Slovenia Pushes Ahead with Reforms, Economy Expected to Improve

Bank health checks a key milestone

Banking and corporate sector reforms

essential for durable economic growth

Containing government spending would help

reduce overall debt

Slovenia’s recession—one of the deepest in the euro area—continued

in 2013, driven by a sharp credit crunch, corporate distress, and necessary fiscal

consolidation. However, there are now some signs of stabilization of economic activity,

coinciding with the gradual improvement in the broader euro area dynamics.

“Bank recapitalization that took place in December has reduced uncertainty,”

said Antonio Spilimbergo, IMF mission chief for Slovenia. “Still, domestic

demand is likely to remain weak, as the corporate sector remains overleveraged and

consumers remain cautious. The economy is likely to contract in 2014 as well—though

at a more gradual pace—and signs of a recovery may appear in the second half

of the year.”

Speaking to IMF Survey, Spilimbergo discussed Slovenia’s economic outlook,

the most pressing issues, and the policy actions needed to help foster economic

growth in the country.

IMF Survey: What are the main policy priorities that would help improve

the economic situation in 2014 and beyond?

Spilimbergo: The asset quality review (a comprehensive and independent evaluation

of the value of the banks’ assets) and stress tests (an evaluation of the

banks’ ability to withstand losses in an adverse scenario) were completed

in 2013 in order to determine the health of Slovenian banks. Now that the results

are public, indicating that banks are adequately capitalized, it is important to

turn promptly to addressing the underlying weaknesses that created the financial

sector problems in the first place. Only a restructuring of the corporate and bank

sectors, including via a thorough clean-up of banks’ balance sheets and privatization

thereby reducing the role of the state in the economy, can create the conditions

needed for durable economic growth. It’s also going to be important to continue

fiscal consolidation to restore public debt to more moderate levels, identifying

new measures as necessary.

IMF Survey: Slovenia has already undertaken measures to help it get

a handle on government debt, including some tax increases and spending cuts. What

else needs to be done to ensure continued progress is made?

Spilimbergo: Slovenia undertook a significant amount of fiscal consolidation

in a time of recession. Looking forward, it’s very important not to waver

once growth...