1. 1 Fiscal Policies for Sustainable Economic Growth: Challenges for Slovenia Gerd Schwartz Deputy Director, Fiscal Affairs Department, IMF Conference on Structural Challenges of the Slovenian Economy June 19, 2013 Ljubljana Effects of Good Government, by Ambrogio Lorenzetti, Siena, Italy, 1338-39 Fiscal Affairs Department

2. 2 1. Slovenia in a global context 2. Key Policy Challenges 3. The way forward Outline

3. 3 Setting the global context General Government Gross Debt Ratios 2000-2007 (Percent of GDP) Source: WEO (2009 PPP-weighted averages)

4. 4 Setting the global context General Government Gross Debt and Balance Ratios 2008-2012 (Percent of GDP) Sources: 2013 Fiscal Monitor and Slovenian authorities (ESA 95 deficit)

5. 5 Setting the global context Sources: IMF staff estimates and projections. Debt Decomposition, 2007–13 (Percent of GDP)

6. 6 Setting the global context Post-crisis Growth Performance in the Euro area (Percent change in real GDP between 2008 Q3 and 2012 Q2, SA) 1/ Sources: Eurostat; and IMF staff calculations. 1/ Euro area members as of 2008. Last observation for Luxembourg is 2012 Q1. For Greece 2008 Q3 and 2012 Q3 used to calculate percent change in real GDP.

7. 7 Setting the global context Advanced Economies: According to Debt Level and Trends (Percent of GDP) Sources: IMF staff calculations and projections.

8. Setting the global context Cyclically Adjusted Primary Balance in 2020-30 and Required Adjustment Needs, 2013–30, across Different Scenarios (Percent of GDP) Source: IMF staff estimates and projections. Note: For selected advanced economies (seven scenarios for each country), the figure plots the average 2020–30 cyclically adjusted primary balance (CAPB) against the residual adjustment need under various scenarios. Triangles illustrate scenarios with a benchmark level of debt of 60 percent by 2030, circles illustrate scenarios with a benchmark level of debt of 80 percent by 2030, and squares illustrate scenarios with no indicative debt benchmark by 2030, but in which countries reach at most overall budget balance. Baseline interest rate–growth differential assumptions are shown in blue; risk scenarios with interest rate–growth differentials 100 basis points above the baseline are shown in red; and favorable interest rate–growth differentials that are 100 basis points below the baseline are shown in green. Thus, the blue triangles correspond to the numbers reported in Statistical Table 13a.

9. 9 Contingent liabilities in the financial and corporate sectors, linked to pervasive state ownership Struggle to achieve competitiveness, also reflecting little inward foreign direct investment High unemployment and low labor market participation, especially of the young and elderly Future spending pressures from an aging population Challenges facing Slovenia

10. 10 Challenges: Contingent Liabilities Government Guarantees, and Debt of SOEs, 2011-12 1/ (Percent of GDP) Source: EC 2013; Ministry of Finance. 1/ SOE debt for 2011; government guarantees for 2012

11. 11 Challenges: State Ownership Public Assets¹ (Percent of GDP, 2011) 1. As represented by ''other equity'' from the consolidated financial accounts of the general government sector. This covers financial equity assets and excludes quoted and unquoted shares in companies and mutual fund shares. Data is only available for a limited number of OECD countries. Source: OECD (2013), OECD National Accounts Statistics and International Direct Investment Statistics (databases), March.

12. 12 Challenges: Competitiveness Sources: Haver; and IMF staff calculations. Average Monthly Gross Nominal Manufacturing Wages (Euros, 2011)

13. 13 Challenges: Unemployment Sources: Bank of Slovenia; Ministry of Finance; Statistical Office of Slovenia; and IMF staff projections. Unemployment Rate (Percent)

14. 14 Challenges: Unemployment Sources: OECD, Eurostat, ILO, ILO KILM, WEO, and staff estimates. Labor Force Participation Rate, 2010 (Percent) Share of Long-term Unemployment in Total Unemployment, 2010 (Percent)

15. 15 Challenges: Aging Pension Expenditure Dynamics in the Euro Area (Public pensions, gross as percent of GDP) Sources: European Commission; EPC; and IMF staff calculations Note: Slovenia 2011 instead of 2015

16. 16  Proceed with a gradual but persistent fiscal adjustment to build confidence and to create fiscal space to address structural issues  Frame the adjustment within a credible medium- term path  For now, focus on the fiscal balance net of bank restructuring costs and let automatic stabilizers operate  Critical: strengthen confidence to reinvigorate the economy and re-build sustainable growth The Way Forward: The Framework

17. 17 The Way Forward: Improve Competitiveness Wages and Productivity (4Q percentage chances) Sources: Bank of Slovenia; Ministry of Finance; Statistical Office of Slovenia; and IMF staff projections.

18. 18 The Way Forward: Tackle Unemployment Participation Tax Rates, 2009 (Percent) Source: OECD (2011), Taxation and Employment

19. 19 The Way Forward: Boost Employment Sources: OECD, Eurostat. Spending on Active Labor Market Programs, 2009 (Percent of GDP)(Percent of Total)

20. 20  Slovenia needs to send a strong signal to markets to re-build confidence and re-invigorate growth  The commitment to gradual fiscal consolidation as well as recent consensual pension and labor market reforms are all steps in the right direction  A high-profile privatization could be a clear sign to foreign investors that the economy is opening up  Sound fiscal policy will be a necessary to accompany structural reforms by maintaining stability and creating fiscal space for growth- and employment- enhancing measures. Conclusion

21. Thank you! 21