COMMISSION STAFF WORKING DOCUMENT Country Report Slovenia 2018 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 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Slovenia, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 222 final  COMMISSION STAFF WORKING DOCUMENT Country Report Slovenia 2018 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 2018 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(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the Macroeconomic Imbalance Procedure 

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 

Annex A: Overview Table 

Annex B: Macroeconomic Imbalance Procedure Scoreboard 

Annex C: Standard Tables 

References 

LIST OF TABLES 

Summary Table in 2017 CSR assessment 

Macroeconomic Imbalance Procedure assessment matrix 

Financial soundness indicators, all banks in Slovenia 

Key Economic Indicators 

Table 1.1: 
Table 2.1: 
Table 3.1: 
Table 4.2.1: 
Table 4.4.1:  Construction is expensive 
Table B.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Green growth 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

The Macroeconomic Imbalance Procedure scoreboard for Slovenia (AMR 2018) 

1 

4 

11 

15 

18 

19 

26 

31 

37 

47 

53 

54 

60 

10 
14 
17 
26 
43 
53 
54 
55 
56 
57 
58 
59 

 
 
 
 
 
LIST OF GRAPHS 

Investment by type 

Contributions to GDP growth 

Contribution to potential growth 

Development of public and private investment 

Export market shares change with contributions 

Graph 1.1: 
Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
Graph 1.9: 
Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 
Graph 3.1: 

Real effective exchange rate based on unit labour costs 

Net international investment position - by sector 

House price developments 

Debt decomposition 

Non-performing exposure of domestic banks (including foreign-controlled subsidiaries 

and branches) 

Arrears developments 

Graph 3.2: 
Graph 4.1.1:  Gross debt - DSA 
Graph 4.1.2:  Alcohol, overweight and obesity problems are greater in Slovenia than in most other 

EU countries 

Graph 4.2.1:  Year-on-year credit growth, adjusted for sales and securitisation 
Graph 4.2.2: 
Graph 4.2.3:  Share of forborne loans that are performing (end-June 2017) 
Graph 4.2.4:  Annual value of private equity investments in selected Central and Eastern European 

Trends in non-performing loans, including BAMC assets 

countries in 2013 to 2016 (million euros) 

Graph 4.3.1:  Activity, employment and unemployment rates (annual) 
Graph 4.3.2:  Decomposition of rate of change of unit labour costs 
Graph 4.4.1:  Labour productivity in Slovenia and the euro area, 1999-2016 
Graph 4.4.2:  Labour productivity in 2010 and its average annual growth (2008-2016) 
Graph 4.4.3:  Value added per employee, in EUR 1000, Manufacturing sector 
Graph 4.4.4:  Value added per employee, in EUR 1000, Services 
Graph 4.4.5:  Annual TFP for small, medium and large firms 
Graph 4.4.6:  Annual TFP for zombie v.non-zombie firms 
Graph 4.4.7:  Education and literacy skills 
Graph 4.4.8:  Business environment 
Graph 4.4.9: 
Graph 4.4.10:  Business and public R&D intensities in Slovenia (% of GDP), 2007 – 2015 
Graph 4.4.11:  Impact on labour productivity in manufacturing of tackling restrictions in the service 

Innovation and R&D 

sector (measured by using the Service Trade Restrictiveness Index (SRRI) 

4 
4 
4 
5 
7 
7 
7 
8 
9 
11 

15 
15 
21 

23 
26 
27 
27 

29 
31 
35 
37 
37 
39 
39 
40 
40 
41 
41 
41 
41 

43 

 
 
 
LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support to structural change in Slovenia 

Box 4.2.2: Policy highlight: improving the access to finance 

Box 4.3.3: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.4: Investment challenges and reforms in Slovenia 

Box 4.4.5: Drivers of productivity growth at firm level 

13 

30 

32 

38 

40 

 
 
 
 
EXECUTIVE SUMMARY 

Slovenia's  successful  rebalancing  sets 
the 
ground  for  addressing  medium  and  long-term 
challenges.  The  sources  of  imbalances  that  led  to 
the deep crisis of 2012-2013 have rapidly receded, 
also  due  to  sustained  policy  action.  The  economy 
is  now  growing  robustly.  Addressing  remaining 
weaknesses  in  the  banking  and  corporate  sector, 
unleashing  investment  and  productivity  growth 
and  reforming  the  pension,  health  and  long-term 
care  systems  remain  key  priorities  to  put  the 
economy  on  a  dynamic  and  sustainable  growth 
path. (1) 

Slovenia  is  getting  on  a  balanced  growth  path. 
In  2012-2014,  the  country  suffered  from  serious 
problems in the banking sector and embarked on a 
painful  corporate  deleveraging  process.  The 
economy  rebalanced  rapidly  afterwards,  also 
helped  by  the  well-designed policy  measures,  and 
since  2016  it  has  enjoyed  sustained  growth. 
Slovenia  has  maintained  its  price-competitiveness 
and the improving external environment is clearly 
reflected  in  the  growth  of  exports.  The  expected 
account  surplus  is  5.9 %  of  GDP  in  2017  and  the 
net international investment position improved. 

is 

labour  market 

The 
strengthening. 
Employment  continued  to  rise,  unemployment 
further  decreased  and  labour  shortages  increased. 
The  tightening  labour  market  is  putting  some 
upward  pressure  on  wages,  but  wage  growth 
remains  moderate  and  in  line  with  productivity 
economic 
to 
developments.  Due 
developments the rate of people at risk of poverty 
and social exclusion continued to decrease. 

positive 

The sources of imbalances have been reduced in 
a  sustainable  manner.  The  banking  sector  is 
improving due to better solvency, profitability and 
asset  quality.  Non-performing  loans  declined  by 

(1)  This report assesses Slovenia’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms  and ensuring responsible fiscal policies. 
At  the  same  time,  the  Commission  published  the  Alert 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Slovenia warranted an in-depth review, which is 
presented in this report. 

1 

almost  a  third  in  2017  compared  to  2016.  Credit 
growth  has  turned  positive  and  investments  are 
expected  to  drive  Slovenia’s  economic  growth  in 
2018 and 2019. Government finances are expected 
to be in balance in 2018. Public debt continues to 
decline  and  is  expected  to  reach  72 %  of  GDP  in 
2019, 10 percentage points below its peak in 2015.  

This positive outlook opens up opportunities to 
increase  the  growth  potential  of  the  economy. 
Labour productivity growth in Slovenia has fallen 
over  the  past  15  years  as  a  result  of  both  cyclical 
and  structural  factors.  Due  to  ageing,  the  labour 
force  is  shrinking.  Investment  and  technological 
progress  will  therefore  be  crucial  to  the  country’s 
future growth.  

There  remain  major 
long-term  challenges 
linked  to  the  ageing  of  the  society.  Expenditure 
on public pensions, health care and long-term care 
puts  large  pressure  on  the  public  finances  in  the 
long term. 

the 

2017 

some (2)  progress 

in 
Slovenia  has  made 
country-specific 
addressing 
recommendations.  Political  consensus,  including 
with  social  partners,  regarding  the  path  towards 
pension  reform  has  been  reached.  Some  laws  on 
reforms to the healthcare sector have been adopted 
while  the  key  legislation  (Health  care  and  health 
insurance  Act)  has  not  been  adopted  yet.  A 
proposal for reforming the long-term care has been 
publicly  consulted  but  not  yet  put  forward. 
Aggregated  procurement 
is  being  used  more 
widely in the healthcare sector. Some measures to 
increase  employment  of  older  and  low-skilled 
workers  were  adopted.  Significant  work  has  been 
done  to  achieve  the  durable  resolution  of  non-
performing  loans.  The  new  legislative  package  to 
improve  the  planning  and  building  process  will 
also be in force from mid-2018. Supported by EU 
the  European  Fund  for  Strategic 
funds  and 
Investments,  new  alternative  financing  sources 
have been developed recently.  

Regarding progress in reaching the national targets 
under  the  Europe  2020,  Slovenia  has  already 
achieved  or  is  well  on  track  to  achieving  its 

(2)  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. 

 
 
                                                           
                                                           
Executive summary 

increase  in  inward  foreign  direct  investment. 
Nevertheless,  the  level  of  private  investment, 
including foreign direct investment in Slovenia 
to  peer 
remains  relatively 
countries.  It  therefore  continues  to  pose  a 
challenge for the economy. 

low  compared 

  Public  debt  decreased  to  78.5 %  of  GDP  in 
2016. The debt ratio is declining on the back of 
strong nominal GDP growth and a reduction in 
the general government deficit. However, long-
term  sustainability  remains  a  major  challenge, 
to  put 
as  an  ageing  population 
considerable  pressure  on  public  finances.  The 
legislation  concerning  pensions,  the  stable 
financing  of  the  healthcare  system  and  the 
reform  of  the  long-term  care  system,  which 
would  address  these  problems,  have  not  yet 
been adopted. 

is  set 

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

to  particular  challenges 

  The 

to 

labour  market  continues 

face 
challenges. The activity and employment rates 
of  older  workers  remain  among  the  lowest  in 
the  EU.  Adult  learning,  although  still  slightly 
above the EU average, has been falling for the 
last  seven  years.  Evaluation  of  active  labour 
market  policies  shows  that  the  majority  of 
programmes are performing well. However, the 
the 
participation 
programmes is low. 

rate  of  unemployed 

in 

  The  healthcare  system  needs  stable  funding 
and its efficiency needs to be improved. The 
healthcare system provides good outcomes but 
the  ageing  population  is  putting  it  and  the 
long-term  care  system  under  strain.  Therefore, 
increasing  efficiency,  including  by  aggregated 
procurement,  is  important  to  ensure  the  long-
term  sustainability  of  public  finances  and 
continue  providing  high-quality  care. 
If 
adopted,  the  Healthcare  and  Health  Insurance 
Act would help achieve this objective. 

  The  business  environment  and  access  to 
finance  have 
improved  but  challenges 
remain. While useful new funding instruments 
have  been  devised,  alternative  sources  of 
financing  for  start-ups,  small  businesses  and 

national  targets  for  early  school  leaving  rates, 
tertiary  educational  attainment,  energy  efficiency 
and  greenhouse  gas  emissions.  The  employment 
rate  (ages  20-64)  increased  by  1  percentage  point 
to  70.1 %  in  2016,  moving  closer  to  the  75 % 
target. The number of people at risk of poverty and 
social exclusion declined further in 2016, but it is 
still  above  the  2008  level.  On  the  negative  side, 
Slovenia  moved  further  away  from  its  R&D 
intensity target. 

Slovenia  performs  relatively  well  on 
the 
indicators  of  the  Social  Scoreboard  supporting 
the  European  Pillar  of  Social  Rights.  Income 
inequalities are low. The risk of poverty and social 
exclusion  has  decreased  over  the  last  years. 
However,  old-age  poverty  still  prevails.  Despite 
improvements  in  labour  market  outcomes,  the 
employment rates of older workers and low-skilled 
remain low. Outcomes are strong on education and 
training. 

findings  of 

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

in-depth 

the 

  The  banking  sector  has  been  strengthened. 
The  non-performing  loans  ratio  declined  by 
almost  a  third  in  2017.  Banks  are  profitable, 
well capitalised and have a favourable funding 
structure.  The  reserves  put  in  place  by  the 
banks  to  cover  the  potential  losses  on  the 
remaining non-performing loans are increasing. 
In  March  2017,  a  toolkit  to  prevent,  identify 
and  manage  non-performing  loans  was  issued 
by Bank of Slovenia. Remaining challenges are 
the  continued  monitoring  of  the  restructured 
in 
loans 
March 2017) and the long-term profitability of 
banks  given 
interest 
environment.  Privatising  the  NLB  remains 
essential  to  prevent  possible  future  credit 
misallocation 
long-term 
viability. 

rate  was  27 % 

re-default 

current 

ensure 

(the 

low 

and 

the 

its 

  Deleveraging in the corporate sector appears 
to  have  been  completed  and  investment  is 
growing.  Since  its  peak  at  115 %  of  GDP  in 
2010,  private  sector  debt  decreased  to  81.4 % 
in 2016. Household and corporate credit is now 
growing  robustly.  Private  investment  growth 
accelerated  to  5%  in  2016,  supported  by  an 

2 

 
 
scale-ups  have  only  started 
to  develop. 
Legislation  to  ease  the  planning  and  building 
processes  has  been  adopted  but  administrative 
burden  and  restrictive  product  and  service 
market  regulation  remain  obstacles  to  growth 
and  investment.  There  is  room  to  enhance 
competition, 
and 
independent  oversight  in  public  procurement. 
still 
Certain  anti-corruption 
pending.  Efficiency 
is 
hindered by difficulties to attract domestic and 
foreign talent and a lack of performance-based 
funding..

reforms  are 
in  public  research 

professionalization 

Executive summary 

3 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

consumer  confidence.  Export  growth  remained 
strong  and  outpaced 
import  growth,  further 
contributing to the current account surplus. 

Graph 1.2:  Development of public and private investment 

GDP growth 

Slovenia’s  economy  has  recovered  from  the 
crisis  and  is  now  growing  faster  than  the  EU 
average.  In  2014–2016  growth  averaged  2.8 % 
and is set to accelerate in 2017 to 4.9 % based on 
the winter 2018 forecast (Graph 1.1). Real GDP in 
2016 was 6.5 % higher than in the pre-crisis peak 
year of 2008. The economy is rebalancing rapidly 
and the legacy of the crisis is being prudently dealt 
with.  The  country  has  taken  advantage  of  the 
improving  external  conditions,  as  it  has  kept  its 
competitive  position  strong  and  managed 
to 
increase  its  export  market  shares  by  9 %  over 
2014 -2016.  In  addition  to  the  positive  growth 
contribution from net exports, private consumption 
has  been  increasing.  Growth  was  held  back  by 
investment which, mainly due to slow progress in 
projects supported by the EU funds, had a negative 
contribution in 2015 and 2016. 

Graph 1.1:  Contributions to GDP growth 

Source: European Commission 

Graph 1.3: 

Investment by type 

Source: European Commission, winter 2018 forecast 

Source: European Commission 

Besides  export,  investment  became  the  main 
growth  driver  in  2017.  Over  the  first  three 
investment  was  up  9.1 % 
quarters  of  2017, 
compared to the same period in 2016. The biggest 
component is non-residential construction which is 
growing at 16.1 %, but investments into machinery 
and  equipment  are  also  up  8.6 %.  Residential 
construction investments have increased by 7.5 %. 
Private  consumption  grew  by  3.3 %  in  2017, 
boosted  by  growing  disposable  income  and  high 

Due  to  the  sharp  fall  during  the  crisis, 
investment  in  the  private  sector,  as  a  share  of 
GDP,  remains 
lower  than  the  euro  area 
average. However, in terms of volume, investment 
is still at levels reached at the turn of the century. 
As  a  share  of  GDP,  investments  in  2016  were 
around 18 % (Graph 1.2) whereas it was 26.5 % on 
average  in  1998-2006.  While  public  investment 
has  fallen,  it  still  remains  above  the  euro  area 

4 

-15-10-505100304050607080910111213141516171819%,of GDPInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthforecast05101520253001020304050607080910111213141516171819% GDPSI public investmentEA public investmentSI private investmentEA private investmentforecast051015202530350001020304050607080910111213141516% of GDPIntellectual property productsOther machinery and equipmentInformation and communication technologies equipmentTransport equipmentOther buildings and structuresDwellings 
 
 
 
 
 
1. Economic situation and outlook 

to 

investment 

investment 

construction, 

the  years,  but 

average. However, the large fall in total investment 
is  attributable  to  the  fall  in  private  investment 
which is now below the euro area average level. In 
into 
addition 
machinery and equipment has become much lower 
than before the crisis (Graph 1.3). Investment into 
intellectual  property  products  has  been  rather 
into 
stable  over 
information  and  communication  technology  has 
fallen markedly. Slovenia used to have low foreign 
investment inflows but the situation has improved 
since  2014.  In  the  last  3  years  foreign  direct 
inflows  averaged  4 %  of  GDP 
investment 
annually. Net reinvested earnings, which remained 
low  in  the  post-crisis  years,  have  helped  increase 
foreign  direct  investment  inflows  in  the  last  two 
years.  Section  4.2  discusses  the  developments  in 
sources  of 
banking 
sector  and  alternative 
financing.  Section  4.4  analyses  barriers 
to 
investment and productivity developments. 

improving 

GDP growth is forecast to reach 4.2 % in 2018 
and  3.5 %  in  2019.  Growth  is  projected  to  be 
driven  mainly  by  domestic  demand,  as  private 
consumption  is  forecast  to  remain  strong over  the 
forecast  horizon.  Consumption  is  supported  by 
growing  employment,  wages  and  bank  lending. 
Similarly, investment is projected to grow at a high 
rate due to the combination of strong external and 
domestic  demand  with 
financing 
conditions  and  stronger  corporate  balance  sheets. 
Capacity  utilisation  has  reached  a  high  level, 
is  growing  and  export 
industrial  production 
markets are expanding so additional investment is 
becoming  necessary. 
sector, 
In 
investments  are  projected  to  be  supported  by  the 
improved  take-up of  EU funds,  including  the  first 
infrastructure  project  backed  by  the  European 
Fund for Strategic Investments (EFSI) guarantee in 
November  2017.  Export  performance  is  expected 
to  remain  robust,  supported  by  stable  unit  labour 
costs and continued gains in price competitiveness. 
Imports are forecast to grow in line with domestic 
demand,  gradually  neutralising 
the  growth 
contribution  of  net  exports.  The  current  account 
surplus  is  expected  to  decrease  moderately  in 
2018- 2019. 

the  public 

from 

contribution 

investment.  The 
capital 
accumulation  declined  significantly  in  2009  to 
2011  and  turned  negative  in  2012,  causing  the 
potential  growth  rate  to  become  negative  in  2012 
and  2013  (Graph  1.4).  From  2014  to  2017  the 
recovery  was  driven  by  growing  contribution  of 
total  factor  productivity,  as  the  economy  regained 
capital 
efficiency.  The 
accumulation  is  expected  to  turn  positive  only  in 
2018.  The  labour  contribution  remains  modest, 
which is to be expected in an ageing society. The 
potential  growth  rate  is  expected  to  stabilise  at 
around  2.5 %  to  3 %  over  the  next  5  years  (see 
Section 4.4 for more details on productivity). 

contribution 

from 

Risks  to  the  growth  outlook  are  tilted  to  the 
upside.  As  a  small  open  economy,  Slovenia 
remains open to the economic developments in its 
export  markets  but  also  to  the  increases  in  the 
prices  of  oil  and  raw  materials.  In  the  domestic 
improving  economic  sentiment  and 
economy, 
better  access  to  credit  could  further  support 
investment, particularly in residential properties.  

Graph 1.4:  Contribution to potential growth 

Source: European Commission autumn 2017 forecast 

The growth potential is recovering. Before 2008, 
the  rate  of  potential  growth  was  calculated  at 
around  3.5 %  per  year.  The  contribution  of  total 
factor  productivity  growth  was  declining,  but  it 
was more than offset by growing contribution from 

Inflation 

Inflation  remains  moderate.  Slovenia  was 
experiencing deflation in 2015 and 2016. This was 
caused  by  the  fall  in  global  energy  prices  and  by 
on-going  deleveraging.  Low  core  inflation  also 

5 

-1,0-0,50,00,51,01,52,02,53,03,54,0050607080910111213141516171819Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growthforecast 
 
 
1. Economic situation and outlook 

Social developments  

The rate of people at risk of poverty and social 
exclusion  has  decreased,  but  remains  high  for 
the  elderly.  The  at-risk-of-poverty-and-social-
exclusion  rate  for  people  over  65  was  19.9 %  in 
2016,  which  is  above  the  EU  average  of  17.7 %. 
Almost  13.8 %  of  these  people  are  at  a  persistent 
risk of poverty (3). This is among the highest rates 
in  the  EU(see  Section  4.3).  In  December  2016, 
almost half of pensioners received a pension below 
the  poverty  line.  In  the  future,  pension  adequacy 
problems can be expected for workers with shorter 
careers (see Section 4.1.4). 

Income  inequality  continued  to  decrease  and 
remains  among  the  lowest  in  the  EU.  The  Gini 
coefficient  of  equivalised (4)  disposable  income 
declined  slightly  from  24.5  in  2015  to  24.4  in 
2016. This is well below the EU average of 30.8 in 
2016, albeit still above the pre-crisis levels (23.2 in 
2007),  and  echoed  in  a  relatively  low  income 
quintile  share  ratio  (80/20) (5).  Slovenia  also 
displays a relatively low gender employment gap. 

There  are  significant  differences  in  the  income 
levels of the different regions. GDP per capita in 
Eastern  Slovenia  is  70 %  of  that  in  Western 
Slovenia, which includes the capital. Based on the 
composite  indicator  of  regional  prosperity,  all  of 
the NUTS 3 regions in the west have scored better 
than  all  NUTS 3  regions  in  the  east,  except  one 
(Pecar, 2017).  

(3)  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. 

(4)  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. 
The  Gini  coefficient  values  range  from  0  (complete 
equality) to 100 (complete inequality). 

(5)  The S80/S20 income quintile share ratio refers to the ratio 
of  total  equivalised  disposable  income  received  by  the  20 
% of the country’s population with the highest equivalised 
disposable income (top quintile) to that received by the 20 
%  of  the  country’s  population  with the  lowest  equivalised 
disposable income (lowest quintile). 

reflected 
relatively  weak  domestic  demand. 
Inflation  accelerated  towards  2 %  (y-o-y)  in  the 
first quarter of 2017 but slowed thereafter, largely 
driven  by  base  effects.  Overall,  consumer  prices 
increased  by  1.6 %  in  2017.  Both  headline  and 
core  inflation  are  expected  to  remain  moderate 
over  the  forecast  horizon.  Harmonised  index  of 
consumer  prices  is  forecast  to  grow  by  1.8 %  in 
2018 and by 2.0 % in 2019. 

Labour market 

throughout  2017. 

Labour  market  performance  has  continued  to 
improve  on  the  back  of  strong  economic 
growth. The rise in employment and the decrease 
in unemployment, which have been going on since 
In  2017, 
2014,  continued 
unemployment  (ages  15-74)  fell  from  8.0 %  to 
6.8 %  on  an  annual  basis.  Between  the  third 
quarter  of  2016  and  the  third quarter  of  2017,  the 
employment  rate  (ages  20-64)  increased  from 
70.4 % to 74.1 %, while (for the same period), the 
activity  rate  (ages  20-64)  increased  from  76 %  to 
79 %,  surpassing  the  pre-crisis  level.  Moreover, 
the  share  of  marginally  attached  and  discouraged 
workers  has  decreased  in  recent  years  and  is  now 
lower than before the crisis. 

in  2017 

Employment is expected to continue to grow by 
1 %-2 %  annually  over  the  forecast  horizon. 
Growth  is  set  to  decelerate  as  labour  shortages 
increase  in  the  tightening  labour  market.  As  a 
result,  the  unemployment  rate  is  expected  to  fall 
from  6.8 % 
in  2019. 
Nevertheless,  structural  labour  market  challenges 
remain.  Long-term  unemployment  still  accounts 
for  over  half  of  total  unemployment  and,  despite 
improvements  in  recent  years,  the  employment 
rates  of  older  and  low-skilled  workers  remain 
below  the  EU  average  and  their  participation  in 
active labour market policies remains low. 

to  5.2 % 

pressure 

The  tightening  labour  market  is  putting  some 
upward 
on  wages.  Nominal 
compensation per employee increased by 2.8 % in 
2017  and  is  projected  to  continue  growing  by 
around  3.2 %  in  2018  and  2019.  Real  wages 
increased  by  1.1 %  in  2017  and  are  expected  to 
increase  by  1.5 %  over  the  forecast  horizon, 
remaining  below  productivity  growth.  Nominal 
unit  labour  costs  increased  by  0.4 %  in  2017  and 
are expected to continue growing at a rate of 0.9 % 
in 2018 and 2019.  

6 

 
                                                           
1. Economic situation and outlook 

Competitiveness 

Graph 1.5: 

Export market shares change with 
contributions 

Graph 1.6: 

Real effective exchange rate based on unit 
labour costs 

Source: European Commission 

continued 

competitiveness 

Sloveniaʼs 
to 
improve  in  2016.  After  a  small  export  market 
share loss in 2015, Sloveniaʼs export market share 
increased  by  6.7 %  in  2016  (Graph  1.5).  This 
increase was driven by gains in the export of goods 
as  well  as  services.  Real  effective  exchange  rates 
deflated  by  nominal  unit  labour  costs  (Graph  1.6) 
have  been  on  a  downward  path  since  2013. 
Competitiveness  has  improved  thanks  to  both 
productivity gains and continued wage moderation. 

Source: European Commission calculation 

External position 

Graph 1.7:  Net international investment position - by 

sector 

Source: European Commission 

Sloveniaʼs  current  account  has  been  in  surplus 
since 2011, peaking at 5.8 % in 2014. While both 
goods  and  services  balances  are  in  surplus,  the 
surplus  in  services  is  especially  strong.  The  trade 
balance  reached  9.2 %  in  2016.  With  companies 
returning  to  profitability,  the  primary  income 
balance  is  becoming  increasingly  negative  as 
dividends  are  paid  to  the  foreign  owners  of  the 
exporting  companies.  Sloveniaʼs  current  account 
surplus is higher than could be expected based on 

7 

-15-10-5051015020304050607080910111213141516ppsContribution to EMS: goodsContribution to EMS: servicesExport market share7080901001101201301401500102030405060708091011121314151617*18*19*1999=100SIEA19EU28forecast-80-60-40-200204009Q210Q211Q212Q213Q214Q215Q216Q217Q2% of GDPGeneral GovernmentPrivate sectorMFI (excl central bank)Central Bank (incl reserves)Net int'l investment position (NIIP) 
 
 
 
1. Economic situation and outlook 

the  fundamentals.  The  surplus  is  expected  to 
decline  over  the  medium  term,  as  investment  and 
consumption increase and fuel prices rise. 

current  account 

The  high 
surplus  has 
contributed  to  the  improvement  of  the  net 
international  investment  position.  The  banking 
sector and non-financial corporations have lowered 
their liabilities whereas the liabilities of the general 
government sector have increased (Graph 1.6).  

significantly.  Since  the  indebtedness  ratio  peaked 
in  2010  (115 %  of  GDP),  private  sector  debt 
decreased  to  80.5 %  of  GDP  in  2016.  Private 
sector  debt  is  now  below  both  prudential  and 
fundamental  benchmarks (6),  indicating  that  the 
private  sector  in  aggregate  has  no  further  need  to 
deleverage  (Graph  1.7).  High  leverage  remains 
concentrated  in  a  handful  of  large  companies  and 
among SMEs. 

Graph 1.8:  Debt decomposition 

Financial sector 

The  situation  of  the  Slovenian  banking  sector 
has  further  improved.  All  financial  institutions 
are  well  capitalised.  Their  average  capital 
adequacy  ratio  remained  broadly  stable  over  the 
last year (18.7 % in June 2017). Banks have access 
to  sufficient 
liquidity.  Their  profitability  has 
improved,  with  a  return  on  equity  soaring  from 
3.5 %  in  2016  to  7.8 %  in  2017  thanks  to 
significantly 
impairments.  However, 
maintaining  this  level  of  return  on  equity  will  be 
challenging because of the current low interest rate 
environment and the impairments that are likely to 
arise from the  new loans issued. Credit lending is 
picking up strongly, with households and corporate 
credit  growing  respectively  by  7.9 %  and  7.1 % 
year-on-year in September 2017.  

lower 

The  rapid  reduction  in  the  non-performing 
loans  (NPL)  ratio  continued  in  2017.  The  NPL 
ratio for the banking sector was 10.8 % in the first 
quarter  of  2017,  down  from  14.8 %  a  year  earlier 
(Bank  of  Slovenia  data  –  see  Section  4.2).  Sales 
continue to account for most of the NPL reduction 
while  write-offs  have  slowed.  The  share  of 
corporate  NPLs  has  continued  to  decline  to  reach 
23.9 %  at  end-June  2017,  down  from  31.3 %  a 
year earlier, and is projected to decline further. The 
coverage  ratio  for  NPLs  has  increased  to  60.5 %. 
The  overall  performance  of  master  restructuring 
agreements is improving, but a sizeable proportion 
remains  unsuccessful.  More  generally, 
the 
durability  of  the  restructured  loans  needs  to  be 
monitored  due  to  the  continuously  increasing  re-
default  rate,  which  had  reached  27 %  by  March 
2017. 

Private debt 

The  household  debt  burden  is  small  and  non-
deleveraged 
financial 

corporations 

have 

8 

Source: European Commission 

Deleveraging  process  appears  to  have  been 
completed.  The  credit  flow  from  banks  to  the 
domestic  economy  has  become  positive.  Both 
profits  and  wages  are  on  the  increase,  domestic 
and export demand are forecast to grow and credit 
remains relatively inexpensive. 

Housing market 

House  prices  bottomed  out  in  2014  and  have 
since increased at a relatively modest pace. The 
price level remains significantly lower than before 
the 
(e.g., 
price-to-income,  price-to-rent)  do  not  indicate 
significant  over-valuation 
(Graph  1.9).  This 
modest  growth  has  taken  place  despite  rather 

analytical  models 

crisis 

and 

(6)  Fundamental-based 

are 

derived 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
is  high, 
which 
minimising the probability of missed crisis and that of false 
alerts (European Commission, 2017). 

the  probability  of  a  banking  crisis 

05010015020025004050607080910111213141516% of GDPFinancial corporationsGovernmentHouseholdNon financial corporationsPrivate sectorPrivate sector EU28 
 
                                                           
1. Economic situation and outlook 

Public finances indicators 

The  general  government  headline  deficit  has 
declined in the recent years. In 2016, the general 
government  deficit  decreased  to  1.9 %  of  GDP 
from 2.9 % in 2015, mainly due to higher revenues 
and  a  drop  in  public  investment  linked  to  the  end 
of  the  previous  EU  funding  period.  In  2017,  the 
government deficit is expected to decline further to 
0.8 %  of  GDP  as  a  result  of  strong  tax  revenues 
and  social  contributions.  Public  investment  is 
expected to increase after a plunge of nearly 30 % 
the  compensation  of  public 
in  2016.  Both 
employees  and  pensions  are  expected  to  continue 
rising. 

is  expected 

In  2018,  the  general  government  finances  are 
expected  to  be  in  balance.  Tax  revenues  and 
social contributions continue to grow strongly and 
interest  expenditure 
to  decrease 
significantly.  At  the  same  time,  the  compensation 
of  public  employees  and  expenditure  on  social 
benefits  are  projected  to  increase  further  due  to 
wage increases and an extraordinary indexation of 
pensions. Public investment is expected to grow in 
the  current  EU 
line  with 
multiannual  financial  framework.  Assuming  no 
policy  change,  the  general  government  balance  is 
expected  to  record  a  surplus  of  0.4 %  of  GDP  in 
to  economic  growth  and 
2019,  mainly  due 
improved  labour  market  conditions.  In  structural 
terms,  Slovenia’s  fiscal  position  is  expected  to  be 
broadly unchanged between 2016 and 2018, and to 
improve slightly in 2019.  

the  dynamics  of 

the 

and 

recovery 

economic 

The  debt-to-GDP  ratio  peaked  at  82.6 %  in 
2015, and declined in 78.5 % in 2016. Supported 
reduced 
by 
precautionary cash  buffers,  public debt  is  forecast 
to  decline  steadily  to  72.0 %  of  GDP  in  2019. 
Nevertheless,  the  long-term  perspectives  are  more 
challenging, as the expenditure of the government 
is  forecast  to  increase  over  the  longer  horizon,  as 
pension,  health  care  and  long-term  care  related 
expenditure will  increase  due  to  the  ageing of  the 
population (see Section 4.1.1). 

restrictive  lending  conditions.  Loans  for  house 
purchases, as a share of GDP, have been in decline 
since  2013.  The  supply  of  new  housing  has  been 
in  housing 
rather 
construction  is  low.  The  market  still  has  some 
inventory  from  the  past,  but  this  appears  to  be 
running low. 

investment 

limited, 

as 

Conditions appear ripe for further price growth 
in  the  housing  market.  Household  real  incomes 
are  on  the  rise,  credit  is  again  becoming  more 
easily  available  for households  while construction 
these 
is  currently  modest.  Under 
activity 
conditions,  price  increases  could  be  much  steeper 
than seen in the recent past. This is also confirmed 
by  the  housing  market  data  for  the  first  half  of 
2017  published  by  the  Surveying  and  Mapping 
Authority (GURS, 2017) which show that the total 
number  of  transactions  has  reached  its  highest 
level  since  the  start  of  systematic  surveying  in 
2007. The situation would be eased if supply could 
be  more  easily  increased.  It  remains  to  be  seen 
whether the new planning and building legislation, 
applicable 
the 
developers  to  respond  to  increased  demand  more 
easily.  

from  mid-2018,  will  allow 

Graph 1.9:  House price developments 

Source: European Commission, ECB 

9 

020406080100120140160-1-1011223303Q304Q305Q306Q307Q308Q309Q310Q311Q312Q313Q314Q315Q316Q32010=100Rate of change y-o-y (%)MFI loans for house purchase (% GDP, annual change)Real House Price Index (2010=100), right axisNominal House Price Index (2010=100), right axis 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key Economic Indicators 

(1) NIIP excluding direct investment and portfolio equity shares.   
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

10 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)5.2-1.10.92.33.14.94.23.5Potential growth (y-o-y)3.61.20.20.91.22.02.42.7Private consumption (y-o-y)3.20.4-1.12.14.2...Public consumption (y-o-y)2.60.7-1.62.72.5...Gross fixed capital formation (y-o-y)7.7-8.92.1-1.6-3.6...Exports of goods and services (y-o-y)13.00.64.45.06.4...Imports of goods and services (y-o-y) 12.6-1.93.14.76.6...Contribution to GDP growth:Domestic demand (y-o-y)4.2-1.9-0.61.32.0...Inventories (y-o-y)0.9-0.90.40.30.7...Net exports (y-o-y)0.11.71.10.60.5...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.10.00.00.30.30.60.50.5Capital accumulation (y-o-y)1.70.6-0.2-0.3-0.4-0.10.20.5Total factor productivity (y-o-y)1.80.60.40.91.31.61.71.8Output gap3.4-1.3-5.0-2.7-0.81.83.33.9Unemployment rate5.96.99.99.08.06.85.95.2GDP deflator (y-o-y)2.81.71.21.00.91.71.61.7Harmonised index of consumer prices (HICP, y-o-y)3.12.71.1-0.8-0.21.61.82.0Nominal compensation per employee (y-o-y)6.32.70.91.42.82.83.23.1Labour productivity (real, person employed, y-o-y)4.0-0.31.31.01.2...Unit labour costs (ULC, whole economy, y-o-y)2.23.0-0.40.41.60.40.90.9Real unit labour costs (y-o-y)-0.61.3-1.6-0.60.7-1.3-0.8-0.7Real effective exchange rate (ULC, y-o-y)0.30.7-0.3-1.80.8-0.40.0-0.9Real effective exchange rate (HICP, y-o-y)-0.4-0.21.2-1.80.5-0.80.9.Savings rate of households (net saving as percentage of net disposable income)9.06.04.74.64.9...Private credit flow, consolidated (% of GDP)14.03.6-4.3-5.0-0.8...Private sector debt, consolidated (% of GDP)80.6111.9102.386.980.5...of which household debt, consolidated (% of GDP)20.229.129.027.627.3...of which non-financial corporate debt, consolidated (% of GDP)60.382.973.359.253.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).19.216.913.39.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.1-0.19.94.02.03.02.61.7Corporations, gross operating surplus (% of GDP)19.218.819.119.819.520.821.722.4Households, net lending (+) or net borrowing (-) (% of GDP)4.24.24.94.54.33.32.72.7Deflated house price index (y-o-y)12.8-3.7-6.91.43.6...Residential investment (% of GDP)3.73.42.32.12.1...Current account balance (% of GDP), balance of payments-2.6-0.75.14.45.24.54.03.6Trade balance (% of GDP), balance of payments-0.71.37.28.69.2...Terms of trade of goods and services (y-o-y)-0.7-0.90.91.30.9-0.4-0.3-0.3Capital account balance (% of GDP)-0.30.00.31.1-0.7...Net international investment position (% of GDP)-15.2-45.1-46.5-39.8-36.9...Net marketable external debt (% of GDP) (1)-8.0-40.8-37.2-26.9-22.1...Gross marketable external debt (% of GDP) (1)72.3108.2112.4111.5102.9...Export performance vs. advanced countries (% change over 5 years)35.29.2-9.3-2.81.1...Export market share, goods and services (y-o-y)4.0-4.53.2-1.46.7...Net FDI flows (% of GDP)0.5-0.3-0.8-3.3-2.2...General government balance (% of GDP)-1.1-4.7-10.0-2.9-1.9-0.80.00.4Structural budget balance (% of GDP).-3.5-1.8-1.6-1.5-1.6-1.6-1.4General government gross debt (% of GDP)25.539.075.382.678.576.474.172.0Tax-to-GDP ratio (%)37.837.136.936.936.936.536.135.8Tax rate for a single person earning the average wage (%)34.533.133.233.333.4...Tax rate for a single person earning 50% of the average wage (%)29.323.522.923.023.2...forecast 
 
 
 
 
  
 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

the 

implementation 

introduction  of 

the 
Progress  with 
recommendations  addressed  to  Slovenia 
in 
2017 (7)  has  to  be  seen  in  a  longer  term 
the 
perspective  since 
European  Semester  in  2011.  Looking  at  the 
multi-annual  assessment  of  the  implementation  of 
the  CSRs  since  these  were  first  adopted,  94 %  of 
all  CSRs  addressed  to  Slovenia  have  recorded  at 
least 'some progress'. 6 % of these CSRs recorded 
'limited'  or 
'no  progress'  (Graph  2.1).  Full 
implementation has been achieved in several areas 
related  to  the  fiscal  framework  and  financial 
services,  including  for  instance  to  conduct  a 
system-wide  bank  asset  quality  review  and  to 
provide  additional  capital  after  the  shortfall  was 
assessed.  Areas  with  substantial  progress  have 
been  the  strategy  for  the  Slovenian  Sovereign 
Holding,  corporate  restructuring  and  improving 
competitiveness.  

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

* The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
** The multiannual CSR assessment looks at the 
implementation until 2018 Country Report since the CSRs 
were first adopted. 
Source: European Commission 

Slovenia  has  secured  a  timely  correction  of  its 
excessive  deficit  and  strengthened  its  fiscal 
framework.  Following  the  boom-bust  cycle  and 
the financial crisis, Slovenia went thought a period 
of  an 
ratio  and  a 
worsening budget  balance  leading  to  an  excessive 
deficit.  Over 
significant 
2009-2016, 
consolidation  effort  led  to  the  abrogation  of  the 
excessive  deficit  procedure  in  June  2016  and 
ensured  continuing  improvement  in  the  budgetary 

increasing  debt-to-GDP 

a 

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

past, see in particular Section 4. 

situation ever since. In 2017, Slovenia is expected 
to  further  decrease  the  deficit  to  0.8 %  of  GDP 
before its balancing in 2018. Public debt has risen 
almost  fourfold  during  crisis  reaching  a  peak  in 
2015 at 82.6 % of GDP. In 2017, it is expected to 
decrease to 76.4 % due to economic recovery and a 
reduction 
in  precautionary  cash  buffers.  The 
the  EU  Budgetary 
Government 
Frameworks  Directive  and  set  out  the  steps  for 
multiannual medium-term budgetary planning. The 
appointment  of  the  Fiscal  Council  means  that  the 
2016 recommendation has been fully implemented.  

transposed 

to 

improve 

However,  the pressure on the  public  finance in 
the  long  term  remains.  Over  the  past  years, 
Slovenia  has  taken  some  measures  to  address  the 
age-related  expenditure,  but  the  pressure  remains 
significant.  Since  2011,  Slovenia  has  been 
recommended 
long-term 
sustainability and adequacy of its pension system. 
A parametric pension reform was adopted in 2012 
but  the  reform  measures  do  not  safeguard  the 
system's  sustainability  in  the  longer  term  and 
income  adequacy  problems  in  old  age  can  be 
expected  for  those  with  shorter  careers.  The 
reforms  on  health-care  and  long-term  care  are 
under preparation, but their adoption is delayed. 

the 

The weaknesses in the banking sector have been 
significantly  reduced  thanks  to  the  reform 
measures  and  the  improving  macroeconomic 
environment.  The  situation  in  the  banking  sector 
was  severely affected  by  the crisis.  Consequently, 
the  Council  recommendations  in  2013  and  2014 
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 
stabilised.  Nonetheless, 
banking 
although  decreasing,  NPLs  were  still  high 
compared 
the 
recommendation  to  enable  the  durable  resolution 
of  NPLs  was  therefore  maintained  in  2016  and 
2017.  While  access  to  finance  is  also  improving, 
the  capital  market  is  still  not  yet  sufficiently 
developed  to  fully  support  growth  in  the  real 
economy  and  safeguard  financial  market  stability. 
State  ownership 
in  financial  sector  remains 
significant  and  the  expected  privatisation  of  NLB 
has been delayed. 

sector  has 

pre-crisis 

levels 

and 

to 

11 

No Progress0%Limited Progress6%Some Progress52%Substantial Progress20%Full Implementation22% 
 
 
                                                           
2. Progress with country-specific recommendations 

employment  of  persons  over  55  years  were 
extended.  Some  progress  has  been  made 
to 
improve  the  financing  conditions  for  creditworthy 
businesses  (CSR  3).  New  financial  supports  were 
offered  to  SMEs  to  improve  their  access  to 
alternative  financing  sources  and  the  NPLs  have 
continued  their  downward  trend.  The  Bank  Asset 
Management  Company  is  progressing  to  fulfil  its 
mandate. Some progress has been made to reduce 
the  administrative  burden  on  business  (e.g.  new 
spatial  and  construction  legislation),  and  improve 
the  governance  of  SOEs.  While 
the  public 
administration  action  plan  is  slowly  progressing, 
some  specific  measures  have  been  substantially 
delayed.  In  2017,  Slovenian  Sovereign  Holding 
reached  the  targets  set  in  the  management  acts  in 
2016.  Dividend  pay-outs  in  2017  for  companies 
managed  by  the  SSH  have  been  higher  by  38 % 
compared with 2016, and hit a record high almost 
doubling the dividends received in 2011. 

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
design,  and 
implement  growth-enhancing 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-
financing  and  is  provided  at  a  Member  State's 
request. The support addresses priorities identified 
in  the  context  of  the  EU  economic  governance 
process  (i.e.,  implementation  of  country-specific 
recommendations),  but  the  scope  of  the  SRSS 
support is wider as it can also cover reforms linked 
to  other  Commission  priorities,  or 
reforms 
undertaken at the initiative of Member States. 

Slovenia  has  requested  technical  support  from 
the  SRSS  to  help  implement  reforms  in  areas 
such  as:  public  administration  and  justice, 
growth  and  the  business  environment,  labour 
market,  healthcare, and  the  financial sector.  In 
particular,  the  SRSS  provides  technical  support 
aimed  at  attracting  foreign  direct  investment, 
tackling  the  issue  of  NPLs  and  establishing  a 
health system performance assessment. 

ESI  Funds  are  pivotal 
in  addressing  key 
challenges to inclusive growth and convergence 
in  Slovenia.  Among  other  activities,  they  help 
improving the healthcare system and support low-
skilled and long-term unemployed to improve their 
employment prospects (Box 2.1). 

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 

In 

(SOEs). 

2013-2014 

The  Slovenian  authorities  have  taken  action  to 
improve the business environment. Specifically, 
they reduced administrative burden, removed some 
restrictions to competition in regulated professions, 
and  ensured  better  governance  of  state-owned 
enterprises 
the 
Commission's  analysis  concluded  that  the  high 
level  of  state  involvement  combined  with  weak 
corporate  governance  was  having  negative  spill 
over effects to the private sector. A comprehensive 
corporate  governance  system  for  state-owned 
enterprises  has  been  put  in  place  in  recent  years. 
The first steps in implementing the system point to 
an  approach  that  maximises  shareholder  value. 
led  to  full 
initial  progress  which 
After 
deregulation  of  40  professions  in  the  crafts  sector 
and  four  in  culture,  the reforms  slowed down  and 
have  not  been  finalised  as  initially  planned. 
However,  in  2017  the  planning  and  construction 
legislation  was  overhauled  with 
the  aim  of 
simplifying procedures and reducing the number of 
regulated professions in this area. It is to enter into 
force in June 2018. 

the 

the 

care 

2017 

reforms 

some (8)  progress 

in 
Slovenia  has  made 
addressing 
country-specific 
recommendations.  Limited  progress  has  been 
made  to  reduce  fiscal  risks  and  sustain  public 
finances  (CSR  1).  The  pension,  health  and  long-
term 
long-term 
sustainability  are  in  the  preparation  phase.  Some 
the 
progress  can  be  observed 
employability of the low-skilled and older workers 
(CSR  2).  In  particular,  two  new  active  labour 
market  policy  measures  aimed  at  older  workers 
and in-work incentive schemes for the low-skilled 
and  measures  promoting 
were 

in  addressing 

introduced, 

ensure 

to 

(8)  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. 

12 

 
                                                           
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in Slovenia 

Slovenia is a beneficiary of European Structural and Investment Funds (ESI Funds) support and can 
receive  up  to  EUR  3.9  billion  until  2020.  This  represents  around  1 %  of  GDP  annually  over  the  period 
2014-2018 and 29 % of public investment (1). By 31 December 2017, an estimated EUR 1.9 billion (49 % of 
the  total)  was  allocated  to  projects on  the ground.  This  has  paved  the  way  for  almost  EUR  3.3  million  of 
private investment matching public support to enterprises and more than 700 new full time job equivalent 
hirings in ESIF-supported enterprises. Out of the EU financing, EUR 253 million of ERDF and CF and EUR 
49.3 million from EAFRD is to be delivered via financial instruments, which is more than a double increase 
compared to the 2007-2013 period.  

ESI  Funds  help  address 
implement  country-specific 
structural  policy  challenges  and 
recommendations.  Actions  financed  cover,  among  others,  the  e-Spatial  planning  platform  which  aims  to 
accelerate and improve processes in spatial planning, construction of buildings and real estate management, 
thereby contributing to improved business environment; improving the effectiveness of the justice system; 
supporting SMEs by direct investments through debt and equity instruments, grants and also by creating an 
entrepreneurial-support ecosystem providing them with a good working environment and increasing the ease 
of  doing  business;  supporting  environmental  infrastructure  contributing  to  Slovenia's  achievements  of  the 
EU  environmental  requirements, thus  improving  the  investment  environment.  ESI Funds,  in  particular  the 
European Social Fund play a key role in supporting older, low-skilled or long-term unemployed with tailor-
made  programmes  to  improve  their  employment  prospects.  Activities  introducing  forms  of  work  which 
respond to  demographic and  societal  challenges  will enable  workers  to  work  longer  and  therefore  support 
the  future  pension  reform.  ESI  funds  finance  investments  of  EUR  150  million  in  health  and  social 
infrastructure to enhance access to affordable, sustainable and high quality services. These investments will 
support  the  reduction  of  inequalities  in  the  healthcare  system,  and  contribute  to  develop  and  implement 
integrated  community  based  care  services  in  line  with  the  reform  of  long  term  care  currently  under 
preparation (see Chapter 4.1.5). 

Various  reforms  were  undertaken  already  as  precondition  for  ESI  Funds  support (2).  A  Smart 
Specialisation  Strategy  for  research  and  innovation  was  developed  to  focus  efforts  on  strengthening  the 
competitiveness  of  the  economy  by  enhancing  its  innovation  capacity,  diversifying  the  existing  industries 
and  boost  growth  of  new  and  fast-growing  enterprises.  It  also  aims  to  improve  cooperation  between 
enterprises  and  public  research  institutions.  The  National  Transport  Development  Strategy  was  developed 
and  is  the  first  comprehensive  strategy  covering  all  modes  of  transport,  which  underpins  all  national 
transport projects until 2030 and beyond. It is aimed towards ensuring a timely development of the transport 
infrastructure  in  Slovenia  and  reducing  the  existing  bottlenecks.  Furthermore,  the  Sustainable  Urban 
Mobility Plans, developed at the level of municipalities or regions, are aimed at improving the air quality in 
cities and urban areas, as well as promoting the shift from private to public passenger transport. To ensure a 
more efficient use of water resources, the Water management plans for the Danube river basin area and the 
Adriatic  Sea  basin  area  for  the  period  2016-2021  have  been  upgraded  and  updated.  The  strategic  and 
legislative steps to improve the Slovenian health and long term care systems are implemented in line with 
the  National  Health  Care  Resolution  Plan  2016-2025.  The  Public  Administration  Development  Strategy 
2015–2020  aims  at  modernising  public  administration  by  improving  its  efficiency,  transparency  and  the 
quality of services.  

Slovenia  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  59 
million,  which  is  expected  to  trigger  total  private  and  public  investment  of  EUR  490  million.  More 
specifically,  one  project  has  been  approved  so  far  for  Slovenia  under  the  Infrastructure  and  Innovation 
Window,  amounting  to  EUR  51  million  in  EIB  financing  under  the  EFSI.  It  concerns  the  transport  sector 
and is expected to trigger about EUR 102 million in investments. Under the SME Window, one agreement 
with financial intermediaries has been approved so far. European Investment Fund financing enabled by the 
EFSI amounts to EUR 8 million, which is expected to mobilise approximatively EUR 388 million in total 
investment. About 1 500 smaller companies or start-ups will benefit from this support.  

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 

13 

 
2. Progress with country-specific recommendations 

additional to the ESI Funds. By the end of 2017, Slovenia has signed agreements for EUR 209 million for 
projects under the Connecting Europe Facility.  

https://cohesiondata.ec.europa.eu/countries/SI 

(1)  Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries. 

(2)  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas. 

Table 2.1: 

Summary Table in 2017 CSR assessment 

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

14 

Slovenia Overall assessment of progress with 2017 CSRs:  Some progress CSR 1*: Pursue a substantial fiscal effort in 2018 in line with the requirements of the preventive arm of the Stability and Growth Pact, taking into account the need to strengthen the ongoing recovery and to ensure the sustainability of Slovenia’s public finances. Adopt and implement the proposed 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.(MIP relevant) Slovenia has made limited progress in adressing the fiscal-structural part of CSR1 (*):  Limited progress in reforming the health system  Limited progress in reforming long-term care  Some progress in centralising procurement in the health sector  Limited progress in reforming the pension system   CSR 2: Intensify efforts to increase the employability of low-skilled and older workers, particularly through targeted lifelong learning and activation measures.  Slovenia has made some progress in adressing the labour market part of CSR2:  Some progress in increasing the employability of low-skilled and older workers CSR 3: 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. (MIP relevant) Slovenia has made some progress in adressing the financial conditions part of CSR3:  Substantial progress in improving the financing conditions by facilitating a durable resolution of non-performing loans  Some progress improving the financing conditions by facilitating access to alternative source of financing  Substantial progress was made in implementing the bank asset management company strategy  Some progress in reducing the administrative burden on businesses   Some progress in ensuring the good governance of state-owned enterprises   
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE  

MACROECONOMIC IMBALANCE PROCEDURE IN-DEPTH 
REVIEW 

5 %  in  2016,  supported  by  an  increase  in  inward 
foreign  direct  investment.  Nevertheless,  the  stock 
of private investment (at 14.4 % of GDP in 2016), 
including foreign direct investment in Slovenia (at 
37.8 %  of  GDP  in  Q1-2017)  remains  relatively 
low.  Weak  private  investment  in  turn  contributed 
to  a  significant  downward  shift  in  Slovenia’s 
potential growth (see Section 1).  

Graph 3.1:  Non-performing exposure of domestic banks 
(including foreign-controlled subsidiaries and 
branches) 

to  assess  developments  relating 

The in-depth review for the Slovenian economy 
is  presented  in  this  report.  In  spring  2017, 
Slovenia was identified as having macroeconomic 
imbalances, in particular relating to weaknesses in 
the  banking  sector,  high  corporate  indebtedness 
and fiscal risks. The 2018 Alert Mechanism Report 
(European  Commission,  2017b)  concluded  that  a 
new  in-depth  review  should  be  undertaken  for 
to 
Slovenia 
identified imbalances. Analyses relevant for the in-
depth  review  can  be  found  in  the  following 
sections:  fiscal  risks related  to  fiscal policy,  long-
term  sustainability  and  state-owned  enterprises 
(Sections  4.1.1  to  4.1.6);  vulnerabilities  in  the 
banking  sector  and  access  to  finance  (Sections 
investment 
4.2.1 
research  and 
(Section  1)  and  productivity, 
development  and  business  environment  (Sections 
4.4.1, 4.4.2, 4.4.3. (9) 

to  4.2.2);  deleveraging  and 

3.1 Imbalances and their gravity 

The  situation 
in  the  banking  sector  has 
improved.  The  non-performing  loans  (NPL)  ratio 
for  the  banking  sector  was  10.8 %  in  Q1-2017, 
down  from  16.3 %  a  year  earlier  (Graph  3.1, 
reporting  ECB  data,  which  are  comparable  across 
countries)  The  stability  is  also  confirmed  by  the 
reduction  in  arrears  (loans  with  no  payments 
within  90  days),  which  have  almost  returned  to 
pre-crisis levels (Graph 3.2). Banks are profitable, 
well  capitalised  and  have  a  favourable  funding 
structure  (Section  4.2).  They  also  have  access  to 
sufficient liquidity.  

Deleveraging in the corporate sector appears to 
have been completed. The private sector debt-to-
GDP  ratio  decreased  to  80.5 %  in  2016,  which  is 
6.4 pps  less  than  in  2015  and  well  below  the 
Commissions’  fundamental-based  benchmark.  In 
addition, the share of zombie firms has returned to 
pre-crisis levels (see Section 4.1.1). Credit to non-
financial corporations grew by 7.1 % in September 
2017, turning positive after 6 years of consecutive 
decline.  Private  investment  growth  accelerated  to 

(9)  An  asterisk  indicates  that  the  analysis  in  the  section 

contributes to the in-depth review under the MIP 

Source: ECB (Consolidated banking statistics) 

Graph 3.2:  Arrears developments 

Source: Bank of Slovenia 

Public  debt  decreased  to  78.5 %  of  GDP  in 
2016,  but  population  ageing  is  set  to  put 
considerable pressure on public  finances  in  the 
long  term.  Specifically,  pension  expenditures  is 
set to increase substantially from 11.8 % in 2013 to 
15.3 % of GDP in 2060.  

15 

051015202530354045CYPTITBGHRHUIESIROPLLVESATSKMTLTFRCZDKBEDENLEEFISELU2017-Q12014-Q4% of loans and advances0510152025302008200920102011201220132014201520162017% of gross loansNon-financial corporationsHouseholdsTotalNPL totalNPLArrears 
 
                                                           
 
 
 
4.1. Public finances and taxation 

the 

reforms 

to  ensure 

debt  on  a  downward  trend.  The  authorities  are 
preparing 
long-term 
sustainability  of  public 
finances.  The  key 
objectives of the pension reform have been agreed 
but  its  design  and  adoption  have  been  officially 
announced for the next government. Some parts of 
the  health  care  reform  were  adopted  but  the  key 
legislation  (Health  care  and  health  insurance  act) 
has  not  been  adopted.  The  proposal  for  long-term 
care  has  been  publicly  consulted  but  it  has  not 
been put forward yet. The long-term sustainability 
of  public  finances  remains  a  challenge  due  to  the 
projected increase in age-related expenditure.  

to 

shifted 

The  focus  of  the  Slovenian  Sovereign  Holding 
has 
the  corporate 
improving 
governance and performance of SOEs. The 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 
an  intermediate  target  of  7.1 %  in  2017.  Progress 
with  pending  privatisations  remains  limited  (see 
Section 4.1.4). 

3.3 Overall assessment 

the 

thus 

risks 

related 

reducing 

imbalances 

the  sources  of 

In  conclusion,  consistent  policy  actions  in  a 
context  of  increasingly  strong  recovery,  have 
in  a 
reduced 
sustainable  manner.  The  economy  continued  to 
grow  strongly  in  2017,  both  in  real  and  nominal 
terms, 
to 
indebtedness  in  both  the  public  and  the  corporate 
sectors.  Progress  in  restructuring  the  banking 
sector has coincided with a rapidly falling share of 
NPLs 
remain  well 
provisioned. No further deleveraging needs remain 
in  the  corporate  sector  except  for  in  a  handful  of 
large companies and among SMEs. A healthy flow 
of  credit 
to  non-financial  corporations  has 
resumed.  Investment  was  compressed  in  recent 
years,  but  has  increased  strongly,  as  has  foreign 
direct  investment.  Government  debt  peaked  in 
2015  and  a  continued  downward  adjustment  is 
expected in the coming years. 

loans,  which 

total 

in 

The  performance  of  state-owned  enterprises 
(SOEs)  managed  by  the  Slovenia  Sovereign 
Holding  improved  significantly  in  2016.  The 
overall profitability target of almost 6 % in 2016 as 
measured by return on equity was almost reached. 
Dividend pay-outs in 2017 have been 38 % higher 
than in 2016. 

3.2 
responses 

Evolution,  prospects  and  policy 

and 

Banking 
sector  vulnerabilities  have  been 
sustainably  reduced.  NPLs  are  expected  to  stay 
on a declining trend and they are well provisioned. 
Banks  have  acquired  significant  capacities  and 
competences  in  managing  the  workout  of  NPLs. 
Their NPL target plans are monitored by the Bank 
of  Slovenia 
the  Single  Supervisory 
Mechanism.  In  March  2017,  Bank  of  Slovenia 
issued  a  toolkit  to  prevent,  identify  and  manage 
NPLs  for  SMEs  (BoS,  2017a).  While  the  overall 
performance of master restructuring agreements is 
improving, 
remains 
unsuccessful.  More  generally,  restructured  loans 
need  to  be  monitored  due  to  the  continuously 
increasing  re-default  rate,  which  reached  27 %  by 
March  2017.  The  long-term  profitability  of  banks 
remains  a  challenge  in  the  current  low  interest 
environment.  The  consolidation  and  restructuring 
of the banking sector is progressing, with a recent 
merger of three banks and completion of the wind-
down  of  two  smaller  banks.  The  privatisation  of 
Nova  Ljubljanska  banka  is  essential  to  ensure  the 
bank’s viability and prevent credit misallocation in 
the future. 

proportion 

sizeable 

a 

Private investment is expected to grow by 10 % 
per  year  over  2017-2019.  Such  high  growth  is 
expected due to the combination of strong external 
and  domestic  demand,  stronger  corporate  balance 
sheets  and  improved  financing  conditions.  Private 
investment  will  also  be  supported  by  recently 
adopted  measures 
the  business 
environment. Relevant measures are in the pipeline 
to attract foreign direct investment. In the first half 
of 2017, investment was driven by non-residential 
construction and machinery and equipment, which 
is more likely to support productivity in future.  

improve 

to 

Public  debt  is  projected  to  continue  declining 
and  to  reach  72 %  of  GDP  by  2019.  Strong 
nominal  GDP  growth  and  a  reduction  in  the 
general  government  deficit  are  set  to  put  public 

16 

 
4.1. Public finances and taxation 

Table 3.1: 

 Macroeconomic Imbalance Procedure assessment matrix 

From a policy perspective, there remain medium to long-term challenges for the economy. Protracted low investment until 2016 and unfavourable demographic trends mean the focus must be on growth enhancing policies. This will bring investment back on a long-term sustainable trend, increase productivity growth and sustain competitiveness. In addition, the long-term sustainability of public finances given the ageing population remains to be addressed. 

(Continued on the next page) 

17 

  Gravity of the challenge Evolution and prospects Policy response  Imbalances (unsustainable trends, vulnerabilities and associated risks) Financial sector  The stock of non-performing loans (NPLs) is relatively high, in particular if Bank Asset Management Company (BAMC) assets are taken into account. NPLs originate mostly in the corporate sector and among SMEs. NPLs are well provisioned. Banks have access to sufficient liquidity. The return on equity more than doubled to reach 7.8% in 2016 while the average capital adequacy ratio was relatively stable at 18.7% in June 2017. The funding structure of the banks was favourable with a loan to deposit ratio of 78.8% in 2016.  As in other EU countries, the long-term profitability of the banks is under pressure in the current context of low interest rate.  The vulnerabilities in the Slovenian banking sector have significantly reduced. NPLs decreased to 10.8% in Q1-2017 from 14.8% a year earlier and the trend is expected to continue. The total stock of NPLs, including BAMC assets, is also declining fast.   NPL targets of banks are monitored by the Bank of Slovenia and the Single Supervisory Mechanism. A toolkit to prevent, identify and manage NPLs for SMEs was issued by Bank of Slovenia in March 2017.  The "bad bank" BAMC is following its new strategy for 2017-22 and its business plan and is fully operational.  The consolidation and restructuring of the banking sector progresses with a merger of three banks and the wind down of two smaller banks. The privatisation of the major state-owned bank has been delayed.  Deleveraging, investment, and growth prospects Private sector debt is 81.4% of GDP in 2016, substantially below the 2010 peak (115% of GDP).  The vulnerabilities linked to high corporate indebtedness have largely resolved thanks to a sustained deleveraging process. Household debt is among the lowest in the EU.  Partly in light of intense deleveraging, the current level of private investment at around 14.4% of GDP remains low compared to the historical average of 20% of GDP. Slovenia's stock of inbound FDI of 37.8% of GDP in Q1-2017 is markedly below the EU average of about 50%. Private investment growth accelerated to 5% in 2016 and is expected to grow by around 10% per year in 2017-2019, driven by non-residential construction and machinery and equipment. Credit to non-financial corporations turned positive and reached 7.1% in September 2017.  FDI inflows increased strongly from 2014 onwards, averaging 4% of GDP per year.    Measures on spatial planning, building permits and construction services have been adopted and will be implemented as of mid-2018.  A draft act on investment promotion has been prepared but its parliamentary adoption is postponed to 2018.  Some progress has been made regarding the reduction of administrative burden. The implementation of the Single document continues.    
 
 
 
 
 
 
4.1. Public finances and taxation 

Table (continued) 

Source: European Commission 

18 

Fiscal risks Public debt stood at 78.5% of GDP in 2016. Age-related government expenditures are set to increase substantially in the future (e.g. 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. After peaking at 82.6 % of GDP in 2015, public debt is projected to stay on a decreasing path due to lower general government deficit and stronger nominal GDP growth.   Profitability of SOEs managed by the Slovenian Sovereign Holding (SSH) has improved in 2016.  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. A central piece of healthcare legislation entered in public consultation in February 2017 and the draft version was submitted to the Economic and Social Council in December 2017, in view of submission to the Government. The draft law on long-term care has completed the public consultation stage and a new version is being prepared. The key objectives to reform the pension system were adopted by the Economic and Social Council in July 2017.  The SSH has been made fully operational. The focus of the SSH is on improving the SOEs corporate governance and performance.        Conclusion from IDR analysis  The private debt stock has been significantly reduced and the deleveraging process appears to be largely complete. The NPLs ratio is still relatively high but NPLs are well provisioned and the capital position of banks is strong. Government debt peaked in 2015 and has been on a downward trend since then. Nevertheless, pension, healthcare and long-term care spending will be affected by strong ageing pressures looking forward.   NPLs have been falling rapidly. Deleveraging in the corporate sector is ending. Private investment growth accelerated in 2016 and is expected to increase further over 2017-2019. Foreign direct investments increased strongly since 2014. Public debt is expected to decrease over the next few years.   Strong recovery and sustained policy actions had stabilised the banking sector and rebalanced the economy. Looking forward, long-term sustainability of public finances remains a challenge.    
 
 
 
4.1. Public finances and taxation 

4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  FISCAL POLICY* 

improve.  In  2016 

The  general  government  headline  balance 
continues  to 
the  deficit 
decreased  to  1.9 %  of  GDP,  down  from  2.9 %  in 
2015.  Based  on  the  Autumn  forecast,  the  deficit 
reached  0.8 %  of  GDP  in  2017  and  the  budget 
would be in balance in 2018. 

In  structural  terms,  the  budget  remains  in 
deficit.  The  structural  deficit  of  1.6 %  of  GDP  in 
2017 remained above the euro area average (1.1 % 
of GDP) and below the medium-term objective of 
0.25 %  structural  surplus.  In  2018,  the  structural 
balance is expected to remain unchanged (10). This 
indicates that the improvement in headline balance 
is  due  to  the  improvement  in  the  economic 
conditions  and  falling  interest  expenditure,  not 
is 
structural  measures.  Structural 
negatively  affected  by  the  low  rate  of  potential 
growth.  This  underscores  the  need  to  adopt 
measures to boost investment and productivity (see 
Section 4.4). 

balance 

Pressures to increase expenditure are mounting. 
The  compensation  of  public  employees  and 
expenditure  on  social  benefits  are  projected  to 
increase  further  due  to  the  public  sector  wage 
increases  and  an  extraordinary 
indexation  of 
pensions. 

Tax policy has been rather stable. The reform of 
real  estate  taxation  has  been  postponed  to  2020. 
Revenues  from  recurrent  immovable  property 
taxation,  which  is  considered  less  distortive  to 
economic  growth  than  labour  taxes,  are  currently 
considerably  below  the  EU  average.  The  reform 
would  link  the  tax  base  to  the  properties’  market 
value,  using  a  mass  valuation  system.  The  Mass 
Valuation  Act  was  adopted  and  is  expected  to  be 
applied to all properties in mid-2019.  

(10)  In case of Slovenia, the output gap (and therefore also the 
structural  balance)  estimate  is  subject  to  uncertainty.  This 
has  been  taken  into  account  while  assessing  Slovenia’s 
draft budgetary plan.  

Slovenia  is  performing  well  in  terms  of  VAT 
compliance.  In  2015,  Slovenia  remained  among 
the  top  five  Member  States  with  the  lowest  VAT 
gap  (as  a  percentage  of  VAT  theoretical  tax 
liability)  in  the  EU  (CASE,  2017),  indicating  that 
relatively  little  VAT  revenue  is  lost  due  to  non-
compliance.  VAT  collection  in  Slovenia  was 
improved  by  the  introduction  of  certified  cash 
registers in 2015, which has eased tax payment for 
companies.  

4.1.2.  FISCAL FRAMEWORK* 

fiscal 

rules.  However, 

In 2017, the members of the Fiscal Council were 
appointed  and  the  new  institution  has  rapidly 
become  operational.  In  July  2015,  the  Slovenian 
parliament  passed  the  Fiscal Rules  Act,  providing 
the  legal  basis  for  the  establishment  of  a  Fiscal 
Council  that  will,  among  other  things,  monitor 
compliance  with 
the 
members  of  the  Slovenian  Fiscal  Council  were 
only  appointed  in  March  2017.  The  2018  draft 
budget was the first to be assessed by the Council. 
In  its  assessment  published  on  19  October  2017, 
the Fiscal Council warned that the draft budget for 
2018  was  only  partially  compliant  with  the  fiscal 
rules  and  called  on  the  government  to  take 
additional  measures.  The  legislation  to  transpose 
the  EU  Budgetary  Frameworks  Directive  was 
adopted. 

4.1.3.  FISCAL SUSTAINABILITY* 

Public  debt  rose  sharply  during  the  crisis  but 
has started to decrease in 2016. It increased from 
22 % of GDP in 2008 to 82.6 % of GDP in 2015. 
items,  particularly  bank 
While  exceptional 
recapitalisations,  have  contributed  significantly  to 
this 
increase,  sustained  primary  deficits  also 
increased  debt.  In  2016,  public  debt  decreased  to 
78.5 %  and  it  is  expected  to  further  decrease  to 
72.0 % of GDP by 2019. The fall is supported by 
the  economic  recovery  and  reduced 
interest 
expenditure. The implicit interest rate on state debt 
has been decreasing since 2014. The strategy is to 
extend the duration of the debt portfolio, reducing 
the  roll-over  risk  while  taking  advantage  of  the 

19 

 
 
                                                           
4.1. Public finances and taxation 

4.1.1). From then onwards public debt is expected 
to increase to 65 % of GDP in 2028 as a result of 
medium-term  upward  pressures,  particularly 
ageing costs. Conversely, if the ageing costs were 
excluded  from  the  no-policy-change  scenario  (as 
they  would  be  if  ageing  costs  were  reduced  via 
reforms) the debt ratio would continue to decrease 
in  the  medium  term.  Under  a  scenario (15)  where 
the structural primary balance (SPB) is assumed to 
converge  to  its  historical  average,  debt  levels 
would  spin  into  an  upward  trajectory  from  2024 
onwards.  However,  if  Slovenia  was  to  fulfil  its 
commitments  under  the  Stability  and  Growth 
Pact (16),  debt  would  quickly  be  reduced  towards 
60 % of GDP. If Slovenia were to adopt the fiscal 
commitments  outlined 
its  own  Stability 
Programme  (17),  debt  reduction  would  be  slower 
than in the Stability and Growth Pact scenario, but 
still  be  considerably  faster  than  in  the  baseline 
scenario. Maintaining strong fiscal discipline in the 
long-run  is  thus  required  to  reduce  the  debt-to-
GDP ratio and ensure debt sustainability. 

in 

(15)  The  historical  SPB  scenario  assumes  gradual  convergence 
to  the  historical  average  for  the  SPB  over  the  4  years 
following 
forecast.  All  other  macroeconomic 
assumptions are the same as in the baseline. 

the 

(16)  European  Commission  forecasts  for  the  first  projection 
thereafter  assumption  of  full  compliance  with 
year; 
and 
excessive  deficit  procedure 
convergence  to  the  medium-term  objective,  according  to 
the  matrix  of  required  fiscal  adjustment  from 
the 
Commission  Communication  on  flexibility  in  fiscal  rules) 
— see European Commission (2016a)  

recommendations 

(17)  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. 

the  authorities  plan 
large 

current environment of low interest rates to reduce 
current  financing  costs  in  the  medium  term.  In 
addition, 
the 
cash  buffers 
previously 
(estimated to have decreased from 16 % of GDP at 
end-2015 to 13 % of GDP at end-2016). However, 
fiscal sustainability risks are low in Slovenia in the 
short term (European Commission, 2018a). 

accumulated 

to  reduce 

lead 

The  high  public  debt  level  represents  a  source 
of  vulnerability  for  the  Slovenian  economy.  In 
the  medium  term,  the  debt  trajectory’s  sensitivity 
to  potential  macroeconomic  shocks  and  a  non-
negligible  sustainability  gap 
to  medium 
risks (11)  for  public  finance.  Firstly,  medium  risks 
are  revealed  by  the  debt  sustainability  analysis. 
Secondly,  the  medium-term  sustainability  gap 
indicator (S1) complements the results of the debt 
sustainability analysis indicating that overall, there 
are  medium  risks  in  the  medium  term.  S1  (12) 
indicates that the structural primary balance would 
need to improve by 1.4 pps of GDP in cumulated 
terms  over  a  five-year  horizon  (from  2019  until 
2024)  relative  to  the  baseline  no-fiscal-policy-
change scenario in order to reach the 60 % public 
debt-to-GDP  ratio  reference  value  by  2032 (13). 
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. 

Public  debt  is  projected  to  decrease  until  2026 
but  then  increase  again,  assuming  no  policy 
change.  Under  the  baseline  scenario  (14)  of  the 
debt sustainability analysis public debt is expected 
to  decrease  to  63.7 %  of  GDP  by  2026  (Graph 

is 

the  better 

indicating  high  risk.  The  source  of 

(11)  This  represents  an  improvement  on  last  year  when  public 
the 
initial  budgetary  position 

debt  was 
improvement 
reported in the last Commission forecast (autumn 2017).  
(12)  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 2019) 
to  drive  the  public  debt-to-GDP  ratio  down  to  60 %  in  15 
years’ time (currently 2032). 

(13)  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.  

(14)  This  scenario  is  based  on  the  Commission’s  autumn  2017 
forecast  and  on  long-run  convergence  assumptions  of 
underlying macroeconomic variables (real interest rate, real 
GDP  growth,  inflation)  agreed  by  the  Economic  Policy 
Committee. Under the baseline scenario it is assumed that 
fiscal policy stays constant beyond the forecast horizon. 

20 

 
                                                           
                                                           
4.1. Public finances and taxation 

Graph 4.1.1:  Gross debt - DSA 

4.1.4.  PENSION SYSTEM* 

(4 %  and  4.1 % 

Despite  having  some  positive  effects,  the  2012 
pension  reform  has  not  ensured  the  long-term 
sustainability  and  the  adequacy  of  the  pension 
system. In 2016, the growth (0.8 %) in the number 
of old-age pensioners decreased compared to 2015 
(1.3 %)  and  remains  low  compared  to  2012  and 
2013 
respectively).  This, 
combined with the growth in the number of those 
paying  pension  contributions  to  the  first  (public) 
pillar, resulted in a significant increase in the ratio 
between  those  paying  pension  contributions  and 
retired  people 
these 
developments,  both  sustainability  and  adequacy 
remain  challenges  for 
the  future.  There  are 
concerns  about  the  income  adequacy  of  both 
current and future pensioners. The risk of poverty 
(and  social  exclusion)  among  the  elderly  is  above 
the  EU  average  (see  Section  4.3.3).  The  ratio 
between  average  old-age  net  pensions  and  net 
wages  is  decreasing,  indicating  that  the  adequacy 
of the pension adequacy is worsening (19),(20).  

(ZPIZ,  2017).  Despite 

There is broad consensus on the key objectives 
of the pension reform but a concrete action plan 
to  adopt  it  is  still  missing.  Based  on  the  White 
Paper  on  pensions  of  April  2016 (21)  and  the 
following public debate on a new pension reform, 
a  document  called  ‘Starting  points  for 
the 
modernisation  of 
the  Pension  and  Disability 
Insurance System in the Republic of Slovenia’ was 
the 
prepared  and  unanimously  adopted  by 
Economic  and  Social  Council  in  July  2017.  The 
document  outlines  various  measures  to  achieve 
adequate  pensions  with  a  minimum  replacement 
rate  of  70 %,  and  create  a  sustainable  and 
transparent pension system. However the measures 
are still broadly defined and lack an action plan. It 
is  therefore  unclear  how  the  proposed  measures 
would  be  realised  and  key  goals  achieved. 

(19)  National  data  for  the  ratio  between  net  pensions  and  net 
earnings is used. The aggregate replacement ratio (Eurostat 
indicator)  is  not  a  suitable  indicator  in  this  context  as 
majority  of  pensioners  from  Slovenia  are  exempt  from 
personal  income  tax  and  social  security  contributions 
payment. For example, the difference between average old-
age  net  and  gross  pension  in  2016  was  less  then  EUR  4 
according to national data. 

(20)  According  to  national  data,  the  ratio  has  been  decreasing 

since 2008. 

(21)  See  also  European  Commission  (2017c),  for  more  details 
on solutions proposed by the White Book on pensions. 

Source: European Commission 

Increasing  age-related  expenditure,  namely  on 
public pensions, healthcare and long term care, 
puts  pressure  on  public  finances  in  the  long 
term. In the long term, Slovenia is at high risk as 
shown  by  the  very  high  value  of  the  long-term 
sustainability  gap  indicator  S2.  The  indicator, 
calculated  under  a  baseline  of  a  no-fiscal-policy-
change  scenario,  shows  that  a  very  high  fiscal 
adjustment  of  6.0 pps  of  GDP  will  be  required 
upfront to stabilise the debt-to-GDP ratio over the 
infinite  horizon (18).  This  is  primarily  due  to  the 
strong  projected  impact  of  age-related  public 
spending. Pensions account for 3.4 pps of GDP of 
this  required  fiscal  adjustment  while  health  care 
and  long-term  care  account  for  an  additional 
1.5 pps (0.8 pps and 0.7 pps respectively). Indeed, 
according  to  the  projections  of  the  2018  Ageing 
Report  (forthcoming)  health  care  expenditure  will 
increase by 1.0 pps (AWG Reference Scenario; 2.0 
pps according to the Risk Scenario), above the EU 
average  of  0.9  pps.  When  looking  at  long-term 
care  expenditure,  the  projected  increase  is  above 
average only according to the Risk Scenario, with 
3.5  pps  against  an  average  EU  value  of  2.7  pps 
(only 0.9 pps with 1.2 pps for the EU according to 
the Reference Scenario). 

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

21 

20304050607080901213141516171819202122232425262728%  of GDPHistorical SPB scenarioStability and Growth Pact (SGP) scenarioStability and Convergence Programme (SCP) scenarioNo-policy change scenario without ageing costsBaseline no-policy change scenario 
 
                                                           
                                                           
4.1. Public finances and taxation 

Furthermore, despite the agreement between social 
partners  and  the  government  to  adopt  the  pension 
reform by 2020, the phase-in period of the reform 
has not yet been outlined. 

the  current 

Achieving  pension  adequacy  for  workers  with 
shorter careers will be a challenge. The length of 
a career significantly impacts the level of pensions. 
Based  on 
legislation,  delaying 
retirement of an average earner for 2 years beyond 
the  statutory  pensionable  age  would  result  in  an 
increase  of  the  net  replacement  rates (22)  of  7.6 
pps  for  men  and  for  women.  In  the  future  special 
attention  to  pension  adequacy  should  be  given  to 
workers with shorter careers, especially in the light 
of  demographic  changes  (see  Section  4.3.1), 
delayed  labour  market  entry  and  increased  use  of 
atypical 
the 
economic  crisis  (European  Commission,  2017c; 
calculations  for 
the  upcoming  2018  Pension 
Adequacy  Report  of  the  European  Commission 
and  Social  Protection  Committee),  which  may 
exacerbate the situation of future generations (23).  

contracts  during 

employment 

schemes (25) dropped between 2008 and 2012 (26), 
especially  contributions  from  younger  cohorts. 
While  in  2016  around  63 %  of  those  in  the  first 
(public)  pillar  were  enrolled  in  a  supplementary 
pension  scheme  (MoLFSAEO,  2017d  and  KAD, 
2017),  premiums  for  around  a  third  of  insurance 
policies  were  not  paid  in  full  in  2016 (SZZ,  2016 
and KAD, 2017). The ratio between those included 
in  the  supplementary  pension  scheme  and  those 
employed  increases  with  age,  but  entering  the 
scheme at a higher age leads to lower savings (27) 
(Majcen  et.  al.,  2015).  According  to  the  national 
authorities,  only  3.2 %  of  all  pensioners  were 
receiving  pensions  from  supplementary  pension 
schemes  in  2016 (28).  Projections  show  that  the 
schemes  could  have  a  major  impact  on  the 
adequacy  of  pensions  in  Slovenia  for  those  who 
will  regularly  contribute  to  them  (MoLFSAEO, 
2016).  Although 
the 
supplementary  pension  schemes  is  recognised  by 
the  government  and  social  partners,  there  is  no 
clear plan on how to ensure greater take-up of the 
supplementary pension (29).  

importance 

the 

of 

Old-age and disability pensions for those having 
full  retirement  conditions  were  increased  in 
2017.  The  Pension  and  Disability  Insurance  Act 
was amended and entered into force as of October 
2017.  The  amended  Act  increases  the  minimum 
old-age  and  disability  pensions  to  EUR 500  per 
month  (24)  for  those  fulfilling  full  retirement 
conditions.  National  authorities  estimate 
that 
around  52 000  pensioners  will  benefit  from  the 
amendment  and  will  on  average  receive  EUR  26 
higher pensions.  

In  their  current  form,  supplementary  pension 
schemes  will  have  only  a  limited  effect  on  old-
age income. Analysis (Majcen et. al., 2015) shows 
that,  despite  the  high  number  of  persons  covered, 
pension 
contributions 

supplementary 

to 

(22)  Theoretical  replacement  rates  are  defined  as  the  level  of 
pension  income  the  first  year  after  retirement  as  a 
percentage of individual earnings at the moment of take-up 
of pensions. 
(23)  The  Slovenian 

is 
developing a module which will allow microsimulations to 
take  into  account  various  employment  biographies  and 
supplementary  pension  schemes  when  projecting 
the 
adequacy of pensions. The results are expected in 2018 but 
were  not  yet  available  when  writing  the  2018  Country 
Report. 

for  Economic  Research 

Institute 

(24)  The amount is indexed in the same way as other pensions. 

4.1.5.  HEALTH CARE AND LONG TERM CARE * 

The healthcare system is providing good results 
despite the relatively limited resources used but 
pressure will increase due to ageing population. 
In  2015,  Slovenia  spent  8.5 %  of  GDP  on 
healthcare,  which  is  below  the  EU  average  of 
9.9 %. Slovenia is still performing well in terms of 

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

(26)  The share of paid premiums in all active insurance policies 
dropped  from  87 %  in  2008  to  67 %  in  2012  (Majcen  et. 
al., 2015). 

(27)  In 2016, the average amount of supplementary savings per 
person amounted approximately EUR 4 860 per person and 
did  not  yet  substantially  contribute  to  the  income  of 
pensioners (MoLFSAEO, 2017d and KAD, 2017). 

(28)  Out of which 88 % were ‘accelerated pension rents’, which 
means that most of the amount saved is paid out in a short 
period (even in 1 year) and the rest is paid in small annual 
amounts till the end of a person’s life (for example EUR 10 
per year). 

(29)  The  White  Paper  on  pensions  proposes  collective 
bargaining  or  automatic  enrolment,  while  the  ‘Starting 
points for the  modernisation of the Pension and Disability 
Insurance  System  in  the  Republic  of  Slovenia’  mentions 
the  need  for  communication  and  education  activities,  and 
appropriate incentives from the state. 

22 

 
                                                           
                                                           
4.1. Public finances and taxation 

Graph 4.1.2:  Alcohol, overweight and obesity problems are 

greater in Slovenia than in most other EU 
countries 

(1) The closer the dot is to the centre the better the country 
performs compared to other EU countries. No country is in 
the white ‘target area’ as there is room for progress in all 
countries in all areas. 
Source: OECD calculations based on Eurostat Database 
(European Health Interview Survey in or around 2014), OECD 
Health Statistics and Health Behaviour in School-aged 
Children survey in 2013-14. (Chart design: Laboratorio MeS). 

and 

authorities 

The  Slovenian  government  is  making  progress 
in implementing the National Health Care Plan 
for  2016–2025.  Initial  steps  have  been  taken  to 
amend legislation in the field of administration and 
management  of  health 
institutions.  Changes 
concern,  inter  alia,  business  autonomy,  powers  of 
managing 
professional 
responsibility.  In  addition,  in  2017  the  parliament 
endorsed  the  emergency  law  for  the  financial 
stabilisation  of  public  healthcare 
institutions. 
Around  EUR  136  million  emergency  funding  are 
made  available  to  cover  about  80 %  of  the  losses 
that  hospitals  had  accumulated  mostly  during  the 
crisis.  In  order  to  be  eligible,  hospitals  have  to 
adopt  restructuring  plans  and  accept  oversight  by 
special  Health  Ministry  committees.  A  national 
strategy  for  primary  healthcare  development  by 
2025  is  being  prepared  and  reference  family 
medicine  outpatient  clinics  are  gradually  being 
introduced.  A  health 
technology  assessment 
system is planned to be established by 2020 for all 
aspects  of  introducing  new  health  technologies, 
including  optimum  utilisation. 
ICT  solutions 
(ePrescription,  eReferral,  eAppointment)  will 
improve nationwide information. 

Public  procurement  procedures  in  the  health 
sector are not sufficiently bundled yet.  In 2017, 
aggregated  procurement  was  organised  for  nine 
different items. However, the share of procurement 
carried  out  centrally  is  low  compared  to  other 

amenable mortality (30), but prevention can further 
improve the effectiveness of the healthcare system. 
For  instance,  obesity  rates  are  far  above  the  EU 
average  and  mortality  from  liver  cirrhosis  in  men 
is  among  the  highest  in  Europe  (Graph  4.1.2). 
Although  self-reported  unmet  needs  for  medical 
care are very low in Slovenia (see Box 4.3.1), the 
share  of  people  reporting  waiting  times  for  some 
specialist  services  increased  from  6 %  in  2007  to 
13 %  in  2015  (OECD/European  Observatory  on 
Health Systems and Policies, 2017). However, the 
ageing  population  is  putting  the  system  under 
strain  and  would  require  more  resources  to  be 
spent  on  healthcare  in  the  future.  Therefore, 
increased  efficiency  is  important  to  continue  the 
provision of high quality care. 

to 

project 

An  EU-supported 
improve 
prevention  has  been  launched.  In  2019,  25 
centres of health promotion are to be established in 
order  to  reduce  lifestyle-related  chronic  non-
communicable  diseases.  The  project  is  supported 
by the European Structural and Investment Funds. 

A  reform  on  healthcare  financing  is  being 
prepared  but  its  adoption  is  delayed.  The  draft 
Health  Care  and  Health  Insurance  Act  has  been 
prepared  but  it  has  not  been  submitted  yet  to  the 
Parliament.  The  current  form  of  supplementary 
health insurance will be abolished and transformed 
into  a  compulsory  health  allowance  within  the 
health insurer (HIIS).  

Some elements of the reform have already been 
legislated in 2017. The amendments to the Health 
Services  Act  aim  at  improving  transparency  and 
access  to  health  services.  Changes  include  inter 
alia  new  regulations  for  concessions,  the  uniform 
arrangement  of  work  permits  and  the  supervision 
of providers. Under the Medical Practitioners Act, 
some expenses that are currently being paid by the 
insurer  (specialisations,  apprenticeships, 
health 
learning and training) have been transferred to the 
State  budget.  The  recent  changes  in  the  Patients’ 
Rights Act further clarify the rights and obligations 
for medical appointments. Furthermore, additional 
funding  was  provided  in  2017  for  some  services 
with long waiting times. 

(30)  Amenable  mortality  is  a  dimension  of  avoidable  mortality 
and is understood as deaths that could be avoided through 
good quality  of  healthcare.  This  indicator is  a  good  proxy 
for the effectiveness of the healthcare system. 

23 

Smoking, 15-year-oldsSmoking, adultsDrunkenness, 15-year-oldsBinge-drinking,adultsOverweight/obesity,15-year-oldsObesity, adultsPhysical activity, 15-year-oldsPhysical activity,adults 
                                                           
 
4.1. Public finances and taxation 

teams, 

establish  a  sustainable  and  accessible  care  system 
which  combines  the  health  and  social  aspects  of 
care  with  integrated  long-term  care  services. 
According to the draft law, the new long-term care 
system would be rolled out as of 2020. The list of 
targeted  services  would  include  basic  and  support 
services  as  well  as  non-acute  healthcare  services. 
The  draft  law  provides  for  a  uniform  method  for 
assessing care needs, and involves interdisciplinary 
mobile 
integrated  supervision  and  an 
integrated  network  of  providers.  It  encourages 
informal care support (31) in the home environment 
and  seeks  to  relieve  individuals  and  families  by 
providing, under certain conditions, the possibility 
of  cash  receipts,  training  and  counselling  for 
informal  care  providers,  as  well  as  14  days  of 
substitute care a year. Beneficiaries would receive 
financial compensation or a paid personal assistant 
or paid healthcare services provided at home or in 
a  nursing  home.  All  beneficiaries  would  be  fully 
compensated  for  rehabilitation  services  aiming  to 
preserve or improve their independence, as well as 
for 
support  and 
counselling.  A  two-year  pilot  programme,  partly 
co-funded  through  the  European  Social  Fund,  has 
been  launched  to  test  the  concrete  measures  as 
proposed in the draft law. 

social  and  psychological 

The  financing  of  the  services  provided  by  the 
long-term care Act is still not clear. According to 
the  draft  long-term  care  Act  published  in  October 
2017, the sustainability would be ensured partly by 
a  new  compulsory  insurance  fee,  partly  by  the 
healthcare premiums.  

4.1.6.  STATE OWNED ENTERPRISES* 

countries  and  human  resources  dedicated  to  the 
task are still limited for such a demanding activity. 
Pending 
the  more  active  use  of  aggregated 
procurement  by  tendering  authorities,  a  database 
prices 
procurement 
procedures  has  been  created.  Hospitals  are 
required to use the lowest price in this database as 
the  maximum  price  for  any  new  supply  contract 
for the same items. 

resulting 

recent 

from 

in 

improvements 

Additional 
public 
procurement  would  bring  efficiency  gains  and 
reduce  the  risk  of  collusion  among  bidders. 
Public  procurement  in  the  health  sector  requires 
specific  knowledge  and  expertise  and 
thus 
professionalisation of those involved. Slovenia has 
not yet adopted a fully-fledged professionalization 
that  well 
strategy.  Recent  experience  shows 
prepared  aggregated  procurement,  notably 
in 
medical devices, can increase the average number 
of bids and significantly reduce the bidding prices. 
In  addition,  joint  procurement  between  different 
hospitals  can  complement 
the 
centralized  purchasing  body  and  may  be  more 
suitable  for  some  purchases.  Furthermore,  a  more 
systematic  involvement  of  the  relevant  health 
professionals in the entire tendering process would 
lead to more successful tenders, as it increases the 
satisfaction  with  the  purchase  made.  In  addition, 
the  small  Slovenian  market  creates  the  risk  that 
choosing  of  a  single  supplier  per  product  creates 
treatments 
monopolies.  This  could 
term 
long 
becoming  unavailable  and 
increase  prices 
through  market  concentration. 
Slovenia does not yet have sufficient capability or 
the means to identify collusion among bidders and, 
where  applicable,  to  punish  it  (see  also  Section 
4.4.3). 

the  work  of 

lead 
in 

to 
the 

To  date,  there  is  no  integrated  long-term  care 
system in Slovenia. There is no unified entry point 
or  a  standard  model  for  assessing  care  needs  for 
long-term  care  services.  This  creates  risks  of 
inefficiencies  and  makes  it  more  difficult  for  the 
user  to  navigate  the  system.  The  provision  of 
is  not  well 
community-based 
coordinated  and  the  financing  of  social  long-term 
is fragmented. Until now, Slovenia has focused its 
limited  spending  on  institutional  care  rather  than 
home care.  

long-term  care 

A  new  draft  legislative  proposal  for  long-term 
care  has  been  prepared.  The  reform  aims  to 

to 

commitment 

Slovenia’s 
implementing 
professional  standards  in  the  management  of 
state-owned  enterprises  (SOEs)  is  starting  to 
bear fruit. The performance of SOEs in 2016, the 
first  year  in  which  SOEs  were  fully  managed  by 
the  Slovenian  Sovereign  Holding  (SSH),  reached 
the  targets  set  in  the  management  acts,  since  an 
almost  6 %  return  on  equity  was  achieved  on  an 
aggregated basis (SSH, 2017).  In  2017,  the return 
on equity is expected to remain at the same level as 

(31)  However,  the  encouragement  might  keep  some  family 
members away from the labour market at a time when the 
need for labour is increasing due to population ageing. 

24 

 
                                                           
4.1. Public finances and taxation 

in  previous  year.  Dividend  pay-outs  in  2017  for 
companies  managed  by  the  SSH,  acting  either  as 
an  owner  or  on  behalf  of  the  State,  were  38 % 
higher  than  in  2016,  and  hit  a  record  high  almost 
doubling the dividends received in 2011, i.e. when 
Slovenia  first  applied  a  centralised  system  for 
managing capital assets. 

Under  the  new  management  plan  for  2018 
return  on  equity  should  increase  slightly  over 
the coming years. It is stated that the future focus 
will  be  placed  on 
the  quality  of  corporate 
governance,  the  transparency  and  compliance  of 
operations  of  companies  under  management  and 
the  support 
transformation  of 
companies.  SSH  aims  to  bring  the  SOE  regular 
reporting  to  the  standards  applicable  for  listed 
companies. 

for  corporate 

The return of equity is lowest in the category of 
strategic  companies.  Among  the  SOEs,  the  SSH 
differentiates  between  the  strategic  companies, 
which,  in  addition  to  economic  goals,  also  attain 
strategic  goals.  These  are  generally  the  largest 
companies, and 66.9 % of the portfolio is classified 
under this category. Whereas in general the return 
on equity was 6.0 % in 2017, it was 4.5 % for the 
strategic  companies.  Analysis  in  Section  4.4.1 
confirms that the total factor productivity of large 
SOEs  is  lagging  behind  that  of  state-owned  and 
private companies. 

Certain  privatisations  announced  are  still 
pending.  In  2017,  only  one  privatisation  process 
was completed (Paloma, hygienic paper products). 
No timeline has yet been fixed for the privatisation 
of  Telekom  Slovenije  which  was  decided  by 
Parliament back in 2013.  

25 

 
 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR* 

Graph 4.2.1:  Year-on-year credit growth, adjusted for sales 

and securitisation 

The  situation  of  the  Slovenian  banking  sector 
improved  significantly,  due  to  better 
has 
profitability,  solvency  and  asset  quality.  The 
return on equity more than doubled to reach 7.8 % 
in  2016,  mainly  because  of  lower  impairments. 
The  average  capital  adequacy  ratio  is  relatively 
stable  (18.7 %  in  June  2017),  although  it  has 
declined  slightly  since  December  2016  due  to 
renewed  credit  growth.  The  year-on-year  growth 
rate  of  credit  to  households  and  to  non-financial 
corporations  reached  record  highs  of  respectively 
7.9 % and 7.1 % in September 2017 (Graph 4.2.1). 
The  funding  structure  of  banks  is  particularly 
favourable,  with  a  loan-to-deposit  ratio  of  78.8 % 
in 2016. 

by 

driven 

is  mainly 

Banks  need  to  find  new  sources  of  income  and 
control  costs  to  maintain  profitability.  Current 
lower 
profitability 
impairments,  or  even  by  releasing  previous 
impairments.  This  is  bound  to  change  as  new 
lending  progressively  generates  new  impairments. 
Profitability  is  also  likely  to  come  under  pressure 
from persistently low interest rates and increases in 
and 
compliance, 
prudential, 
investment  costs.  One  possible  strategy 
for 
offsetting these negative factors is to focus on fee 
income  and  to  develop  new  lending  products  and 
services.  Banks  could  also  opt  for  partnership  or 
acquisition  to  reduce  their  costs  and  achieve 
economies of scale. 

supervisory 

Source: ECB 

Non-performing  loans  (NPLs)  have  continued 
their  downward  trend.  Declining  NPLs  are 
reported  both  by  Bank  of  Slovenia  and  the  ECB. 
National  statistics  are  richer  and  used  for  the 
analysis  in  this  section  and  in  Section  1,  while 
ECB statistics are reported in Section 3. According 
to  the  national  statistics,  the  NPL  ratio  for  the 
banking  sector  as  a  whole  was  10.8 %  in  June 
2017,  down  from  14.8 %  a  year  earlier  (Graph 
4.2.2).  In  the  corporate  sector,  the  share  of  NPLs 
continued to decline to reach 23.9 % in June 2017, 
down from 31.3 % a year before. In 2013 and 2014 
a substantial part of the NPL reduction was due to 
transfers  of  bad  assets 
the  Bank  Asset 
Management  Company  (BAMC).  However,  the 
total stock of NPLs in Slovenia, including those in 
BAMC’s  balance  sheet,    is  also  declining  at 
relatively  quick  speed.  Meanwhile,  the  coverage 
ratio  in  the  banking  sector  (i.e.  the  share  of 
accumulated  provisions  to  gross  value  of  NPLs) 
has  been 
the 
average  haircuts  (i.e.  fair  value  adjustments  over 
gross transfer values) applicable to BAMC assets. 
These  trends  suggest  that  NPLs  reduction  has 
boosted  banks’  ability  to  absorb  future  losses  on 

increasing  slowly,  approaching 

to 

Table 4.2.1: 

Financial soundness indicators, all banks in Slovenia 

Source: ECB Consolidated banking data 

26 

-20-15-10-50510152011201220132014201520162017Total private Non-financial corporationsHouseholds%(%)20102011201220132014201520162017Q2Non-performing debt--19,217,116,613,39,68,7Non-performing loans----22,817,912,311,4Non-performing loans NFC----43,536,826,824,1Non-performing loans HH----7,87,24,84,4Coverage ratio--44,561,353,359,360,360,5Loan to deposit ratio*156,5149,0143,8119,095,986,278,879,0Tier 1 ratio8,69,39,812,917,118,018,518,3Capital adequacy ratio11,311,811,413,717,918,619,118,7Return on equity**-3,1-11,1-19,4-90,2-2,53,57,8-Return on assets**-0,2-0,8-1,5-8,0-0,30,41,0- 
 
 
 
 
 
 
 
 
4.2. Financial sector 

the remaining NPL portfolio. 

Graph 4.2.2:  Trends in non-performing loans, including 

BAMC assets 

increased  payment  schedules  kick 
in.  The 
sustainability  of  the  restructured  loans  therefore 
needs  to  be  monitored  more  closely.  If  the 
the  courts  were 
insolvency  proceedings 
accelerated  (see  Section  4.4.5),  the  reduction  of 
NPLs could be still faster. 

in 

Graph 4.2.3:  Share of forborne loans that are performing 

(end-June 2017) 

(1) The coverage ratio for the banking sector is defined as 
the ratio of accumulated provisions to gross value of NPLs.  
(2) The haircut for BAMC assets is defined as fair value 
adjustment as a ratio of the gross transfer values 
Source: Bank of Slovenia, BAMC 

The  reduction  in  NPLs  in  recent  quarters  has 
been  principally  driven  by  loan  restructuring 
solutions,  whose  long-term  sustainability  needs 
to  be  closely  monitored.  The  transformation  of 
restructured  loans  to  performing  status  (i.e.  cures) 
and write-offs (i.e. mostly debt relief through loan 
restructuring)  accounted  for  less  than  half  of  the 
change  in  NPL  stock  in  the  first  half  of  2017, 
down  from  nearly  three  quarters  of  the  NPL 
reduction in 2016. Given that loan sales may pick 
up in the second half of 2017, the positive impact 
of  loan  restructuring  on  NPLs  may  be  even 
smaller. One possible reason for this development 
could be that a sizeable proportion of restructuring 
arrangements remain unsuccessful, or at best partly 
successful. 
ratio  of  performing 
the 
forborne loans to all forborne loans is around 17 % 
in  Slovenia,  (Graph  4.2.3).  Among  other  things, 
this  may  be  due  to  high  re-default  rates,  which 
prevent  forborne  NPLs  to  migrate  performing 
status  over  time.  Furthermore,  some  of  these 
restructured  loans have  been converted  into bullet 
loans (32) or involve payment  deferrals (33), whose 
overall  performance  can  only  be  known  when  the 

Indeed, 

(32)  Bullet loans are those where the entire principal payment is 

delayed to the end of the loan term. 

(33)  Loans involving payment deferrals are those where part or 
all of the outstanding past-due liabilities are converted into 
future liabilities. 

Source: ECB 

The  BAMC  is  progressing  towards  fulfilling 
most of its mandate, but the size and the nature 
of  the  assets  remaining  on  its  portfolio  create 
risks  that  require  monitoring.  The  business 
strategy adopted in December 2016 aims to ensure 
the highest possible return to the state and to fully 
redeem bonds backed by state guarantees by 2022. 
From its inception in 2013 until June 2017, BAMC 
generated  cumulative  cash 
flows  of  nearly 
EUR 1.1  billion,  representing  nearly  60 %  of  the 
aggregate fair value of the loans transferred. Most 
of these cash flows are from refinancing by banks 
of  loans  held  at  BAMC,  but  loan/collateral  sales 
appear  to  be  picking  up.  BAMC  engaged  in  an 
earlier  repayment  of  part  of  its  outstanding  debt, 
including  a  full  redemption  of  State  loans  by 
December  2016,  and  turned  to  more  flexible 
refinancing  options.  BAMC  is  expected  to  return 
to  profitability  in  2017,  mainly  due  to  lower 
financing  costs.  Going  forward,  a  key  risk  is 
maintaining 
cash-flow 
generation  from  sales,  as  the  remaining  assets  in 
BAMC’s portfolio may be more difficult to sell.  

the  momentum 

of 

Recent reforms aim to maintain stability within 
the  banking  sector.  The  consolidation  and 

27 

0%10%20%30%40%50%60%70%80%05.00010.00015.000Jun-15Dec-15Jun-16Dec-16Jun-17% gross valueEUR mln.Banks: NPLsBAMC assetsBanks: NPL ratio (rhs)Banks: coverage (rhs)BAMC: haircut  (rhs)0%10%20%30%40%50%60%70%80%SIBGLTPLROIESKGRDEFRBEHUCYHRITCZATUKDKNLPTESMTLULVSEEEFI 
 
                                                           
 
4.2. Financial sector 

revised state-aid decision on the recapitalisation of 
NLB  in  2013(36).  In  line  with  the  government 
commitment,  the  privatisation  of  Abanka-Celje  is 
scheduled  for  2019.  Two  attempts  by  a  foreign 
insurance  group  to  increase  its  stake  in  Sava  Re 
were  rejected.  As  demonstrated  by  the  crisis  that 
hit  Slovenia  in  2013,  maintaining  a  high  level  of 
state  involvement  may  entail  in  the  longer  run 
some  risks  for  financial  stability,  economic 
efficiency and public finances. 

4.2.2.  ACCESS TO FINANCE FOR SMALL AND 

MEDIUM-SIZED COMPANIES* 

increased  over 

Financing  conditions  have  eased  but  less  for 
SMEs. Interest rates on business loans and spreads 
over  German  10-year  government  bonds  have 
fallen but they remain above those in the euro area. 
Banks in Slovenia remained cautious on lending to 
SMEs  (IMAD,  2016).  The  costs  of  borrowing  for 
small loans relative to costs of borrowing for large 
loans  have 
the  past  years. 
Furthermore, there is a lack of financial literacy in 
SME and a lack of business finance advice to help 
SMEs  dealing  with  complex  procedures  for 
obtaining  bank  loans (37),  various  public  financial 
incentives,  and  emerging  alternative  financial 
sources. These developments are also supported by 
the  recent  firm  level  survey  by  the  European 
Investment  Bank  (EIB,  2017).  According  to  the 
survey,  8 %  of  firms  are  finance  constrained, 
which  is  close  to  the  EU  average.  The  survey 
shows  a  clear  recent  improvement  in  firms’ 
satisfaction  with 
the  components  of  external 
finance offers like cost and collateral requirements. 
Overall,  the  survey  indicate  that  significantly 
fewer  businesses  perceive  access  to  finance  as  a 
barrier  to  investment  than  in  2016  (down  from 
48 % to 29 %). However, SMEs consider access to 
finance  to  be  a  long-term  growth  barrier  more 
often than large firms. 

rejected 

(36)  http://europa.eu/rapid/press-release_IP-18-482_en.htm 
(37)  The  percentage  of 

loan  applications  and 
unacceptable  loan  offers  increased  significantly  (from 
5.6 %  in  2015  to  13.9 %  in  2016).  This  may  suggest  that 
SMEs’  applications  are  sometimes  not  sufficiently  well 
prepared,  or that  the  effects  of  SMEs’  improved  access  to 
loans remained limited due to unfavourable loan conditions 
and  related  costs  in  absolute  terms  being  too  high  for 
Slovenian SMEs. 

restructuring  of  the  sector  progressed  with  a 
merger  of  three  banks  and  the  completed  wind-
down  of  two  smaller  banks.  Banks  are  following 
their NPL target plans which are monitored by the 
Bank  of  Slovenia  and  the  Single  Supervisory 
Mechanism. Backed by the technical assistance of 
the European Commission and in cooperation with 
the  World  Bank,  in  March  2017  the  Bank  of 
Slovenia 
the  Handbook  for  Effective 
Management and Workout of SME NPLs (Bank of 
Slovenia,  2017a).  The  handbook 
includes  a 
complete  toolkit  to  prevent,  identify  and  manage 
NPLs in this segment.  

issued 

to 

imply 

The  impact  of  upcoming  regulatory  changes  is 
expected  to  be  relatively  limited.  In  particular, 
for  most  banks  the  gradual  implementation  of  the 
upcoming  IFRS  9  accounting  standards  are  not 
significant 
expected 
new 
any 
provisioning (34).  According 
to  a  supervisory 
assessment  at  end-2016,  some  of  the  smaller  and 
less  complex  banks  may  suffer  more  than  their 
peers,  especially  due  to  the  data  needed  to  obtain 
estimates of expected credit losses. The impact of 
the upcoming minimum requirement for own funds 
and  eligible  liabilities (35)  on  most  banks  will  be 
very  limited,  owing  to  the  level  of  excess  capital 
held.  However,  less  capitalised  banks  may  face 
significant  shortfalls,  which  will  need  to  be  filled 
by issuing eligible liabilities. 

The  persistent  involvement  of  the  Slovenian 
state  in  the  financial  sector  entails  some  risks 
for  financial  stability.  The  Slovenian  state 
controls  a  significant  share  of  the  financial  sector 
through its stakes in NLB, Abanka-Celje and Sava 
Re,  and  recent  developments  show  that  there  is 
little  political  will  to  improve  the  situation.  The 
government has failed to privatise at least 50 % of 
NLB  by  the  end  of  2017,  as  committed  to  in  the 

(34)  The  International  Financial  Reporting  Standard  (IFRS)  9 
will  be 
the  new  accounting  standard  for  financial 
instruments,  replacing  the  current  IAS39  from  1  January 
2018. It will have a significant impact on banks, especially 
in  impairment  methodology,  as  the  focus  on  expected 
credit  losses  will  require  banks  to  recognise  their  losses 
earlier. 

(35)  The  minimum  requirement  for  own  funds  and  eligible 
liabilities  (MREL)  determines  the  financial  resources  that 
need  to  be  set  aside  to  absorb  any  losses  and  to  meet 
recapitalisation  needs  during  the  resolution  of  a  failing 
bank.  Introduced  in  the  Bank  Recovery  and  Resolution 
Directive,  these  requirements  will  be  phased  in  between 
2020 and 2022. 

28 

 
                                                           
                                                           
4.2. Financial sector 

Alternative  financial  instruments  like  venture 
capital  and  other  equity-type  capital  are  only 
emerging 
in  Slovenia.  Alternative  financing 
represents  only  a  minor  share  of  financial 
resources  available  for  SMEs.  Despite  a  modest 
increase,  private  equity  in  Slovenia  is  still  low. 
(Invest  Europe,  2017)  (Graph  4.2.4).  Overall 
access  to  alternative  finance,  especially  venture 
capital,  is  improving  in  Slovenia,  albeit  from  a 
very  low  level.  The  country  still  ranks  among  the 
last  across  the  EU  Member  States  in  its  venture 
capital  share  as  a  percentage  of  GDP  (38).  It  is 
possible  that  not  just  the  limited  availability  of 
bank credit, but also a lack of venture capital and 
other  equity  financing  prevent  innovative  SMEs 
from scaling up (Van Roy and Nepelski, 2016). 

Graph 4.2.4:  Annual value of private equity investments in 

selected Central and Eastern European 
countries in 2013 to 2016 (million euros) 

through 

to  SMEs  also 

funds and mechanisms. Financial support has been 
directed 
the  Slovene 
Enterprise Fund (SEF) financial instruments (both 
debt- and equity-type instruments: grants for start-
ups,  seed  capital,  convertible 
loans,  equity, 
microcredits  and  guarantees  for  bank  loans  with 
subsidies of interest rate). However, these financial 
instruments  are  considered  important  by  only 
about  one  out  of  nine  SMEs  due  to  the  limited 
overall  amount  of  funding  available  (Bank  of 
Slovenia  2017b).  Nevertheless,  the  SEF  report 
shows  that  several  thousand  new  jobs  have  been 
created  through  its  financial  support  measures. 
Moreover,  the  national  development  bank  (SID 
Bank) has offered specific financial instruments to 
SMEs. 

to 

technologies  are  helping 

New 
finance 
Slovenian  start-ups.  They  have  had  a  very  high 
success rate on several international crowdfunding 
platforms  and  recently  raised  a  large  amount  of 
funding through the initial coin offering platforms. 
Slovenia  is  well  positioned  to  become  a  regional 
block-chain hub. These improvements are yielding 
visible results with ‘unicorns’ such as Outfit 7 and 
several other globally successful start-up cases (see 
also Section 4.4.5 on the business environment). 

Source: Invest Europe CEE Private Equity Statistics 2016 

There  has  been  a  concerted  policy  response  to 
improve  access  to  finance.  Box  4.2.1  discusses 
the  funding  opportunities  created  using  the  EU 

(38)  Venture capital in Slovenia was 0.0067 % of GDP in 2014, 
well  below  the  EU  level  of  0.062 %  in  the  same  year 
(European Commission, 2017e). 

29 

0100200300400500600700800900Million euros2013201420152016 
 
                                                           
4.2. Financial sector 

Box 4.2.1: Policy highlight: improving the access to finance 

In 2017, there were two positive developments to stimulate further alternative investments. 
First, in autumn 2017 the SEF invested EUR 8 million (1) into a new cross-border equity initiative 
called the Central Europe Fund of Funds that is managed by the European Investment Fund (EIF). 
The Funds’ main objectives are to boost equity investments in the region’s SMEs and small mid-
caps, establish a sound market-based infrastructure for risk financing, implement and introduce the 
best market standards for equity investments in enterprises and attract institutional investors and 
fund  managers  to  Central  Europe. In  total, investments  in  five  to  eight venture  capital  funds  are 
envisaged  to  increase  the  amount  available  for  investments  into  Central  European  businesses  to 
about  EUR  160  million.  Second,  in  mid-November  2017  the  EIF  and  the  national  promotional 
bank  SID  Bank  launched  the  first  Slovenian  capital  growth  investment  programme.  EUR 100 
million, backed by the European Fund for Strategic Investments guarantee, will be made available 
for innovative and fast-growing SMEs. 

Additional  financial  instruments  co-financed  by  the  EU  structural  funds  (ESIF)  are  being 
prepared. In June 2016,  the Slovenian government  decided  to  allocate EUR 253  million of  ESI 
Funds  to  a  fund  of  funds.  The  fund  of  funds  manager  (the  SID  Bank)  prepared  a  market  test  in 
August 2017, which provided the basis for their investment strategy. The agreement with the SID 
Bank was signed in November 2017 (2) and the first instalment of EUR 63 million was transferred 
to  them  in  early  December  2017 (3).  It  is  expected  that  in  early  2018  the  SID  Bank  will  issue 
public calls to select financial intermediaries in four different areas: RDI, SMEs, energy efficiency 
and urban development. The funds are expected to reach the final recipients in the second half of 
2018.  A  total  of  EUR 88  million  is  to  be  delivered  through  loans,  EUR 60  million  through 
microloans,  EUR 95  million  through  portfolio  guarantees  and  EUR 10  million  through  equity 
financing. Equity financing is allocated solely to support SMEs. 

Guarantees in combination with grants supported by the European Agricultural and Rural 
Development Fund will be used for agricultural and forestry businesses. This is a significant 
step,  marking  a  departure  from  supporting  agricultural,  rural  and  forestry  businesses  exclusively 
by  way  of  grants.  It  is  envisaged  that  the  fund  of  funds  will  accommodate  risks  related  to  the 
referred  businesses’  loans  by  managing  EUR  65  million.  The  selection  of  the  fund  of  funds 
manager is ongoing. The final recipients are expected to benefit in 2018.  

(1)  http://www.podjetniskisklad.si/en/news/458-new-opportunities-for-growth-financing-will-be-offered-to-ambitious-

slovenian-small-and-medium-sized-enterprises-and-small-mid-caps. 

(2)  https://english.sta.si/2453914/economy-ministry-and-sid-bank-set-up-fund-of-funds 
(3)  https://english.sta.si/2460153/fund-of-funds-receives-first-batch-worth-eur-63-25m?q=fund,of,fund 

30 

 
 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET  

recovery, 

labour  market  situation  continues  to 
The 
the 
the  economic 
improve.  With 
employment  rate  has  risen  for  the  third  year  in  a 
row, and unemployment is falling (Graph 4.3.1). In 
2017, unemployment (ages 15-74) fell from 8.0 % 
to 6.8 % on an annual basis. In the third quarter of 
2017, the employment rate was 74.1 %, up 3.7 pps 
compared  with  the  same  period  in  2016.  In  the 
same  period,  the  employment  rate  of  low-skilled 
workers  also  improved  (Q3-2016:  44.2 %,  Q3-
2017:  50.2 %)  although  it  remains  below  the  EU 
average (55.7 %). In spite of these positive trends, 
challenges  remain,  in  particular  for  older  workers 
(55-64).  In  2016  the  employment  rate  of  older 
workers  increased  by  1.9 pps  and  was  the  highest 
ever  recorded  at  38.5 %.  Nonetheless,  it  still  lags 
significantly  behind  the  EU  average  (55.2 %). 
Furthermore, the activity rate for this age group is 
the  lowest  in  the  EU.  In  December  2017  the 
parliament  adopted 
the  Intervention  Act  and 
extended  measures  of  promoting  employment  of 
persons aged over 55 years (39). 

A rapidly ageing society means the working age 
population  and  labour  supply  are  shrinking. 
This could hamper economic growth. The Institute 
of  Macroeconomic  Analysis  and  Development  of 
Slovenia  forecasts  that  by  2020  the  labour  force 
could  contract  by  8 000  persons  per  year  on 
average (0.82 % of the total active population aged 
20-64), causing both the number of employed and 
unemployed people to drop (IMAD, 2016a). 

The  old-age  dependency  ratio  is  projected  to 
double  by  2060.  This  means  that  today’s  young 
workers and future generations are likely to face a 
double  burden.  Their  contribution 
to  social 
security could rise, which would reduce take-home 
pay,  ceteris  paribus.  These  generations  are  also 
likely to receive lower pensions, relative to wages, 
than  today’s  pensioners  (European  Commission, 
2017f)  (see  Section  4.1.3).  The  65+  proportion  of 

(39)  Notably,  employers  are  exempted  from  the  payment  of 
social  security  contributions  for  up  to  24  months  for 
employment  of  older  workers.  The  measure  is  in  place 
from 1.1.2016 and will now be extended until 31.12.2019. 

the  population  is  projected  to  reach  31.6 %  by 
2060, from 17.1 % currently. 

Graph 4.3.1:  Activity, employment and unemployment 

rates (annual) 

Source: European Commission 

In  response  to  this  trend,  the  government  has 
prepared  an  Active  Ageing  Strategy.  It  is 
focused on four pillars: i) employment/activity; ii) 
independent,  healthy  and 
life  of  all 
generations;  iii)  social  inclusion,  and;  iv)  creating 
an  environment  to  foster  activity  throughout  the 
lifespan  (IMAD  and  MoLFSAEQ,  2017).  The 
relevant  ministries  have  not yet  prepared  their  six 
month  action  plans  with  concrete  proposals 
although these were due by the end of 2017. 

safe 

individual  sectors 

Net migration after the economic crisis has been 
very low. In the last 10 years, immigration was the 
highest  in  2007-2009  and  was  driven  by  rapid 
growth  of 
(for  example 
construction)  rather  than  by  a  comprehensive 
strategy. In the absence of migration growth in the 
life 
future,  and  assuming  birth 
expectancy will be stable, by 2060 the working age 
population  would  be  up 
to  half  a  million 
individuals  smaller  than  in  2013  (IMAD  and 
MoLFSAEQ,  2017).  The  strategic  migration 
policy  has  not  helped  to  attract  workers  into 
bottleneck professions.  

rates  and 

31 

024681012455055606570758001020304050607080910111213141516% of labour force% of populationSIUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64 
 
                                                           
 
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by  the  European 
Parliament, the Council and the European Commission, sets out 20 principles and rights to benefit 
citizens  in  the  EU.  In  light  of  the  legacy  of  the  crisis  and  changes  in  our  societies  driven  by 
population  ageing,  digitalisation  and  new  ways  of  working,  the  Pillar  serves  as  a  compass  for  a 
renewed process of convergence towards better working and living conditions.  

the 

Slovenia  performs  relatively  well  on  the 
indicators  of  the  Social  Scoreboard (1) 
supporting  the  European  Pillar  of  Social 
Rights.  Income  inequality  is  low  and  so  is 
the share of early school leavers. The risk of 
poverty  and  social  exclusion  has  decreased 
last  years.  However,  old-age 
over 
poverty 
low 
remains 
employment  rate  of  older  workers  and  low-
skilled  is  a  concern  in  terms  of  equal 
opportunities  of  under-represented  groups. 
Gross  disposable  household  income  has 
declined significantly during the crisis but is 
currently growing again.  

frequent.  The 

low-skilled  reflects 

low  employment  rate  of  older 
The 
workers  and 
low 
participation  in  adult  learning  and  active 
labour market policies. Both adult learning 
and  active 
labour  market  policies  are 
important  to  tools  to  improve  access  to  the 
labour  market.  They  can  help  persons 
wanting  to  work  to  gain  new  skills  or 
incentives  for  employment.  Participation  in 
adult  learning  is  falling  since  2010  and  has 
been especially low among older workers and the low-skilled. Participation in active labour market 
policies is also very low in Slovenia.  

Slovenia provides high quality general education, successfully containing early leaving from 
education  and  training.  Additionally,  Slovenia  has  continued  increasing  its  tertiary  education 
attainment rate. In 2016 44.2 % of 30-34 year-olds had obtained a tertiary-level qualification, up 
by  3.2 pps  since  2014.  A  high  level  of  public  regard  for  teachers,  combined  with  robust  social 
dialogue  in  the  education  field  and  a  relatively  high  level  of  investment  in  education,  all 
contributed to the traditionally good performance of the Slovenian education system. 

1  The  Social  Scoreboard  includes  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member  States 
performance.  The  indicators  "participants  in  active  labour  market  policies  per  100  persons  wanting  to  work"  and 
"compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  technical  concerns  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees. Abbreviation: GDHI – gross disposable household 
income. 

There are signs of labour shortages in a number 
of  vocational  occupations.  According  to  the 
Manpower  Talent  Shortage  Survey,  the  share  of 

employers  reporting  skills  shortages  increased 
from 28 % in 2012 to 33 % in 2016. A survey by 
the Employment Service of Slovenia shows similar 

32 

Early leavers from education and training (% of population aged 18-24)Best performersGender employment gapBetter than averageIncome quintile ratio (S80/S20)Best performersAt risk of poverty or social exclusion (in %)Better than averageYouth NEET (% of total population aged 15-24)Better than averageEmployment rate (% population aged 20-64)On averageUnemployment rate (% population aged 15-74)On averageGDHI per capita growth To watchImpact of social transfers (other than pensions) on poverty reductionBetter than averageChildren aged less than 3 years in formal childcareOn averageSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsOn averageSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketSLOVENIAMembersStates'areclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaverages,andclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final. 
 
4.3. Labour market, education and social policies 

key 

assessment 

impact 
employment 
of 
programmes  in  Slovenia.  Short  and  longer-term 
effects  are  positive  with  the  exception  of  public 
works,  the  programme  catering  to  the  jobseekers 
furthest  away  from  the  labour  market.  Although 
the  programme  has  some  positive  effects  such  as 
skills development, activation and social inclusion, 
its  labour  market  impact  is  modest  and  the 
programme’s  computed  net  benefit  is  negative. 
(MoLFSAEO & UoP, 2017). Despite these overall 
good 
the 
low  participation 
activation measures remains a concern. 

results, 

rate 

in 

Incentives  to  become  employed  in  a  low-wage 
position  when  on  benefits  are  rather  weak. 
During the first months of unemployment, the net 
replacement rate of unemployment benefits is very 
high  (above  80 %)  for  low-wage  earners.  The 
unemployment  trap  for  the  beneficiaries  is  high 
compared 
to  other  EU  countries.  However, 
employers in Slovenia are required by law to pay a 
travel  and  daily  meal  allowance.  These  are  not 
subject  to  taxation  and  amount  to  approximately 
13 %  of  the  average  wage  bill.  Net  wages  in 
Slovenia  are  therefore  some  10 %  higher  than 
reported 
in  official  statistics.  Unemployment 
benefit recipients do not receive these allowances. 
Taking 
the 
them 
trap  by  approximately  10 pps, 
unemployment 
although 
the  EU  average. 
Furthermore,  only  a  relatively  small  share  of  the 
unemployed 
receive 
unemployment  benefits,  and  for  a  shorter  period 
than in other EU Member States (42). A significant 
number of unemployed people receive other forms 
of income support (OECD, 2016a). 

it  remains  above 

account 

reduces 

(24 % 

2015) 

into 

in 

In  September  2017,  the  Act  Amending  the 
Labour  Market  Regulation  Act  was  adopted 
with  the  main  aim  of  accelerating  activation  of 
the  unemployed.  An  incentive  for  low-  and 
medium-educated  beneficiaries  of  unemployment 
benefits  was  prepared.  If  they  enter  full-time 
employment they will continue to receive 20 % of 

(42)  This  depends  upon  length  of  insurance  and  partly  also  on 
age.  For  example,  an  unemployed  person  is  entitled  to  2 
months  of  unemployment  benefit  if  younger  than  30  and 
insured for at least 6 months in the last 24. This decreases 
to 3 months of unemployment benefit if they were insured 
for  at  least  9  months  in  the  last  24.  A  full  comparison  of 
unemployment  benefits  and  active  labour  market  policies 
across  EU  countries  is  part  of  the  benchmarking  exercise 
published in the draft Joint Employment Report 2018. 

results, especially for drivers of heavy vehicles and 
tugs,  workers  in  manufacturing,  welders,  masons, 
cooks,  waiters,  toolmakers  and  salesmen  (ESS, 
2017).  Adjusting  education  programmes  and 
offering  enrolment  places could help reduce  these 
gaps.  Most  workers  are  well  matched  with  their 
current  jobs  but  there  are  indications  that  the 
system is not fully able to provide in-demand skills 
(OECD, 2017a). 

Population  ageing  accentuates  the  need  to 
increase  participation  in  adult  learning.  While 
in 2016 the participation of adults in learning was 
11.6 %  and  still  slightly  (0.8 pps)  above  the  EU 
average, 
fallen  steadily  since  2010. 
Participation  in  adult  learning  has  been  especially 
low among older workers and the low-skilled. This 
causes  concerns  as  improving  skills  through  adult 
learning  could  increase  the  chances  of  being  in 
employment.  

it  has 

in 

The  participation  rate  in  active  labour  market 
policies  (ALMP)  in  Slovenia  was  among  the 
lowest 
long-term 
the  EU,  while 
unemployment  (LTU)  remains  high.  In  2016, 
LTU  represented  4.3 %  of  the  active  population, 
which  corresponds  to  53.3 %  of  all  unemployed 
people.  According  to  national  data,  in  2016  the 
transition rate of LTU to employment was 25.2 % 
and  the  share  of  LTU  participants  in  ALMP 
programmes  represented  48 %  of  all  participants. 
Around EUR 189 million is earmarked for ALMPs 
in 2017 and 2018, an increase from previous years 
but  low  compared  to  other  OECD  countries.  In 
2017,  two  new  measures  are  aimed  directly  at 
older  workers (40).  Regardless  of  progress,  older 
and low-skilled workers remain under-represented 
in  ALMP  and  could  benefit  from  implementation 
of the Upskilling Pathways Recommendation.  

important  ALMP 

Despite  the  low  participation  rate,  Slovenia’s 
programmes (41) 
most 
perform rather well, if judged by labour market 
impact  and  cost-effectiveness.  In  September 
2017,  the  University  of  Primorska  prepared  an 

(40)  Active  until  retirement  (subsidy  programme)  and  Support 
the  workforce 

for  active  aging  of 

for  companies 
(workshops). 

(41)  The  following  programmes  were  evaluated:  Institutional 
training  2009-2012;  On-the-job 
training  2009-2012; 
‘Employ.me’  (‘Zaposli.me’)  2009-2012;  and  Public  works 
2012-2014. 

33 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

problems  (see  Section  4.1.4).  The  Slovenian 
Statistical  Office  estimates  that  the  share  of 
possible  bogus  self-employment  almost  doubled 
between 2012 and 2015 (SORS, 2016). The share 
of  self-employed  in  total  employment  has  been 
slowly increasing from 9.5 % in 2008 to 11.6 % in 
2016. 

Wage growth in Slovenia remains moderate and 
in line with productivity developments. In 2016 
nominal  wages  increased  by  2.8 %  in  Slovenia. 
Combined  with  modest  productivity  gains,  this 
resulted  in  an  increase  in  nominal  unit  labour 
costs.  The  further  tightening  of  the  labour  market 
is  expected  to  put  continuous  upward  pressure  on 
wages. Nominal wages are projected to continue to 
increase by 2.8 % in 2017 and by around 3.2 % in 
2018  and  2019,  remaining  both  below  the  rate 
consistent  with  internal  labour  market  conditions, 
and  below  the  rate  consistent  with  a  stable 
evolution of cost competitiveness(45). Nominal unit 
labour costs are also projected to increase, at a rate 
slightly below the euro area average (Graph 4.3.3). 
Real wage growth accelerated in 2016 and — after 
several  years  of  significantly  lagging  behind  — 
exceeded  productivity  growth  by  roughly  0.7 pps 
in  2016.  In  the  coming  years  real  wage  growth  is 
expected  to  remain  somewhat  below  productivity 
growth. 

actual  wage 

the  contrary,  are  a 

(45)  The  European  Commission  regularly  assesses  whether 
wage  developments  support  macroeconomic  rebalancing 
source  of  potential 
or,  on 
macroeconomic  imbalances.  The  assessment  relies  on 
comparing 
two 
hypothetical  benchmarks  consistent  with  Member  States’ 
internal  or  external  economic  equilibrium:  (i)  the  wage 
growth  which  would  be  predicted  on  the  basis  of  changes 
in  labour  productivity,  prices  and  the  unemployment  rate; 
(ii)  the  wage  growth  which  would  be  consistent  with  a 
constant  real  effective  exchange  rate  based  on  unit  labour 
costs. Nominal wage growth in Slovenia was below both in 
2016. 

developments  with 

the  latest  unemployment  benefit  amount  until  the 
end  of  the  period  for  which  the  benefit  was 
originally  awarded,  but  no  longer  than  12  months 
after the start of employment. This incentive could 
further reduce the unemployment trap. 

(44). 

effects 

The  2013  Employment  Relationship  Act, 
introduced  to  reduce  labour  market  dualism 
and  increase  flexibility,  appears  to  have  paid 
off,  at  least  for  older  workers.  A  study  ‘Equity 
and  productivity  effects  of  the  New  Labour 
Code’ (43)  evaluates  the  short-term  equity  and 
the  Employment 
of 
productivity 
Relationship  Act 
favourable 
outcomes  for  older  workers  in  terms  of  higher 
transition  rates  from  fixed-term  to  permanent 
from 
higher 
contracts, 
unemployment  to  employment  (MoLFSAEO  and 
UoP,  2017).  However,  the  analysed  period  was 
rather  short  and  next-  to-permanent,  fixed-term 
hiring  is  also  rising.  While  the  reform  clearly 
helped 
enter 
vulnerable 
employment,  temporary  employment  remains  an 
issue. 

transitions 

It  shows 

groups 

certain 

and 

Young  people  have  seen  their  job  situation 
improve  but  are  often  employed  under  non-
standard and precarious contracts. The share of 
temporary  employment  among  young  people  is 
still the highest in the EU (IMAD, 2017a). In 2016, 
more  than 7 out of 10  young workers  in Slovenia 
had  a  temporary  contract,  compared  to  13.1 %  of 
workers  aged  25-49  (European  Commission,  JER 
2018c).  They  are  also  overrepresented 
in 
involuntary  part-time  work  and  lower  wage  jobs. 
This  is  largely  due  to  the  prevalence  of  student 
work contracts, which increased despite the recent 
security 
employer 
introduction 
contributions  for  these  contracts  (IMAD,  2017a). 
In  addition,  women  in  Slovenia  are  more  often 
employed on  fixed-term  contracts  than women  on 
average  in  the  EU-28  and  more  often  than  men. 
Workers  with  shorter  careers  and  longer  career 
breaks  could  face  pension  adequacy  problems  in 
the  already  existing 
the 

reinforcing 

future, 

social 

of 

(43)  Prepared by the Ministry of Labour, Family, Social Affairs 
and Equal Opportunities in cooperation with the University 
of Primorska. 

(44)  The  Act  reduced  job  security  for  permanent  workers  and 
increased  costs  tied  to  fixed-term  employment.  The  law 
notably  removed  special  dismissal  protection  for  older 
workers (55 and older). 

34 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

three fields tested in the OECD’s 2015 Programme 
for 
International  Student  Assessment  (PISA) 
survey  —  science,  mathematics  and  reading.  The 
rate of underachievement among students from the 
bottom  socioeconomic  quartile  is  25.1 %,  against 
only  6.3 %  for  students  from  the  top  quartile,  but 
the  variability  in  science  performance  associated 
with  students’  socioeconomic  status  improved 
from  17.5 %  in  2006  to  13.5 %  in  2015.  Slovenia 
has  seen  the  largest  improvement  in  gender 
equality  among  the  EU  Member  States  between 
PISA 2012 and PISA 2015, but the performance of 
boys  in  reading  literacy  is  still  a  concern  since 
12.1 %  more  boys  than  girls  underachieve  in 
reading  (EU  average  9.6 %).  A  working  group 
established by the Ministry for Education, Science 
and Sport stared working on including digital skills 
in  the official  curriculum  in  2017.  The proportion 
of early school leavers is still among the lowest in 
the EU. 

education 

Reforms  on  the  financing  of  tertiary  education 
are  continuing,  but  a  legislative  overhaul  has 
been  postponed.  With  the  aim  of  more  strongly 
aligning  the  national  strategies  and  missions  of 
tertiary 
2016 
amendments  to  the  Higher  Education  Act  and  the 
corresponding  Decree  redesigned  the  financing 
principles  and  set  out  the  foundation  for  signing 
multiannual  funding  agreements.  However,  the 
planned comprehensive new Higher Education Act 
has been delayed. 

institutions, 

the 

Education  spending  as  a  share  of  GDP  was 
reduced during the crisis but remains above the 
EU average. Between 2012 and 2015, government 
expenditure  on  education  as  a  percentage  of  GDP 
declined  by  0.9 pps,  which  is  among  the  highest 
declines 
the  EU.  The  2015  educational 
expenditure  of  5.6 %  of  GDP  remained,  however, 
above  the  EU  average  of  4.9 %.  The  education 
Ministry's  budget  which  was  reduced  by  6.8 % 
between 2013 and 2016, has since been increasing 
in line with the economic recovery, but in tertiary 
education the budget remains below 2014 level. 

in 

for  careers 

Slovenian  schools  have  started  to  prepare 
students 
in  entrepreneurship. 
According to the OECD, the percentage of people 
who believe that they have the required skills and 
knowledge  to  start  a  business  is  low  (OECD, 
2017c, d). In the Global Entrepreneurship Monitor 
report  2016/17  the  entrepreneurship  education  in 

Graph 4.3.2:  Decomposition of rate of change of unit labour 

costs 

Source: European Commission 

increased 

The  minimum  gross  wage 
to 
EUR 804.96  in  2017,  about  EUR 14  (1.8 %) 
higher  than  in  the  previous  year.  Considering 
that this increase was relatively small and less than 
the  increase  of  average  wages  (2.2 %),  this  is  not 
expected  to  put  pressure  on  competitiveness. 
Growth  in  gross  disposable  household  income 
(GDHI)  per  capita  however,  has  been  relatively 
modest  since  2008.  Despite  increases  in  recent 
years, it remains below the pre-crisis level. 

The  framework  of  tripartite  social  dialogue  in 
Slovenia  is  relatively  well  developed,  but  there 
are  still  some  weaknesses.  Social  partners  are 
involved  in  shaping  policy  through  the  Economic 
and  Social  Council,  where  the  government,  trade 
unions and employer organisations are represented. 
Despite  general  satisfaction  with  the  consultation 
process,  social  partners  note  that  social  dialogue 
can  be  further  improved  by  ensuring  they  are 
involved  at  an  early  stage  in  the  preparation  of 
legislative proposals and reform measures. Lack of 
resources  due  to  falling  rates  of  union  and 
employer’s  organisations’  membership  influences 
greatly  the  social  partners’  ability  to  participate 
effectively in the social dialogue.  

4.3.2.  EDUCATION AND SKILLS 

The  basic  skills  of  Slovenian  pupils  and  the 
equity  of  the  education  system  are  generally 
high  and  improving,  but  certain  inequalities 
persist. Slovenian 15-year-olds perform well in all 

35 

-6-4-202468101202030405060708091011121314151617*18*19*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Areaforecast 
 
4.3. Labour market, education and social policies 

the  population  aged  18-64  (IMAD,  2016a). 
Pensions  are  the  principal  source  of  income  for 
elderly  people  and  they  are  frequently  below  the 
poverty  line.  In  2016,  the  average  net  old  age 
pension  amounted 
in 
December 2016 almost half of pensioners received 
less  than  EUR 600.  The  situation  faced  by  many 
pensioners  today  is  also  worrying  for  future 
generations (see Section 4.1.4). In this context, the 
delay  in  reforming  the  pension  system  is  a 
concern. 

to  EUR 612;  however 

The  government  adopted  measures  to  address 
long-term dependency on cash social assistance. 
In  August  2017,  the  Ministry  of  Labour  started 
with  social  activation  programmes  which  aim  to 
encourage  social  and  labour  market  inclusion  of 
the  12 500  most-hard-to-employ  and  vulnerable 
people.  This  action  will  be  co-financed  from  the 
European  Social  Fund.  The  government  also 
adopted  the  2017-2018  National  Implementation 
Plan  of 
the  National  Programme  of  Social 
Assistance  and  Care.  Most  of  its  measures  are 
aimed  at  decreasing  the  risk  of  poverty  and  are 
related  to  social  activation.  In  2018,  a  number  of 
cuts  in  child  allowances  (from  June  2012)  were 
abandoned, 
children 
(MLFSAEO,  2017a,  b,  c).  The  adequacy  of  the 
is 
minimum 
income  benefits 
to  other  Member  States  (48)  In 
comparable 
Slovenia, access to social protection is ensured for 
all, including the self-employed. However, people 
with  civil  law  contracts  cannot  receive  sickness 
benefits in case of illness. 

in  Slovenia 

benefiting 

45 000 

48  According  to  the  benchmarking  exercise  in  the  area  of 
minimum  income  schemes  conducted  within  the  Social 
Protection  Committee,  see  the  draft  Joint  Employment 
Report 2018. 

Slovenia  scored  below  the  EU  average.  Efforts  to 
promote  entrepreneurship  in  schools  are  under 
testing  and 
involve  developing, 
way,  and 
promotes 
a  model 
implementing 
entrepreneurial skills in primary schools. A public 
tender  to  reach  this  goal  was  published  by  the 
Ministry of Education, Science and Sport in 2017. 

that 

In  vocational  education,  the 
link  between 
studies  and  practical  experience  has  been 
improved. The Apprenticeship Act is in use since 
December  2017,  defining  apprenticeships  as  part 
of the vocational education system. An apprentice 
has  the  status  of  a  secondary  school  student,  and 
must  receive  at  least  50 %  practical  education 
(work) with the employer. The practical education 
may  be  carried out  with  more  than one  employer, 
within  international  mobility  programmes  and 
educational  centres.  Apprentice  status  can  also  be 
obtained  by  unemployed  people  or  workers  in 
order to obtain a secondary vocational education or 
when  they  need  further  training  or  retraining.  In 
school  year  2017/2018,  apprentice  status  can  be 
obtained 
programs:  metalworker-
toolmaker, stonecutter, carpenter, and gastronomic 
hotelier.  Although  the  Ministry  of  Education, 
Science and Sport expected up to 200 apprentices 
per  generation,  so  far  only  53  students  are 
participating. 

four 

in 

4.3.3.  SOCIAL POLICY 

Slovenian  society  is rather egalitarian,  but  old-
age poverty is frequent. The rate of people at risk 
of  poverty  and  social  exclusion  (AROPE) (46) 
decreased  by  0.8 pps  to  18.4 %  in  2016.  The 
poverty  gap  (age  18-64)  is  slightly  below  the  EU 
average.  At  19.9 %,  the  AROPE  rate  for  the 
elderly  is  above  the  EU  average  of  17.7 %  and  is 
particularly  high  for  women  over  65  (25.0 %;  EU 
latest 
average 
information (47)  shows  that  monetary  poverty  will 
decrease  again,  Slovenia 
the 
countries  where  the  rate of  people  over  65  at  risk 
of poverty is significantly higher than in the part of 

ranks  among 

Although 

20.1 %). 

the 

(46)  AROPE:  At-risk-of-poverty  or social  exclusion  rate (%  of 
total  population).  People  who  are  at-risk-of  poverty 
(AROP) and/or suffering from  severe  material  deprivation 
and/or  living  in  household  with  zero  or  very  low  work 
intensity. 

(47)  Eurostat flash estimates for income reference year 2016. 

36 

 
                                                           
                                                           
4.4. INVESTMENT 

4.4.1.  PRODUCTIVITY* 

Graph 4.4.1:  Labour productivity in Slovenia and the euro 

area, 1999-2016 

There  has  been  little  convergence  in  labour 
productivity  growth  to  the  euro  average  in  the 
last  decade.  Labour  productivity  was  converging 
fast  to  the  euro  area  average  up  until  2009, 
primarily  driven  by  strong  capital  accumulation 
(Graph 1.4). During the crisis, labour productivity 
growth  in  Slovenia dropped  significantly and  also 
with  the  recovery  its  level  converged  only  slowly 
to the euro area average (Graph 4.4.1). Graph 4.4.2 
shows  that  Slovenia's  labour  productivity  growth 
over 2008-2016 was lower than in other countries 
with  similar  productivity  level.  This  mirrors  the 
nature  of  the post-crisis recovery, which has  been 
characterised  by  low  capital  accumulation  only 
partly  offset  by  total  factor  productivity  gains 
(Graph  1.4  and  Box  4.4.1).  Understanding  the 
drivers of productivity in Slovenia is important to 
ensure  that  the  current  high  economic  growth 
remains  sustainable  and  underpin  convergence 
with  the  EU  and  the  euro  area  income  levels. 
Increasing  productivity  growth  is  also  relevant  in 
the  context  of  a  relatively  high  wage  level  in 
Slovenia,  and  wage  pressures  which  are  expected 
to  emerge  in  the  long-term  as  the  labour  market 
tightens. 

Looking  forward,  Slovenia's  economy  shows 
both  strengths  and  weaknesses  that  may  affect 
productivity  growth  in  the  longer  term.  The 
level and composition of investment, the quality of 
human  capital,  the  ability  to  innovate  and  adopt 
innovation, and the efficient allocation of resource 
in  the  economy  are  the  crucial  factors  affecting 
productivity  trends  going  forward.  With  regard  to 
investment,  Box  4.4.1  shows 
that,  although 
recovering, investment remains low and highlights 
the barriers that may hamper a faster recovery. The 
analysis  of  productivity  at  firm-level  shows  that 
good  technology  transfer  and  a  declining  share  of 
resources  locked  in  inefficient  firms  may  favour 
future  productivity  growth  while  certain  state-
owned  enterprises  still  represent  a  drag.  The 
analysis  of  macro-factors,  suggests  that  Slovenia 
perform  well  in  terms  of  the  quality  of  the 
education system, connectivity, business R&D and 
low  barriers  to  entry  and  connectivity.  On  the 
contrary,  the  relative  low  level  of  skill  in  the 
overall  adult  population  and  the  underdeveloped 
capital  markets  may  weigh  on  future  productivity 
trends. 

(1) Labour productivity is per worker 
Source: European Commission 

Graph 4.4.2:  Labour productivity in 2010 and its average 

annual growth (2008-2016) 

Source: Eurostat 

Productivity analysis at firm level 

The  gap  in  labour  productivity  between  the 
most  productive  and  other  firms  has  remained 
relatively stable in the last 20 years (Domadenik 
et  al.,  2018).  This  is  the  case  in  particular  for 
services,  where  the  gap  between  the  5 %  of  most 
productive  firms  (frontiers)  and  other  firms 
(laggards)  has  not  changed.  Nevertheless,  the  gap 
in  the  services  sector  is  much  larger  than  in  the 
manufacturing sector (Graphs 4.4.3 and 4.4.4).  

37 

7075808590951001051109901030507091113152008=100SIEAEUBEBGCZDKDEEEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUKEA-2%-2%-1%-1%0%1%1%2%2%3%3%4%050100150200Average yearly labour productivity growth, per worker 2008-16Labour productivity, per hour, 2008 (EU =100) 
 
 
 
 
4.4. Investment 

Box 4.4.1: Investment challenges and reforms in Slovenia 

Section1: Macroeconomic perspective 

Investment  bounced  back  in  2017  and  is  expected  to  grow  above  9 %  in  2017  and  2018.  The  recovery  is 
associated with strengthening demand, diminishing uncertainty in the business environment and favourable 
financing conditions. In addition to the private investment, governmental investment will strengthen again as 
a result of faster disbursement of EU funds, and as a result of an electoral cycle effect. However, the level of 
investment  is  remaining  below  the  historical  and  EU  average  (Graph  1.2)  and  its  structure  remains  weak 
from the perspective of development such as investment in intangibles assets. Since the crisis, the decline in 
total investment in Slovenia has been sharper than in the EU on average. The fall in investment spending 
concerned both private and public investment. Private investment dropped considerably in 2009 and its share 
in  GDP  has  continued  to  shrink  until  2015.  The  decline  largely  reflected  a  sharp  drop  in  construction 
activity.  In  contrast,  productive  investment  in  machinery  and  equipment  showed  more  resilience.  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.  

Section 2: Assessment of barriers to investment and ongoing reforms 

Section 3: Main barriers to investment and priority actions underway 

1. Slovenia is making efforts to reduce barriers to private investment. Nearly 70 % of the identified measures 
to reduce the administrative burden 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. 
Competitiveness  and  productivity  of  the  Slovenian  economy  could  be  further  enhanced  by  removing 
inefficiencies in the public administration, reducing lengthy administrative procedures and barriers in certain 
regulated professions. 

2.  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. In October 2017, a new legislation was adopted that aims to simplify and accelerate the 
acquisition  of  building  permits,  decrease  administrative  burden  for  SMEs  and  envisages  regional  spatial 
plans. 

3.  Firms'  access  to  finance  remains  heavily  biased  towards  limited  availability  of  bank  credit,  while 
alternative  sources  of  financing  are  still  lacking.  Despite  some  improvement  in  the  the  access  to  venture 
capital the level is still the lowest across the EU Member States. While fewer businesses perceive access to 
finance  as  a  barrier  to  investment  than  in  last  year,  it  represents  a  long  term  barrier  for  growth  and 
innovations  to  SMEs.  Financial  support  to  SMEs  has  been  directed  through  the  Slovenia  Enterprise  Fund 
financial instruments, the national development bank SID Bank as well as international funding mechanisms 
(see Section 4.2.2).  

38 

Regulatory/administrative burdenCSRTaxationPublic administrationCSRAccess to financeCSRPublic procurement / public-private partnerships (PPPs)CSRCooperation between academia, research and businessJudicial systemFinancing of R&D and innovationInsolvency frameworkBusiness services / regulated professionsCompetition and regulatory frameworkRetailEmployment protection legislation / framework for labour contractsConstructionWages & wage-settingDigital economy / telecomEducationEnergyTransportLegend:No barrier to investment identifiedCSRInvestment barriers also subject to a country-specific recommendationSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration / business environmentFinancial sector / taxationR&D and innovationSector-specific regulationLabour market / education 
 
taxes  have  not  exceed 

The  drag  of  zombie  firms  on  productivity  has 
declined since its peak in 2011. Herein below, it 
is  defined  'zombie'  a  firm  whose  earnings  before 
interest 
interest  and 
expenses over the  previous  three  years.  The  share 
of such firms among all firms peaked at 15.2 % in 
2011 and returned to pre-crisis levels in 2015. The 
share  of  zombie  firms  is  the  highest  among  large 
firms  (with  more  than  250  employees).  In  2011, 
each fifth large firm was a zombie, but this number 
had almost halved by 2015. 

the  highest 
Large  corporates  experienced 
increase  in  total  factor  productivity  (TFP)  in 
the period 1995-2015. As a result, the gap in TFP 
between large and other firms has further widened 
(Graph  4.4.3) (49).  Large  firms’  TFP  increased  by 
57 %,  followed  by  medium-sized  and  small  firms 
which  increased  by  49 %  and  23 %  respectively. 
The better performance of large and medium-sized 
firms  is  driven  by  their  export  orientation,  while 
the  smallest  firms  lost  sales  due  to  the  decline  in 
domestic  consumption  and  cost-cutting  incentives 
by larger firms. 

Graph 4.4.3:  Value added per employee, in EUR 1000, 

Manufacturing sector 

4.4. Investment 

sales  increased  their  TFP  by  51 %  whereas  firms 
with  a  low  export  share  or  even  none  at  all 
(<30 %) experienced a more modest improvement 
of  17 %.  The  gap  has  widened  since  the  2008 
crisis. This finding is consistent with the literature 
that  shows  that  exporters  tend  to  be  larger  and 
more productive.  

Graph 4.4.4:  Value added per employee, in EUR 1000, 

Services 

Source: Domadenik, Ivanc and Marinšek (forthcoming) 

Zombie  firms  saw  a  declining  trend  in  total 
factor  productivity  over  1995-2015.  During  this 
period,  their  TFP  decreased  by  30 %,  dropping 
well  below  the  TFP  of  other  firms  (Graph  4.4.6). 
Furthermore,  during  the  crisis  their  performance 
deteriorated  sharply  due  to  negative  cash  flow  as 
banks  reduced  financing  and  tightened  credit 
standards.  A  spike  in  TFP  in  2013  was  primarily 
due  to  survivorship  bias,  since  the  increased 
default  rate  of  poorly  performing  zombie  firms 
(with  lower  TFP)  increased  the  TFP  of  several 
other firms that survived in the following years. 

Source: Domadenik, Ivanc and Marinšek (forthcoming) 

The  more  export-oriented  a  firm  is,  the  higher 
its  TFP.  Firms  with  more  than  80 %  of  exported 

(49)  Total  factor  productivity  is  the  portion  of  output  not 
explained  by  the  amount  of  inputs  used  in  production.  As 
such, its level is determined by efficiency and intensity of 
utilising the inputs in the production. 

39 

0102030405060709900010203040506070809101112131415Thousand eurosLaggardsFrontier01020304050609900010203040506070809101112131415Thousand eurosLaggardsFrontier 
 
                                                           
 
4.4. Investment 

Box 4.4.2: Drivers of productivity growth at firm level 

Investment in R&D has been a consistent driver of productivity before and after the crisis. 
Dynamic panel data model for total factor productivity were estimated at firm level for the period 
before the crisis (1994-2008) and after (2009-2015). The result shows that firms with higher R&D 
spending outperformed  other  firms  before and  after  the  crisis.  Interestingly,  firm’s  size  does not 
have an impact on productivity once other characteristics of firms are taken into account. 

The relevance of other firm's characteristics for productivity growth depends on the period. 
Before  the  crisis,  foreign-owned  firms  performed  better  than  their  counterparts  while  firms  that 
were  privatised  in  the  nineties  seem  to  have  performed  worse  than  new  firms,  ceteris  paribus. 
Receiving subsidies or being state-owned did not appear to have significant impact on firm's total 
factor productivity. After the crisis, firms that were able to invest more than the industry average 
were  more  productive  while  state-owned  enterprises  and  those  receiving  subsidies  were  instead 
less  productive  than  their  peers  from  the  same  industry  and  region.  The  latter  results  probably 
reflect the difficulties that state-owned enterprises faced during the crisis and that subsidies were 
granted  primarily  to  firms  in  difficulties  (full  details  in  Domadenik,  Ivanc  and  Marinšek, 
forthcoming).  

Graph 4.4.5:  Annual TFP for small, medium and large firms 

sector, and are underperforming in particular in the 
hotel, energy and transportation sectors. 

Graph 4.4.6:  Annual TFP for zombie v.non-zombie firms 

Source: Domadenik, Ivanc and Marinšek (forthcoming) 

Small  SOEs  were  the  most  successful 
in 
increasing  their  TFP  compared  to  all  other 
small  firms,  but  medium-sized  and  large  SOEs 
are  losing  their  competitive  edge.  Specifically, 
small  SOEs  had  a  TFP  3.4 %  below  that  of  all 
other small firms (21 years average), but their TFP 
increased  by  46 %  over  1994-2015  compared  to 
24 %  in  other  small  firms.  The  TFP  of  medium-
sized  SOEs  was  2.5 %  above  that  of  other 
medium-sized  firms  (21  years  average)  but  their 
TFP  increased  by  40 %,  underperforming  other 
medium-sized  firms  (49 %).  Large  SOEs  had  a 
TFP 17 % above that of other large firms, but their 
TFP  increased  by  only  36%  compared  to  a  62 % 
increase  among  other  large  firms.  Among  large 
firms,  SOEs  are  overachieving  only  in  the  ICT 

Source: Domadenik, Ivanc and Marinšek (forthcoming) 

The framework for productivity 

A  closer  analysis  to  some  relevant  policy  areas 
highlights different productivity challenges and 
strengths  of  the  Slovenian  economy.  Compiling 
indicators from Section 4.4.2 and 4.4.3, as well as 
from  Section  4.2.2  it  is  possible  to  explore  the 
factors  that  may  affect  productivity  growth  in 
Slovenia. In education, Slovenian students perform 
well  in  the  OECD's  PISA  Science  Score  and  the 
proportion  of  early  school  leavers  is  among  the 
lowest  of  the  EU.  By  contrast,  expenditure  on 
tertiary education is below the EU average and so 
are the literacy skills in adults. Whereas the cost to 
start a business in Slovenia is particularly low and 

40 

7891011121314151694959697989900010203040506070809101112131415Total Factor ProductivitySmallMedium sizedLarge788991010111194959697989900010203040506070809101112131415Total Factor PorductivityZombieNon-zombie 
 
 
 
 
4.4. Investment 

Graph 4.4.9:  Innovation and R&D 

the  enterprises'  broadband  connectivity  is  among 
the  leaders  of  the  EU,  the  Product  Market 
Regulation  (PMR)  and  the  number  of  venture 
capital  investments  as  %  of  GDP  lag  well  behind 
the  EU  average,  therefore  hindering  the  business 
environment  in  terms  of  access  to  market  and 
finance.  R&D  intensity  in  private  sector  is  high 
and  large  firms  are  among  the  leaders  in  terms  of 
innovations undertaken in the EU. 

Graph 4.4.7:  Education and literacy skills 

Methodology: Scale 0-10. For every indicator, Slovenia's 
distance to frontier was calculated as (worst - 
Slovenia)/(worst – frontier). Value equal 10 (zero) means that 
Slovenia is the best (worst) performer. 
Source: European Commission based on:  
Literacy Skills of Adults: OECD (2012, 2015) ; Spending on 
Tertiary Education: OECD (2017); PISA Science Score: OECD 
(2017); Early School Leaving: Eurostat (2017). 

Graph 4.4.8:  Business environment 

Methodology: See Graph 4.4.7 above.  
Source: European Commission based on: Product Market 
Regulation: OECD (2017); Venture capital investments: 
OECD (2016); Cost Needed to Start a Business: European 
Commission (2016); Connectivity: OECD (2017). 

Methodology: See Graph 4.4.7 above 
Source: European Commission based on:  
Public R&D Intensity: European Commission (2016).;  
Cited Publications vs R&D Intensity: European Commission 
(2016).  
Business R&D Intensity: European Commission (2016).  
Share of Large Firms Undertaking Innovations: OECD (2015). 

4.4.2.  RESEARCH AND DEVELOPMENT 

Graph 4.4.10: Business and public R&D intensities in Slovenia 

(% of GDP), 2007 – 2015 

Source: Eurostat 

The share of R&D to GDP in Slovenia is in line 
with  the  EU  average  but  has  declined  since 
2013.  Investment  in  R&D  as  a  share  of  GDP 
(R&D intensity) amounted to 2 % of GDP in 2016, 
down  from  2.6 %  in  2013.  The  decrease  in 
business  R&D  intensity  (-0.5  pps,  over  the  same 
period)  accounts  for  most  of  the  total  reduction. 
However,  business  R&D  intensity  remains  well 
above  the  EU  average  and  Slovenia  leads  in  the 
EU  in  terms  of  the  share  of  its  large  firms 
undertaking  innovations.  Slovenia  is  likely  not  to 

41 

0246810Literacy skills of adultsSpending on tertiaryeducationPISA Science ScoreEarly school leaving0246810Product MarketRegulationVenture capitalinvestments as % ofGDPCost needed to starta businessEnterprises'broadbandconnectivity0246810Public R&D intensityCited publications vsR&D intensityBusiness R&DintensityShare of large firmsundertakinginnovations0,00,51,01,52,02,53,007080910111213141516Public R&D IntensityBusiness R&D IntensityR&D Intensity 
 
 
 
 
 
 
4.4. Investment 

meet  its  national  R&D  target  of  3 %  of  GDP  in 
2020 unless its policies change. 

frequently 

Slovenia's  R&D  system  shows  weaknesses  with 
regard to coordination, internationalisation and 
connection  with  the  market.  Public  governance 
of  the  national  innovation  system  is  fragmented 
of 
and 
ministries,  agencies  and  with  stakeholders  is 
proving difficult. The implementation of the 2011 
Research  and  Innovation  Strategy 
lagging 
behind  (Bučar,  Jaklič  and  Gonzalez  Verdesoto, 
2017).  

changed.  Coordination 

is 

of 

funding 

Difficulties  for  public  research  institutions  to 
attract  domestic  and  foreign  talent  and  lack  of 
research 
performance-based 
institutions,  limit  the  performance  of  public 
research and innovation. The domestic market is 
small,  therefore  the  demand  for  the  specialised 
services  of  public  research  institutions  is  low  and 
science-business cooperation remains sporadic and 
small  scale.  The  number  of  foreign  researchers 
working  in  Slovenia’s  public  research  system 
remains low and financial support is not available 
for  top  researchers  to  get  their  work  patented  or 
presented  abroad.  This  limited  openness  of  the 
Slovenian  research  system  is  also  a  challenge 
given that in more open research systems scientists 
have a greater impact (Jonkers and Wagner, 2017). 
Overall,  Slovenia  underperforms  in  terms  of  cited 
publications given the R&D intensity levels, which 
may reveal a problem of efficiency. 

and 

A  EUR 10 million  programme  ‘Support  for 
Strategic  Development 
Innovation 
Partnerships  (SRIP)’  has  been  developed  to 
overcome these problems. This represents a new 
governance model of public R&D activities in the 
country. The governance of smart specialisation is 
entrusted 
to  around  500  non-governmental 
stakeholders,  thereby  effectively  empowering  and 
strengthening 
ecosystem  of 
Slovenia. 

innovation 

the 

Several  measures  are  in  place  to  support  R&D 
investment  in  the  business  sector.  Corporate 
R&D investments are stimulated by tax incentives 
and direct grants. Companies are able to deduct all 
costs  related  to  their  internal  R&D  activities  and 
purchased  R&D  services  from 
taxable 
income.  In  addition,  Slovenia  is  implementing  its 
smart  specialisation  strategy  (S4),  which  aims  to 

their 

to 

and 

access 

finance 

improve 
reduce 
administrative burden. It will support 8 500 SMEs. 
Furthermore, Slovenia’s public agency SPIRIT has 
promote  R&D, 
announced  measures 
internationalisation  and  entrepreneurship,  aiming 
to  complement  its  previous  measures  to  back 
institutional 
for 
entrepreneurship.  

capacity 

building 

to 

4.4.3.  BUSINESS ENVIRONMENT* 

There was a significant increase in the share of 
opportunity-driven  entrepreneurship  in  2016. 
The share of established entrepreneurs (those who 
have  been  in  business  for  more  than  42  months) 
also  increased  after  having  declined  over  the  last 
years,  suggesting  a  favourable  shift  in  business 
development and support for new micro and small 
enterprises.  The  rates  of  early-stage  and  total 
entrepreneurial  activity  also  surpassed  the  EU 
average  (GEM,  2017;  IMAD,  2017a;  Rebernik  et 
al.,  2016).  A  still  small  but  vibrant  start-up 
community 
the 
is  being  established 
‘Start:up Slovenia’ initiative, an open platform that 
organises  start-up  weekends,  national  campaigns 
and  international  start-up  and  entrepreneurship 
events.  However,  certain  weaknesses  remain  with 
regards  the  conditions  for  high-growth  companies 
(scale-ups),  for  transfers  of  businesses,  and  the 
development  of  alternative  source  of  financing, 
such as venture capital (see Section 4.2.2). 

through 

Administrative  burden  remains  an  obstacle  to 
growth  and  investment  in  Slovenia.  Red  tape  is 
considered  to  be  one  of  the  most  problematic 
factors in terms of doing business in Slovenia. The 
OECD Product market regulation index shows that 
Slovenia's  regulation  is  more  restrictive  than 
OECD  average  and  in  peer  countries  such  as 
Hungary,  Slovakia,  Czech  Republic  and  Poland. 
Also,  the  country  ranks  only  118th  out  of  137 
countries  in  the  burden  of  government  regulation 
(World  Economic  Forum,  2017) (50).  The  World 
Bank’s  doing  business  report  2018  found  that 
tax 
administrative  process  with 
compliance  in  Slovenia  takes  considerably  longer 
than the EU average. There is also high uncertainty 

respect 

to 

(50)  The  Global  Competitiveness 

report  of  2012-2013 
previously  ranked  Slovenia  as  124th  of  the  144  countries 
assessed; significant improvements on this still seem yet to 
be made. 

42 

 
                                                           
4.4. Investment 

OECD,  regulatory  reforms  already  implemented 
could  increase  the  level  of  GDP  by  1.3 %  over  a 
10-year period. Aligning the regulatory stance with 
that  of  the  top  five  performers  could  increase 
future gains threefold. 

Graph 4.4.11: Impact on labour productivity in 

manufacturing of tackling restrictions in the 
service sector (measured by using the Service 
Trade Restrictiveness Index (SRRI) 

reduce 

regarding  the  length  of  tax  procedures  (PWC  and 
World Bank, 2018), particularly with respect to tax 
appeals  and  potential  tax  audits.  Companies  also 
face  continued  difficulties  in  directly  transferring 
their registered offices into and out of Slovenia due 
to a lack of national rules and procedures. In order 
administrative  burden,  Slovenia 
to 
The 
‘Single  Document’. 
the 
presented 
implementation  of  this  instrument  is  progressing, 
but more than a third of measures still need to be 
implemented (51).  One 
implemented 
measure 
assessments 
is 
test).  These  are  now 
(including  an  SME 
compulsory  for  legislative  initiatives  (laws)  under 
regular  parliamentary  procedure,  but  sometimes 
failed  to  appropriately  quantify  overall  economic 
impacts. 

important 
impact 

regulatory 

Table 4.4.1:  Construction is expensive 

Source: Doing Business 2017, World Bank 

Source: Curnis and Manjón Antolín, 2017 

the  same 

time  decrease 

Progress  has  been  made  in  the  areas  of  spatial 
planning  and  construction.  These  areas  have 
been  previously  been  known 
for  especially 
cumbersome  procedures  and  high  costs  (Table 
4.4.1).  New  legislation  adopted  in  October 2017 
(entering into force in mid-2018) aims to simplify 
and  accelerate  the  acquisition  of  building  permits 
legal  and 
and  at 
environmental  risks  and  administrative  burden  for 
SMEs.  It  also  envisages  regional  spatial  plans 
which  will  improve  the  coordination  between  the 
municipalities  and  improve  the  use  of  resources. 
Overall,  the  adopted  laws  are  expected  to  fasten 
the  construction  application  procedure  and 
strengthen  the  legal  certainty  of  investors,  thus 
providing more incentives to invest. Moreover, the 
is 
European  Regional  Development  Fund 
the  development  of  an  e-Spatial 
supporting 
planning 
simplify 
platform  which  will 
administrative procedures. 

Reducing  regulatory  burdens  could  yield 
considerable economic benefits. According to the 

(51)  According 

to 

the 

latest,  9th  report, 

implemented  priority  measures 
representing three new implemented measures. 

the  share  of 
increased  by  11.5 %, 

low 

relatively 

dynamism 

tourist  guides 

Reforms to tackle restrictive barriers in certain 
regulated  professions  are  ongoing.  Slovenia  has 
a  higher  level  of  restrictiveness  compared  to  the 
EU  weighted  average  for  the  professions  under 
review:  lawyers,  architects,  civil  engineers,  real 
estate  agents  and 
(European 
Commission,  2017g).  The  business-churn  rate  for 
accounting,  legal,  architectural  and  real  estate 
activities is lower in Slovenia than the EU average, 
indicating 
and 
competition  within  regulated  professions  in  these 
sectors. Reforms that aim at tackling restrictions in 
access  to  and  the  exercise  of  the  professions 
concerned  are  currently  ongoing  in  Slovenia.  In 
October  2017,  the  Act  on  architectural  and  civil 
engineering activities was adopted and will reduce 
the number of regulated professions in these areas. 
High  levels  of  regulatory  restrictions  in  services 
hinder 
potential 
productivity growth of downstream manufacturing 
firms (Van der Marel et al., 2016) (Graph 4.4.11). 
This  is  reflected  in  the  overall  Product  Market 
Regulation  that  includes,  among  others,  the  state-
ownership indicator. 

competitiveness 

and 

the 

Businesses  appear  to  be  avid  users  of  digital 
technologies but broadband access remains low. 

43 

IndicatorSloveniaOECD high incomeOverall best performerProcedures (number)14,012,57.0 (Denmark)Time (days)239,5154,627.5 (Korea Rep.)Cost (% of warehouse value)2,91,60.1 (5 economies)Building quality control index (0-15)12,011,415.0 (3 economies)0246810121416Manufacture offood products;beverages andtobacco productsManufacture oftextiles, wearingapparel, leatherand relatedproductsManufacture ofchemicals andchemicalproductsManufacture ofbasic metalsManufacture ofwood and ofproducts of woodand cork, exceptfurniture;manufacture ofarticles of strawand plaitingmaterialsManufacture ofrubber andplastic productsManufacture ofelectricalequipmentincrease in wage-adjusted labour productivity in %No STRI restrictions with no changes in  control of corruptionNo STRI restrictions lifting level of control of corruption to best in class 
 
 
 
                                                           
 
4.4. Investment 

lacks certain safeguards: for instance, its members 
for  appointment  by  an 
are  not  proposed 
independent  body  and  such  a  body 
is  not 
conducting  disciplinary  proceedings.  The  number 
of  suppliers  who  state 
that  corruption  has 
prevented  their  companies  from  winning  a  tender 
appears to be increasing (44 %, EU average 31 %). 
Tailor-made  specifications  and  collusive  bidding 
are  perceived  to  be  the  most  widespread  corrupt 
practices  in  public  procurement  in  Slovenia (53). 
These types of problems are also highlighted in the 
2017 Report of the Commission for Prevention of 
corruption,  where  the  major  identified  issues 
include conflict of interest in the evaluation of bids 
and  collusive  bidding (54).  On  the  positive  side, 
Slovenia  is  likely  to  provide  support  for  e-
procurement in 2018 by implementing an upgraded 
electronic 
Procurement 
Document.  

European 

Single 

4.4.4.  ENERGY UNION AND TRANSPORT 

POLICIES 

Slovenia  performs  comparatively  well  with 
regard to energy and climate. The energy sector 
in  Slovenia  has  a  higher  macroeconomic 
importance  than  the  EU  average  and  employs 
about  1%  of  the  workforce.  Electricity  and  gas 
market  concentration  is  above  EU  average.  In 
general,  the  country  is  on  track  to  reach  its  2020 
targets with a renewables share of 21.3 % in 2016, 
and  a  greenhouse  gas  emission  reduction  of  7 % 
below  2005  levels  in  2016  for  the  non-ETS 
sectors.  In  terms  of  energy  efficiency,  although 
continued  efforts  are  needed,  primary  as  well  as 
final  energy  consumption  are  already  below  the 
indicative  national  2020  targets.  While  energy 
intensity  in  industry  decreased  by  an  average  of 
3.3 % between 2005 and 2015, it is still more than 
a third above the EU average.  

Slovenia’s  economy  is  more  carbon  intensive 
than  the  EU  average.  The  carbon  intensity 
reduction  rate  since  1990  has  been  below  the  EU 
average.  Regarding  competitiveness,  real  unit 
energy  costs  —  an  indicator  for  measuring  the 
amount of money spent on energy sources needed 

(53)  Flash  Eurobarometer  457  Businesses’  attitudes  towards 

corruption in the EU (December 2017). 

(54)  https://www.kpk-rs.si/sl/komisija/letna-porocila. 

Slovenia  ranks  above  the  EU  average  in  the  2017 
Digital Economy and Society Index. Digital skills 
levels  have  improved  and  Slovenians  engage  in  a 
variety of online activities. However, connectivity 
remains below the EU average, driven by the low 
take-up  of  fast  and  mobile  broadband,  possibly 
caused  by  network  services  dominated  by  the 
incumbents. The delivery of online public services 
is  progressing  thanks  to  efforts  in  open  data 
(European  Commission,  2017h).  The  Slovenian 
government  plans  to  increase  both  private  and 
public  investment  into  broadband  infrastructure, 
especially  in  rural  areas.  The  Ministry  for  Public 
Administration  and  the  Ministry  of  Agriculture, 
Forestry and Food plan to launch,, in the first half 
of  2018,  two  tenders  for  investing  in  broadband 
construction  in  »white  areas«  without  broadband 
access. All remaining households will be tested for 
market  interest  in  the  second  half  of  the  year. 
Further, Slovenia has created a Digital Coalition to 
support the development and implementation of its 
Digital  Slovenia  2020  Strategy (52).  The  Digital 
Coalition  comprises  stakeholders  from  trade  and 
industry, science, education, public administration, 
public sector, local government and civil society.  

innovation 

impact  on 

professionalization 

Competition, 
and 
independent  oversight  remain  issues  in  public 
procurement markets in Slovenia. Slovenia has a 
high  share  of  single  bids  received  in  tenders  as 
well as a high percentage of negotiated procedures 
without  a  prior  call.  These  indicators  measure  the 
level  of  competition  in  public  procurement.  The 
lack  of  such  competition  decreases  the  overall 
quality  of  bids  and  products  delivered,  has  an 
adverse 
in  public 
procurement and leads to lock-in in certain sectors, 
especially  in  IT-procurement.  In  spite  of  efforts 
(setting  up  a  helpdesk,  offering  monthly  trainings 
by  the  Official  Gazette),  the  Slovenian  Court  of 
Auditors has identified many problems in the field 
of public procurement stemming from insufficient 
professionalisation  (poor  planning,  unjustified  use 
of  less  competitive  procedures  or  of  exemptions, 
access 
before 
publication  of  the  tender).  Corruption  risks  in 
public  procurement  persist  and  the  application  of 
public  procurement  law  in  Slovenia  is  marked  by 
legal uncertainty. In addition, the independence of 
the review body – National Review Commission - 

specifications 

technical 

to 

(52)  http://digitalna.si/en/ 

44 

 
                                                           
                                                           
4.4. Investment 

agreements  (calls  2014-2016)  and  1  blending  call 
in 2017, allocating altogether EUR 318 million to 
Slovenian  beneficiaries.  The  rail  actions  are  also 
the  ones  which  had  received  the  highest  share  of 
funding  from  the  Connecting  Europe  Facility  by 
the end of 2016 (84.9 % of actual funding).  

4.4.5.  JUSTICE SYSTEM AND PUBLIC INTEGRITY 

The  justice  system  further  reduced  backlogs 
and the average length of proceedings. The 2018 
EU  Justice  Scoreboard  (European  Commission, 
2018b)  shows  improved  efficiency  in  most  areas. 
In  2017,  the  total  backlog  decreased  by  13 % 
compared to 2016. The courts continued to resolve 
more  cases  than  they  received  (clearance  rate  of 
103 %),  despite  resolving  fewer  cases  than  in  the 
past  (about  74 000  per  month  compared  to  nearly 
100 000 per month in 2012). The average length of 
proceeding  increased  to  16.6  months  in  labour 
cases  but  further  decreased  to  around  11  months 
before  first  instance  district  courts  in  civil  and 
commercial cases. Despite an improvement, it still 
in 
takes  12  months  until 
commercial  litigious  cases.  Compared  to  2016, 
even  more  cases  are  being  resolved  through  court 
settlements  between  parties,  reaching  19 %  in 
commercial cases and around 21 % in civil cases 

the  first  hearing 

increased  by  13 %.  While 

A well-functioning insolvency and restructuring 
framework is essential for an effective reduction 
of  non-performing  loans.  In  2017,  the  influx  of 
personal  insolvency  and  all  type  of  restructuring 
cases decreased by 32 % and by 46 % compared to 
2016, respectively, but liquidation cases (corporate 
bankruptcies) 
the 
duration of all preliminary insolvency proceedings 
increased  (measuring  from  the  receipt  of  an 
application  until  the  first  decision  of  the  court  in 
the procedure), the duration of proceedings until a 
decision of the court on merits of insolvency cases 
mostly  decreased  (to  350  days  in  liquidations 
without distribution of assets, and around 200 days 
in  restructuring  proceedings).  However,  it  still 
takes  1 449  days  on  average  to  terminate  a 
liquidation  with  distribution  of  assets.  Recovery 
rates  mostly  remained  stable  (around  12 %  in 
liquidation, 13 % in personal insolvency and 36 % 
in  simplified  compulsory  settlement)  but  further 
decreased in compulsory settlement (to 19 %). 

to  obtain  one  unit  of  value  added  —  have 
decreased  in  Slovenia  since  2005  contrary  to  the 
EU  average.  Electricity  prices  for 
industrial 
consumers  in  Slovenia  are  lower  than  the  EU 
average,  while  gas  prices  for  households  and 
SMEs  remain  higher  than  in  most  neighbouring 
countries  and  are  higher  than  the  EU  average  for 
industrial consumers.  

the  energy 

The European Regional Development Fund and 
the  Cohesion  Fund  are  helping  to  improve  the 
performance  of 
sector.  Over 
EUR 300  million  will  be  provided  during  the 
current  programming  period  to  promote  the  shift 
towards  a  low-carbon  economy  in  all  sectors, 
including energy efficiency in public building and 
smart 
and 
sources 
households, 
distribution  systems.  To  achieve 
the  climate 
change  objectives,  European  Structural  and 
Investment  (ESI)  funds  will  contribute  around 
EUR 1  billion,  which  constitutes  a  third  of  the 
overall  ESI  funds  allocated  to  Slovenia.  To  fulfil 
the conditions attached, Slovenia has established a 
strategic framework for climate change adaptation. 

renewable 

As  part  of  the  transport  policy  measures  to 
support the transition to sustainable mobility, a 
free  flow  tolling  system  for  heavy  duty  vehicles 
was  introduced.  This  was  also  the  first  major 
infrastructure  project  from  Slovenia  to  benefit 
from  the  European  Fund  for  Strategic  Investment 
(EFSI), with an EUR 51 million loan for a project 
totalling  EUR 105  million.  The  new  system  will 
allow  a  more  refined  application  of  user  and 
polluter-pay  principles.  The  system  still  needs  to 
be made interoperable with other electronic tolling 
systems in the EU, in line with the requirements of 
the European Electronic Toll Service. 

of 

terms 

investments 

transport 
In 
in 
infrastructure,  the  main  focus 
is  on  the 
development  of  railway  infrastructure  with 
priority  projects  in  the  TEN-T  network,  including 
the  construction  of  the  second  track  on  the 
Divača-Koper railway  line. These  investments  are 
supported  by  the  Connecting  Europe  Facility  — 
Transport  programme,  where  the  current  action 
comprises  32  grant 
portfolio 

currently (55) 

(55)  The  latest  figures  for  2017  are  not  yet  available.  The 
include  ongoing  projects  as  well  as  grant 
amounts 
agreements  under  preparation  for  the  calls  published  in 
2014, 2015 and 2016. 

45 

 
                                                           
4.4. Investment 

services 

in  Slovenia 

drop in the EU in the percentage of businesses that 
believe  corruption  is  widespread  (22 %  compared 
to  2015).  Despite  a  significant  decrease  in  the 
percentage  of  businesses  that  believe  that  bribery 
and  connections  are  the  easiest  ways  to  obtain 
certain  public 
(70 % 
compared  to  84 %  in  2015),  87 %  of  business 
respondents  still  consider  that  corruption  and 
favouritism  hamper  business  competition 
in 
Slovenia  (EU  average  74 %).  In  their  assessment 
of  how  much  the  different  institutions  are  trusted 
to  deal  with  corruption,  Slovenian  respondents  to 
the  Eurobarometer  expressed  greater  trust  in  all 
institutions  compared  to  2013,  with  the  notable 
exception  of 
the  healthcare  system.  Recent 
disclosures  of  corruption  allegations  in  the  public 
procurement  procedures  of  stents  by  public 
hospitals led the Slovenian parliament to establish 
an inquiry commission. 

the 

staffing  of 

funding  and 

Anti-corruption  reforms  are  still  pending. 
Economic crime and corruption is estimated by the 
authorities  to  have  caused  significant  financial 
damage  (EUR 2 285.2  million  or  81.7 %  of  all 
recorded criminal pecuniary damage for the period 
2009-2014).  In  2017,  both  GRECO  (2017)  and 
Moneyval  (2017)  recommended  that  Slovenia 
increase 
the 
Commission  for  the  Prevention  of  Corruption  in 
the areas of reporting personal assets, lobbying and 
conflict  of  interest.  The  Moneyval  (2017)  report 
also  notes  the  risks  related  to  the  country’s 
geographical  position  and  its  exposure  to  the  risk 
of 
foreign  bribery,  given  Slovenia’s  strong 
economic  links  to  countries  with  high  corruption 
risks.  The  planned  amendments  in  the  legal 
framework for the work of the Commission for the 
Prevention  of  Corruption  have  still  not  been 
adopted.  In  the  recent  years,  the  Government  of 
the Republic of Slovenia has adopted two integrity 
action  plans  (the  Integrity  Programme  2015-2016 
and  the  recent  Programme  of  the  Government  of 
Slovenia for enhancing Integrity and Transparency 
2017-2019. The legal amendments to the Integrity 
and Prevention of Corruption Act were prepared in 
2017 and confirmed by the Government in January 
2018. The proposal was sent by the Government to 
approval.
the  National  Assembly 

the 

for 

Criminal justice has some efficiency challenges. 
More  than  half  of  criminal  courts  resolved  fewer 
cases  than  they  received  (overall  clearance  rate 
remained  at  99 %).  This  is  apparently  due  to  the 
complexity  of  cases  that  remained  after  the  less 
complex  ones  were  resolved  through  the  now-
implemented case management reform. The length 
of  proceedings  in  first  instance  criminal  cases 
increased  in  district  courts  to  14.1  months,  and 
decreased  slightly  in  local  courts  (to  8.9  months). 
The  Prosecution  Service  has 
recently  been 
reinforced  with  new  prosecutors  and  its  ICT 
system  is  being  upgraded  so  it  can  be  used  as  a 
management  tool.  However,  concerns  about  the 
quality  of  expertise  of  prosecutors  in  certain 
complex  areas  with  an  international  character, 
particularly  relating  to  economic  and  financial 
crime,  are  being  addressed  through  a  focused 
internal  analysis  and  additional  specialist  training 
(Moneyval,  2017).  Decisions  of 
the  State 
Prosecutorial  Council  on  the  responsibility  and 
status  of  a  high-ranking  prosecutor  have  faced 
criticism, as they could be seen to limit the liability 
of  prosecutors 
their 
management function. 

the  performance  of 

in 

Additional  projects  are  being  implemented  to 
further  improve  the  quality  of  justice,  but  the 
judicial  map  reform  is  facing  delays.  Several 
projects,  including  on  publishing  all  first  instance 
judgments  and  on  informing  parties  about  the 
progress  of  their  case,  are  being  implemented. 
However,  the  judicial  map  reform,  currently  in 
consultation  with  the  courts,  is  facing  delays  and 
risks  remaining  unfinished  during  Parliament’s 
current term. Timeframes will be further enhanced 
by 
length  of 
different  types  of  cases,  based  on  procedural 
phases. 

judges  calculating 

the  optimal 

The  draft  law  on  public  agencies  continues  to 
raise  concerns  regarding  the  independence  of 
regulatory  agencies.  This  concerns  in  particular 
the  independence  of  the  insurance  and  capital 
markets  supervisory  agencies  and  of  the  energy 
agency (Slovenian energy regulatory authority). 

Perceptions  of  corruption  are  improving,  but 
problematic areas still remain. The 2017 General 
Eurobarometer  on  corruption  shows  increased 
public  intolerance  of  corruption,  higher  than  the 
EU average (77 % in 2017, v 70 % on average for 
the  EU).  Slovenia  has  also  registered  the  largest 

46 

 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (56): Some progress 

2017 country-specific recommendations (CSRs) 

Slovenia  has  made  limited  progress  in  addressing  CSR  1 
(this  overall  assessment  of  CSR  1  does  not  include  an 
assessment  of  compliance  with  the  Stability  and  Growth 
Pact): 

in  2018 

line  with 

CSR  1:  Pursue  a  substantial  fiscal 
effort 
the 
in 
requirements  of  the  preventive  arm  of 
the  Stability  and  Growth  Pact,  taking 
into account the need to strengthen the 
ongoing  recovery  and  to  ensure  the 
sustainability  of  Slovenia’s  public 
finances.  Adopt  and  implement  the 
proposed  reform  of  the  healthcare 
system and adopt the planned reform of 
long-term 
cost-
effectiveness,  accessibility  and  quality 
the  potential  of 
care.  Fully 
centralised  procurement  in  the  health 
sector.  Adopt  the  necessary  measures 
to  ensure  the  long-term  sustainability 
and adequacy of the pension system. 

increasing 

care, 

tap 

  Pursue  a  substantial  fiscal  effort  in 
2018  in  line  with  the  requirements 
the 
the  preventive  arm  of 
of 
Stability  and  Growth  Pact,  taking 
into  account  the  need  to  strengthen 

  The  assessment  of  compliance  with  the  Stability  and 

Growth Pact will be made in Spring.  

(56)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 

no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission,  
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

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

legislative work is needed before the CSR is implemented;  

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures have been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision, but 
no implementing decisions are in place. 

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

have been implemented. 

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

47 

 
 
 
                                                           
 
 
 
 
 
A. Overview Table 

  Limited  progress.  Key  legislation  like  the  draft  Health 
Care and Health Insurance act has not been adopted yet. 
Other health reform milestones have been reached. These 
include  amendments  to  the  Health  Services  Act,  the 
Medical Practitioners Act, the Patient Rights Act, an Act 
on intervention measures to ensure the financial stability 
of public health care institutions. 

  Limited  progress.  A  draft  law  on  long  term  care  has 
been  published  in  October  2017,  and  it  is  under  the 
public  consultation.  The  final  draft  has  yet  not  been 
submitted to the National Assembly. 

  Some  progress.  In  2017,  centralised  procurement  was 
organised  for  nine  different  items.  The  total  amounts 
were  however  low  compared  to  other  countries  and  the 
number of officials in charge of centralised procurement 
remains limited for such demanding activity. A database 
of recent procurement result has been created. Hospitals 
are required to use the lowest price in this database as the 
maximum price for any new supply contract for the same 
item.  

  Limited progress. The document called 'Starting points 
for  the  modernisation  of  the  Pension  and  Disability 
Insurance  System  in  the  Republic  of  Slovenia'  was 
prepared and unanimously adopted by the Economic and 
Social Council in July 2017. It outlines various measures 
to  improve  the  adequacy  and  sustainability  of  the 
pension system. However, it is still unclear how and by 
when  the  proposed  measures  would  be  implemented. 
Effective since October 2017, the Pension and Disability 
Insurance  Act,  increases  the  minimum  old-age  and 
disability  pension  for  those  fulfilling  full  retirement 
conditions. 

Slovenia has made some progress in addressing CSR 2: 

the ongoing recovery and to ensure 
the  sustainability  of  Slovenia’s 
public finances. 

  Adopt  and implement  the  proposed 
reform of the healthcare system  

  and  adopt  the  planned  reform  of 
increasing  cost-
and 

accessibility 

long-term  care, 
effectiveness, 
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. 

CSR 2: Intensify efforts to increase the 
employability  of  low-skilled  and  older 
workers,  particularly  through  targeted 
lifelong 
activation 
measures. 

learning 

and 

  Intensify  efforts  to  increase  the 
employability  of  low-skilled  and 

  Some  progress.  In  2017  two  measures  (a  subsidy 
scheme  and  support  activities  to  help  companies  for 

48 

 
 
 
 
 
 
A. Overview Table 

active  ageing  of  the  workforce)  aimed  at  older  workers 
and  an  in-work  incentive  scheme  for  the  low-skilled 
were introduced. In December 2017 the Intervention Act 
was  adopted  by  the  parliament.  The  Act  extends 
measures  of  promoting  employment  of  persons  aged 
over 55 years where an employer hiring older worker is 
exempted 
social  security 
the  payment  of 
contributions  for  up  to  24  months.  The  measure  is  in 
place  from  1.1.2016  and  will  now  be  extended  until 
31.12.2019.  Improvements  on  life-long  learning  should 
be made as improving skills through adult learning could 
increase employment of vulnerable groups. 

from 

Slovenia has made some progress in addressing CSR 3: 

older  workers,  particularly  through 
targeted 
and 
activation measures. 

learning 

lifelong 

the 

Improve 

financing.  Ensure 

CSR  3: 
financing 
conditions,  including  by  facilitating  a 
durable  resolution  of  non-performing 
loans and access to alternative sources 
of 
full 
the 
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. 

  Improve  the  financing  conditions, 
including  by  facilitating  a  durable 
resolution of non-performing loans  

  and access to alternative sources of 

financing 

  Substantial  progress.  Non-performing  loans  (NPLs) 
have  continued  their  downward  trend,  reflecting  the 
improving  asset  quality  in  the  Slovenian  financial 
system.  Declining  NPLs  are  reported  both  by  Bank  of 
Slovenia  and  the  ECB.  Banks  are  following  their  NPLs 
target  plans  which  are  monitored  by  the  Bank  of 
Slovenia and the Single Supervisory Mechanism (SSM). 
Backed  by  the  technical  assistance  of  the  European 
Commission  and  in  cooperation  with  the  World  Bank, 
the  Bank  of  Slovenia  issued  in  March  2017  the 
Handbook  for  Effective  Management  and  Workout  of 
SME NPLs. The handbook includes a complete toolkit to 
prevent, identify and manage NPLs in this segment. 

  Some  progress.  Financial  support  has  been  directed  to 
SMEs  through  the  Slovene  Enterprise  Fund  (SEF) 
financial instruments (both debt- and also equity-type of 
instruments)  as  well  as  the  national  development  bank 
SID  Bank.  In  autumn  2017  the  SEF  invested  8  million 
euros into a new cross-border equity initiative called the 
Central  Europe  Fund  of  Funds  (CEFoF),  aimed  at 
boosting  equity  investments  in  the  region’s  SMEs  and 
small  mid-caps.  In  mid-November  2017  EIF  and  the 
national  promotional  bank  SID  Bank  launched  the  first 
Slovenian  capital  growth  investment  programme.  EUR 
100 million, backed by the European Fund for Strategic 

49 

 
A. Overview Table 

  Ensure  the  full  implementation  of 
asset  management 

the 
bank 
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. 

Investments (EFSI) guarantee, will be made available for 
innovative and fast-growing SMEs 

  Substantial  progress.  The  Bank  Asset  Management 
Company  is  progressing  to  fulfil  its  mandate.  The 
business  strategy  adopted  in  December  2016  aims  to 
ensure the highest possible return to the state and to fully 
redeem bonds backed by state guarantees by 2022. From 
its  inception  in  2013  until June 2017,  BAMC  generated 
cumulative  cash-flows  of  nearly  EUR  1.1  billion, 
representing  nearly  60 %  of  the  aggregate  fair  value  of 
the  loans  transferred.  BAMC  is  expected  to  return  to 
profitability  in  2017,  mainly  due  to  lower  financing 
costs.  Going  forward,  a  key  risk  is  maintaining  the 
momentum  of  cash-flow  generation  from  sales,  as  the 
remaining  assets  in  BAMC's  portfolio  may  be  more 
difficult to sell. 

  Some  progress.  A  new  legislation,  adopted  in  October 
2017,  aims  to  simplify  and  accelerate  the  acquisition  of 
building permits and at the same time, to decrease legal 
and  environmental  risks  and  administrative  burden  for 
SMEs. It also envisages regional spatial plans which will 
improve the coordination between the municipalities and 
improve the use of resources.  

  Some progress. The new comprehensive framework for 
the  management  of  state-owned  enterprises  was 
implemented  for  the  first  time  in  2016.  Performance  of 
SOEs in 2016 reached the targets set in the management 
acts, since an almost 6 % return-on-equity was achieved 
on  an  aggregated  basis.  Dividend  pay-outs  in  2017  for 
companies  managed  by  the  SSH,  acting  either  as  an 
owner  or  on  behalf  of  the  State,  have  been  higher  by 
38 % compared with 2016, and hit a record high almost 
doubling  the  dividends  received  in  2011,  i.e.  when 
Slovenia  had  first  applied  a  centralised  system  for  the 
management of capital assets. 

Europe 2020 (national targets and progress) 

Employment rate (%): 75 % 

Early school leaving target: 5 % 

The employment rate for 20-64 years old workers 
increased  by  1 pp.  to  70.1 %  in  2016  remaining 
slightly below the EU average (71.0 %). 

In 2016 Slovenia retained the early school leaving 
rate  under  the  national  target  by  0.1 pps.  With 
early school leaving well below the Europe 2020 
target  of  10 %,  Slovenia  is  placed  among  the 

50 

 
A. Overview Table 

leading EU Member States. 

The  tertiary  education  attainment  continuously 
improved.  After  exceeding  the  2020  target  in 
2013, in 2016 there were 44.2 % Slovenian young 
adults (30-34 years old) with a tertiary degree. 

In  2016  the  number  of  people  at  risk  of  poverty 
and  social  exclusion 
the  second 
consecutive year. 371 000 people were still at risk 
of poverty or social exclusion. 

fell 

for 

In  2016,  the  share  of  renewable  energy  was 
21.3 %, (provisional data) which is slightly above 
the  indicative  trajectory  and  therefore  puts  the 
country on track to reach the target. 

Slovenia's  energy consumption reached 6.7  Mtoe 
of  primary  energy  consumption  and  4.9  Mtoe  of 
final  energy  consumption  in  2016  (preliminary 
data). These figures are lower than the Slovenia’s 
indicative  national  2020  target,  but  it  is  still 
desirable  to  continue  the  effort  to  keep  these 
levels until 2020. 

Tertiary education target: 40 % 

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

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 

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 9 % between 2005 and 2020. The 
target  is  consequently  expected  to  be  met  with  a 
margin of 13 pps. 

Non-ETS 2015 target: +5 % vs 2005.  

Based on proxy data, the non-ETS greenhouse gas 
emissions  between  2005  and  2015  decreased  by 
9 %;  which  means  14  pps  below  the  2015  target 
set by the Effort Sharing Decision. 

R&D  intensity  in  Slovenia  is  in  declining  path 
since  2013,  reaching  its  lowest  level  (2.0 %)  in 
2016. Both the public and private expenditure has 
fallen. 

51 

 
A. Overview Table 

The declining R&D intensity shows a clear risk of 
Slovenia's not meeting its national R&D target of 
3 % of GDP in 2020. 

52 

 
ANNEX B:  MACROECONOMIC IMBALANCE PROCEDURE 

SCOREBOARD 

Table B.1: 

The MIP scoreboard for Slovenia (AMR 2018) 

(1) )  This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document.  
(2) House price index: e = NSI estimates. 
Source:  European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. ) 

53 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-0.2 0.7 2.2 4.1 4.9 5.1 Net international investment position% of GDP-35%-45.2 -50.1 -47.2 -45.8 -39.8 -36.9 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-1.1 -4.5 -0.6 1.2 0.4 -0.5 Export market share - % of world exports5 year % change-6%-5.7 -20.6 -18.0 -12.5 -4.2 4.0 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)8.3 0.6 0.5 0.0 -0.4 0.7 House price index (2015=100), deflated 1 year % change6%0.9 -8.5 -7.2 -6.5 1.4 3.6 Private sector credit flow, consolidated% of GDP14%0.4 -2.9 -4.0 -4.7 -5.0 -0.8 Private sector debt, consolidated% of GDP133%113.0 112.3 107.2 97.4 86.9 80.5 General government gross debt% of GDP60%46.6 53.8 70.4 80.3 82.6 78.5 Unemployment rate3 year average10%7.1 8.1 9.1 9.6 9.6 8.9 Total financial sector liabilities, non-consolidated1 year % change16.5%-1.2 -0.7 -10.3 -0.2 -3.7 3.2 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp-1.5 -1.4 -1.0 0.6 1.4 1.1 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp1.7 2.5 2.0 1.7 0.4 -0.9 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp5.3 7.0 6.9 4.5 -4.3 -6.4 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) 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). 

54 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)140,8127,8115,8107,199,493,3Share of assets of the five largest banks (% of total assets)58,457,155,659,261,0-Foreign ownership of banking system (% of total assets)(2)29,531,333,634,046,145,6Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)19,217,116,613,39,68,7              - capital adequacy ratio (%)11,413,717,918,619,118,7              - return on equity (%)(4)-19,4-90,2-2,53,57,85,1Bank loans to the private sector (year-on-year % change)(1)-4,1-9,5-9,1-4,22,89,1Lending for house purchase (year-on-year % change)(1)1,81,30,51,84,25,6Loan to deposit ratio(1)143,8119,095,986,278,878,9Central Bank liquidity as % of liabilities--3,32,82,33,6Private debt (% of GDP)112,3107,297,486,980,5-Gross external debt (% of GDP)(2) - public30,742,762,464,156,854,4    - private43,944,040,637,135,333,9Long-term interest rate spread versus Bund (basis points)*431,3424,2210,7120,9105,966,5Credit default swap spreads for sovereign securities (5-year)*330,1273,2138,5107,895,072,5 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat 

55 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)4.43.94.45.04.9:Gender employment gap (pps)7.28.28.08.66.67.3Income inequality, measured as quintile share ratio (S80/S20)3.43.63.73.63.6:At-risk-of-poverty or social exclusion rate1 (AROPE)19.620.420.419.218.4:Young people neither in employment nor in education and training (% of population aged 15-24)9.39.29.49.58.0:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)68.367.267.769.170.173.0Unemployment rate2 (15-74 years)8.910.19.79.08.06.8Gross disposable income of households in real terms per capita3 (Index 2008=100) ::92.994.899.0:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction446.442.742.242.342.8:Children aged less than 3 years in formal childcare38.039.037.437.439.6:Self-reported unmet need for medical care0.10.00.20.20.4:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::51.053.054.0 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores Values for 2012 and 2015 refer respectively to 
mathematics and science.. 
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD 

56 

Labour market indicators201220132014201520162017 5Activity rate (15-64)70.470.570.971.871.6:Employment in current job by durationFrom 0 to 11 months11.110.78.812.410.9:From 12 to 23 months7.17.07.17.88.3:From 24 to 59 months14.813.114.213.714.2:60 months or over67.069.268.366.266.5:Employment growth* (% change from previous year)-0.9-1.10.41.21.92.8Employment rate of women(% of female population aged 20-64)64.663.063.664.766.769.3Employment rate of men (% of male population aged 20-64)71.871.271.673.373.376.5Employment rate of older workers* (% of population aged 55-64)32.933.535.436.638.542.3Part-time employment* (% of total employment, aged 15-64)9.09.310.010.19.310.4Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)17.016.316.517.816.917.9Transition rate from temporary to permanent employment(3-year average)35.437.141.041.2::Long-term unemployment rate1 (% of labour force)4.35.25.34.74.33.3Youth unemployment rate (% active population aged 15-24)20.621.620.216.315.211.7Gender gap in part-time employment5.96.16.96.77.17.3Gender pay gap2 (in undadjusted form)4.56.37.08.1::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)13.812.512.111.911.6:Underachievement in education320.1::16.1::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)39.240.141.043.444.2:Variation in performance explained by students' socio-economic status415.6::13.5:: 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard . 
Source: Eurostat, OECD 

57 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7.97.57.27.6::Disability1.61.51.41.3::Old age and survivors11.511.911.511.3::Family/children2.11.91.81.8::Unemployment0.70.80.70.6::Housing0.00.00.00.0::Social exclusion n.e.c.0.60.60.70.7::Total24.424.323.523.4::of which: means-tested benefits1.91.81.81.8::General government expenditure by function (% of GDP, COFOG)Social protection18.518.617.817.316.7:Health7.16.86.56.76.7:Education6.46.56.05.55.6:Out-of-pocket expenditure on healthcare (% of total health expenditure)::13.0:::Children at risk of poverty or social exclusion (% of people aged 0-17)*16.417.517.716.614.9:At-risk-of-poverty  rate1 (% of total population)13.514.514.514.313.9:In-work at-risk-of-poverty rate (% of persons employed)6.57.16.46.76.1:Severe material deprivation rate2  (% of total population)6.66.76.65.85.4:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan5.64.54.73.53.3:Tenant, rent at market price30.518.918.818.912.2:Proportion of people living in low work intensity households4 (% of people aged 0-59)7.58.08.77.47.4:Poverty thresholds, expressed in national currency at constant prices*63206010592561136157:Healthy life years (at the age of 65)Females6.97.68.67.6::Males7.37.27.88.2::Aggregate replacement ratio for pensions5 (at the age of 65)0.50.50.50.50.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::47.151.855.057.6GINI coefficient before taxes and transfers*46.147.247.046.746.1:GINI coefficient after taxes and transfers*23.824.424.924.524.3: 
 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 codified 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 don't know. 
(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 here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm 
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
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 Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry9,093,69-0,360,463,51-0,563,83Labour productivity in Construction-11,682,420,88-3,079,25-2,89-1,67Labour productivity in Market Services2,883,57-1,08-0,972,322,012,41Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-4,48-0,053,350,24-1,011,500,89ULC in Construction13,51-3,07-1,852,74-6,374,985,54ULC in Market Services-0,71-1,100,08-1,66-1,06-0,610,57Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)1290.01290.01290.01270.01270.01160.01160.0Time needed to start a business(1) (days)7,57,57,57,57,57,57,0Outcome of applications by SMEs for bank loans(2)na0,60na0,381,080,410,67Research and innovation2010201120122013201420152016R&D intensity2,062,422,572,582,372,202,00General government expenditure on education as % of GDP6,506,406,506,506,005,60naPersons with tertiary education and/or employed in science and technology as % of total employment40414243434444Population having completed tertiary education(3)20222324252727Young people with upper secondary level education(4)89909092909191Trade balance of high technology products as % of GDP-1,44-1,02-0,83-0,60-0,83-0,60naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overallna1,891,70OECD PMR5, retailna0,900,63OECD PMR5, professional servicesnana2,56OECD PMR5, network industries(6)4,843,412,90 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG 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 2010 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

59 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.200.200.200.180.180.18Carbon intensity kg / €0.540.540.520.460.46-Resource intensity (reciprocal of resource productivity)kg / €0.810.720.720.750.740.69Waste intensity kg / €-0.13-0.13--Energy balance of trade % GDP-6.2-6.7-5.5-4.1-3.1-2.1Weighting of energy in HICP%14.3114.5014.3814.7214.2312.99Difference between energy price change and inflation %7.82.90.6-0.9-2.9-2.6Real unit of energy cost% of value added9.79.79.69.1--Ratio of environmental taxes to labour taxesratio0.180.200.210.210.21-Environmental taxes% GDP3.53.93.93.93.93.9Sectoral Industry energy intensity kgoe / € 0.160.160.160.150.150.15Real unit energy cost for manufacturing industry excl. refining% of value added16.716.115.114.1--Share of energy-intensive industries in the economy% GDP13.8913.9614.3614.5014.0814.16Electricity prices for medium-sized industrial users€ / kWh0.100.090.100.090.080.08Gas prices for medium-sized industrial users€ / kWh0.050.060.050.040.040.03Public R&D for energy % GDP0.020.010.010.010.010.01Public R&D for environmental protection% GDP0.020.020.010.010.030.03Municipal waste recycling rate%35.641.934.836.054.1-Share of GHG emissions covered by ETS*%40.539.740.436.936.437.0Transport energy intensitykgoe / €1.081.121.081.040.980.96Transport carbon intensitykg / €3.233.373.203.072.91-Security of energy supplyEnergy import dependency%47.751.246.944.548.848.4Aggregated supplier concentration indexHHI22.233.326.826.624.2- 
 
 
 
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