnerabilities.  The  economy 
continued  to  grow  strongly  in  2016,  both  in  real 
and  in  nominal  terms,  thus  reducing  the  risks 
related  to  large  indebtedness  in  the  public  and  in 
the  corporate  sector.  Progress  on  the  front  of 
banking  sector  restructuring  has  coincided  with  a 
rapidly falling share of NPLs in total loans, which 
remain  however  elevated  but  well  provisioned. 
The corporate sector has undergone a considerable 
deleveraging 
investment,  which  was 
compressed  in  past  years,  is  resuming,  including 
FDI.  Government  debt  has  peaked  in  2015  and  a 
continued downward adjustment is expected in the 
coming years.  

and 

Relevant  measures  have  been  taken  by  the 
to  consolidate  and 
government,  especially 
restructure the banking sector, and to improve the 
governance  of  SOEs.  Several  important  bank 
mergers  have  been  completed  in  2016.  A  new 
comprehensive  framework  for  the  management  of 
State-owned  enterprises  has  been  implemented. 
Looking forward, action is still needed to enhance 
the  long-term  sustainability  of  public  finances, 

lower  provisioning  costs.  The  current  context  of 
low  interest  rates  hampers  banks'  profitability 
further. The consolidation and restructuring of the 
sector is progressing, with a recent merger of three 
banks  and  the  completed  wind  down  of  two 
smaller banks.  

Private sector debt decreased in 2015 by 10pps 
driven  primarily  by  a  decline  in  firm's  debt. 
Deleveraging pressures in the corporate sector are 
easing  but  non-financial  corporations  continue 
deleveraging,  albeit  with  important  differences 
between  individual  firms.  Credit  flows  in  the 
household  sector  turned  slightly  positive  in  the 
first half of 2016. 

Graph 3.1:  Decomposition of debt by sector 

Source: European Commission 

to 

trend 

started 

reverse 

In  2015,  private  investment  started  to  recover 
and  foreign  direct  investment  (FDI)  inflows 
in  private 
increased.  The  negative 
investment 
in  2015  as 
deleveraging  pressures  started  to  ease  and  the 
government  made  efforts  to  improve  the  business 
environment.  The  stock  of  inbound  foreign  direct 
investment  increased  by  12.4 %  in  2015  and 
reached  35 %  of  GDP,  which  remains  below  the 
EU  average  of  about  50 %  of  GDP.  Ongoing 
privatisation  and  corporate  restructuring  offers 
new opportunities for attracting FDI. Furthermore, 
the  business  environment  needs  to  adapt  to  take 
full advantage of foreign investments.  

The  public  debt  ratio  is  expected  to  have 
decreased  from  2016  onwards.  Strong  nominal 
GDP  growth  and  a  reduction  in  the  general 

14 

0501001502002500304050607080910111213141516*% of GDPFinancial corporationsGovernmentHouseholdNon financial corporationsPrivate sectorPrivate sector EU28 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP Assessment Matrix - Slovenia 2017 

including on fiscal governance and on the business 
environment.  

(Continued on the next page) 

15 

  Gravity of the challenge Evolution and prospects Policy response  Imbalances (unsustainable trends, vulnerabilities and associated risks) Financial sector  The stock of non-performing loans remains relatively high but NPLs are well provisioned. NPLs originate mostly in the corporate sector and among SMEs (see Section 4.4). As in other EU countries, the long-term profitability of the banks is under pressure in the current context of low interest rates but the capitalisation of the banking sector is strong (see Section 4.2). The vulnerabilities in the Slovenian banking sector have reduced. NPLs have decreased fast from 17.1 % in 2013 to 12.4 % in the first half of 2016 and the trend is expected to continue The restored confidence in the Slovenian banking system has eased liquidity pressures. Deposit rates and margins on the asset side have considerably decreased and are converging with euro area average.  Further progress has been made regarding the operational restructuring of the four major state-owned banks. The wind-down of two smaller domestic banks was completed and the remaining assets transferred to the BAMC.  The "bad bank" BAMC set out its new strategy for 2017-22 and business plan and is fully operational.  Deleveraging, investment, and growth prospects Since the peak in the indebtedness ratio in 2010 (115% of GDP), private sector debt decreased to 86.3% of GDP in 2015. The current level of private investment around 15% of GDP remains low compared to the historical average of 20% of GDP (see Section 4.4). Slovenia's stock of inbound FDI of 36% of GDP in H1-2016 was markedly below the EU average of about 50%. The corporate sector debt is expected to decrease further but at a slower pace than in the previous years. Credit flows to households turned positive; their debt remains among the lowest in the EU. After years of subdued dynamics amid deleveraging, private investment started to recover and stock of inbound FDI increased by 12.4 % in 2015. They are expected to accelerate further on the back of commitments to implement a pro-FDI reform agenda, which aims at improving the business environment.    Slovenia adopted a new FDI strategy and a smart specialisation strategy in 2015. Some progress has been made regarding the reduction of administrative burden. About a half of measures included in the Single document were implemented in 2016.    
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

Source: European Commission 

16 

Fiscal risks Government debt stood at 83.1 % of GDP in 2015, and age-related government expenditures are set to increase substantially in the future due to ageing (for pension expenditure from 11.8 % in 2013 to 15.3% of GDP in 2060). The level of state involvement in the economy remains high relative to other Member states and has had considerable fiscal and economic implications for the budget. Fiscal risks of SOEs have caused approximately one third of the increase in public debt experienced from 2007 to 2014.   Public debt rose sharply in recent years, but has stabilised and is expected to decrease as of 2016 (80% of GDP) on behalf or lower general government deficit and stronger nominal GDP growth.   Profitability of SOEs managed by the SSH has improved in 2015.  Following the publication of the asset management strategy, it appears that most SOEs (in terms of book value) are considered strategic so the level of the state involvement in the economy is expected to remain elevated (see Section 4.1.5).     A central piece of healthcare legislation entered in public consultation in February 2017. The proposed measures aim at diversifying funding sources of the health care system and reducing pro-cyclicality of health care expenditure. The White Paper on pensions published in April 2016 represents the basis for a public debate on a new pension reform.  The SSH has been made fully operational, equipped with an asset management strategy and a set of performance criteria. The government has recently approved a new plan for managing assets in 2017, quantifying the performance indicators for each SOE and updating the list of assets for divestment.  The focus has shifted onto improving the SOEs corporate governance and performance. In 2017, the government will explore whether targeted changes in the newly overhauled framework on state assets management are necessary.        Conclusion from IDR analysis  The level of non-performing loans remains elevated but NPLs are well provisioned and the capital position of banks is strong. Private debt, notably corporate, remains relatively high but is falling rapidly. The deleveraging in the private sector has been hampering investment growth in past years. Government debt has grown substantially and is currently stabilised, but pension and healthcare spending will be concerned by considerable ageing pressures looking forward.   Stock imbalances are unwinding fast, including in light of resumed growth. The share of non-performing loans decreased, and an effective deleveraging has contributed to reduce private debt vulnerabilities. Deleveraging pressures in the corporate sector are currently easing and private investment is starting to recover while foreign direct investments are on the rise. Public debt is expected to decrease over the next few years although long-term sustainability challenges would remain.   Relevant measures have been taken by the government to consolidate and restructure the banking sector, and to improve the governance of SOEs and civil justice. Looking forward, action is still needed to enhance the long-term sustainability of public finances, including on fiscal governance and on the business environment.    
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  FISCAL POLICY* (8)  

Deficit developments 

The  general  government  deficit  is  expected  to 
decline  until  2018  while  the  structural  deficit 
increases. Based on a headline deficit of 2.7 % of 
GDP in 2015, the Council decided to abrogate the 
excessive  deficit  procedure  (EDP)  in  June  2016. 
The  deficit  is  expected  to  continue  to  decline  in 
2016  (-2.0  %  of  GDP)  and  in  2017  (-1.7  %  of 
GDP)  along  with  economic  growth  and  better 
labour  market  conditions.  However,  the  structural 
deficit is expected to worsen in the coming years. 
In 2017, the structural deficit of 2.1 % of GDP will 
remain  above  the  euro  area  average  of  1.2  %  of 
agreed 
the 
GDP.  Based 
methodology  the  output  gap  estimate  of  –0.3%  in 
2016  indicates  that  the  Slovenian  economy  is 
experiencing 
the 
plausibility  test (9)  projection estimates  the  output 
gap at -1.5%. Even though this is a more negative 
output  gap, 
is 
experiencing  normal  times".  Therefore,  this  result 
would not lower the required fiscal adjustment.  

indicates  Slovenia 

times’.  However, 

commonly 

it  also 

‘normal 

on 

context, 

particularly 

The  positive  macroeconomic  outlook  has  been 
offset  by  expenditure  pressures.  The  positive 
for 
macroeconomic 
employment,  is  expected  to  result  in  buoyant  tax 
and  social  contributions  receipts.  Nonetheless, 
these are offset by higher expenditure, particularly 
concerning  public  employees'  salaries  and  social 
transfers. The decline in the 2017 deficit is mainly 
driven by the reduction of interest expenditure and 
low public investment levels. After falling by 40 % 
in  2016,  public  investment  is  expected  to  pick  up 
gradually  in  the  following  years  in  line  with  the 
dynamics of the current EU financial programming 
period. 

(8)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

(9)  In line with the renewed mandate provided by the ECOFIN 
Council on 11 October, the EPC-OGWG has worked on a 
‘constrained  judgment’  approach  for  cases  where  the 
common  method  is  shown  to  produce  counterintuitive 
output gap results for individual Member States.  

Implementing  structural  measures  would  help 
reducing  the  structural  deficit.  The  structural 
balance  is  expected  to  deteriorate  in  the  coming 
years.  This  is  to  a  large  extent  due  to  the  quick 
closing of the output gap which is projected to turn 
positive  in  2017.  While  GDP  growth  is  projected 
to  be  considerably  higher  than  in  the  euro  area  in 
2017  (3 %  v  1.6 %),  potential  growth  is  projected 
to  be  broadly  similar  (1.3  %  v  1.2  %).  The  low 
potential  growth  is  mainly  the  result  of  the  low 
level  of  investment.  This  underscores  the  need  to 
adopt  measures  to  boost  investment  (Section 4.4). 
A  budgetary  strategy 
focused  on  structural 
measures would help reduce the structural deficit.  

The  highest  part  of  public  expenditure  is 
allocated  to  social  protection,  general  services, 
health and education. Based on the classification 
by  function  of  expenditure,  the  largest  share  of 
expenditure goes to social protection (36 %, 2014 
data),  general  public  services  (15  %),  health  (13 
%)  and  education  (12  %).  Expenditure  in  general 
public  services  and  education  were  above  the  EU 
and EA average (7.5 % and 5.9 % of GDP vs 6.7 
% and 4.9 % in the EU, respectively). Performance 
and  efficiency  of  public  services  are  further 
important  indicators  to  be  taken  into  account  to 
achieve public policy goals.  

of 

and 

reviews 

spending 

Spending  reviews  are  a  useful  tool  to  improve 
budgetary  performance 
expenditure 
allocation  in  order  to  reach  policy  objectives. 
According  to  the  2016  Report  on  Public  Finances 
in  the  EMU,  education,  general  public  services, 
R&D  and  infrastructure  could  be  analysed  in  the 
context 
(European 
Commission,  2016d).  Spending  reviews  would 
help  set  firm  and  multi-annual  expenditure  limits 
and define the key improvements that can generate 
savings.  In  2015,  at  the  request  of  the  national 
authorities, an International Monetary Fund (IMF) 
technical  assistance  mission  took  place  to  advice 
review  process. 
on  establishing  a  spending 
Education,  health  and  social  protection  were 
identified as potential targets for a spending review 
(IMF,  2015d).  A  spending  review  in  the  field  of 
social support has been prepared and was adopted 
in February 2016.  Spending reviews on education 
and culture are ongoing.  

17 

 
 
                                                           
 
4.1. Public finances and taxation 

to 

combined  historical  scenario (12)  where  all  main 
macroeconomic  variables  converge 
their 
historical  average.  However,  if  Slovenia  was  to 
fulfil  its  commitments  under  the  Stability  and 
Growth  Pact  (SGP)  (13)  the  reduction  of  debt 
towards  60  %  of  GDP  would  occur  at  a  much 
faster  pace  (Graph  4.1.2).  If  Slovenia  were  to 
adopt  the  fiscal  commitments  outlined  in  its  own 
Stability  Programme  (14),  the  reduction  would 
happen at a slower pace than in the SGP scenario, 
but  still  considerably  faster  than  in  the  baseline 
scenario.   Therefore,  maintaining  fiscal  discipline 
is a prerequisite for debt sustainability. 

The  high  public  debt  level  represents  a  source 
of  vulnerability  for  the  Slovenian  economy.  In 
the  medium-term,  public  debt  poses  significant 
risks.  An  increasing  debt  trajectory  sensitive  to 
potential  macroeconomic  shocks  and  a  sizeable 
sustainability  gap  lead  to  high  risks  for  public 
finance in the medium term. Firstly, high risks are 
revealed by the debt sustainability analysis (DSA). 
On 
tests 
the  one  hand  standard  sensitivity 
performed  separately  on  nominal  GDP  growth, 
inflation and interest rates (15) would each entail a 
debt  ratio  that  is  more  than  4  pps.  higher  than  in 
the  baseline  (i.e.  about  84  %)  in  the  last  year  of 
projections (2027). On the other hand, a very large 
set  of  jointly  simulated  shocks  to  GDP  growth, 
interest rates and the primary balance, based on the 
size and correlation of past shocks under stochastic 
debt  projections,  indicate  a  33  %  probability  that 
the debt ratio in 2021 would be higher than in 2016 
(80.9  %),  which  entails  risks  given  the  already 
high  starting  level.  Secondly,  the  medium-term 

(12)  The  combined  historical  scenario  assumes  gradual 
convergence  to  historical  averages  over  the  five  years 
following  the  forecasts  for  all  main  macroeconomic 
variables, notably SPB, implicit interest rate and real GDP 
growth. 

(13)  European  Commission  forecasts  for  the  first  projection 
year; 
thereafter  assumption  of  full  compliance  with 
and 
excessive  deficit  procedure 
convergence  to  the  medium-term  objective,  according  to 
the matrix of required fiscal adjustment from Commission 
Communication  on  flexibility  in  fiscal  rules)  –  see 
European Commission (2017) Debt Sustainability Monitor 
2016,  European  Economy  Chapter  2  Section  2.1.2.  and 
Annex A3. 

recommendations 

(14)  The  SPB  is  assumed  to  remain  constant  at  end-of 
programme value; all other macroeconomic variables – real 
interest  rate,  inflation,  real  GDP  growth  –  over  the 
programme  horizon  are  also  taken  from  the  Stability 
Programme. 

(15)  Specifically,  -0.5  pps  on  GDP  growth,    -0.5  pps  on 
inflation,  and  +1  pp.  on  interest  rates  on  new  and  rolled 
over debt from 2016 onwards.  

Debt sustainability  

recovery  and  a  reduction 

Public  debt  rose  sharply  in  recent  years.  It 
increased from 21.8 % of GDP in 2008 to 83.1 % 
of GDP in 2015, but it is expected to decrease as of 
2016.  While  exceptional  items,  particularly  bank 
recapitalisations,  have  contributed  significantly  to 
this  increase,  sustained  primary  deficits  were  also 
increasing debt. The debt-to-GDP ratio is expected 
to  have  peaked  at  83.1  %  in  2015.  Supported  by 
the  economic 
in 
precautionary cash  buffers,  public debt  is  forecast 
to  decrease  to  80.9  %  of  GDP  in  2016.  The 
implicit  interest  rate  on  the  state  debt  has  been 
decreasing  since  2013.  The  strategy  is  to  extend 
the duration of the debt portfolio, reducing the roll-
over  risk  while  taking  advantage  of  the  current 
environment of low interest rates to reduce current 
financing  costs  in  the  medium-term.  In  addition, 
the  authorities  plan  to  reduce  the  previously 
accumulated large cash buffers (estimated to have 
decreased from 16 % at end-2015 to 13 % of GDP 
at  end-2016).  In  2017,  the  debt-to-GDP  ratio  is 
projected to continue to decline to 78.9 % of GDP, 
on  the  back  of  a  lower  headline  deficit  and 
reduction of the cash-buffers.  

Public  debt  is  projected  to  decrease  until  2023 
but increase again thereafter under a no-policy-
change  assumption.  Under  the  baseline  scenario 
(10)  of  the  debt  sustainability  analysis  (DSA) 
public  debt  is  expected  to  decrease  to  76.2  %  of 
GDP until 2023 (Graph 4.1.1). From then onwards 
public  debt  is  expected  to  increase  as  a  result  of 
medium term upward pressures to 80 % of GDP in 
2027, particularly due to ageing costs. Conversely, 
if  the  ageing  costs  were  excluded  from  the  non-
policy  change scenario  (as  it would be  the case if 
ageing  costs  were  reduced  via  reforms)  the  debt 
ratio  would  continue  to  decrease  in  the  medium 
term.  Under  a  scenario (11)  where  the  structural 
primary  balance  (SPB)  is  assumed  to  converge  to 
its historical average, debt levels would accelerate 
quickly  on  an  upward  trajectory  from  2020 
in  a 
onwards.  A  similar  result 

is  obtained 

(10)  Based  on  Commission  winter  2016  forecast,  EPC  agreed 
long-run 
underlying 
macroeconomic  variables  (real  interest  rate,  real  GDP 
growth,  inflation)  and  the  assumption  of  constant  fiscal 
policy beyond the forecast horizon. 

convergence 

assumptions 

of 

(11)  The  historical  SPB  scenario  assumes  gradual  convergence 
to  the  historical  average  for  the  SPB  over  the  four  years 
following 
forecast.  All  other  macroeconomic 
assumptions are the same as in the baseline.  

the 

18 

 
                                                           
                                                           
4.1. Public finances and taxation 

sustainability  of  public  finances  (19).  This  is 
primarily  due  to  the  strong  projected  impact  of 
age-related  public  spending.  Here,  with  pensions 
accounting  for  3.4  pps.  of  GDP  required  fiscal 
adjustment. Healthcare and long-term care account 
for an additional 1.9 pps. 

Graph 4.1.2:  Gross debt % of GDP - SGP and SCP scenarios 

sustainability  gap  indicator  (S1)  complements  the 
results of the DSA indicating that, overall there are 
high  risks  in  the  medium-term.  S1  (16)  indicates 
that  the  structural  primary  balance  would  need  to 
improve  by  2.9  pps  of  GDP  in  cumulated  terms 
over  a  5-year  horizon  (from  2018  until  2023) 
relative  to  the  baseline  no-fiscal  policy  change 
scenario  to  reach  the  60  %  public  debt-to-GDP 
ratio  reference  value  by  2031  (17).  The  required 
fiscal adjustment reflected by S1 is essentially due 
to  the  debt  ratio  being  currently  above  the  60% 
reference value and the projected ageing costs. 

Graph 4.1.1:  Gross debt % of GDP - DSA 

Source: European Commission calculations 

4.1.2.  PENSION SYSTEM* 

Source: European Commission calculations 

Age-related  expenditure,  namely  on  public 
pensions,  healthcare  and  long  term  care  puts 
pressure  on  public  finances  in  the  long  run.  In 
the long run, Slovenia is at high risk as shown by 
the very high value of the long-term sustainability 
gap  indicator  S2  (18).  The  indicator,  calculated 
under  a  baseline  of  no-fiscal  policy  change 
scenario, 
fiscal 
to  ensure 
adjustment  of  6.9  pps.  of  GDP 

indicates  a  high 

required 

(16)  The medium-term sustainability indicator S1  measures the 
fiscal  adjustment  effort  required,  in  cumulated  terms  over 
the next 5 years after the forecast horizon (i.e. from 2018) 
to drive the public debt-to-GDP ratio down to 60 % in 15 
years' time (currently 2031).  

(17)  The following thresholds apply: (i) for values lower than 0, 
the country is assigned low risk; (ii) for values lower than 
2.5 pps, it is assigned medium risk; (iii) for values greater 
than 2.5 the country is assigned high risk.  

(18)  The long-term sustainability indicator S2 gives the upfront 
structural adjustment required to stabilise the debt-to-GDP 
ratio over the infinite horizon.  

but 

developments, 

in 
The  2012  pension  reform  has  resulted 
positive 
long-term 
sustainability and adequacy remain a challenge. 
In  2015,  pension  expenditure  relative  to  GDP 
decreased by 0.6 pps to 10.9 % and the growth in 
the  number  of  old-age  pensioners  was  very  low 
(ZPIZ,  2016).  The  old-age  dependency  ratio 
increased  only  slightly  and  the  ratio  between  the 
retired  and  socially  insured  remained  unchanged 
according 
and  national  data 
(MoLFSAEO,  2016a)  respectively.  Although  the 
pension  system  is  according  to  the  Slovene 
Government  projected  to  be  sustainable  up  to 
2025,  an  ageing  population  puts  considerable 
pressure  on 
long-term  sustainability  and 
adequacy.  

to  Eurostat 

its 

Workers with shorter careers and longer career 
breaks can expect income adequacy problems in 

(19)  The  following  thresholds  apply:  (i)  if  the  value  is  lower 
than 2, the country is assigned low risk; (ii) if it is between 
2 and 6, it is assigned medium risk; and, (iii) if it is greater 
than 6, it is assigned high risk. 

19 

404550556065707580859012131415161718192021222324252627Baseline no-policy change scenarioNo-policy change scenario without ageing costsHistorical SPB scenarioCombined historical scenario404550556065707580859012131415161718192021222324252627Baseline no-policy change scenarioStability and Growth Pact (SGP)Stability and Convergence Programme (SCP) scenario 
 
                                                           
 
                                                           
4.1. Public finances and taxation 

indexation  and  various  employment  trajectories 
together (20).  As  part  of  a  comprehensive  pension 
reform securing a sustainable and adequate system, 
efforts  should  be  made  to  ensure  that  old-age 
poverty risks are avoided in the future (21). 

It  is  uncertain  when  the  new  reform  will  be 
passed  and  how  closely  it  will  follow  the 
ambition proposed by the White Paper. Timely 
implementation  of  the  reform  and  short  phase-in 
period  is  crucial  to  preserve  fiscal  sustainability 
while maintaining an adequate pension income for 
all  generations.  The  high  fiscal  sustainability  risk 
in  the  medium  term  in  Slovenia  calls  for  quick 
action. A faster increase of the statutory retirement 
age to 67 years and phasing in the price indexation 
rule already over the coming decade would reduce 
sustainability risks further. Furthermore, the White 
Paper  does  not  consider  an  automatic  link  of 
statutory  retirement  age 
life 
expectancy, one of the most effective mechanisms 
to tackle the cost of ageing population. Such link is 
one of the most common and important features of 
many  recent  pension  reforms  (see  Table  4.1.1).  It 
pays  a  double  dividend  –  it  strengthens  pension 
system 
the 
adequacy  of  pensions  by  accumulating  more 
contributions  because  of  the  extended  working 
lives.  Currently,  a  number  of  EU  Members  States 
have such a balancing mechanism in place (Carone 
et  al.,  2016,  p.18).  All  euro  area  countries  also 
supported  this  principle  in  a  recent  statement 
adopted  on  16  June  2016 (22).  Absence  of  such 
measures  or  their  late  introduction  might  call  for 
additional corrections to the pension system in the 
future.  

sustainability  while 

improving 

increases 

to 

in 

(20)  The  Institute  for  Economic  research  in  Slovenia  is 
developing  a  module,  which  will  allow  a  microsimulation 
model  to  take  different  employment  biographies  into 
account when projecting adequacy of pensions. The results 
of microsimulations are expected in 2017. 

(21)  In  December  2016,  the  government  proposed  to  establish 
minimum  guarantees  for  those  with  40  (EUR 500),  39 
(EUR 490),  38  (EUR 480)  and  37  (EUR  470)  years  of 
pensionable service excluding periods of purchased service 
(pokojninska doba brez dokupa). 

(22)  Eurogroup  2016  "Common  principles  for  strengthening 
June  2016.  
sustainability"  Statement  16 

pension 
http://www.consilium.europa.eu/en/press/press-
releases/2016/06/16-eurogroup-pension-sustainability/ 
These  principles  are  the  following:  i)  Safeguard  against 
demographic  and  macroeconomic  risks:   ii)  Flanking 
policies;  iii)  Broader  reforms  to  strengthen  growth  and 
employment; iv) Anchoring political and societal support. 

old age. This is demonstrated by projections based 
on the current legislation (see graph 4.1.3). While 
the impact of a short career on the benefit level is 
around  the  EU  average,  it  could  affect  a  high 
proportion of future pensioners. This is due to the 
low duration of working life, an increased number 
of  part-time  and  fixed-term  contracts  during  the 
economic  crisis  and  delayed  labour  market  entry 
(see  European  Commission,  2016a;  European 
Commission  and  Social  Protection  Committee, 
2015b). These concerns are particularly relevant in 
the  context  of 
sustainability 
challenges  and  related  plans  to  further  tighten 
eligibility conditions for an old-age pension. 

the  country's 

Graph 4.1.3:  Net Theoretical Replacement Rates of 

pensions, for average earners, by career 
length, in %, in 2053 

(1) Longer career is defined as working two years beyond 
the Standard Pensionable Age (SPA), while shorter career is 
defined as retiring two years before the SPA  
Source: European Commission and Social Protection 
Committee, 2015a 

from  24 

The  White  Paper  on  pensions  was  adopted  by 
the  Government  in  April  2016  to  begin  public 
discussion  on  a  new  long-term  pension  reform.  
The White Paper proposes to increase the statutory 
retirement age and the insurance period, to reduce 
the  incentives  to  early  retirement  and  extend  the 
pensionable  earnings  base 
to  34 
consecutive  most  favourable  years.  Nevertheless, 
the  average  career  length  is  not  projected  to 
increase  in  the  long-term.  In  addition,  the  White 
Paper  proposes 
system,  gradual 
the  point 
alignment  of  the  pension  indexation  to  growth  in 
prices over a period of 20 years and the options to 
strengthen  supplementary  pension  provisions, 
especially the second pillar (MoLFSAEO, 2016a). 
The  proposed  measures  would  ensure  long-term 
sustainability of the pension system under different 
scenarios.  The  impact  of  the  presented  scenarios 
on the adequacy of pensions merits further analysis 
taking  into  account  the  extended  pension  base, 

20 

505560657075Longer career: from age25 to SPA+2Base case: 40 years up tothe SPAShorter career: from age25 to SPA-2WomenMen 
 
                                                           
4.1. Public finances and taxation 

Table 4.1.1:  Cross-country comparison of some pension parameters 

*Retirement age for men (women); **3.3 is the AR 2015 figure, 1.3 is projection after reform; ***as planned in the White Paper 
Source: European Commission Ageing report (2009, 2015), Commission services, updated for Finland and Belgium 

the 
to 

first 
a 
the 

supplementary 
average 

In  the  future,  supplementary  pension  schemes 
could provide an important share of income for 
pensioners.  At  the  end  of  2015,  59.2 %  of  those 
(public)  pillar  were 
enrolled 
in 
contributing 
pension 
scheme (23).  Yet, 
amount  of 
supplementary  savings  per  person  is  low (24). 
Nonetheless,  projections  show  that  supplementary 
pensions  could  have  a  major  impact  on  the 
adequacy of pensions for future pensioners. This is 
the case especially for those retiring after 2040 and 
with 
scheme 
(MoLFSAEO,  2016a).  The  White  Paper  puts 
forward  the  options  for  boosting  the  coverage  of 
in  particular  occupational 
supplementary  and 
pensions 
collective  bargaining  or 
through 
automatic enrolment.   

payments 

regular 

into 

the 

4.1.3.  HEALTH CARE AND LONG TERM CARE 

SYSTEMS* 

Health care 

Long-term  fiscal  sustainability  of  the  health 
care  system  remains  a  challenge.  In  2015,  total 
health  expenditure  in  Slovenia  decreased  by  0.1 
pps  to  8.4  %  of  GDP  (OECD/EC,  2016c).  This 
percentage  is  below  the  EU  average  of  9.9  %  of 
GDP.  Nevertheless,  public  health  expenditure  in 

(23)  Supplementary  pensions  (the  second  pillar)  include  i) 
occupational compulsory supplementary pension insurance 
for  specific  professions,  (ii)  individual  and  collective 
voluntary  supplementary  pension  insurance  (MoLFSAEO, 
2016a). 

(24)  In 2015, the average amount of supplementary savings per 
person amounted approximately EUR 4 000 per person and 
did  not  yet  substantially  contribute  to  the  income  of 
pensioners (MoLFSAEO, 2016a). 

technology  and 

Slovenia is expected to increase over the medium- 
and long-term, due to a rapidly ageing population, 
individual  behaviour 
medical 
(European  Commission,  2016a).  Measures 
to 
reduce  costs  and  increase  the  efficiency  of  health 
financial 
care 
sustainability  of  the health  care  system  (European 
Commission, 2016c).  

spending  can  contribute 

to 

The  2016  Country  Report  suggested  that  there 
is  scope  to  increase  the  efficiency  of  the 
healthcare  system  in  Slovenia.  The  efficiency 
gains could be made through improved governance 
and  performance  of  hospitals  in  view  of  limited 
autonomy  and  responsibility  of  management  in 
strategic  decisions,  fixed  hospital  budgets,  weak 
competition  in  the  contracting  process,  outdated 
public  hospital  network  and  inefficiencies  in  the 
purchasing  process.  A  stronger  primary  care  as  a 
gatekeeper  for  in-patient  care,  supported  by  an 
adequate payment system for general practitioners 
and  specialists,  and  a  standardized  framework  to 
monitor  the  quality  of  services  in  hospitals  would 
support the goal to curb expenditure growth. Other 
measures  such  as  the  use  of  health  technology 
assessments  and  revised  hospital  payment  system 
and joint public procurement to rationalize the use 
of  medical  goods  and  health  services  can  help  to 
contain  expenditure  growth  while  maintaining 
access  to  quality  care.  This  year's  report  goes 
beyond  the  general  assessment  of  the  healthcare 
system.  The  report's  objective  is  to  assess  current 
reform  endeavours  and  analyse  in-depth  public 
procurement  and  recent  developments  in  waiting 
times. 

21 

Automatic balancing mechanism Sustainability factor Retirement age linkened to the life expectancyBelgium2015First 65 (64) to 67Full careerPrices and living standard3.3 (1.3**)Italy1995 & 2010Mixed65 (60) to 70Full careerPrices -1.9xxFinland2005 & 2015First62:68 to 68Full careerPrices and wages0.1xxPortugal2007 & 2013First 65 to 68.8Full career up to limit of 40 yearsPrices and GDP-0.7xxGreece2010Mixed63 (60.5) to 65Full careerPrices and social taxes-1.3xDenmark2011Multi65 to 72.5Years of residenceWages-3.1xNetherlands2012Multi65 to 71.5Years of residenceWages0.9xCyprus2012First65 to 69Full careerPrices and wages-0.1xSlovak republic2012Mixed62 to 67.8Full careerPrices and wages2.2xSpain2011 & 2013First 65 to 67Last 25 yearsIndex for pension revaluation-0.8xxSI current2012First63 (61) to 65Best consecutive 24 yearsPrices and wages3.5SI WP***forthcommingMulti to 67Best consecutive 34 yearsPrices0.5-1.0Change in public pension expenditure as % of GDP over 2013-2060Automatic mechanismsCountryReformPillarsStatutory retirement age* (2008 and 2060)Pensionable earnings         referenceGeneral indexation variablle(s) 
                                                           
 
 
 
4.1. Public finances and taxation 

to  act  as  an  active  buyer  in  charge  of  technical 
standards  for  material  and  medical  devices,  cost 
analysis and payment models. In addition, the HIIS 
is  proposed  to  contract  out  health  care  services 
selectively  on  basis  of  efficiency  and  quality  of 
providers and for at least two years. The adoption 
of the Health Care and Health Insurance Act by the 
Parliament is envisaged for 2017. 

The  authorities  aim  to  increase  incentives  for 
hospital managers to improve cost-effectiveness 
and  quality.  As  reported  in  the  Country  Report 
2016  hospital  managers  do  not  have  sufficient 
incentives  to  increase  efficiency  and  productivity. 
The  reason  is  that  they  cannot  take  autonomous 
decisions  related 
to  activities,  payments  for 
performance  of  employees  and  the  budget.  To 
improve  the  performance  of  health  providers,  the 
authorities proposed changes in the governance of 
the HIIS and the contracting procedure with health 
care  providers.  In  addition,  the  authorities  aim  to 
prepare  the  Act  on  Governance  and  Management 
of Public Health Institutions.  

that 

overall 

suggest 

Pharmaceutical  expenditure  is  rising,  due  to 
higher  consumption  of  medical  products  and 
new  and  very  costly  medicines. 
In  2014 
pharmaceutical  spending  accounted  for  1.7  %  of 
GDP  and  20  %  of  total  health  care  expenditure, 
(1.5 % and 17.1 % in the EU). The latest data from 
2015 
pharmaceutical 
expenditure  has  started  increasing  again,  most 
probably due to an increase in high cost medicines. 
The  Slovene  authorities  also  point  out 
the 
specificities  of  the  small  market  regarding  prices 
and accessibility of new medicinal products to the 
population,  which  should  be  taken  into  account 
when  different  comparisons  are  considered.    The 
data also suggest that consumption of medicines in 
Slovenia remains higher than the Organisation for 
Economic Co-operation and Development (OECD) 
average  (Belloni,  Morgan  and  Paris,  2016). 
Policies  to  improve  transparency  and  promote  the 
cost-effective  use  of  pharmaceuticals  would  be 
beneficial,  such  as  a  comprehensive  health 
fully 
technology  assessment  network  and  a 
operational  system  of  e-prescriptions  (European 
Commission, 2016a and 2016c).  

Public procurement 

Public  procurement  in  health  suffers  from 
several  deficiencies.  As  reported  in  the  Country 

The  authorities  presented  proposals  to  reform 
the  health  care  system.  "The  Resolution  on  the 
National  Healthcare  Plan  2016-2025",  which 
represents  a  strategic  plan  for  the  development  of 
the  healthcare  system  was  adopted  by 
the 
Parliament  in  March  2016.  In  January  2017,  the 
draft Health Care and Health Insurance Act, which 
is the central piece of the reform was presented. In 
December 2016, the proposals to amend the Health 
Services  Act  and  the  Patient  Rights  Act  were 
presented 
the  new 
to  coalition  partners  and 
Pharmacies Act was adopted. The implementation 
of  measures  to  strengthen  the  primary  health  care 
is 
strategy  of 
development  of  primary  care  until  2025  is  under 
preparation. The "family medicine model" practice 
which  aims  at  better  management  of  chronic 
patients  is  being  expanded.  A  progress  has  been 
made  over  the  past  year  in  the  implementation  of 
e-Health  solutions.  The  most  important  goals  of 
the  proposed  reforms  are  to  improve  quality  and 
accessibility  of  health  care  services,  ensure 
sustainable financing of the health care system and 
increase  transparency,  whereby  standards,  targets 
and  indicators  will  be  publicly  available.  Higher 
transparency  can  help  to  achieve  better  allocation 
of resources.  

in  progress.  The  National 

income.  The  contribution 

The  proposed  draft  Health  Care  and  Health 
Insurance  Act  is  an  important  step  towards 
reforming the health care system. The proposed 
measures  aim  to  diversify  financial  resources  and 
ensure  a  more  stable  financing  of  the  healthcare 
system.  The  contribution  base  for  compulsory 
health  insurance  contributions  is  proposed  to  be 
extended  by  taking  into  account  both  active  and 
passive 
rates  are 
proposed  to  be  unified  across  different  categories 
of  insured  people,  including  pensioners.  New 
sources  are  envisaged  from  the  general  budget 
while the budget is proposed to take over financing 
traineeships, 
of 
specialisations,  tertiary  education).  The  voluntary 
complementary  (top  up)  health 
is 
proposed  to  be  abolished  and  replaced  by  the 
income dependant health care levy as of 2019. The 
basket  of  rights  is  proposed  to  remain  universal 
with  rights  being  legally  defined  and  excluding 
non-health services. The Health Insurance Institute 
of  Slovenia  (HIIS)  is  proposed  to  remain  a  single 
insurer  for  compulsory  health  insurance,  however 
with the newly defined management structure and 
responsibilities. Specifically, the HIIS is proposed 

programmes 

insurance 

some 

(e.g. 

22 

 
4.1. Public finances and taxation 

Waiting times 

Waiting  times  for  some  outpatient  specialist 
services  have  increased.  According  to  the  2015 
European Health Interview Survey (26) the share of 
people  reporting  long  waiting  time  has  increased 
from 6 % of population in 2007 to 13 % in 2015. 
Waiting times increased due to several reasons: the 
necessary fiscal adjustment measures during crisis, 
the  lack  of  specialised  doctors  and  "defensive 
medicine"  (a  current  practice  of  family  doctors  to 
over  refer  patients  to  specialised  services  due  to 
uncertainty on diagnosis). In addition, 15-20 % of 
patients  on  waiting 
that  do  not  fulfil 
lists 
conditions  for  the  services  in  question  or  they  do 
not  show  up  for  the  procedure.  The  ongoing 
eHealth  projects  such  as  e-appointment  and  e-
referral  are 
transparency  and  can 
contribute  to  reducing  waiting  times.  In  addition, 
the authorities aim at strengthening the cooperation 
between  family  and  specialised  doctors  and 
increasing 
Structural 
improvements in the management of waiting times 
are  the  objective  of  the  proposals  to  amend  the 
Patient Rights Act. 

obligations. 

increasing 

patients' 

Improved  allocation  of  resources  can  contain 
long  waiting  times,  which  typically  have  a 
bigger  impact  on  poorer  households.  A  pilot 
project  "For  better  waiting  times  management" 
began  in  2015  to  identify  the  reasons  for  waiting 
times.  In  addition,  more  funding  was  allocated  to 
health providers for certain procedures. According 
to  the  latest  available  data,  the  waiting  time  for 
targeted  procedures  has  decreased  on  average 
despite the increase in the number of patients (see 
graph  4.1.4  and  4.1.5).  Nevertheless, 
the 
that 
from  other  countries  show 
experience 
measures which only increase funds channelled to 
reduce waiting times can only be successful in the 
short  term  (OECD,  2013).  Waiting  times  norms, 
more  efficient  allocation  of  human  and  capital 
resources between sectors and specialisations, and 
the  use  of  ICT  tend  to  be  more  successful  in  the 
durable reduction of long waiting times (European 
Commission, 2016  c).  In  addition,  they  can  better 
protect  poorer  households  that  are  typically  more 
affected  by  longer  waiting  times  as  the  burden  to 
purchase  private  providers  services  might  be  too 
high. 

for 

there 

is  a  scope 

Report  2016 
further 
centralisation of public procurement and less focus 
on the lowest price award criterion. Many hospitals 
in Slovenia continue to purchase selected supplies 
and  services  in  a  non-standardised  way,  i.e. 
without the list of codes and a central register. This 
prevents  tapping  the  potential  economies  of  scale 
linked  to  centralised  procurement.  In  addition, 
public  procurement  in  health  sector  is  prone  to 
corruption  (see  Section 4.5.1 on  corruption). As  a 
result  prices  for  some  medicine  and  medical 
devices  are  unjustifiably  high  and  with  large 
the  same  product 
differences 
(Ekstravizor (25)).  

in  prices  for 

for  medicines 

Improvements  in  public  procurement  can  lead 
to  significant  savings.  Recent  experience  shows 
that  centralised  procurement  in  medical  devices 
(four items) increased the number of bids from an 
average  of  7  to  an  average  of  14  and  reduced  the 
bidding  prices  by  10-35%.   A  new  centralised 
public  procurement 
is  under 
preparation  and  is  mandatory  for  all  26  hospitals. 
Systematically 
health 
professionals  in  the  purchasing  process  from  the 
very start (technical dialogue)  until the  evaluation 
of 
tenders  received  remains  a  challenge.  In 
addition, the small market needs to be safeguarded 
from the risk of developing monopolies that might 
result  from  the  choice  of  a  single  per-product 
supplier.  This  could  lead  to  unavailability  of 
treatment  and  in  the  long  term  increase  prices 
through market concentration. 

involving 

relevant 

public 

improve 

revelations 

A  transparent  public  procurement  system  can 
resource  allocation. 
significantly 
Following 
alleged 
of 
irregularities  in  public  procurement  (Ekstravizor), 
the  Ministry  of  Health  in  cooperation  with  all 
public health care providers announced at the end 
of  2016  to  collect  and  publish  information  about 
transactions  and  prices  of  medical 
hospital 
products. Based on this data the central register of 
medical  products  is  planned  to  be  established  in 
the  first  half  of  2017.  Its  purpose  is  to  increase 
transparency  for  all  involved  stakeholders.  Easily 
available and transparent information about prices 
and characteristics of products will allow for more 
efficient  allocation  of  resources.  In  addition, 
patients  will  have  clearer  information  about  their 
rights and how their money is spent.  

(25)  https://ekstravisor.rtvslo.si/projekt/analize/1 

health-interview-survey 

(26)  http://ec.europa.eu/eurostat/web/microdata/european-

23 

 
                                                           
                                                           
4.1. Public finances and taxation 

challenges. In addition, the number of recipients of 
LTC  is  high  and  has  been  increasing  rapidly 
(European  Commission,  2016a).  Until  now,  no 
agreement  has  been  reached  with  regard  to  the 
future  sources of  financing  for  LTC.  This  issue  is 
linked  to  the  healthcare  reform  package  currently 
being  developed.  In  2017  the  Ministry  of  Health 
will launch a 2-year pilot project to assess the LTC 
needs and to support proposed legislative solutions 
in the future LTC Act. 

The  pilot  project  will  be  used  for  preparing 
concrete  measures  to  reform  long-term  care. 
The authorities have planned to steer the LTC into 
two  main  directions:  1)  towards  the  development 
of home care and 2) towards equality in access to 
long-term care. However, the ways to achieve the 
goals  are  not  yet  clear.  Alongside  the  needs,  the 
pilot  will  also  assess  the  services  and  delivery 
mechanism.  The  threshold  of  eligibility  for  LTC 
services  will  be  also  decided.  Based  on  these 
assessments,  a  one-stop-shop  may  be  created 
where  ‘planners’,  with  comprehensive  knowledge 
of  all  services,  will  prepare  integrated  individual 
plans  for  beneficiaries,  based  on  needs  and 
preferences, including both health and social long-
term  care  services.  Consistently  with  the  goals, 
community-based  care  (involvement  of  NGO’s, 
volunteers and local community) would need to be 
prioritised  and  activities,  training  and  support  for 
family members involved in caring would need to 
be established.  

The  long-term  care  reform  is  in  preparation; 
however  several  important  challenges  remain 
unclear.  The  authorities  believe 
that  cost 
effectiveness and sustainability of financing can be 
achieved by strengthening preventive measures, by 
promoting  earlier  rehabilitation,  by  improving  the 
coordination  between  social  and  health  care  and 
through a better use of ICT (like more efficient e-
public  services).  However,  no  clear  quantification 
is  yet  available,  as  this  relies  on  the  definition  of 
priorities  in  terms  of  needs  and  that  of  a  basic 
basket  of  services.  Once  these  are  defined,  it  will 
be  possible  to  build  a  microsimulation  model  to 
assess  alternative  financing  options  and  their 
potential to that yield current and future savings. 

Graph 4.1.4:  Number of all patients waiting for specific 

procedures and the share of patient waiting 
above threshold time 

Threshold waiting time is a time that is legally prescribed. It is 
30 days for a patient with a fast referral and 60 days for a 
patient with a regular referral.  

Source: The National Institute of Public Health (NIJZ) 

Graph 4.1.5:  Waiting times for specific procedures 

Average waiting times is weighted by total number of 
waiting patients for specific procedure  

Source: The National Institute of Public Health (NIJZ) 

Long-term care 

A  reform  to  create  a  sustainable,  flexible,  high 
quality  and  accessible  long-term  care  (LTC) 
system  has  been  under  preparation  since  2002. 
To  date,  no  comprehensive  integrated  long-term 
care exists in Slovenia. While it is provided within 
institutional  care,  community  based  services  are 
underdeveloped 
integrated.  The 
fragmentation  of  services  is  reflected  in  the 
funding.  LTC  needs  are 
fragmentation  of 
determined  under  several  legislative  acts,  which 
funding 
the  budgeting 
may 

increase 

and 

and 

not 

24 

00.10.20.30.40.50.60.70.80.910100020003000400050006000700080009000100002013201420152016Waiting fast in days (left axis)Waiting regular in days (left axis)Waiting fast above treshold WT in %Waiting regular abovetreshold WT in %0501001502002503003504002013201420152016Interventions and surgery of the spineOrthopedic shoulder surgeryHernia surgeryCoronary angiographyPeripheral vascular systemKnee replacementToal (median) 
 
 
 
 
 
4.1. Public finances and taxation 

the  national  parliament (27), 

enterprises  (SOEs)  started  in  2015.  Equipped 
with a number of corporate governance tools, and 
mandated  on  the  basis  of  an  overall  strategy 
the 
approved  by 
Slovenian  Sovereign  Holding  (SSH)  has  been 
taking action to ensure vigorous implementation of 
SOEs management policies. According to the SSH 
Annual  report,  return-on-equity  for  the  overall 
portfolio  increased  to  4.7%  in  2015  (1.8%  in 
2014).  Dividend  pay-outs  in  2016  have  been 
higher by 7.4% compared with 2015. Major deals 
completed  in  2016,  include  the  closing  of  the 
NKBM sale and the debt-to-equity swap in SAVA. 
A new management plan for 2017, quantifying the 
performance indicators for each separate SOE and 
updating  a  list  of  assets  for  divestment,  has  been 
approved  by  the  government  on  19  January 
2017. (28)   

Signs  of  wavering  at  the  political  level  suggest 
that the future of professional and independent 
SOEs management is still at stake. The SSH was 
confronted  with  major  opposition  when  it  tried  to 
replace  the  supervisory  board  of  the  Luka  Koper 
(Port of Koper) in July 2016. This led the head of 
the SSH to resign. The SSH is currently run by an 
interim CEO. In addition, the government appears 
reluctant  to  take  the  action  required  to  fine-tune 
the  SOEs  management 
certain  aspects  of 
framework,  despite  the  proposals  tabled  by  the 
SSH.  In  particular,  a  revision  of  the  strategy  that 
was  adopted  in  July  2015  has  been  advocated 
while not yet adopted. The revision could, amongst 
others,  facilitate  the  progress  in  major  deals,  such 
as  the  NLB  privatization  (see  section  4.2).  In 
addition,  it  could  make  the  strategy's  ambitious 
performance  goals  more  adaptable  to  changing 
circumstances.   

4.1.6.  TAXATION 

Personal income tax 

Slovenia has adopted a tax reform which shifts 
taxes away from labour to capital. In September 

(27)  A  summary  of  the  challenges  in  the  area  of  SOEs 
management  and  of  Slovenia's  policy  responses  can  be 
found in the 2016 Country Report on Slovenia.  

(28)  Further details regarding the progress made can be found in 
the November 2016 review of progress on policy measures 
relevant  for  the  correction  of  macroeconomic  imbalances 
(European Commission, 2016j). 

4.1.4.  FISCAL FRAMEWORK* 

the 

fully 

envisaged 

Implementing 
fiscal 
framework would improve the credibility of the 
budgetary  process  in  Slovenia.  Following  the 
adoption  of  the  Fiscal  Rules  Act,  the  government 
intends  to  adopt  revisions  to  the  Public  Finance 
Act.  The  previous  deadline  (December  2016)  was 
postponed  to  the  first  quarter  of  2017.  The 
proposed  amendments  aim  to  strengthen  the  rules 
for  all  budgetary  units  and  strengthen  the  role  of 
the  Court  of  Auditors  in  budget  implementation. 
Until  now,  there  was  a  lack  of  a  multi-annual 
perspective in the budgetary planning process, and 
the  focus  has  been  on  adopting  measures  on  an 
annual  basis.  A  multi-annual  approach 
to 
expenditure 
budgeting, 
ceilings promotes fiscal discipline and will provide 
greater  certainty 
to  citizens  and  businesses 
regarding  policy  measures  in  the  coming  years. 
The  Fiscal  Rules  Act  introduced  a  rolling  three-
year framework for the preparation of the budgets 
but  its  actual  implementation  is  dependent  on  the 
revisions 
the  Public  Finance  Act.  These 
revisions  would  put  a  multi-annual  approach  to 
budgeting on a statutory footing.  

particularly 

binding 

to 

in 

The  establishment  of  the  Fiscal  Council  has 
been further delayed. The implementation of the 
Fiscal Rules Act (passed by the Parliament in July 
2015) will be overseen by the Fiscal Council. This 
is  an  independent  state  authority  with  three 
the  fields  of 
members,  who  are  experts 
macroeconomics  or  public  finances.  The  Fiscal 
Council  members  should  be  proposed  by  the 
government  and  a  two-thirds  majority  of  the 
Parliament 
their 
appointment.  After  three  unsuccessful  procedures 
to  appoint  members,  the  government  will  have  to 
restart an open call for applicants to find members 
of the Fiscal Council. Hence, the establishment of 
the Fiscal Council has been further delayed. Given 
the  delays  experienced  to  date  and  the  need  to 
operationalise  the  Fiscal  Council,  this  timeline 
may jeopardise the Council’s ability to provide its 
opinion on the 2017 Stability Programme. 

required 

confirm 

to 

is 

4.1.5.  STATE OWNED ENTERPRISES* 

a 

Following 
the 
implementation  of  the  new  comprehensive 
framework for the management of State-owned 

reforms 

series 

of 

25 

 
                                                           
4.1. Public finances and taxation 

2016 the Parliament adopted amendments to three 
tax  laws  taking  effect  as  of  1  January  2017.  The 
purpose  of  the  changes  is  to  boost  the  creation  of 
high  value  added  jobs,  which  would  in  turn 
support  economic  growth  and  increase  fiscal 
revenue. (29) (30)    Before  the  reform,  the  personal 
income  tax  system  had  four  tax  brackets  and 
income  was  taxed  progressively  (16 %,  27 %, 
41 %  and  50 %).  The  aggregated  taxable  base 
could be reduced by different types of allowances. 
One  of  them  targeted  low  wage  earners,  i.e.  it 
applies  to  income  (earnings  and  other  income)  up 
to  an  amount  slightly  above  the  minimum  wage 
(up to EUR 10 866). The tax system was designed 
in  such  a  way  that  about  90 %  of  all  workers  are 
taxed at 16 % and 27 % tax rate (Graph 4.1.6). (31) 

introduces  an  additional  tax  rate  of  34 %  and 
lowers  the  second  highest  tax  rate  from  41 %  to 
39 %  (Graph  4.1.6).  The  costs  of  this  part  of  the 
reform  are  estimated  at  EUR  56  million.  The 
second  part  of  the  reform  increases  the  basic 
allowance  threshold  for  low  wage  earners  just 
above  the  minimum  wage,  from  EUR  10 866  to 
EUR  11 166.  The  costs  of  this  part  of  the  reform 
are  estimated  at  EUR 5 million.  Finally,  the  third 
part of the reform reduces taxation on performance 
bonuses (13th salary), i.e. up to 70 % of the average 
wage is exempt from the income tax. The costs of 
this  part  of  the  reform  are  estimated  at  EUR  45 
million.  

Graph 4.1.7:  The impact of the tax reform (by wage decile) 

Graph 4.1.6:  The impact of the tax reform (by tax brackets) 

Source: European Commission, Joint Research Centre, 
based on the EUROMOD model 

The  overall  fiscal  costs  of  the  tax  reform  are 
estimated by the authorities at EUR 106 million 
(0.4% of GDP). The fiscal impact is expected by 
the authorities to be balanced by the increase in the 
corporate  tax  rate  from  17 %  to  19 %  and  more 
efficient  tax  collection.  The  authorities  expect  the 
measure  to  be  fiscally  neutral.  The  reform  can  be 
split  in  three  parts.  The  first  part  increases  the 
to  five, 
number  of 

tax  brackets  from  four 

(29)  The  announced  reform  of  the  health  care  system  is 
expected to reduce the effect of the tax reform, in particular 
for higher wage earners.  

(30)  The  personal  income  tax  reform  affects  each  individual 
who  receives  an  active  income.  However,  in  this  section 
the  focus  is  on  workers,  i.e.  individuals  who  receive  only 
earnings from work. 
the 

the  social  security 
taxable  base 
contributions and tax allowances are deducted from income 
(earnings and other income). 

(31)  In  computing 

Source: European Commission, Joint Research Centre, 
based on the EUROMOD model 
Net earnings and mean annual net PIT liabilities take into 
account both changes in tax brackets/rates and changes 
to the basic allowance for low wage earners.  

The  tax  reform  has  the  biggest  impact  on 
workers  in  the  tenth  (highest)  wage  decile 
(Graph 4.1.7). (32) The reason is that the major part 
of the reform (i.e. the changes in tax brackets and 
tax rates) impacts only on workers with an annual 
taxable base above EUR 20 400, i.e. about 10 % of 
all  workers.  In  the  tenth  wage  decile  more  than 

(32)  The  impact  of  the  tax  reform  is  assessed  with  the 
EUROMOD  and  QUEST  model.  EUROMOD  cannot 
simulate the change in taxation of bonuses and the increase 
in  corporate  tax  rates  due  to  data  and  model  limitations. 
EUROMOD  is  a  static  tax-benefit  microsimulation  model 
is  a  dynamic  general  equilibrium 
while  QUEST 
macromodel.  EUROMOD 
been 
conducted  by  the  Joint  Research  Centre  of  the  European 
Commission.  

simulations 

have 

26 

0.01.02.03.04.05.06.00501001502002503003500-8021(tax rate =16%)8022-20400(tax rate =27%)20401-48000(tax rate =41%;reform: 34%)48001-70907(tax rate =41%;reform: 39%)over 70907(tax rate =50%)ThousandsTax brackets Number of employeesNumber of employees affected by the reformIncrease in net earnings, in % (right axis)-11.0-6.0-1.04.012345678910% changeWage decileNet earningsMean annual net PIT liabilitiesMean annual tax allowances 
 
                                                           
 
                                                           
 
4.1. Public finances and taxation 

80 % of workers are affected by the reform. Their 
tax liabilities are reduced on average by about 7% 
(EUR  600  per  year)  while  their  net  earnings  are 
increased by 2 % (Graph 4.1.7). In this wage decile 
the main beneficiaries are workers with an annual 
taxable  base  above  EUR  48 001  (Graph  4.1.6). 
They  represent  less  than 1% of  all workers.  Their 
net  earnings  are  increased  on  average  by  4.3 % 
(more than EUR 2 000 per year).  

in 

increase 

A  very  small  proportion  of  low  wage  workers 
benefit from the changes in the eligibility for the 
the  basic 
basic  allowance.  The 
allowance  threshold  for  low  wage  earners  has  an 
impact  on  workers  in  the  first  half  of  the  wage 
distribution.  However  only  4 %  of  them  benefit 
from  the  reform.  The  main  beneficiaries  are 
workers  in  the  second  and  third  wage  decile, 
although only 7.2 % of workers in the second and 
10.1 %  of  workers  in  the  third  wage  decile  are 
affected  (Graph  4.1.7).  Their  tax  liabilities  are 
reduced  on  average  by  about  6.5 %  and  6.0 % 
(EUR 23 and EUR 33 per year, respectively) while 
their  net  earnings  are  increased  on  average  by 
0.3 %.  In  the  remaining  deciles  the  proportion  of 
affected workers is below 2 % and their changes in 
net earnings smaller than 0.1 %.  

While  the  tax  reform  is  targeted,  disincentives 
to  work  remain  strong.  The  reform  raises 
incentives  to  work  for  workers  with  the  highest 
marginal  effective  tax  rates  (METR),  i.e.  workers 
in the second and the tenth wage decile (4.1.8) (33). 
However,  METR  for  these  workers  remain  high. 
Changes  in  the  basic  allowance  for  low  wage 
earners reduce the METR of workers in the second 
wage decile by 5.6 pps. to 44.3 %. Changes in tax 
brackets  and  tax  rates  reduce  the  METR  of 
workers in the tenth wage decile by 4 % to 46.5 %. 
Income taxes continue to contribute the most to the 
METR for workers in the tenth wage decile.  

The  tax  reform  will  have  a  small  impact  on 
economic  growth,  employment  and  inequality. 
Over  the  next  five  years,  GDP  is  expected  to 
increase  by  0.1 %  and  the  employment  rate  by 
0.07 %  relative  to  the  baseline.  The  impact  of  the 
reform  is  greater  for  high  skilled  workers  as  their 
employment rate is expected to increase by almost 

0.3 %.  The  increase  in  the  corporate  tax  rate  is 
expected  to  reduce  profits  (after  tax)  by  about 
0.5 %.  Inequality  rises  slightly  as 
the  Gini 
coefficient  increases  by  0.1pp  to  24.5 %.  The 
impact 
is 
on 
insignificant. 

at-risk-of-poverty 

rate 

the 

Graph 4.1.8:  The impact of the tax reform on work 

incentives 

(1) The first column shows METR before the reform and the 
second column after the reform.  
Source: European Commission 

Real estate tax 

immovable  property 

The introduction of a revised version of the real 
estate  tax  was  postponed  until  2019.  Revenues 
taxation, 
from  recurrent 
which  is  less  distortive  to  economic  growth  than 
labour  taxes,  are  considerably  below  the  EU 
average.  The  technical  assistance  provided  by  the 
IMF  on  the  Property  Tax  Act,  concluded  that  a 
single rate of 0.33% would generate recurrent real 
estate tax revenue of 1.2% of GDP (IMF, 2016g). 
The authorities plan to introduce a revised version 
of  the  real  estate  tax  by  2019.  Proceeds  from  the 
real  estate 
the 
municipalities.  Any  additional  income  from  this 
source  will 
funding  of 
municipalities.  The  broader  tax  base  would  be 
measured  as  the  market  value  throughout  a  mass 
valuation  system  (34).  In  autumn  2017, 
the 
Property Tax Act is expected to be adopted by the 

tax  will  be 

the  state’s 

revenues 

reduce 

for 

(33)  Marginal  effective  tax  rate  is  defined  as  the  rate  at  which 
taxes  are  increased  and  benefits  reduced  as  earnings  are 
increased by 3 %.  

(34)  Mass  valuation  is  characterised  by  use  of  standardized 
procedures  and  common  data  housed  in  a  database  (fiscal 
cadastre).  This  system  provides  relations  among  different 
characteristics of the items and their influence to the value.  

27 

0.05.010.015.020.025.030.035.040.045.050.012345678910Marginal effective tax rate (in %)Wage decileTaxesSICMeans tested benefits 
                                                           
 
                                                           
4.1. Public finances and taxation 

Parliament.  Mass  valuation  is  to  be  applied  to  all 
properties 
is 
therefore  expected  to  be  introduced  in  January 
2019.  

in  mid-2018.  This 

legislation 

28 

 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR* (35) 

The  profitability  of  the  banking  sector  has 
continued  to  improve  in  the  first  half  of  2016, 
thanks  to  higher  asset  quality  and  lower  credit 
risk. The recent increase in net income is in large 
part due to a net release of loan loss reserves that 
were  built  up  in  previous  years.  In  particular, 
banks were able to reduce their provisioning due to 
improving  asset  quality  in  the  existing  loan 
portfolios  and  the  low  credit  risk  of  new  loans. 
Despite  these  positive  developments,  the  low 
interest  rates  continue  to  put  pressure  on  net 
interest  margins  as  loan  rates  drop  faster  than  the 
funding  rates  for  banks,  where  deposit  rates  are 
already below euro area average. 

Table 4.2.1: 

Financial soundness indicators, all banks 

(1) ECB aggregated balance sheet 
Source: ECB, CBD 

to 

improving  due 

The  solvency  positions  of  banks  have  been 
generally 
increasing 
profitability  and  asset  quality.  A  key  driver 
behind  these  positive  developments  was  the  re-
risky 
classification  and 
activities  from  the  banks’  balance  sheets.  The 
aggregate Tier 1 ratio has steadily improved since 
2013  to  reach  18.4  %  in  June  2016.  Smaller 
institutions  and  savings  banks  represent  a  higher 
solvency risk.   

the  deleveraging  of 

event of an interest rate hike, effectively leading to 
a further compression of the net interest margins in 
the  short  to  medium  term.  Furthermore,  the 
dominant  use  of  sight  deposits  as  the  main 
investment  vehicle  suggests  an  increased  liquidity 
risk.  

Graph 4.2.1:  Evolution of NPL categories 

Source: Bank of Slovenia 
Note: The NPL categories are based on local risk category 
definitions.  Claims of BAMC are outside the banking system 
and classified as NPLs. 

Graph 4.2.2:  Net NPLs to own funds (%) 

Risks  related  to  the  increasing  maturity  gap 
between  assets  and  liabilities  could  develop 
when  the  interest  rates  rise.  As  loan  rates  have 
dropped,  existing  and  new  borrowers  have 
increasingly  turned  to  longer  maturity  and  fixed 
interest  rate  loans.  In  a  parallel  development, 
increased risk aversion and a general lack of high 
yield instruments have led investors to put most of 
their  savings  into  sight  deposits,  which  can  be 
withdrawn at any time. As a result, the difference 
between  the  average  re-pricing  periods  of  the 
assets and liabilities has increased. The increasing 
maturity  gap  could  become  challenging  in  the 

(35)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

Source: ECB (consolidated banking data) 
Note: No data available for GB and SK for Q2 - 2016 and for 
RO, HR, CZ, LU and FI for Q4 - 2012 

loans  have 

Non-performing 
considerably 
decreased  over  the  past  year  partly  due  to 
portfolio  sales  and  transfers  to  the  bad  bank. 
Banks  have  acquired  significant  capacities  and 
competences in the workout management of NPLs. 
The share of NPLs in the banks’ balance sheets is 

29 

0%5%10%15%20%25%30%+90 days arrears - banks+90 days arrears and other NPLs –banksNPL including BAMC050100150200250CYGRPTITIEBGSIHUROESLTHRDKCZLVMTATBEFRNLPLDESEFIEELU2016 Q22012 Q4 
 
 
 
 
                                                           
 
 
 
 
 
4.2. Financial sector 

Nova  Kreditna  Banka  Maribor,  Raiffeisen  banka 
and  Poštna  banka  Slovenije  was  completed  in 
September  2016.  The  remainder  of  Factor  banka 
and  Probanka,  two  banks  winding  down  since 
September  2013  was  transferred  to  the  BAMC  in 
February 2016. Sberbank and Gorenjska Banka are 
on sale. 

level  of 

State ownership in the banking sector is one of 
the highest in the EU. The state owns more than 
50 % of the bank market, but is slowly reducing its 
stake.  Maintaining  a  high 
state 
involvement  in  the  longer  run  may  entail  some 
risks for economic efficiency and public finances. 
Nova  Kreditna  Banka  Maribor  was  privatised  in 
April  2016,  and  NLB  is  planned  to  be  privatised 
(up to 75 %) by December 2017. The initial public 
offering  was  initially  supposed  to  start  at  the  end 
of 2016. NLB has been classified as an ‘important 
asset’  in  the  state  assets  management  strategy. 
Therefore the government has to keep a minimum 
stake  of  25 %  (+1  vote)  according  to  the  law  on 
Slovenian  Sovereign  Holding.  Also,  the  strategy 
specifies  that  no  private  investor  can  acquire  a 
stake higher than the government in certain firms, 
including in NLB. Although the legal effect of the 
latter provision is not clear, this is likely to reduce 
the  attractiveness  of  NLB  for  private  investors.  It 
is also likely to decrease the sale price, unless the 
management  of  company’s  operations  is  secured 
via other tools, such as shareholders’ arrangements 
on corporate governance. Finally, Abanka-Celje is 
expected  to  be  privatised  by  June  2019,  but  no 
concrete  step  has  been 
towards 
privatisation. 

taken  yet 

in 

low 

Insurers  seem  well  capitalised  and  resilient  to 
interest  rate  environment,  but 
the 
insurance  may 
supplementary  health 
face 
insurers  showed  good 
challenges.  Slovenian 
resilience 
Insurance  and 
the  European 
Occupational  Pensions  Authority  (EIOPA)  stress 
test  of  2016,  and  Solvency  II  entered  into  force 
smoothly.  The  complementary  health  insurance, 
which  was  highly  profitable  in  the  past,  has  seen 
its profit gradually decreasing. The government is 
considering 
the 
option 
supplementary  health  insurance  in  the  public 
scheme and to cover 100 % of the claims (section 
4.1). 

integrate 

the 

to 

falling  and  the  trend  is  expected  to  continue.  In 
particular, the local NPL measure, which includes 
both  loans  that  are  more  than  90  days  in  arrears 
and  other  risk  categories,  dropped  to  11.3 %  by 
November  2016  from  18.4 %  at  the  end  of  2014 
(Graph  4.2.1).  Although  the  absolute  level  is  still 
high  in  comparison  to  other  Member  States,  they 
are  well  provisioned  (coverage  ratio  of  69.2  %  in 
June  2016).  The  loss  absorbing  capacity  has 
increased and the remaining spill-over risks to the 
sector have decreased substantially over the recent 
years 
In  mid-2016  Nova 
Ljubljanska  Banka  (NLB)  sold  two  packages  of 
NPLs  of  retail  and  corporate  clients  in  Slovenia 
worth  EUR  500  million  to  institutional  investors. 
The portfolio sales and transfers to the Bank Asset 
Management  Company  (BAMC)  contributed  to 
about  50 %  of  the  reduction  in  NPLs.  Write-offs 
and restructuring contributed to 30 % and 20 % of 
the 
loans 
respectively. 

the  stock  of  bad 

(Graph  4.2.2). 

reduction  of 

The  Bank of Slovenia’s actions  have  effectively 
provided direct incentives for engaging in write-
offs.  To  speed  up  the  process  of  balance  sheet 
cleaning,  the  Bank  has  issued  guidance  asking 
banks  to  specify  annual  targets  and  strategies  for 
NPL reduction, which are being regularly revised. 
In  addition, banks are  asked to  derecognise  assets 
i.e.  withdraw  recognition  of  assets,  within  a 
specific timeline depending on the type of the asset 
and the exposures. The Bank of Slovenia played a 
leading  role  in  the  successful  restructuring  of  the 
banking  and  corporate  sector.  The  continued 
respect  of  its  independence  and  of  its  role  within 
the ESCB while carrying out its tasks provided for 
by  EU  law,  including  during  pending  domestic 
investigations, is of high importance. 

Banks  are  improving  their  risk  management 
practices.  Several  banks  are  actively  pursuing  a 
strategy  to  shift  to  the  internal-ratings  based 
approach for credit risk. The current conditions do 
not  provide  immediate  incentives  for  banks  to 
formally  apply  such  an  approach due  to  the  high 
default rates observed over the last years of crisis. 
However, 
internal-ratings  based 
to 
approach is seen as a longer-term ambition, which 
allows  the  banks  to  build  up  the  necessary 
expertise and information. 

the  shift 

The  consolidation  and  restructuring  of  the 
banking  sector  are  progressing.  The  merger  of 

State  ownership  in  the  insurance  sector  is 
unusually  high  and  results  in  questionable 

30 

 
4.2. Financial sector 

record  low  of  EUR  10.2  billion  (26.4 %  of  GDP) 
reflecting the transfers of impaired assets from the 
banks  to  the  Bank  Asset  Management  Company 
and significant deleveraging pressures. 

Graph 4.2.3:  NFC funding 

weak 

strategies, 

the  Slovenian 

investment 
corporate 
governance,  supervisory  issues,  and  risks  for 
financial  stability,  economic  efficiency  and 
public  finances.  The  state  owns  three  major 
players  of 
insurance  market, 
representing a market share of about 60 %, which 
is  by  far  the  highest  share  in  the  EU.  The 
Government  seems  to  exert  influence  on  the 
strategy of the insurers. The strategy on state assets 
management  requires  that  state-owned  insurers 
will  not  invest  less  than  30 %  of  their  assets  in 
domestic  financial  instruments.  It  also  provides 
that these  insurers’  supervisory board  must obtain 
an  approval  by  the  Slovenian  Sovereign  Holding  
before disposing a stake in a company classified as 
‘strategic’ or ‘important’. These restrictions on the 
investment  strategy  of  state-owned  insurers  could 
hamper the asset allocations and lead to increased 
concentration risk. 

The independence of the Insurance Supervision 
Agency  (AZN)  and  the  Securities  Market 
Agency  (ATVP)  might  be  under  pressure.  A 
number  of  international  institutions  (IMF,  EIOPA 
and  OECD)  have  issued  recommendations  to 
strengthen the independence of the supervisors, or 
shared  concerns  that  this  independence  could  be 
compromised. In particular, the draft law on public 
agencies aims to introduce potentially problematic 
provisions  reducing  the  operational  independence 
of  the  AZN  and  ATVP.  The  proposal  stipulates 
that  the  Ministry  of  Finance  should  set  annual 
goals  for  the  two  agencies.  The  failure  to  achieve 
these goals may be considered as adequate grounds 
for dismissal of the responsible director. Similarly, 
the  proposal  gives  the  Government  the  ability  to 
interfere with the staffing and salary plans as well 
as  the  financial  operations  of  the  two  agencies. 
These provisions may lead to a conflict of interest 
since  both  agencies  are  responsible  for 
the 
supervision  of  a  large  number  of  state-owned 
enterprises. 

The  market  capitalisation  of  quoted  non-
financial  corporations  is  very  low  compared  to 
the EU average. While reaching EUR 19.2 billion 
in August 2007, it is now down to EUR 4.7 billion. 
The  issuing  of  debt  securities  has  been  increasing 
but  is  still  at  a  very  low  level.  Non-financial 
corporations continue to prefer monetary financial 
institutions  (MFI)  loans  as  a  source  of  funding 
(Graph  4.2.3),  although  the  stock  of  such  loans 
dropped  from  EUR  21.5  billion  in  July  2010  to  a 

Source: ECB, AMECO 

Slovenia is repeatedly late with transposing EU 
financial  directives.  It  is  among  the  Member 
States  with 
the  highest  number  of  open 
infringement  cases  due  to  non-transposition  of 
post-crisis  financial  directives.  According  to  the 
authorities,  the  lack  of  administrative  capacity 
(human resources) is one of the major reasons for 
delayed transposition. 

4.2.2.  ACCESS TO FINANCE* 

Access  to  finance  for  small  and  medium-sized 
enterprises (SMEs) has improved and is in line 
with  the  EU  average.   In  2016,  some  9 %  of 
SMEs  had  their  loan  applications  rejected,  down 
from 24 % in 2014. Both the willingness of banks 
to  lend  money  and  access  to  public  financial 
support  that  include  guarantees  have  improved. 
Although  certain  SMEs  are  still  facing  financial 
challenges,  access  to  finance  is  no  longer  one  of 
the  three  main  obstacles  for  the  operation  of 
Slovenian  micro  and  small  businesses  (Small 
Business Agenda 2016 and CCIS Analytics, 2016). 
This is due to the economic recovery, the cleaning-
up  of  bank  balance  sheets  and  non-performing 
assets,  greater  responsiveness  of  banks,  and  some 
new government debt funding programmes (by the 

31 

0.000.010.010.020.020.030.030102030405060Listed shares; 2015Debt securities; 2015MFI loans; 2015Gross operating surplus:corporations; 2015Venture capital (rhs); 2015SIEU% of GDP 
 
4.2. Financial sector 

Slovenian  Enterprise  Fund  and  the  SID  Bank). 
Nevertheless  non-performing  loans  remain  high 
among  SMEs.  To  address  the  issue,  a  systematic 
approach to SME NPL work out has been prepared 
with  the  help  of  the  World  Bank.  In  addition,  the 
government adopted a bill to set up a central credit 
register  to  enable  more  efficient  risk  management 
and  reduce  the  risk  of  indebtedness.  Since  the 
trough  in  February  2016,  household  loans  have 
grown by 1.6 %. At the same time, loans to firms 
and  SMEs  continue  to  contract  although  at  a 
slower  pace.  Access  to  finance  for  businesses  is 
expected  to  improve  further  as  the  deleveraging 
pressure eases. 

Limited  steps  have  been  taken  to  improve 
access  to  alternative  financing  sources  and 
equity  financing  is  still  lower  than  in  the  EU. 
The Slovenian Enterprise Fund (SEF) and the SID 
bank  (Slovenska  izvozna  in  razvojna  banka)  have 
introduced mainly new debt instruments for SMEs 
including  measures  such  as  microcredits.  One 
scheme  of  seed  capital  (around  EUR  3.9  million) 
was implemented in 2016 by the SEF and some 47 
SMEs were supported. In addition, SEF has signed 
the  Competitiveness  of  Enterprises  and  SMEs 
Agreement under the European Fund for Strategic 
Investments.  This  will  allow  the  SEF  to  provide 
EUR  180  million  of  guarantees  to  SMEs  in 
Slovenia  in  three  years.  Based  on  a  recent  gap 
analysis,  new  financial  instruments  that  would  be 
backed by the structural funds are being prepared. 
Given  the  importance  of  access  to  finance  for 
growth  of  small  businesses,  a  large  proportion  of 
the ESIF (approximately EUR 450 million) will be 
delivered  through  financial  instruments  aimed  at 
SMEs. These funds are planned to be delivered via 
more standard forms of financial instruments, such 
as 
through 
alternative  sources  of  financing,  such  as  equity 
investments,  venture  capital  and  mezzanine 
financing. Incentives for venture capital companies 
are  abolished  as  of  January  2017.  Before  such  an 
amendment, 
the  Corporate  Income  Tax  Act 
stipulated a special 0 % tax rate for venture capital 
companies,  but  only  if  they  were  established  in 
Slovenia.  

loans  and  guarantees  but  also 

32 

 
4.2. Financial sector 

33 

Box 4.2.1: Selected highlight: reforms of the banking sectorIn 2015, Slovenia introduced the Regulation on the Assessment of Credit Risk Losses of Banks and Savings Banks (henceforth, the "Regulation"). (1) A principal aim of the Regulation was to set out rules on the classification of financial assets and assessment of credit risk losses.  Under Article 20 of the Regulation, banks are required to resort to a write-off when there is an internal assessment that a loan will no longer will be repaid. Once an assessment of non-repayment is made, the bank should derecognise the asset, which would result, under local accounting rules, in an immediate loss that is equivalent to the loan's net carrying value (i.e. gross carrying value minus stock of provisions). Then, at a later stage the bank may make adjustments by factoring in the recovered amounts after the finalisation of the legal bankruptcy procedures or other settlement proceedings, if any.   The Regulation provides clear guidance on when the supervisor would like write-offs to take place but does not provide any specific criteria warranting an assessment of non-repayment. While it is not clear if the expected payments include both the interest and principal payments or comprise only of the latter, the text provides guidance on when such an assessment would be expected. In particular, an assessment of non-repayment is deemed to be justifiable for (i) all unsecured loans of debtors that are either undergoing bankruptcy proceedings or more than one year in arrears; or, (ii) all property-backed loans of debtors that are more than four years in arrears.  These time-bound write-off guidelines appear to function well and have played a positive role in the significant reduction of NPL levels and the recovery of the Slovenian banking sector. In addition, the Regulation fills an important gap in international accounting standards on the recognition and measurement of financial instruments (or, the so-called IAS-39) rules. More importantly, the rules have given banks additional incentives to engage in more sustainable NPL resolution strategies, such as asset sales, instead of lengthy restructuring proceedings.                                                             (1) The regulation was published on Official Gazette of the Republic of Slovenia, No. 50/15, entering into force in 11 July 2015. An amended version was published on Official Gazette of the Republic of Slovenia, No. 96/15, entering into force in 12 December 2015.  
 
 
 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

The recovery on the labour market continued in 
2016.  From  Q3  2015 
the  employment  rate 
increased  by  0.2  pps  to 70.4 %  in  Q3 2016  while 
unemployment  rate  continued  to  decline  to  7.4  % 
in  Q3  2016.  In  view  of  the  rising  labour  demand 
there  is  an  opportunity  to  activate  and  keep  older 
workers  in  employment  for  longer.  It  is  expected 
that  demand  for  older  workers  will  increase  as 
labour shortages are expected to kick in soon. 

4.3.1.  LABOUR MARKET AND OLDER 

WORKERS* (36) 

in 

increase 

to  experience  an 

levels  but  remains 

The  participation  rate  of  older  workers  is  well 
above  pre-crisis 
low, 
especially  compared  to  other  Member  States 
(European  Commission,  2016a).  In  the  period 
2011-2015,  the  employment  rate  of  people  aged 
55-64  increased  by  5.4 pps  to  36.6 %  (by  6.1  pps 
to 53.3 % at the EU average). This is the only age 
group 
their 
employment  in  this  period.  The  increase  was 
mainly  due  to  the  2012  pension  reform  (see 
Section  4.1.2)  and  the  demographic  effect  of  the 
'baby  boom' (37),  which  led  to  more  employed 
people  entering  the  group  of  older  workers  than 
exiting  (IMAD,  2016a).  However  labour  market 
conditions for older workers remain unfavourable. 
Thus, the key challenges remain how to keep older 
workers  in  employment  for  longer  and  get  the 
long-term unemployed back into work. Effectively 
these  challenges  could  have  a 
addressing 
substantial  positive  impact  on  employment  and 
economic activity. (38)    

One in three jobseekers is over 50 years old. The 
employment  rate  of  older  people  continues  to  be 
among the lowest in the EU, despite the observed 
improvements  and  the  recovery  of  the  labour 
market.  While  the  employment  rate  of  older 
women  (31 %)  increased  in  2015,  it  remains  low 

(36)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

(37)  The  demographic  group  born  in  the  post-WWII  baby 

boom, between approximately 1946 and 1964. 

(38)  Simulations  made  by  the  Institute  of  Macroeconomic 
Analysis  and  Development  in  Slovenia  of  some  labour 
market  measures  indicate  a  possible  increase  in  Slovenia' 
GDP in the range of 0,2% to around 1% for each individual 
measure.  
http://www.umar.gov.si/fileadmin/user_upload/sporocila_z
a_javnost/2016/marec/A_strukturni_ukrepi.pdf 

compared to the Slovenian men (43 %) and the EU 
average  for  women  (47 %).  The  retention  rate  of 
older  workers  is  the  lowest  among  all  OECD 
countries.  Only  18 %  of  those  aged  55-59  who 
were employed in 2009 were still employed when 
aged 60-64 in 2014. The low retention rate is due 
to  older  workers  becoming  inactive.  In  addition, 
the  unemployment  rate  of  older  people  more  than 
doubled  since  2008,  to  a  large  extent  due  to 
termination  of  contracts  for  business  reasons.  
More  than  40 %  of  all  long  term  unemployed  are 
older  than  50  and  almost  half  of  them  have  been 
unemployed  for  2  years  or  more  (37.1  months  on 
average). 

Graph 4.3.1:  Employment rate, by age groups, 2015 

Source: European Commission 

Variations in adult skill levels are large with the 
lowest proficiency among the older people. The 
OECD  Survey  of  Adult  Skills  (PIAAC)  showed 
that  about  one  in  four  Slovenes  aged  between  16 
and  65  has  poor  literacy  and  numeracy  skills,  a 
slightly  larger  proportion  than  the  OECD  average 
(18.9  %  and  22.7  %  respectively).  Nearly  half  of 
all  Slovenians  have  poor  digital  problem-solving 
skills. Slovenian adults do better in numeracy than 
in 
significant 
improvement in literacy skills compared to surveys 
from  two  decades  ago.  The  skills  of  55-64  year-
olds are low both compared to the OECD average 
and  to  young  Slovenians,  creating  one  of  the 
widest  gaps  across  OECD  countries  (OECD, 
reskilling  and 
2016b).  Therefore,  upskilling, 
lifelong  learning  policies  could  improve  their 
labour  market  participation.  The  national  skills 

is  despite  a 

literacy.  This 

34 

30405060708090SEDEDKEEUKNLLTFILVIECZEUBGPTFRCYITSKESATHUPLBEROMTHRLUSIEL20-6455-64 
 
                                                           
 
4.3. Labour market, education and social policies 

strategy,  currently  being drafted,  intends  to  assess 
the  national  skills  system  and  pave  the  way  for 
policies  and  strategies  to  meet  future  needs  and 
improve  the  link  between  supply  and  demand  for 
skills.  

Older  workers  face  many  obstacles  in  staying 
active on the labour market despite the reform 
in 2013. Employers' perceptions play an important 
role.  Employers  doubt  the  capabilities  of  older 
workers and see them as  more expensive and less 
flexible  workers  (Public  Employment  Service, 
2015).  Older  workers  may  often  not  be  attractive 
to employers due to their lower skills and the high 
seniority bonuses in Slovenia (OECD, 2016a). The 
2013  labour  market  reform  attempted  to  ensure 
greater  competitiveness,  employability  and  job 
retention  of  older  workers. (39)  Nevertheless, 
despite  the  reform  older  people  remain  less 
attractive as workers.  

duration  varies  from  two  months  for  young 
workers with 6-8  months of  prior  employment,  to 
up to 25 months. For workers over 55 years, with 
an  insurance  period  of  25  years,  the  duration  of 
unemployment benefit is set to 25 months as soon 
as  nine  months  of  contributions were  made  in  the 
past  24  months.  After  this  period  unemployed 
older  workers  can  receive  pension  and  disability 
contributions  for  up  to  2  years  prior  to  fulfilling 
retirement conditions. This period will be reduced 
to  1  year  as  of  March  2018.  Because  seasonal 
employment can be sufficient for older workers to 
re-establish  benefit  eligibility,  incentives  to  seek 
permanent  employment  are  weakened.  Entering 
retirement via the unemployment insurance system 
has  become  increasingly  common  in  recent  years, 
with  large  spikes  coinciding  with  anticipated 
pension  reforms.  Today,  around  30  %  of  old-age 
pension  recipients  enter  retirement  via  this  route. 
(OECD, 2016a). 

Older  workers  are  approximately  15 %  more 
expensive  for  employers  than  other  workers 
(OECD  2016a).  In  addition  to  the  basic  salary, 
employers often have to pay more for them due to 
the  seniority  component  of  the  salary  system.  In 
the private sector this commonly represents 0.5 % 
of  the  salary  for  each  working  year  (although  it 
in  collective 
may  be  agreed 
agreements).  

to  be 

lower 

The  authorities  are  seeking  to  encourage 
employment  of  older  workers.  Recent  measures 
concern  tax  relief  and  exemption  from  paying 
social  security  contributions  for  employers  hiring 
older  workers  (55+  unemployed).  The  measure 
reduces labour costs temporarily as an employer is 
exempt  from  paying  social  security  contributions 
for up to 24 months. The measure was introduced 
at  the  start  of  2016,  and  will  likely  be  extended 
beyond 2017. 

The  unemployment  insurance  system  allows 
people to  retire  as much  as four years and one 
month  earlier.  In  Slovenia,  the  duration  of 
unemployment  benefits  increases  sharply  with 
work  experience  and  age.  Maximum  benefit 

(39)  Changes  were  made  to  the  protection  of  workers  prior  to 
retirement  if  their  contract  is  terminated,  to  severance 
the  seniority  component 
to 
grants  upon  retirement, 
(dodatek  na  delovno  dobo)  of  the  salary,  and  the  level, 
duration  and  conditions  of  unemployment  benefits  and 
social insurance contributions. 

To increase the employment rate of the elderly 
the government adopted a policy paper and an 
action  plan  in  2016.  The  policy  paper  'Older 
Workers and the Labour Market in Slovenia' forms 
a basis for discussion with social partners and may, 
to  some  extent,  address 
the  challenges  of 
demographic  trends.  The  document  complements 
the 
the  White  Paper  on  pensions.  Tackling 
challenges the elderly face on the labour market is 
seen  as  a  key  factor  for  a  successful  pension 
reform  (see  Section  4.1.1).  Based  on  the  policy 
paper, the action plan was adopted. It includes 34 
short  term  measures  that  should  either  start  or 
finish in 2017, as well as 15 measures starting only 
in  2018.  Four  different  ministries  are  involved  in 
the  plan.  Some  measures  are  a  continuation  of 
previous  policies  (Section  4.3.2)  while  others  are 
completely  new.  Implementation  of  the  plan  is  a 
key to improve activation of older workers.  

low-skilled  among  all 
The  proportion  of 
registered  unemployed  remains  at  the  same 
high level compared to last year (at 28.8%). The 
employment  rate  of  low  skilled  workers  fell 
between 2008 and 2013. This was mostly the result 
of a significant decline in economic activity in the 
construction  and  manufacturing  sectors,  which 
employ mostly low-skilled labour. In recent years, 
their  situation  on  the  labour  market  improved:  in 
2015  their  employment  rate  was  up  by  3.4 pps 
(48 %), from 2013. This is due to the structure of 
the  economic  recovery,  which  is  based  mainly  on 

35 

 
                                                           
4.3. Labour market, education and social policies 

contracts 

(MoLFSAEO, 

proportion  of  fixed-term  contracts  remains  stable 
at  12.4 %.  Newly  concluded  fixed  term  contracts 
have  increased  slightly  among  older  and  younger 
workers.  However  the  proportion  of  fixed  term 
contracts  remains  lower  than  before  the  reform. 
The  number  of  self-employed  remains  stable  at 
around  90 000.  A  policy  paper  prepared  by  the 
Ministry  of  Labour  entitled  "Decent  Work" 
identified  a  number  of  reasons  for  using  atypical 
contracts, such as rigid labour legislation and a tax 
system that leads to uncompetitive labour costs for 
permanent 
2016c). 
Against  this  background  amendments  of  three 
different labour market acts are currently in public 
consultations.  Amendments  of 
the  Labour 
Inspection Act will give more power to the labour 
inspectorate  which  should  also  help  combat  the 
increasing  number  of  bogus  self-employed (41). 
Amendments of the Employment Relationship Act 
on  dismissals  in  case  of  inability  to  work  aim  at 
making  permanent  contracts  more  attractive. 
Finally, changes of the Labour Market Regulation 
Act  seek  to  ensure  greater  social  security  for 
employees in case their employment is terminated. 
The purpose is to encourage unemployed people to 
look  for  work  and  intensify  job  search  already  in 
the notice period.  

The  relatively  high  minimum  wage  and  the 
compressed wage distribution are still an issue, 
yet  the  number  of  minimum  wage  workers 
continues  to  decline.  The  gap  between 
the 
minimum  wage  and  average  wage  in  2016  has 
increased  on  account  of  average  wage  growth, 
while  the  minimum  wage  in  2016  remained  fixed 
at  the  2015  level  (EUR  791  gross).  Beginning  of 
2017, the minimum wage was increased by 1.8 % 
to EUR 805 gross or EUR 614 net. This increase is 
close  to  the  average  wage  growth  in  2016. 
Slovenia still has the highest minimum wage in the 
EU as a proportion of average gross earnings (50.8 
%  in  2016).  However,  the  number  of  workers 
earning  the  minimum  wage  in  the  private  sector 
has fallen from 19.8 % in 2014, to 16.4 % in 2015 

exports 

manufacturing 
2016a). 
Nevertheless,  the  employment  rate  of  low  skilled 
remains  6.8 pps  below  the  pre-crisis  level  and 
4.6 pps lower than the EU average.  

(IMAD, 

Older  and  low-skilled  workers  continue  to  be 
underrepresented 
labour  market 
in  active 
policy (ALMP) measures. In 2015 the structure of 
ALMPs participants was as follows: 41.2 % young 
people, 47.6 % long-term unemployed, 17 % lower 
educated  people  and  only  13.9 %  older  workers 
(50+)  Some  groups  may  overlap.  Participation  in 
lifelong  learning  in  2015  was  high  compared  to 
other EU countries (11.9 % vs 10.7 % in the EU). 
However, it remains low among older workers and 
the  low-skilled.  The  ALMP  implementation  plan 
adopted  in  January  2016  continues  the  approach 
implemented so far, with general measures such as 
subsidies for  employment,  encouragement  of  self-
employment and public works. While public works 
seems  to  help  in  employing  workers,  particularly 
older  workers,  it  can  to  a  large  extent  represent 
quite  an  artificial  reduction  of  unemployment, 
especially  long-term  unemployment.  Since  2008, 
only  three  programmes  were  exclusive  to  older 
unemployed of which two were co-financed by the 
European Social Fund. 

The  Ministry  of  Labour  is  preparing  two  new 
projects  to  address  vulnerable  groups  on  the 
labour  market,  including  older  workers.  One 
will focus on providing employment to those who 
are  unemployed  for  more  than  24  months  and  are 
receiving  social  assistance.  It  will  have  a  concept 
similar to public works and it will provide jobs in 
the  public  sector  and  associations  with  a  social 
mission. A second new programme, 'Active ageing 
at work' will start in 2017. It will provide support 
for employers to manage the ageing workforce and 
provide  training  programmes  for  older  workers. 
Both projects will be co-financed by the European 
Social Fund.  

4.3.2.  OTHER LABOUR MARKET DEVELOPMENTS 

Despite  the  reform  in  2013  labour  market 
segmentation (40)  remains  a  challenge.  The 

but  not  exclusively,  between  workers  with  temporary 
contracts and those with permanent ones. 

(40)  The coexistence in the labour market of different categories 
('segments') of workers, characterised by different levels of 
job  security  and/or  access  to  social  security  and  other 
benefits  and  by  low  transition  rates  from  less  secure  to 
more  secure  categories.  The  main  distinction  is  typically, 

(41)  The  number  of  those  performing  work  for  only  one  client 
increased from 11.5 % in 2012 to 18.7 % in 2015, pointing 
to  a  more  pronounced  use  of  bogus  self-employment 
(European Commission, 2016a). 

36 

 
                                                           
                                                                                   
 
 
4.3. Labour market, education and social policies 

and to 13.4 % in the first half of 2016. Coverage of 
the  minimum  wage  is  nevertheless  among  the 
highest in EU.  

4.3.3.  SOCIAL DIALOGUE 

The  dialogue  between  the  social  partners  is 
ongoing,  despite  the  failure  of  the  2015  Social 
Agreement.  In  2015,  the  minimum  wage  setting 
was  redefined  despite  strong  opposition  from 
employer  organisations.  As  a  consequence,  the 
employer  organisations  withdrew  from  the  Social 
Agreement  driving  the  social  dialogue  to  a  low 
point  (European  Commission,  2016a).  The  social 
dialogue  is  recently  being  slowly  re-established. 
trade  unions  and  employer 
The  government, 
organisations  reached  a  consensus  on  changes  to 
the  Economic  and  Social  Council  in  December 
2016. The changes aim to increase effectiveness of 
the  Economic  and  Social  Council  and  increase 
importance  of  social  dialogue  in  the  decision-
making  process.  New  rules  increase  competences 
of social partners on strategic issues and systemic 
legislation. 

43.4 % of 30-34 year-olds had obtained a tertiary-
level qualification, up by 2.4 pps since 2014. This 
is above the EU average of 38.7 %. However, the 
gender  gap  is  the  second  widest  in  the  EU,  with 
56.4 % of women but only 32 % of men attaining 
higher  education.  Reform  of  Slovenia's  higher 
education system has been debated for a number of 
years  and  the  latest  initiative  is  to  launch  reforms 
in  two  phases.  The first phase  is a  revision  of  the 
Higher  Education  Act  from  November  2016, 
which  introduces  important  changes  to  quality 
assurance  and  financing  of  higher  education 
(European  Commission,  2016b).  The  provision  to 
internationalise higher education by allowing study 
programmes  in  foreign  languages  did  not  get  the 
necessary  political  support.  The  second  phase 
involves  a  more  fundamental  reform  via  a  new 
Higher Education Act in 2017. This will primarily 
aim  to  regulate  the  system  of  financing  higher 
education  staff  with  a  view  to  establishing  an 
efficient  balance  between  pedagogical,  research 
and  project  activities  at  higher  education 
institutions.  The  reform  may  reduce  funds  for 
some 
the  consultation 
therefore 
process will likely be challenging. 

institutions, 

4.3.4.  EDUCATION AND SKILLS 

4.3.5.  SOCIAL POLICIES 

High  and  improving  student  performance  in 
basic  skills  indicates  that  the  school  education 
system  is  of  a  high  quality.  The  2015  OECD 
programme  for  international  student  assessment 
(PISA)  found  that  Slovenia  was  the  third  best 
performing EU country in science, a field where it 
achieved  the highest  scores.  In reading,  it  had  the 
second  largest  improvement  in  the  EU  compared 
to  the  last  assessment  in  2012.  This  is  due  to  a 
large drop in the number of low achieving students 
(from  21 %  in  2012  to  15 %)  and  a  simultaneous 
increase  in  the  proportion  of  top  achievers  (by 
around 4 pps). Student performance in maths also 
improved somewhat, while it worsened marginally 
in science, although not enough to compromise the 
high  score.  The  proportion  of  low  achievers  is 
much lower than the EU average across the board 
(15 %  in  science  and  reading,  and  16 %  in 
mathematics),  thanks  in  part  to  a  small  impact  of 
socioeconomic status on student performance. 

The rate of people at risk of poverty and social 
exclusion  (AROPE)  decreased  but  remains 
above  the  EU  average  for  elderly.  The  AROPE 
rate decreased to 19.2 % in 2015, while the rate for 
older  people  (65  and  above)  was  20.2 %  (EU 
average:  23.7 %  and  17.4 %,  respectively).  The 
AROPE  rate  is  particularly  high  for  older  women 
over  65  years  old  (25.5 %;  EU  average:  19.6 %). 
Monetary  poverty  for  elderly  slightly  grew  to 
17.2 % remaining above the EU average (14.1 %). 
Furthermore,  the  poverty  gap (42)  for  this  age 
group  remained  high  and  stood  at  18.1 %  (EU 
average: 16.5%). An ageing population (European 
Commission,  2016a),  the  low  employment  rate  of 
older  workers  and  issues  with  adequate  pensions 
(see  Section  4.1.2)  are  expected  to  put  additional 
pressure on the income of elderly in the future. On 
the  other  hand,  Slovenia  has  one  of  the  lowest 
levels of income inequality in the EU (see Section 
1).  

Higher  education  reforms  feature  prominently 
on  the  agenda.  The  tertiary  education  attainment 
rate  has  continued  to  rise  in  Slovenia:  in  2015 

(42)  Poverty  gap  is  defined  as  average  percentage  shortfall  (or 
gap) in income for the population (or a part of population 
e.g. elderly) below the poverty line.  

37 

 
                                                           
4.3. Labour market, education and social policies 

(44)  without 

The  Social  Assistance  Benefits  Act  (43)  was 
amended.  The  amended  act  entered  into  force  as 
of February 2017 and will allow people to receive 
income  support 
cash  social  assistance  and 
(varstveni  dodatek) 
triggering 
inheritance  conditions  for  their  real-estate  up  to 
EUR  120  000  (45).  The  latter  conditions  had  been 
applied  since  2012  and  severely  influenced  the 
take-up of the measure: from 46 752 in December 
2011  to  10  220  in  January  2016.  The  amendment 
will have a positive impact on the old-age income 
however  for  a  limited  proportion  of  elderly 
population. 

(43)  The  Social  Assistance  Benefits  Act  was  adopted  in  2010 

and was implemented as of January 2012. 

(44)  Income  support  (varstveni  dodatek)  is  complementary  to 
the  cash  social  assistance  for  permanently  unemployable, 
permanently  incapable  of work,  women  older than 63  and 
or men older than 65. 

(45)  Cash  social  assistance  and  income  support  received  no 
longer needs to be reimbursed to the state after the death of 
a  beneficiary  who  owned  and  lived  in  a  flat/house  worth 
less  than  EUR  120  000.  Furthermore,  the  beneficiary 
receiving  support  is  now  able  to  sell  and  mortgage  such 
flat/house.  The  real-estate  limit  of  EUR  120  000  is  being 
introduced  for  the  first  time  since  adoption  of  inheritance 
conditions in 2012.  

38 

 
 
                                                           
4.4. INVESTMENT 

4.4.1.  DELEVERAGING AND INVESTMENT* (46) 

Deleveraging pressures have started to ease but 
credit flows to firms continue to contract. Since 
the peak in the indebtedness ratio in 2010 (115 % 
of  GDP),  private  sector  debt  decreased  to  86.3 % 
of GDP in 2015. It is expected to decrease further 
but at a slower pace than in the previous years. In 
2015, the decrease in private sector debt (10 pps of 
GDP) was driven mainly by negative credit flows 
to firms (Graphs 4.4.1 and 4.4.2). Most of the debt 
is held by non-financial corporations as households 
are  one  of  the  least  indebted  in  the  euro  area. 
Private  sector  indebtedness  is  overall  below  the 
euro area average. 

Graph 4.4.1:  Debt of non-financial corporations 

brought  Slovenia  in  line  with  the  euro  area 
average. 

Credit  flows  to  households  turned  slightly 
positive in the first half of 2016, notably on the 
back  of  recovering  house  prices.  While 
households  actively  reduced  their  debt  between 
2012 and 2015, their borrowing turned positive in 
2016  (Graph  4.4.2).  At  the  same  time,  the 
households’  debt-to-GDP  ratio  keeps  decreasing 
owing to positive nominal GDP growth. At 27.8 % 
in 2015 the ratio was one of the lowest in the EU. 
It is estimated to have decreased further to 27.5 % 
in 2016. 

Graph 4.4.2:  Debt of households 

Source: Eurostat 

Source: Eurostat 

leverage 

The  progress  in  deleveraging  has  been  uneven 
across individual firms. Firms’ credit flows have 
been  negative  since  2012.  They  reached  a  low  in 
2015,  decreasing  by  6 %  year-on-year  (y-o-y) 
(Graph  4.4.1).  High 
is  unevenly 
distributed  across  firms,  mostly  present  in  a 
handful  of  large  companies  and  among  SMEs,  as 
analysed  in  the  2015  country  report  for  Slovenia. 
This report concluded that corporate debt was high 
compared  to  the  earnings  of  firms’  and  their  cash 
flow  capacity  to  repay  in  2013.  However,  both 
earnings  and  the  capacity  to  repay  debt  have 
increased  significantly  in  recent  years.  This  has 

(46)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

(Graph 

4.4.3).  After 

Private  investment  started  to  recover  in  2015 
but remains below the euro area and historical 
averages 
dropping 
considerably  in  2009-2010,  the  share  of  private 
investment in GDP remained on a downward trend 
until  2014.  This  was  because  the  corporate  sector 
was  dealing  with  issues  such  as  (i)  high  levels  of 
debt,  (ii)  financial  sector  restructuring,  (iii)  high 
level of state involvement in the economy, (iv) low 
domestic  demand,  and  (v)  unsupportive  business 
environment  (analysed  in  detail  in  the  2016 
country  report).  Companies,  struggling  to  repay 
their  debts  underinvested 
for  several  years 
compared to the historical average and their cross-
in  private 
border  peers.  The  negative 
in  2015  as 
investment 
deleveraging  pressures  started  to  ease  and  the 
government  made  efforts  to  improve  the  business 
environment.  Nevertheless,  the  high  level  of  state 

reverse 

started 

trend 

to 

39 

-15-10-5051015202506Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q1y-o-y changeCredit flowReal GDP growthGDP deflatorOther changesD/GDP, change-4-3-2-1012345606Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q1y-o-y changeCredit flowReal GDP growthGDP deflatorOther changesD/GDP, change 
 
 
 
                                                           
 
 
4.4. Investment 

in 

involvement 
the  economy,  and  persisting 
complex  and  lengthy  administrative  procedures 
continue to negatively impact private investment.  

Graph 4.4.3:  Private and public investment 

by  12.4 %  in  2015,  but  it  only  reached  35 %  of 
GDP,  which  remains  below  the  EU  average  of 
about  50 %  of  GDP.  Slovenia  actively  promotes 
FDI  but  several  barriers  keep  hindering  progress 
(Graph 4.4.5). 

Graph 4.4.4:  Contributions to potential growth 

Source: AMECO 

Public 
investment  remained  dependent  on 
disbursements  of  EU  funds.  Public  investment 
driven  by  infrastructure  projects  co-funded  by  the 
EU  played  a  stabilising  role  in  the  post-crisis 
years. However, it decreased significantly in 2016 
due  to  the  end  of  the  2007-2013  EU-funding 
programming  period.  Public 
is 
expected  to  remain  subdued  before  the  new 
programming  period  and  the  investment  plan  for 
for  Strategic 
Europe 
Investments  (EFSI)  gain  full 
implementation 
speed. 

the  European  Fund 

investment 

/ 

The EFSI could be a major source of additional 
financing  but  remains  largely  untapped.  The 
EFSI  provides  guarantees  for  larger  and  riskier 
projects,  such  as  infrastructure.  It  also  supports 
SMEs. This opportunity remains largely untapped, 
with  the  exception  of  a  smaller  agreement  signed 
with  the  Slovenian  Enterprise  Fund  under  the 
Cosme  programme. The  available  financing  of 
EUR  8  million  is  expected  to  trigger  up  to  EUR 
390 million in investment. Some 1 500 SMEs may 
this  support.  EFSI  also  offers 
benefit  from 
opportunities 
to  develop  more  public-private 
partnerships by attracting private investors. 

Foreign direct investment recovers, albeit from 
a  low  level.  The  stock  of  inbound  FDI  increased 

Source: DG ECFIN 

investment  has  eroded  the  potential 
Low 
growth.  The  potential  growth 
substantially 
dropped in 2009 - 2010 (Graph 4.4.4) as a result of 
a  significant  decline  in  capital  accumulation,  total 
factor productivity, and labour contribution turning 
negative.  The  Commission  estimates  potential 
growth  in  2016  at  1 %,  compared  to  3-4 % 
between  2000  and  2008.  While  Slovenia’s 
potential growth is projected to gradually recover, 
it is expected to remain subdued over the medium 
term, 
low  capital 
accumulation. However, total factor productivity is 
expected  to  progressively  recover.  As  an  ageing 
population  is  expected  to  have  a  negative  impact 
on  potential  growth,  enhancing  productivity 
growth  is  crucial  to  return  to  a  higher  long-term 
growth path. 

restrained  by  protracted 

4.4.2.  BUSINESS ENVIRONMENT* 

Some measures have been taken to improve the 
business environment. The 9th progress report on 
the  implementation  of  the  Single  Document (47) 
shows that nearly 60 % of 318 measures to reduce 

(47)  The Single document identifies the measures to reduce the 

administrative burden for companies. 

40 

0510152025200120022003200420052006200720082009201020112012201320142015201620172018SI private investmentEA private investmentSI public investmentEA public investment% ofGDPforecast-1.0-0.50.00.51.01.52.02.53.03.54.006070809101112131415161718192021% of GDPLabour Contr.Capital Contr.TFP Contr. 
 
 
                                                           
4.4. Investment 

weak,  with  prevalence  of  unfair  commercial 
practices  to  be  above  the  EU  average,  and 
enforcement  of  consumer  and  product  safety 
legislation  as  below  EU  average (European 
Commission, 2017d). 

and 

construction 

Time  and  costs  needed  to  obtain  a  building 
permit  is  among  the  highest  in  the  EU  (Graph 
4.4.6).  The  Ministry  of  spatial  planning 
is 
preparing  a  complete  overhaul  of  the  spatial 
planning 
legislation.  The 
adoption  of  the  new  legislation  has  been  delayed 
and  proposals  to  amend  it  can  be  still  submitted 
until  March  2017.  A  safer  environment  for 
investment  and  a  better  quality  of  spatial 
development could be provided by simplifying the 
procedures  and  enacting  flexible  mechanisms  for 
planning and granting permits to facilities.  

Restrictive  barriers  remain  high  in  certain 
regulated  professions.  Slovenia  has  higher  level 
of  restrictiveness  compared  to  the  EU  weighted 
average for all the professions under review in the 
recent  Commission  study (European  Commission, 
2017) (48) except for patent agents and accountants 
(Graph  4.4.7).  Amongst  the  professions  analysed, 
restrictiveness  is  the  highest  for  lawyers.  For 
example,  there  is  a  restriction  that  only  attorneys 
may  be  shareholders  or  owners  of  an  attorneys' 
office  established  in  Slovenia.  In  addition,  the 
business-churn 
legal, 
for 
architectural  and  real  estate  activities  is  lower  in 
Slovenia  compared  to  the  EU  average.  This 
suggests relatively low dynamism and competition 
within  regulated  professions  in  these  sectors.  In 
2012, Slovenia adopted a programme to reform its 
regulated  professions.  After  the  initial  progress 
which led to full deregulation of 40 professions in 
the  crafts  sector  and  4  in  culture,  the  reforms 
slowed down and have not been finalised. Slovenia 
has  still  not  submitted  its  national  action  plan  in 
the context of the mutual evaluation exercise (due 
in January 2016).  

accounting, 

rate 

(48)  European  Commission  has  developed  a  new  composite 
indicator on restrictiveness of most existing barriers to the 
access  to  and  exercise  of  regulated  professions.  Such 
barriers  entail 
reserves  of  activities, 
shareholding  and  voting  requirements,  multidisciplinary 
restrictions, 
membership, 
indemnity 
authorisation 
insurance.  The  indicator  is  based  on  data  collected  from 
Member States. 

chamber 
and  professional 

compulsory 
schemes 

for  example 

the  administrative  burden  have  been  realised. 
Progress  has  been  achieved  on  intra-ministerial 
coordination and prioritisation. However, complex 
regulation and administrative requirements remain 
the  main  obstacles  for  doing  business.  A  key 
challenge  is  to  implement  the  priority  actions. 
Important measures such as those related to spatial 
and 
construction 
planning 
deregulation  of  professions  have  been  postponed. 
The SME test was introduced in June 2016 but it is 
still too soon to assess its effects. National rules for 
directly  transferring  companies'  registered  offices 
into and out of Slovenia are missing.  

legislation 

and 

Graph 4.4.5:  Barriers to FDI as seen by foreign businessmen 

Source: SPIRIT Survey on FDI 

Competitiveness  rankings  have  improved,  yet 
certain  challenges  remain.  According  to  the 
Competitiveness  Index  of  the  World  Economic 
Forum,  Slovenia  improved  its  rank  by  9  places 
between  2014  and  2017.  Compared  to  2016,  its 
position remained stable in the World Bank Doing 
Business Report 2017, which assesses the ease for 
local  entrepreneurs  to  open  and  run  businesses. 
According  to  the  survey  conducted  by  the  public 
agency  SPIRIT,  the  main  challenges  for  FDI 
remain  the  high  labour  costs  and  taxes,  the 
payment  indiscipline  and  the  inflexible  labour 
market  regulation.  In  addition,  the  perception  of 
of 
quality 
investors 
transport 
infrastructure, 
infrastructure, 
in  particular  rail 
transport  and  flight  connectivity  has  substantially 
deteriorated  over  2010-2016.  Slovenian  retailers 
assess the compliance with consumer legislation as 

about 

the 

41 

234High taxesHigh labour costsPayment indisciplineLaying off workersCorruptionInefficient court systemBuying land and propertyInefficient insolvency regulationBuilding permitsInefficient tax administrationIntransparent treatment of FDIProblem getting credits201420112008 
 
 
                                                           
4.4. Investment 

Graph 4.4.6:  Time and cost needed to obtain a building 

permit 

Slovenia  lacks  an  effective  governance  structure 
for  R&I  in  view  of  weak  coordination  across 
responsible  departments  and  collaborative  links 
between  major  stakeholders  in  innovation  policy. 
The implementation of policy reforms in line with 
the research and innovation strategy appears to be 
on  hold.  Moreover,  the  new  Law  on  R&D  is  not 
yet in place. 

Graph 4.4.7:  Restrictiveness indicator: Slovenia and the EU 

weighted average (2016) 

Source: World Bank Doing Business 2017 

indicators 

entrepreneurship-related 

Entrepreneurship  indicators  remain  below  the 
EU average but the number of successful start-
ups is growing. The 2016 Small Business Act fact 
sheet  shows  Slovenia  with  one  of  the  lowest 
entrepreneurship scores in the EU. The majority of 
the 
show 
worsening, below-average results. The government 
recently adopted some policy measures promoting 
entrepreneurship  and  entrepreneurial  education, 
but 
its  EU 
counterparts.  Although  a  vibrant  and  active  start-
up community is rapidly developing and there are 
a growing number of globally successful start-ups, 
stakeholders  point 
entrepreneurial 
education.  The  main  challenge  remains  in  the 
integration  of  entrepreneurship  into  the  education 
curricula at all levels of education. 

remains  behind 

to  weak 

country 

the 

in 

Improvements 
the  efficiency  of  R&D 
spending  could  help  to  increase  productivity 
and potential growth.  Although R&D investment 
as percentage of GDP is above the EU average, the 
efficiency  of  spending  is  low.  This  is  due  to  the 
low  performance  of 
research 
system.  (49) Some  initial  steps  have been  taken  to 
foster  openness  of  the  public  research  system  and 
its  cooperation  with  businesses.  (50)  In  addition, 

the  public 

(49)  This  is  evidenced  for  instance  by  a  low  score  on  the 
indicator "Share of scientific publications within the top 10 
%  most  cited  scientific  publications  worldwide"  (7.4%  in 
Slovenia compared to 10.5% at the EU average). 

(50)  Specific  Support  to  Slovenia  under  the  Horizon  2020 

Policy Support Facility (JRC, 2016). 

Note: The scale is from 0 to 6. The higher the score, the more 
restrictive is the access to and exercise of the profession. 
Source: European Commission 

the 

the 

target.  With 

In  Slovenia  there  are  limited  obstacles  to 
investment deriving from the energy sector. The 
country  is  on  track  to  achieving  the  target  on 
reducing  greenhouse  gas  (GHG)  emissions  with  a 
foreseen reduction by 8.4 % in 2020, which is well 
above 
electricity 
interconnection capacity at 85%, Slovenia's energy 
market  is  well  interconnected  with  neighbouring 
markets.  Ongoing  work  in  the  gas  and  electricity 
field  will  further  enhance  market  integration, 
competitiveness  and  security  of  supply.  Sustained 
effort  on  energy  efficiency  improvements  in  the 
buildings  and  industrial  sector  can  keep  the 
country  on  track  to  reach  the  target  in  2020. 
Overall,  Slovenia  is  making  good  progress  in  the 
energy 
and 
energy 
decarbonisation  dimensions  of  the  Energy  Union. 
However,  gas  prices  still  remain  higher  than  in 
most neighbouring countries due to high taxes and 
levies.  Prices  are  high  especially  for  SMEs  and 
households  despite  a  competitive  market.  The 
number  of  applications  for  Energy  Union  related 

efficiency 

security, 

42 

012345050100150200250300SKEEHULITPLLATCZDEATEU AVROSIITNLBGtime - days (lhs)cost (rhs)0.01.02.03.04.05.0AccountantArchitectCivil engineerLawyerPatent agentReal estate agentTourist guideEUSI 
 
                                                           
 
4.4. Investment 

technologies patents is below the EU average with 
only  0.3  patents  per  million  of  inhabitants.  On 
renewables,  the  country  is  on  track  to  reach  its 
target with the renewables share at 21.9% in 2014. 

43 

Box 4.4.1: Investment challenges and reforms in SloveniaMacroeconomic perspective Total investment in Slovenia dropped after the crisis and has not recovered. Private investment dropped considerably in 2009 and its share in GDP has continued to shrink since then. To this date, it remains markedly below the EA average. Public investment has played a role of a stabiliser, supported to a large degree by EU funds, but dropped in 2016 towards the EA average as EU disbursements slowed (see Section 4.4). The post-crisis sizeable decline in total investment largely reflected a sharp, post-boom, drop in construction activity. In contrast, productive investment in machinery and equipment showed more resilience. It has remained above the EA average and has been recovering towards Slovenia's historical average of 8.5% of GDP. Investment in intangibles assets increased only marginally in the post crisis period and is currently below EU average (1). According to recent surveys, weak domestic demand and high level of administrative burden are the main reasons for postponing investment decisions. Nevertheless, investment is forecast to grow at 5-6% in 2017 and 2018, driven by a double-digit expansion of investment in machinery and equipment, while construction investment is set to recover at a slower pace.  Assessment of barriers to investment and ongoing reforms Slovenia is making efforts to reduce barriers to private investment. More than half of the identified measures to reduce the business environment have been realised. However main challenges especially for FDI remain the high labour costs and taxes, the payment indiscipline and the inflexible labour market regulation. While there are limited obstacles to investment deriving from the energy sector, the perception of investors about the quality of transport infrastructure has substantially deteriorated over 2010-2016. Restrictive barriers in certain regulated professions weigh on productivity and also reduce incentives to invest. Competitiveness of the Slovenian economy could be further enhanced by removing inefficiencies in the public administration and by reducing lengthy administrative procedures.  One major potential to improve business environment include, among others, to streamline the spatial planning and building permits procedures. Time and costs needed to obtain a building permit is among the highest in the EU. A complete overhaul of spatial planning and construction legislation is being prepared. However the adoption of the new legislation has been delayed and proposals to amend it can be still submitted until March 2017.                                                            (1) Productivity and economic growth stems not only from investment in infrastructure, in research and innovation but also in knowledge creation or investment in intangibles assets. Such assets include expenditures in human capital, e.g. in the form of education and training, public and private scientific research, business expenditures for product research and development, market development, and organizational and management efficiency.  Regulatory/ administrative burdenCSREPL & framework for labour contracts Business services / Regulated professionsPublic administrationCSRWages & wage settingRetailPublic procurement /PPPsEducation ConstructionJudicial systemTaxationDigital Economy / TelecomInsolvency frameworkAccess to financeCSREnergyCompetition and regulatory frameworkCooperation btw academia, research and businessTransportFinancing of R&D&ILegend:No barrier to investment identifiedNo progressSome progressCSRInvestment barriers that are also subject to a CSRLimited progressSubstantial progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ILabour market/ EducationSector specific regulation 
 
 
 
 
 
 
4.4. Investment 

44 

Box 4.4.2: ProductivityGrowth in labour productivity has fallen significantly in Slovenia in the post crisis period to levels particularly low for a catching up economy.  Labour productivity growth (in terms of gross value added per hours worked) dropped to 1.0 % in 2010-2015 (Graph a), driven by the negative productivity growth in the ICT sector and construction (Graph b). The manufacturing sector continues to be its main growth driver. The reallocation of resources across sectors appears to have been suboptimal in the post crisis period as labour has not followed the sectors with higher productivity growth (European Commission, 2016g). This means that the aggregate productivity growth is set to decline, which calls for policies to raise productivity growth, especially in services.  Graph 1: Labour productivity  Note: The average % annual change is computed over 2005-2013 for CY and PT; no data is available for HR and MT. Source: Eurostat, OECD, DG GROW calculations  Misallocation of labour is present especially in some sectors. 1 This is due, among other reasons, to market rigidities and regulatory barriers. Restrictive barriers remain high in certain regulated professions (see section 4.4). According to the OECD, Slovenia is the most restrictive among all Member States concerning access to network sectors (energy, transport and communications). The level of state involvement is important and as shown in previous country reports it distorts resource allocation. The labour market is characterised by certain inflexibilities, which especially affect older, low-skilled and young people (see section 4.3). The withdrawal of rigidities could favourably affect employment and economic activity.  Weak business environment hinders firms' growth prospects and productivity. The productivity gap between Slovenia and the EU-28 average is larger in the segment of micro companies than in the segment of larger firms (IESBM, 2015). According to Eurostat, Slovenia has one of the lowest shares of high growth enterprises. Several barriers for doing business, labour regulations and government bureaucracy have a negative impact on the ability of firms to grow. While access to finance has improved, alternative financing through venture and seed capital remains low hindering the growth of young and innovative firms. Investment in transport infrastructure has considerably decreased during the last 5 years. Continued underinvestment in infrastructure and low R&D efficiency may constrain productivity and growth in the future (see section 4.3). Continuing the reform process will boost productivity and growth. Increasing the efficiency of R&D spending, opening up competition in services and reducing administrative barriers will lead to an increase in GDP over the long term, up to 1%. Also reducing administrative burdens and removing entry barriers to professional services to the average of more developed countries would raise GDP by 0.5 % and 0.1% respectively over the long term. Increasing the availability of human capital and the efficiency of its allocation by improving the functioning and the efficiency of labour market institutions could also boost productivity in the country (IMAD, 2016c).                                                            1 In manufacturing allocation of labour is good and improving over time. In construction, the allocation is inefficient and deteriorating over time. In professional services and administrative services allocation is improving although from a lower level.  Source: European Commission calculations based on Eurostat data. BEDEEEELESFRITCYLVLTLUNLATPTSISKFIBGCZDKHRHUPLROSEUKEU-1.00%-0.50%0.00%0.50%1.00%1.50%2.00%2.50%3.00%050100150200250Average yearly labour productivity growth, 2010-15Labour productivity, 2015 (EU =100)Graph a: Labour productivity (2015) and growth (2010 –2015) -5-4-3-2-1012345678EU28ITHUDEATSICZPLSKGraph b: Average % annual change in labour productivity (2005 –2014)ALL SECTORSManufacturing (C)Construction (F)Marketable Services (G_N)ICT Services (J61_J63) 
 
 
 
 
 
4.5. PUBLIC ADMINISTRATION 

4.5.1.  EFFICIENCY OF PUBLIC 
ADMINISTRATION* (51) 

Since the onset of the crisis, fiscal consolidation 
measures  put  substantial  pressure  on  public 
administration.  Measures 
to  contain  public 
expenditure  have  significantly  affected  public 
administration  and  services.  However,  in  2016, 
most  of  the  measures  have  been  reverted.  The 
focus  then  shifted  from  temporary  measures  to 
implementing  structural 
that  would 
durably  reduce  public  spending  and  increase 
Slovenia’s  competitiveness  and  attractiveness  for 
foreign investors (see Section 4.4.). 

reforms 

Public administration reform 

coordination, 

inter-ministerial 

Public Administration is heading for reform. In 
April  2015  the  government  adopted  a  long-term 
development  strategy,  aimed  at  modernising  and 
increasing  the  efficiency  of  public  administration. 
After initial delays due to the lack of resources and 
poor 
the 
implementation  has  gained  momentum.  A  special 
coordination  office  was  established  within  the 
Ministry of Public Administration with the aim of 
facilitating  and  monitoring  the  implementation  of 
the strategy. Most of the reform measures are of a 
long-term nature, with expected completion due by 
the  end  of  2017  or  beyond.  In  2015  a  functional 
analysis and benchmarking performance indicators 
of  public 
and 
optimisation  measures  were  identified.  In  a  pilot 
case, financial services of nine administrative units 
will be merged and if successful, financial services 
of all 58 administrative units could be centralised. 
In view of the limited staff available, a number of 
technical  assistance  projects  in  cooperation  with 
the  Structural  Reforms  Support  Service  of  the 
Commission have been initiated in various areas of 
public administration.  

institutions  were 

finalised 

E- Government  

The roll-out of e-public services is a priority for 
the authorities. The goal of their Digital Strategy 
for  Slovenia  and  the  Next-Generation  Broadband 
Network Development Plan to 2020 is to achieve a 
transformation  of  public 
coordinated  digital 

(51)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings). 

to  promote  a 

administration  and 
regulatory 
framework for the digitalisation of the industry and 
businesses. Companies are performing better when 
it  comes  to  the  integration  of  digital  technologies 
and benefit from a skilled population. The highest 
gap remains in digital public services, where only 
24%  of  internet  users  are  actively  engaged  in  e-
government and open data. 

full 

The  establishment  of  a 
fully-fledged  e-
government  system  will  increase  the  efficiency 
of public administration. The creation of the state 
cloud in December 2015 has had a great impact on 
the  quality  and  efficiency  of  services  and  on 
budget savings. The work on the hybrid state cloud 
is in the testing phase and expected to be launched 
soon.  Based  on  the  once-only  principle,  the  e-
government  portal  offers  more  than  250  of  the 
most  frequently  used  electronic  services,  ensured 
by 
than  30 
interconnectivity  of  more 
databases. At the moment, citizens can access their 
personal  information  gathered  from  the  central 
population register, records of personal documents, 
real  estate  register,  register  of  vehicles  and  traffic 
documents.  The  data  set  will  be  expanded  in  the 
future.  The  One  Stop  Shop  Business  Portal  (e-
VEM) has been available since 1 January 2016 and 
is  now  mandatory  for  all  businesses  to  arrange 
their social insurances. In 2016, more than 700 000 
electronic transactions replacing paper forms were 
channelled through the system. 

Corruption, public procurement 

to 

Perceptions  of  corruption  remain  negative  and 
corruption has an impact on the performance of 
the  economy.  According 
the  control  of 
corruption  indicator  Slovenia  scores  close  to  the 
EU  average.  However,  in  the  Executive  Opinion 
Survey  2016  corruption  was  identified  as  one  of 
the  six  most  problematic  factors  for  doing 
business.  The  general  perception  of  corruption 
remains  a  concern.  According  to  the  Global 
Corruption  Barometer  more  than  seven  out  of  10 
citizens in Slovenia say that the government is not 
doing enough to fight corruption. 

in 

are 

high 

public 
Corruption 
risks 
procurement.  Public  procurement 
represents 
around  13 %  of  GDP  and  is  considered  to  be 
vulnerable  to  corruption.  In  2015  almost  40 %  of 
the  contracts  had  only  a  single-bid  and  one  fifth 
tenders (European 
followed 

non-open 

45 

 
 
                                                           
4.5. Public administration 

it 

took  place 

implementation 

programme's 
in 
September  2016.  Monitoring  over  a  longer  time 
period  will  be  required  before  conclusions  on  the 
programme's  impact  can  be  finally  drawn.  Given 
that 
follow-up 
finished  by  end-2016,  a 
programme  or  other  policy  options  are  currently 
under discussion. As several high-level corruption 
and  money  laundering  cases  were  dropped  after 
years of prosecution public opinion and businesses 
remain concerned about corruption. 

4.5.2.  FUNCTIONING OF THE JUSTICE SYSTEM 

to  around  12  months 

The justice system continued to reduce backlogs 
and  the  average  length  of  proceedings.  In  2016 
the  number  of  total  pending  cases  decreased  by 
18 %,  compared  with  2015.  Although  the  number 
of resolved cases decreased again in 2016 (around 
79 000  cases  per  month  compared  to  nearly 
100 000  per  month  in  2012),  the  courts  still 
resolved  more  cases  than  they  received  (overall 
clearance  rate  of  105 %) (55).  At  first  instance 
district  courts,  the  average  length  of  proceedings 
in 
mostly  decreased 
commercial  and  high-value  civil  cases,  and  to  13 
months  in  criminal  cases.  However,  it  still  takes 
12.5  months  until  the  first  hearing  in  commercial 
litigious  cases,  an  important  area  for  a  favourable 
business environment (in labour and in social cases 
it takes similarly long - around 11 months). Cases 
are  being  increasingly  resolved  through  court 
settlements  between  parties,  which  reached  17 % 
in  commercial  cases  and  almost  20 %  in  civil 
cases. The courts are coping with a high number of 
personal insolvency (3 444 in 2016), liquidation (1 
062)  and  restructuring  proceedings  (113).  Courts 
resolved  preventive  restructuring  proceedings  in 
280  days  and  liquidations  in  386  days  (without 
distribution  of  assets)  and  in  1 276  days  (with 
distribution  of  assets),  on  average.  The  recovery 
rates ranged from 12 % (for all types of claims in 
liquidation and personal insolvency), to 25 %  (for 
ordinary claims in compulsory settlement), to 39 % 

(55)  Court  data  from  the  Supreme  Court.  The  clearance  rate  is 
the ratio of the number of resolved cases over the number 
of incoming cases. It  measures whether a court is keeping 
up  with  its  incoming  caseload  (European  Commission, 
2017b).  

Commission,  2016i). 
sector, 
In 
whenever  public  procurement  is  organised  often 
only one bid is submitted. (52) (53)  

the  health 

Corruption in public procurement takes several 
forms.  The  most  common  forms  of  corruption  in 
Slovenia  include  collusive  bidding,  tailor-made 
specifications for particular companies, conflict of 
interests  in  the  evaluation of bids,  involvement  of 
bidders  in  the  design  of  specifications,  abuse  of 
negotiated  procedures  or  abuse  of  emergency 
grounds  to  justify  the  use  of  non-competitive  or 
fast-track  procedures,  and  amendments  to  the 
contract terms after concluding the contract. (Flash 
Eurobarometer  Businesses’  attitudes 
towards 
corruption  in  the  EU,  2015).  To  improve  public 
procurement, Slovenia took part in a pilot initiative 
called "Integrity Pacts – Civil Control Mechanism 
for  Safeguarding  EU  Funds  against  Fraud  and 
Corruption".  The  purpose  of  the  pilot  is  to  make 
the  procurement  process  more  transparent  and 
efficient. (54) 

Full transition to e-procurement for all users is 
expected  in  January  2018  and  can  help  to 
reduce  corruption  risks.  A 
law  on  public 
procurement, adopted in November 2015, provides 
the  basis  for  the  transition  to  a  comprehensive  e-
procurement  system.  The  new  application  Statist, 
which  is  available  to  the  general  public,  provides 
access to comprehensive information about public 
procurement  contracts  in  Slovenia.  Full  transition 
to e-procurement would reduce corruption risks by 
providing  more  transparency  and  accountability 
for  contracting  authorities  and  more  security  for 
economic operators. 

Key anti-corruption reforms have been adopted 
and  are  currently  being  implemented.  In  2015, 
the government adopted a two year programme of 
zero tolerance to corruption. The last review of the 

(52)  Tenders Electronic Daily, 2012-2015. 
(53)  For  example,  in  case  of  medical  imaging  equipment  there 
was no publication of tender in 25% of the cases (5% at the 
EU average) over 2012-2015. Moreover, whenever a public 
procurement  procedure  was  organised,  only  one  bid  was 
submitted in 71% of the cases (28% at the EU average). 
(54)  The  Integrity  Pact  is  a  binding  agreement  between  the 
contracting authority and the companies bidding for public 
contracts that they will conduct a procurement process with 
integrity, 
ensure 
and 
accountability and  legitimacy,  an  Integrity  Pact  includes  a 
separate  contract  with  a  civil  society  organisation 
(Transparency International) which monitors that all parties 
comply with their commitments. 

efficiency.  To 

transparency 

46 

 
                                                           
                                                           
4.5. Public administration 

and  on  procedural  grounds 

nearly  half  of  cases  were  resolved  without  a 
hearing 
(e.g. 
dismissals,  withdrawals). An office managed by  a 
so  called  triage  judge  was  introduced,  which 
analyses  incoming  cases  and  adopts  procedural 
decisions.  Court  staff  prepare  draft  decisions, 
leaving the triage judge to confirm a decision only 
when  legally  required.  The  triage  office  resolves 
about  one-third  of  cases,  without  the  need  for  a 
hearing.  The  remaining  cases  are  randomly 
allocated to judges to decide on their merits. As a 
result,  the  clearance  rate  in  commercial  cases  in 
Ljubljana  rose  from  95 %  in  2011  to  124 %  in 
2016  and  the  average  length  decreased  from  16.3 
months  to  13  months.  The  Supreme  Court  has 
extended  parts  of  the  case  management  reform  to 
labour, social, civil and criminal cases. 

A  judicial  map  reform  is  in  preparation  to 
further  improve  the  quality  and  efficiency  of 
the justice system. Over the decades, the judicial 
map  swayed  between  a  single  court  and  multiple 
courts  of  first  instance  (district  and  local).  The 
2009 and 2015 reforms brought local courts under 
the  stronger  control  of  district  courts  in  order  to 
even  out  the  caseload  and  reduce  jurisdictional 
conflicts. Drawing  on  national  practices, (57)  the 
reform  of  the  judicial  map  aims  to  ensure  a 
balanced  caseload  and  increase  specialisation, 
while safeguarding access to justice. 

(57)  Workshop on judicial map reform with experts from FI and 
NL,  28-29 Sept.  2016,  Ljubljana;  funded  by  the  technical 
assistance  programme  of 
the  European  Commission 
operated by the Structural Reform Support Service. 

(for  ordinary  claims  in  simplified  compulsory 
settlement).(56)  

timeline 

The quality of the justice system has improved. 
The  Supreme  Court  introduced  improvements 
following  a  2015  court  users  survey  and 
implemented  timeframes  (benchmark  for  number 
of  cases  to  be  resolved  in  a  court  within  a  given 
time) as a new management tool in the courts. The 
online  publication  of  all  first  instance  court 
judgments is envisaged for autumn 2017. However 
the 
introducing 
is  still  pending  for 
electronic  submission  of  claims  in  civil  and 
commercial cases (European Commission, 2017b). 
The  courts’  well-established  electronic  delivery 
and centralised postal delivery of court documents 
saved  more  than  EUR  4.5  million  in  2016  (more 
than  2 %  of 
the  courts’  budget).  Proposed 
amendments  to  the  Civil  Procedure  Act  aim  to 
improve quality and efficiency by introducing (i) a 
preparatory hearing on evidence, (ii) enforceability 
of  first  instance  small  claim  commercial  court 
judgments,  and  (iii)  a  leave  to  appeal  system  for 
accessing the Supreme Court. 

The role of the Council for the Judiciary would 
be  enhanced.  A  draft  law  aims  to  introduce  an 
independent  budget  of  the  Council,  strengthen 
in  disciplinary  proceedings 
Council’s 
increase  
concerning 
Council’s 
and 
management  of  courts.  However,  with  only  seven 
officials and members who are not relieved of their 
work duties, the Council’s administrative capacity 
would remain limited.  

role 
judges,  and  moderately 
on 
influence 

organisation 

The  role  of  the  Council  to  select  and  propose 
thereby  guaranteeing 
judges  for  appointment, 
judicial independence, has been put in question by 
a  decision  of  the  Parliament.  It  rejected  the 
appointment  of  a  judge  to  the  Supreme  Court  by 
the 
criticising  a  specific  court 
candidate judge. 

judgment  of 

justice 

The 
the 
system  benefitted 
successful  case  management  reform  (Triaža 
project).  The  reform  was  first  introduced  in 
commercial  cases  in  July  2012,  when  the  ICT 
system collecting granular court data revealed that 

from 

(56)  Ministry  of  Justice,  Evaluation  of  the  implementation  of 
ZFPPIPP,  Jan  2017.  See  also  European  Commission, 
2016a, p. 62).  

47 

 
                                                           
                                                           
ANNEX A 

Overview Table 

Commitments 

Summary assessment(58) 

2016 Country-specific recommendations (CSRs) 

CSR 1: Following the correction of the excessive 
deficit, achieve an annual fiscal adjustment of 0.6 
%  of  GDP  towards  the  medium-term  budgetary 
objective in 2016 and in 2017. Set a medium-term 
budgetary objective that respects the requirements 
of  the  Stability  and  Growth  Pact.  Strengthen  the 
fiscal  framework  by  appointing  an  independent 
fiscal  council  and  amending  the  Public  Finance 
Act.  Complete  and  implement  the  reform  of  the 
long-term  care  and  healthcare  systems,  making 
them  more  cost-efficient  to  ensure  long-term 
sustainability  of  accessible  and  quality  care.  By 
the end of 2017, adopt the necessary measures to 
ensure  the  long-term  sustainability  and  adequacy 
of the pension system. 

towards 

Following the correction of the excessive deficit, 
achieve  an  annual  fiscal  adjustment  of  0,6  %  of 
GDP 
the  medium-term  budgetary 
objective in 2016 and in 2017. Set a medium-term 
budgetary objective that respects the requirements 
of the Stability and Growth Pact. 

Slovenia has made limited progress is addressing 
the  CSR 1  (this  overall  evaluation  excludes  an 
assessment  of  compliance  with  the  Stability  and 
Growth Pact).  

The compliance assessment with the Stability and 
Growth Pact will be included in Spring when final 
data for 2016 will be available. 

Strengthen the fiscal framework by appointing an 
independent  fiscal  council  and  amending  the 

  Limited  progress  was  made  regarding  the 

(58)  The  following  categories  are  used  to  assess  progress  in  implementing  the  2016  country-specific  recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures  to address the CSR. Below a number of 
non-exhaustive typical situations  that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent;    
and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or  
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.. 

48 

 
 
 
 
 
 
 
 
 
 
 
                                                           
 
Public Finance Act. 

Complete  and implement  the  reform  of  the  long-
term care  

and  healthcare  systems,  making  them  more  cost-
efficient  to  ensure  long-term  sustainability  of 
accessible and quality care. 

By the end of 2017, adopt the necessary measures 
to  ensure 
long-term  sustainability  and 
adequacy of the pension system. 

the 

CSR 2:  In  consultation  with  social  partners, 
increase  the  employability  of  low-skilled  and 
older workers, including through targeted lifelong 
learning and activation measures. 

A. Overview Table 

the  Parliament 

fiscal  framework.  The  revised  Public  Finance 
Act  was  adopted  by 
in 
December  2016,  but  the  appointment  of  the 
Fiscal Council was further delayed. Following 
three  unsuccessful  public  calls  for  applicants, 
the  Government  will  have  to  restart  an  open 
call  for  applications  to  find  members  for  the 
Fiscal Council. 

  Limited  progress  was  made  regarding  long-
term  care  reform.  The  pilot  project 
to 
determine  long-term  care  needs  and  support 
proposed 
is  being 
prepared. 

legislative 

solutions 

  Some  progress  was  made 

regarding 
healthcare  reform.  The  proposed  draft  Health 
Care  and  Health  Insurance  Act,  which  is  the 
central  piece of  the  reform,  has  been  put  into 
public consultations in February 2017 and will 
be  forwarded  to  the  National  Assembly  in 
2017. In December 2016, also the proposals to 
amend the Health Services Act and the Patient 
Rights  Act  were  presented  and  the  new 
Pharmacies Act was adopted. 

  Limited  progress  has  been  made  regarding 
the  long-term  sustainability  and  adequacy  of 
pension system. The White Paper on pensions 
was  adopted  in  April  2016  and  has  opened  a 
wide  public  consultation  on  the  future  of  the 
pension system. However, the White Paper on 
pensions  is a  non-legislative  act  that needs  to 
be  followed  up  with  adoption  of  legislative 
acts, needed to address the 2016 CSR. 

Slovenia  has  made 
addressing the CSR 2: 

limited  progress 

in 

  Limited  progress  has  been  made.  The 
analysis  of  the  situation  of  older  workers  on 
the  labour  market  has  been  adopted  on  22 
December  2016.  While  the  spending  on  the 
active  labour  market  policies  stayed  at  the 
same  level,  the  analysis  of  their  effectiveness 
is  under  way.  Active  labour  market  policy 
measures targeting older workers still need to 
be 
the 
effectiveness  of  active  labour  market  policies 
is being prepared. It is also not yet clear what 

the  analysis  of 

intensified  and 

49 

 
 
 
 
 
 
 
 
 
CSR 3:  Improve  the  financing  conditions  for 
creditworthy  business,  including  by  facilitating 
durable  resolution  of  non-  performing  loans  and 
access to alternative financing sources. Ensure the 
the  bank  asset 
proper 
management company strategy. 

implementation  of 

Improve the financing conditions for creditworthy 
facilitating  durable 
including  by 
business, 
resolution of non- performing loans and 

access to alternative financing sources. 

A. Overview Table 

will be done as regards to lifelong learning. 

Slovenia  has  made  some  progress  in  addressing 
the CSR 3:  

  Some  progress  has  been  made  on  reducing 
the level of non-performing loans. These loans 
continue  to  fall,  but  their  level  is  still  high. 
The  Bank  of  Slovenia  has  implemented  a 
number  of  measures  that  are  giving  banks 
incentives  to  reduce  their  non-performing 
loans  sustainably.  They  have  also  shown  a 
willingness  to  take  part  in  the  Structural 
Reforms  Support  Service  projects,  which 
should further help the process. 

the 

financing  conditions 

  Limited  progress  has  been  made  regarding 
improving 
for 
creditworthy business by facilitating access to 
alternative  financing  sources.  The  Slovenian 
Enterprise  Fund  and  the  SID  bank  have 
introduced  only  new  debt  instruments  for 
SMEs 
as 
microcredits.  One  scheme  of  seed  capital 
(some  EUR  3.9  million)  was  implemented  in 
2016  by  the  Slovenian  Enterprise  Fund  and 
some  47  SMEs  were  supported.  Other 
alternative  financing  instruments,  including 
venture  capital  and  equity  are  planned  with 
use of ESIF  

including  measures 

such 

Ensure  the  proper  implementation  of  the  bank 
asset management company strategy. 

  Some  progress  has  been  made  regarding  the 
implementing of the Bank Asset Management 
Company’s strategy. 

CSR 4:  Take  measures  to  modernise  public 
administration  and  reduce 
the  administrative 
burden on business. Improve the governance and 
the performance of state-owned enterprises. 

Slovenia  has  made  some  progress  in  addressing 
the CSR 4:  

Take  measures 
administration  and  reduce 

to  modernise 

public 
the  administrative 

  Some  progress  has  been  made  regarding  the 
modernisation of the public administration and 
regarding  the  reduction  of  the  administrative 

50 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
burden on business. 

Improve  the  governance  and  the  performance  of 
state-owned enterprises. 

A. Overview Table 

from 

implementation 

burden.  The 
the  public 
administration  development  strategy  2015-
2020  is  ongoing;  however  certain  specific 
this  strategy  have  been 
measures 
substantially  delayed  (i.e.  the  adoption  of  the 
Civil  Servants  Act).  The  government 
programme  for  reducing  the  administrative 
burden  is  estimated  to  have  created  total 
savings  of  in  total  of  EUR  365  million  of 
savings  between  2009  and  2015.  The  9th 
progress report of the Single Document shows 
that more than half of 318 measures to reduce 
the  administrative  burden  have  been  realised. 
The SME test was introduced on 1 June 2016 
and  is  now  obligatory  for  all  new  laws 
prepared under regular procedure but it is still 
too soon to assess its effects. 

of 

state-owned 

  Some  progress  has  been  made  regarding  the 
enterprises 
governance 
(SOEs).  The  Slovenian  Sovereign  Holding 
(SSH)  is  managing  SOEs  in  accordance  with 
the  regulatory  framework  in  place.  End-2015 
results  show  an  improved  profitability  of 
SOEs  under  SSH’s  management.  An  asset 
management  plan  for  2017,  quantifying  the 
performance indicators for each separate SOE 
and updating a list of assets for divestment has 
been  approved  by  the  government  in  January 
2017.  A  procedure 
to  appoint  a  new 
management board is underway, following the 
CEOs  resignation  as  a  result  of  pressures 
exerted  on  the  SSH  ahead  of  its  initiative  to 
replace  the  Port  of  Koper  (Luka  Koper) 
supervisory board. 

Europe 2020 (national targets and progress) 

Employment rate (%): 75 % 

In  2015 
increased by 1.3 % to 69.1 %. 

the  employment  rate 

in  Slovenia 

Early school leaving target: 5 % 

In 2015, the early school leaving rate in Slovenia 
further increased by 0.6 pps to 5.0 %. This is still 
one of the lowest rates in the EU and at the level 
of the national target as well as below the Europe 
2020 target. However, the challenge is to prevent 
the rate from increasing further.  

51 

 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

Tertiary education target: 40 % 

The tertiary education rate continuously improved 
and exceeds the 2020 target in 2015 (43.4 %). 

Target  for  reducing  the  population  at  risk  of 
poverty or social exclusion: 40 000 (compared to 
360 000 in 2008) 

In 2015, 385 000 people were at risk of poverty or 
social exclusion. 

2020 Renewable energy target: 25 % 

Energy efficiency target. 

Slovenia’s  2020  energy  efficiency 
7.3 million 
expressed 
(5.1 Mtoe 
consumption.) 

is 
tonnes  of  oil  equivalent  (Mtoe) 
in  primary  energy  consumption 
energy 

expressed 

target 

final 

in 

In 2014, the percentage of renewable energy was 
21.9 %, putting the country on track to reach the 
target.  

Slovenia reduced its primary energy consumption 
by  -1% from  6.51  Mtoe  in 2014  to  6.45 Mtoe  in 
2015. Final energy consumption increased by 2% 
from 4.59 Mtoe in 2014 to 4.69 Mtoe in 2015 (59). 

Even  if  Slovenia  currently  achieves  levels  of 
primary  and  final  energy  consumption  which  are 
below  the  indicative  national  2020  targets,  the 
trend  warrants  efforts  to  keep  these  levels  until 
2020. 

Greenhouse gas (GHG) emissions target 2020:  

2020 target: +4% 

+4%,  compared  to  2005  emissions  in  the  sectors 
not  covered  by  the  Emissions  Trading  Scheme 
(ETS). 

R&D target: 3 % of GDP 

According  to  the  latest  national  projections  and 
taking 
into  account  existing  measures,  non-
Emissions  Trading  System  (non-ETS)  emissions 
will  decrease  by  8.4  %  between  2005  and  2020. 
The  target  is  consequently  expected  to  be  met 
with a margin of 12 pps.   

Non-ETS 2015 target: +3 % vs 2005.  

Based on proxy data, the non-ETS greenhouse gas 
emissions between 2005 and 2015 decreased by -
12 %; which means 14 pps below the 2015 target 
set by the Effort Sharing Decision. 

After  years  of  steady  growth,  the  level  of  R&D 
intensity in Slovenia dropped remarkably in 2014 
to 2.4 % of GDP (from 2.6 % in 2013), driven by 
declines  in  both  the  public  and  private  sectors. 
The  declining  trend  continued  in  2015,  dropping 

(59)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (04.10.2016). See the 
the  2016  Report  on  Renewable 

in  Realisation  of 

Öko-Institut  Report:  Study  on  Technical  Assistance 
Energy,  http://ec.europa.eu/energy/en/studies 

52 

 
                                                           
A. Overview Table 

to 2.2 % of GDP. 

53 

 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP scoreboard for Slovenia 

Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund          

54 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-2.0-0.20.92.54.55.4-35%-47.2-45.2-49.9-46.6-44.2-38.7Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% 1.2-1.1-4.5-0.71.20.6Export market share - % of world exports5 years % change-6%-1.3-5.4-20.4-17.8-12.4-3.6Nominal unit labour cost index (2010=100)3 years % change9% & 12% 16.18.30.60.4-0.1-0.66%-1.30.9-8.2-6.0-6.61.514%1.90.4-2.9-4.0-4.7-5.1133%115.1113.0112.5108.298.187.360%38.446.653.971.080.983.1Unemployment rate3 year average10%5.97.18.19.19.69.616.5%-3.4-1.2-0.7-10.3-0.2-3.4-0.2%0.2-1.5-1.4-1.00.61.40.5%1.01.72.52.01.70.42%4.65.37.06.94.5-4.3Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

Notes:  
1) Latest data Q2 2016. 
2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

55 

201120122013201420152016Total assets of the banking sector (% of GDP)142.1141.1129.0116.7107.999.8Share of assets of the five largest banks (% of total assets)59.358.457.155.659.2-Foreign ownership of banking system (% of total assets)28.329.330.633.534.4-Financial soundness indicators:1)              - non-performing loans (% of total loans)-19.217.116.613.312.4              - capital adequacy ratio (%)11.811.413.717.918.618.9              - return on equity (%)2)-11.1-19.4-90.2-2.53.55.0Bank loans to the private sector (year-on-year % change)-2.3-4.1-9.5-9.1-4.2-0.3Lending for house purchase (year-on-year % change)6.21.81.30.51.84.2Loan to deposit ratio149.0143.8119.095.986.278.0Central Bank liquidity as % of liabilities7.013.014.13.32.82.0Private debt (% of GDP)113.0112.5108.298.187.3-Gross external debt (% of GDP)1) - public23.630.843.760.860.257.7    - private40.844.044.440.937.336.6Long-term interest rate spread versus Bund (basis points)*236.3431.3424.2210.7120.9109.1Credit default swap spreads for sovereign securities (5-year)*159.1330.1273.2138.5107.895.0 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

Notes:  
1) The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks.       
2) Long-term unemployed are those who have been unemployed for at least 12 months.       
3) Not in education employment or training.       
4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.       
Source: European Commission (EU Labour Force Survey), National Accounts  

56 

201120122013201420152016 4Employment rate(% of population aged 20-64)68.468.367.267.769.169.8Employment growth (% change from previous year)-1.7-0.9-1.10.41.11.9Employment rate of women(% of female population aged 20-64)64.864.663.063.664.766.2Employment rate of men (% of male population aged 20-64)71.871.871.271.673.373.1Employment rate of older workers (% of population aged 55-64)31.232.933.535.436.638.4Part-time employment (% of total employment, aged 15-64)9.59.09.310.010.19.3Fixed-term employment (% of employees with a fixed term contract, aged 15-64)18.017.016.316.517.817.0Transitions from temporary to permanent employment37.936.636.949.537.1:Unemployment rate1 (% active population, age group 15-74)8.28.910.19.79.08.0Long-term unemployment rate2 (% of labour force)3.64.35.25.34.74.2Youth unemployment rate (% active population aged 15-24)15.720.621.620.216.315.5Youth NEET3 rate (% of population aged 15-24)7.19.39.29.49.5:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)4.24.43.94.45.0:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)37.939.240.141.043.4:Formal childcare (30 hours or over; % of population aged less than 3 years)34.036.036.034.0:: 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

Notes:  
1) People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
2) At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.        
3) Proportion of people who experience at least four of the following forms of deprivation: not being able to 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: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes)       

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

57 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare7.77.67.97.57.3:Disability1.71.71.61.51.4:Old age and survivors11.111.311.512.011.6:Family/children2.12.12.12.01.9:Unemployment0.70.80.70.80.7:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.60.60.60.70.7:Total23.924.124.424.523.7:of which: means-tested benefits2.02.01.91.91.9:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)18.319.319.620.420.419.2Children at risk of poverty or social exclusion  (% of people aged 0-17)15.217.316.417.517.716.6At-risk-of-poverty  rate2 (% of total population)12.713.613.514.514.514.3Severe material deprivation rate3  (% of total population)5.96.16.66.76.65.8Proportion of people living in low work intensity households4 (% of people aged 0-59)7.07.67.58.08.77.4In-work at-risk-of-poverty rate (% of persons employed)5.36.06.57.16.46.7Impact of social transfers (excluding pensions) on reducing poverty47.543.846.442.742.242.3Poverty thresholds, expressed in national currency at constant prices5637663846318600959256112Gross disposable income (households; growth %)1.01.8-2.5-0.91.71.5Inequality of income distribution (S80/S20 income quintile share ratio)3.43.53.43.63.73.6GINI coefficient before taxes and transfers45.245.646.147.247.046.7GINI coefficient after taxes and transfers23.823.823.824.424.924.5 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

Notes:  
1) The methodologies, including the assumptions, for this indicator are shown in detail at : 
http://www.doingbusiness.org/methodology.        
2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3) Percentage population aged 15-64 having completed tertiary education.       
4) Percentage population aged 20-24 having attained at least upper secondary education.       
5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at :  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6) Aggregate OECD indicators of regulation in energy, transport and communications.       

Source: "European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans)."       

58 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry9.093.69-0.470.583.47-0.26Labour productivity in construction-11.682.420.86-3.048.05-2.52Labour productivity in market services2.883.57-1.03-0.952.671.78Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-4.48-0.053.470.11-0.861.21ULC in construction13.51-3.07-1.832.70-6.754.79ULC in market services-0.71-1.100.08-1.77-1.50-0.44Business environment201020112012201320142015Time needed to enforce contracts1 (days)1290.01290.01290.01270.01270.01160.0Time needed to start a business1 (days)7.57.57.57.57.57.5Outcome of applications by SMEs for bank loans2na0.60na0.381.080.41Research and innovation201020112012201320142015R&D intensity2.062.422.582.602.382.21Total public expenditure on education as % of GDP, for all levels of education combined5.685.685.445.22nanaNumber of science & technology people employed as % of total employment404142434344Population having completed tertiary education3202223242527Young people with upper secondary education4899090929091Trade balance of high technology products as % of GDP-1.44-1.02-0.83-0.60-0.84-0.61Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1.891.70OECD PMR5, retailna0.900.63OECD PMR5, professional servicesnana2.56OECD PMR5, network industries64.843.412.90 
 
 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 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 material 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          
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP        
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)        
Real unit energy cost: real energy costs as a percentage of total value added for the economy        
Environmental taxes over labour taxes and GDP: from European Commission'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)         
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors        
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP        
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.        
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste        
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP        
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions        
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.        
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR)        
Transport carbon intensity: GHG 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. consumption of 
international bunker fuels        
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.        
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels        
* European Commission and European Environment Agency        

Source: European Commission (Eurostat) unless indicated otherwise 

59 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.200.200.200.200.180.18Carbon intensity kg / €0.620.610.610.590.52-Resource intensity (reciprocal of resource productivity)kg / €1.030.920.820.810.850.84Waste intensity kg / €0.19-0.15-0.15-Energy balance of trade % GDP-5.0-6.2-6.8-5.5-4.1-Weighting of energy in HICP%13.8714.3114.5014.3814.7214.23Difference between energy price change and inflation %11.57.82.90.6-0.9-2.9Real unit of energy cost% of value added9.29.79.79.69.1-Ratio of environmental taxes to labour taxesratio5.35.55.04.74.7-Ratio of environmental taxes to GDPratio3.63.53.84.03.9-Sectoral Industry energy intensity kgoe / € 0.170.160.160.160.160.15Real unit energy cost for manufacturing industry excl. refining% of value added16.316.716.115.114.1-Share of energy-intensive industries in the economy% GDP15.2815.5115.6116.0716.1115.64Electricity prices for medium-sized industrial users€ / kWh0.100.100.090.100.090.08Gas prices for medium-sized industrial users€ / kWh0.040.050.060.050.040.04Public R&D for energy % GDP0.010.020.010.010.010.01Public R&D for environmental protection% GDP0.020.020.020.020.010.02Municipal waste recycling rate%22.435.641.934.836.054.1Share of GHG emissions covered by ETS*%41.941.140.240.736.936.4Transport energy intensitykgoe / €1.081.131.171.131.081.02Transport carbon intensitykg / €3.153.373.523.343.20-Security of energy supplyEnergy import dependency%48.747.751.246.944.548.7Aggregated supplier concentration indexHHI28.222.233.326.828.3-Diversification of energy mixHHI0.240.240.240.240.25- 
 
 
 
 
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