Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Slovenia and delivering a Council opinion on the 2017 Stability Programme of Slovenia
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Slovenia, administrative formalities, budget deficit, credit policy, economic policy, economic reform, employment policy, organisation of health care, pension scheme, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 523 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Slovenia  and delivering a Council opinion on the 2017 Stability Programme of Slovenia  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Slovenia 

and delivering a Council opinion on the 2017 Stability Programme of Slovenia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  16  November  2016,  the  Commission  adopted  the  Annual  Growth  Survey5, 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10  March  2017.  On  16  November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report6,  in  which  it 
identified Slovenia as one of the Member States for which an in-depth review would 
be carried out. On the same day, the Commission also adopted a recommendation for 
a  Council  Recommendation  on  the  economic  policy  of  the  euro  area.  That 
Recommendation  was  endorsed  by  the  European  Council  on  9-10  March  2017  and 
adopted by the Council on 21 March7.  

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3 
4 
5 
6 
7 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 523 final. 
P8_TA(2017)0038, P8_TA(2017)0039, and P8_TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 
2017/C92/01 

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(2) 

(3) 

(4) 

(5) 

leads 

As  a  country  whose  currency  is  the  euro  and  in  view  of  the  close  interlinkages 
between the economies in the economic and monetary union, Slovenia should ensure 
the full and timely implementation of the Recommendation for the euro area which is 
reflected in recommendations 1 to 3 below. 
The  2017  country  report  for  Slovenia8  was  published  on  22  February  2017.  It 
assessed  Slovenia’s  progress  in  addressing  the  country-specific  recommendations 
adopted by the Council on 12 July 2016, the follow-up given to the recommendations 
adopted in previous years and Slovenia's progress towards its national Europe 2020 
targets.  It  also  included  an  in-depth  review  under  Article  5  of  Regulation  (EU)  No 
1176/2011,  the  results  of  which  were  also  published  on  22  February  2017.9  The 
Commission’s  analysis 
is  experiencing 
to  conclude 
macroeconomic  imbalances.  In  particular,  weaknesses  in  the  banking  sector, 
corporate  debt,  and  fiscal  risks  constitute  vulnerabilities.  Stock  imbalances  are 
gradually unwinding in light of resumed growth. The corporate sector has undergone 
a substantial debt reduction, and private investment, including in the form of foreign 
direct  investment,  has  resumed,  although  stocks  from  inbound  foreign  direct 
investment remain low compared to regional peers. Public debt has peaked in 2015, 
and a downward adjustment is expected in the coming years. Progress on the front of 
banking  sector  restructuring  has  coincided  with  a  rapidly  falling  share  of  non-
performing loans, which is expected to continue to decline. Relevant measures have 
been taken by the government to consolidate and restructure the banking sector, and 
to  improve  the  governance  of  State-owned  enterprises.  However,  further  policy 
action is needed to address corporate debt and remaining weaknesses in the financial 
sector,  to  ensure  the  long-term  sustainability  of  public  finances,  and  improve  the 
business environment. 

that  Slovenia 

it 

On 28 April 2017, Slovenia submitted its 2017 Stability Programme and on 3 May 
2017 Slovenia submitted its 2017 National Reform Programme. To take  account of 
their interlinkages, the two programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States' programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,10 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.11 

(6) 

Slovenia  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact  and 
subject to the transitional debt rule. In its 2017 Stability Programme, the government 
expects  that  the  headline  deficit  will  improve  to  0.8  %  of  GDP  in  2017  and  then 

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10 

11 

SWD(2017) 89 final. 
COM(2017) 90 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 

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reach a surplus of 0.4 % of GDP in 2020. The medium-term budgetary objective — a 
balanced budget in structural terms, which does not respect the requirements of the 
Stability and Growth Pact — is planned to be reached by 2020. However, based on 
the  recalculated12  structural  balance  ,  the  medium-term  budgetary  objective  would 
not  be  met  by  the  programme  horizon.  According  to  the  Stability  Programme,  the 
general government debt-to-GDP ratio is expected to fall to 77.0 % of GDP in 2017 
and  continue  to  fall  to  67.5  %  of  GDP  in  2020.  The  macroeconomic  scenario 
underpinning  these  budgetary  projections  is  plausible.  At  the  same  time,  the 
measures  needed  to  support  the  planned  targets  from  2017  onwards  have  not  been 
sufficiently specified. 

The 2017 Stability Programme indicates that the budgetary impact of the exceptional 
inflow of refugees is significant in 2016 and 2017 and provides adequate evidence of 
the  scope  and  nature  of  these  additional  budgetary  costs.  According  to  the 
Commission,  the  eligible  additional  expenditure  for  the  exceptional  inflow  of 
refugees in 2016 amounted to 0.07% of GDP. This amount is unchanged compared 
to  the  2017  draft  budgetary  plan,  which  confirmed  the  projections  of  the  2016 
Stability  Programme.  For  2017,  the  Stability  Programme  included  a  request  for 
0.07%  of  GDP,  of  which  the  Commission  will  consider  the  incremental  impact 
amounting to 0.01% of GDP. The provisions set out in Article 5(1) and Article 6(3) 
of  Regulation  (EC)  No  1466/97  cater  for  this  additional  expenditure,  in  that  the 
inflow of refugees and security-related measures are related to unusual events, their 
impact  on  Slovenia’s  public  finances  is  significant  and  sustainability  would  not  be 
compromised  by  allowing  for  a  temporary  deviation  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective.  Therefore,  the  required  adjustment 
towards the medium-term budgetary objective for 2016 has been reduced to take into 
account  these  costs.  Regarding  2017,  a  final  assessment,  including  on  the  eligible 
amounts, will be made in spring 2018 on the basis of observed data as provided by 
the Slovenia authorities.   

On  12  July  2016,  the  Council  recommended  Slovenia  to  achieve  an  annual  fiscal 
adjustment of at least 0.6% of GDP towards the medium-term budgetary objective in 
2017.  Based  on  the  Commission  2017  spring  forecast,  there  is  a  risk  of  some 
deviation from that requirement in 2017.  

In  2018,  in the  light  of  its  fiscal  situation and notably  of its  debt  level,  Slovenia  is 
expected to further adjust towards an appropriate medium-term budgetary objective. 
According  to  the  commonly  agreed  adjustment  matrix  under  the  Stability  and 
Growth Pact, that adjustment translates into a requirement of a nominal growth rate 
of  net  primary  government  expenditure13  which  does  not  exceed  0.6  %.  It  would 
correspond  to  a  structural  adjustment  of  1%  of  GDP.  Under  unchanged  policies, 
there is  a risk  of  a  significant  deviation  from  that  requirement  in  2018.  Slovenia is 
projected to comply with the debt rule in 2017 and 2018. Overall, the Council is of 
the opinion that Slovenia needs to stand ready to take further measures in 2017 and 
that  further  measures  will  be  needed  in  2018  to  comply  with  the  provisions  of  the 

Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 
Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

(7) 

(8) 

(9) 

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accompanying 

Communication 

Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the 
assessment of the budgetary plans and outcomes should take account of the Member 
State’s  budgetary  balance  in  the  light  of  the  cyclical  conditions.  As  recalled  in  the 
Commission 
country-specific 
recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent 
assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  to 
achieve a fiscal stance that contributes to both strengthening  the ongoing recovery 
and  ensuring  the  sustainability  of  Slovenia’s  public  finances.  In  that  context,  the 
Commission intends to make use of the applicable margin of appreciation in the light 
of  the  cyclical  situation  of  Slovenia.  Furthermore,  there  is  significant  uncertainty 
regarding  the  cyclical  position  in  the  specific  case  of  Slovenia  because  of  the 
particularly  large  economic  contraction  in  2008-2013  and  the  major  structural  and 
financial sector reforms being implemented. 

these 

(10) 

(11) 

(12) 

The  Fiscal  Rules  Act  adopted  in  July  2015  introduced  a  medium-term  budgetary 
framework  for  the  general  government.  In  order  to  make  it  operational,  certain 
amendments  to  the  Public  Finance  Act  are  necessary.  Initially  the  government 
committed  to  having  the  revised  Public  Finance  Act  adopted  within  six  months 
following the adoption of the Fiscal Rule Act. However, this deadline was repeatedly 
postponed  and  the  revised  act  has  not  yet  been  submitted  to  the  Parliament  for 
deliberation.  The  revised  Public  Finance  Act  constitutes  one  of  the  legal  vehicles 
transposing  into  the  national  legislation  the  EU  Directive  2011/85  on  requirements 
for national budgetary frameworks, which Member States were obliged to complete 
by the end of 2013. The members of the Fiscal Council were appointed on 21 March 
2017. 

The high public debt at 79.7% of GDP in 2016 represents a source of vulnerability 
for the public finances in Slovenia. The country's population is ageing faster than that 
of most Member States. Slovenia faces high risks on the long-term sustainability of 
public finances and its long-term sustainability gap indicator is the highest of all EU 
Member  States,  stemming  from  the  projected  increase  in  pension-related  public 
spending, healthcare and long-term care expenditure.  

The government has presented proposals to reform the healthcare system. The draft 
Healthcare and Health Insurance Act, which is the central piece of the reform,  was 
put to public consultation in February 2017 and is scheduled to be forwarded to the 
National Assembly  by summer 2017.  Respecting the envisaged timing  is  important 
and  should  allow  the  act  to  become  law  still  in  2017.  In  December  2016,  the 
proposals  to  amend  the  Health  Services  Act  and  the  Patient  Rights  Act  were 
presented and the new Pharmacies Act was adopted. Remaining challenges concern 
the  governance  and  performance  of  hospitals,  primary  care  as  a  gatekeeper  for  in-
patient  care,  hospital  payment  systems,  health  technology  assessments,  and 
information systems. In addition, the benefits from centralised public procurement of 
medical  products  and  services  remain  largely  untapped  while  a  new  centralised 
public  procurement for medicines  is under preparation  that  could help procurement 
to become more transparent and cost-efficient. Advancing in long-term care reform 
is also a significant challenge. To date, there is no integrated long-term care system 
in Slovenia. A pilot project to determine the long-term care needs is being prepared. 

(13) 

The White Paper on pensions was adopted by the government in April 2016 and has 
opened a public consultation on the future of the pension system. However, concrete 
legislative proposals are still lacking. Challenges on the way ahead are to ensure the 
long-term  sustainability  and  adequacy  of  the  pension  system  by  adjusting  the 

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(14) 

(15) 

(16) 

(17) 

statutory  pension  age  to  life  expectancy  gains  and  promoting  later  retirement,  to 
boost  the  coverage  of  the  supplementary  pension  schemes,  to  adequately  address 
varying career paths and to reduce old-age poverty risks. 

Labour  market  and  social  trends  continued  to  improve.  Job  creation  has  picked  up 
and  unemployment  is  decreasing.  The  rate  of  people  at  risk  of  poverty  and  social 
exclusion  decreased  but  remains  above  the  EU  average  for  the  elderly.  The 
improving  labour  market  offers  an  opportunity  to  provide  employment  for  older 
workers,  but  their  participation  rates  remain  low.  Entering  retirement  via  the 
unemployment  insurance  system  has  become  increasingly  common  in  recent  years. 
Long-term unemployment remains above pre-crisis levels and represents more than 
half of all unemployed. More than 40 % of all long-term unemployed are over 50 and 
almost half of them are unemployed for two years or more. An analysis and an action 
plan that  aims to  increase  the employment rate of older  workers has  been  prepared 
and  discussed  with  social  partners.  Timely  implementation  of  the  action  plan  can 
help to improve the activation of older workers. The employment rate of low-skilled 
workers  remains  low  and  well  below  the  pre-crisis  level  and  the  EU  average.  The 
active labour market policy implementation plan adopted in January 2016 continues 
the  current  approach,  while  expenditure  in  this  field  remains  low.  Older  and  low-
skilled  workers  continue  to  be  underrepresented  in  active  labour  market  policy 
measures.  Labour  market  segmentation  remains  a  challenge  despite  the  reform  in 
2013. 

The level of non-performing loans, while still high, is on a solid downward path. The 
Bank  of  Slovenia  has  implemented  a  number  of  measures  that  are  giving  banks 
incentives to reduce their non-performing loans sustainably. Debt reduction pressures 
have  started  to  ease  but  credit  flows  to  firms  continue  to  contract.  The  progress  in 
debt  reduction  has  been  uneven  across  individual  firms.  The  consolidation  and 
restructuring of the banking sector are progressing with the merger of three banks in 
2016.  The  privatisation  of  Nova  Ljubljanska  Banka  is  planned  by  December  2017. 
Revisions to the legislative framework further reinforced the corporate restructuring 
capacity  of  the  Bank  Asset  Management  Company.  Non-performing  loans  remain 
high among SMEs. To address the issue, a systematic approach to SME work out of 
non-performing  loans  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.  

Access  to  alternative  financing  sources  for  a  creditworthy  business  is  very  limited. 
The  Slovenian  Enterprise  Fund  and  the  Slovenska  izvozna  in  razvojna  banka  (SID 
bank)  have  mainly  introduced  new  debt  instruments  for  SMEs  including  measures 
such  as  microcredits.  One  seed  capital  scheme  was  implemented  in  2016  by  the 
Slovenian  Enterprise  Fund  with  under  50  SME  beneficiaries.  Other  alternative 
financing instruments, including venture capital and equity with use of the European 
Structural and Investment Funds, could be a major source of additional financing but 
remain largely untapped. 

The implementation of the public administration development strategy 2015-2020 is 
underway, and some progress has been made. However, some specific measures, like 
the  adoption  of  the  Civil  Service  Act,  have  been  further  delayed.  The  government 
programme for reducing the administrative burden is estimated to have created total 
savings  of  EUR  365  million  between  2009  and  2015  and  almost  60%  of  318 
measures to reduce the administrative burden have been achieved. Private investment 
however continues to be hindered by complex and lengthy administrative procedures, 

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especially  in  construction  and  spatial  planning.  While  the  efficiency  and  quality  of 
the  justice  system  have  further  improved,  in  commercial  cases  it  still  takes  a  long 
time to schedule first hearings and claims cannot be submitted by electronic means. 
Despite the adoption of some key anti-corruption reforms like the zero tolerance to 
corruption  programme,  perception  of  corruption  remains  negative  and  appears  to 
influence business decisions. After the initial progress in modernising the regulation 
of  professions,  the  reforms  have  slowed  down.  Lifting  restrictive  barriers  in 
regulation of professions could support competition in these markets. 

State involvement in the economy remains high despite the privatisation programme 
initiated in 2013. The state is the largest employer, asset manager and corporate debt 
holder in Slovenia. Combined with weak corporate governance, high state ownership 
has  had  considerable  fiscal  and  economic  implications.  They  are  estimated  at  EUR 
13 billion or about one third of GDP in 2007-2014, primarily due to financial sector 
stabilisation  measures  and  foregone  profits  of  state-owned  enterprises  compared  to 
their  private  peers.  The  performance  of  state-owned  enterprises  has  started  to 
improve, underpinned by a new corporate governance system, but risks remain.  By 
the end of 2015 results showed an improved profitability of the enterprises under the 
management  of  the  Slovenian  Sovereign  Holding,  albeit  falling  short  of  the 
intermediate  target  set  in  the  management  strategy.  An  asset  management  plan  for 
2017,  quantifying  the  performance  indicators  for  each  separate  state-owned 
enterprise  and  updating  a  list  of  assets  for  divestment,  has  been  approved  by  the 
government in January 2017. At the same time, a revision of the asset management 
strategy, first approved by the national parliament in 2015, is still pending, with the 
government having deferred its decision to the second half of 2017. Although a new 
president of the management board was appointed at the end of February 2017, the 
full supervisory board is not in place yet. 

In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive analysis of Slovenia’s economic policy and published it in the 2017 
country report. It has also assessed the Stability Programme and the National Reform 
Programme and the follow-up given to the recommendations addressed to Slovenia 
in  previous years.  It has taken into account  not only  their relevance for sustainable 
fiscal and socioeconomic policy in Slovenia, but also their compliance with EU rules 
and guidance, given the need to strengthen the EU’s overall economic governance by 
providing EU-level input into future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion14 is reflected in particular in recommendation 1 below. 

In  the  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council 
has  examined  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations  made  under  Article  6  of  Regulation  (EU)  No  1176/2011  are 
reflected in recommendations 1 and 3 below, 

(18) 

(19) 

(20) 

(21) 

HEREBY RECOMMENDS that Slovenia take action in 2017 and 2018 to: 

1. 

Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. 
When taking policy action, consideration should be given to achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability  of  Slovenia’s  public  finances.  Adopt  and  implement  the  proposed 

14 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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2. 

3. 

reform  of  the  healthcare  system  and  adopt  the  planned  reform  of  long-term  care, 
increasing cost-effectiveness, accessibility and quality care. Fully tap the potential of 
centralised procurement in the health sector. Adopt the necessary measures to ensure 
the long-term sustainability and adequacy of the pension system. 

Intensify  efforts  to  increase  the  employability  of  low-skilled  and  older  workers, 
particularly through targeted lifelong learning and activation measures. 

Improve  the  financing  conditions,  including  by  facilitating  a  durable  resolution  of 
non-performing loans and access to alternative sources of financing. Ensure the full 
implementation  of  the  bank  asset  management  company  strategy.  Reduce  the 
administrative  burden  on  business  deriving  from  rules  on  spatial  planning  and 
construction permits and ensure good governance of State-owned enterprises.  

Done at Brussels, 

For the Council 
The President 

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