Slovenia's achievements in 2004 were better than the International Monetary Fund (IMF) had forecast, yet the country still needs to curb inflation and tackle the budget deficit, an IMF delegation said after completing a two-week routine mission to Slovenia on Monday.
The country recorded robust economic growth, entered the ERM II exchange rate mechanism and is well prepared for the introduction of the euro planned in 2007, IMF mission head Biswajit Banerjee told the press.
"Things are going well, the prospects look good but the situation is not without risk. One has to be aware of these risks and ready to respond quickly. One has to have a balanced approach of policy mix, which depends on how close you are to the end of the period of euro adoption," Banerjee assessed.
The IMF recommends that Slovenia keep a close eye on inflation movements and act quickly if there are any deviations from the set path. Last year, inflation slowed down quicker than the IMF thought it would, despite high oil and production prices: the central bank's prediction that inflation will be curbed to 2.5 percent by the end of the year is thus feasible, he said.
Yet there are also some risks in reducing inflation further, to the level stipulated by the Maastrict criteria, according to Banerjee: the reference inflation rate rests on inflation in the three most successful eurozone countries, and there is a risk of higher consumer prices if factory-gate prices rise faster.
Banerjee said that wage growth should be commensurate to productivity, or else inflation will receive a boost. In the trade sector productivity grew faster than wages and social partners should make efforts to pursue this policy, he added.
Fiscal policy is also crucial in efforts to rein in inflation. Banerjee said that budget expenditures should retain savings measures built into the 2005 budget, while pressure for further spending should be resisted. The structure of expenditure should not affect the budget flexibility, he said.
Finance Minister Andrej Bajuk, who attended the press conference today, said that the government is drafting the supplementary budget for this year with a view to reducing the deficit by up to SIT 20bn (EUR 62.6m).
Banerjee is meanwhile reserved about changes to the methodology for calculating pensions, as pensions would skyrocket. The IMF thus estimates that changing the indexation of pensions is questionable from the vantage point of fiscal stability.
Bajuk explained that the government would tackle this issue in the second half of the year as part of preparations for the 2006 and 2007 budgets. Possible changes to the calculations will certainly not exceed frameworks stipulated in the budget, Bajuk stressed.
Last year's GDP growth, at 4.6%, beat IMF forecasts. The IMF's forecast for this year is 4 percent and for 2006 3.8 percent. According to Banerjee, these figures are based on the presumption that demand from abroad will dwindle and the fact that the number of working days will be lower than last year.
Banerjee is reserved about the possibility that Slovenia would introduce a flat tax rate like Slovakia did. "This option must be studied very carefully," he said, adding that such a change entails many other changes. He said Slovenia should wait, as the period leading up to euro adoption is not appropriate for such experiments.
The press conference marked the end of the IMF delegation's visit, which started on 9 March. The mission visited the Bank of Slovenia, the Finance Ministry and other government institutions as well as trade unions, the Chamber of Commerce and Industry and the Statistics Office.
The goal of the almost two-week mission was to get acquainted with key development policies, the implementation of the planned structural reforms and any changes since their last visit here.
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