REPORT FROM THE COMMISSION Slovenia Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Slovenia, budget deficit, budget policy, economic consequence, economic recession, epidemic, gross domestic product, infectious disease, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 555 final  REPORT FROM THE COMMISSION Slovenia  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Slovenia 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 
6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of  Regulation 
(EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic 
downturn.  In  its  Communication,  the  Commission  shared  with  the  Council  its  view  that, 
given  the  expected  severe  economic  downturn  resulting  from  the  COVID-19  outbreak,  the 
current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data notified by the Slovenian authorities on 31 March 2020 and subsequently validated by 
Eurostat1  show  that  the  general  government  surplus  in  Slovenia  reached  0.5%  of  GDP  in 
2019,  while  the  general  government  gross  debt  stood  at  66.1%  of  GDP.  According  to  the 
2020 Stability Programme, Slovenia plans  a deficit  of 8.1% of GDP  in  2020, while debt is 
planned at 82.4% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Slovenia’s compliance with the deficit and debt criteria of the Treaty. It takes into account all 
relevant  factors  and  gives  due  consideration  to  the  major  economic  shock  linked  to  the 
COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

2020 
COM 

2021 
COM 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 
Gap to the 
debt 
reduction 
benchmark 
Change in 
structural 
balance 
Required 
MLSA 

-1.9 

0.0 

0.7 

0.5 

-7.2 

-2.1 

78.7 

74.1 

70.4 

66.1 

83.7 

79.9 

-6.8 

2.8 

-2.8 

0.4 

-1.1 

0.6 

-2.1 

-0.2 

-6.2 

Note: MLSA refers to the Minimum Linear Structural Adjustment  
Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  Slovenia’s  general  government  deficit  in  2020  is 
planned to reach 8.1% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. The increase in deficit reflects the planned stimulus of 4.4% of GDP and the effects of 
the economic contraction. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP growth in 2020 by 7.0%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary,  based  on  the 
Commission 2020 spring forecast, which projects the general government deficit to fall under 
3%  of  GDP  in  2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high 
degree of uncertainty. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

DEBT CRITERION  

The government debt-to-GDP ratio decreased from 70.4% of GDP in 2018 to 66.1% of GDP 
in 2019. The decline of the ratio was mainly driven by the primary surplus, the denominator 
effect from increasing nominal GDP and the negative stock-flow adjustments.  

The notified data show that Slovenia complied with the debt reduction benchmark in 2019, as 
the gap to the benchmark is 6.8% of GDP. 

The analysis thus suggests that the debt criterion is fulfilled based on the 2019 outturn data. 

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4. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit criterion in 2020, since the government debt-to-GDP ratio exceeds the 60% reference 
value and the double condition is not met – i.e. that the deficit remains close to the reference 
value and that its excess over the reference value is temporary – those relevant factors cannot 
be  taken  into  account  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive 
deficit on the basis of the deficit criterion for Slovenia.  

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

4.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

4.2 

Medium-term economic position  

Slovenia’s  economy  grew  by  2.4%  in  2019.  Employment  continued  to  grow  unabated  and 
unemployment  reached  a  very  low  rate  of  4.0%  in  the  final  quarter.  Despite  growth 
moderating in the end of the year, Slovenia entered this crisis in a relatively strong position.  

In 2020, the economy is expected to  contract  by about  7% based on the  Commission  2020 
spring  forecast.  Economic  activity  is  expected  to  rebound  in  the  second  half  of  2020, 
benefiting from the strong policy measures adopted to shore up employment and to cushion 
income falls for households and enterprises affected during the downturn. In 2021, growth is 
projected  to  reach  6.7%.  The  near-term  outlook  includes  exceptional  degree  of  uncertainty 

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regarding the duration of the pandemic as well as its economic impact. This is a mitigating 
factor in the assessment of Slovenia’s compliance with the deficit criterion in 2020. 

4.3 

 Medium-term budgetary position 

The headline surplus decreased from 0.7% of GDP in 2018 to 0.5% of GDP in 2019.  

On  13  July  2018,  Slovenia  was  recommended  to  ensure  that  the  nominal  growth  rate  of 
primary government expenditure, net of discretionary revenue measures and one-offs, did not 
exceed 3.1% in 2019 (‘the expenditure benchmark’), corresponding to a structural adjustment 
of  0.65%  of  GDP2.  The  overall  assessment  points  to  significant  deviation  from  the 
recommended  adjustment  path  towards  the  medium-term  budgetary  objective  in  2019  and 
over 2018-2019 taken together. 

The  Stability  Programme  provides  information  on  substantial  measures  to  contain  the 
pandemic  and  to  support  the  economy.  It  estimates  the  budgetary  impact  of  those  direct 
support measures at 4.4% of GDP in 2020.  

The  fiscal  projections  in  the  Commission  2020  spring  forecast  and  the  2020  Stability 
Programme are subject to a high degree of uncertainty.  

4.4.  Medium-term government debt position  

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 66.1% of GDP in 2019 to 83.7% of GDP in 2020.  

The debt sustainability analysis has been updated with the Commission 2020 spring forecast. 
That analysis confirms that, notwithstanding risks, the debt position remains sustainable over 
the medium-term in Slovenia, which takes account of important mitigating factors (including 
the  debt  profile  and  the  historically  low  level  of  interest  rates).  In  particular,  while  the 
government  debt  position  has  deteriorated  as  a  result  of  the  COVID-19  crisis,  the  debt-to-
GDP  ratio  in  the  baseline  is  expected  to  be  on  a  sustainable  (declining)  trajectory  over  the 
medium term3.  

2  Council  Recommendation  of  13  July  2018  on  the  2018  National  Reform  Programme  of  Slovenia  and 

delivering a Council opinion on the 2018 Stability Programme of Slovenia (OJ C 320, 10.9.2018, p. 103). 

3 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP  growth  is  projected  according  to  the  so-called  EPC/OGWG  T+10  methodology.  In  particular,  (real) 
actual  GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment 
considered  (through  the  fiscal  multiplier).  Inflation  is  assumed  to  converge  gradually  to  2%.  Interest  rates 
assumptions are set in line with financial market expectations. Under the adverse scenario, higher interest rates 
(by 500 bps.) and lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the 
projection horizon). 

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Graph 1. Government debt-to-GDP ratio, Slovenia, % of GDP 

Source: Commission services 

4.5 

Other factors put forward by the Member State 

On  12  May  2020,  the  Slovenian  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already covers the key factors put forward by the authorities.  

5. 

CONCLUSIONS 

According to the 2020 Stability Programme, Slovenia’s general government deficit in 2020 is 
planned to reach 8.1% of GDP, above and not close to the 3% of GDP Treaty reference value. 
The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  and  currently 
considered to be temporary. 

The general government gross debt stood at 66.1% of GDP at the end of 2019, above the 60% 
of  GDP  Treaty  reference  value.  Slovenia  complied  with  the  debt  reduction  benchmark  in 
2019.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit criterion in 2020, however, since the government debt-to-GDP ratio exceeds the 60% 
reference value and the double condition is not met - i.e. that the deficit remains close to the 
reference  value  and  that  its  excess  over  the  reference  value  is  temporary  -  those  relevant 
factors cannot be taken into account in the steps leading to the decision on the existence of an 
excessive deficit on the basis of the deficit criterion for Slovenia.  

Overall,  the  analysis  suggests  that  the  deficit  criterion  as  defined  in  the  Treaty  and  in 
Regulation (EC) No 1467/1997 is not fulfilled.  

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