EU: Slovenian Finance Stability Plan Realistic, But Unambitious
The European Commission said on Tuesday that Slovenia's programme for keeping public finances stable in the period 2006-2009 was plausible but lacked ambition. Finance Minister Andrej Bajuk did not agree with the part about not being ambitious enough.
While establishing that the programme picks up on the main challenges facing the country, containing inflation and fiscal consolidation, the Commission adds that it fails to take advantage of the current good economic conditions to make sufficient progress in reducing its budget deficit.
The Commission finds that most of the measures contained in the programme are geared towards 2009, which is why it calls on Slovenia to take these measures faster, especially in light of the current strong economic indicators.
Predictions for the 2006-2009 period of economic growth (4.7%-4.1%), inflation (2.7%-2.2%) and budget deficit (1.6%-1.0%) contained in the programme are assessed by the Commission as plausible and realistic.
Nevertheless, the report says Slovenia may not meet the goal of a budget deficit of 1% of GDP in 2009 because it has not considered all the risks involved for that year. It adds, however, that Slovenia has a track record of beating its estimates in this area.
The Commission also points to a "very high" share of mandatory expenditure in the budget and a lack of clear-cut measures for bringing down the budget gap in the coming years.
The Commission reiterated its call to Slovenia to deal with the threat posed to its public finances by an ageing population.
Slovenia should "improve the long-term sustainability of public finances by strengthening the ongoing pension reform with additional measures" that would promote labour participation of older workers and private pension savings schemes, it says.
Slovenia submitted its stability programme to the Commission in December 2006.
In his reaction, Bajuk told the press today that Slovenia will reduce public expenditure from 48.1% of the GDP in 2000 to 45.1% in 2008. This reduction will facilitate the development of the private sector and speed up economic growth, he added.
Regarding ageing-related expenses, Bajuk said Slovenia currently allocates 18.1% of its GDP for such expenditure. This percentage is expected to increase to 20.8% in 2020 and 30.1% in 2050.
Slovenia's response lies in active employment policy measures, which will get 58.7% more funds in 2007 and 2008 that they did in 2005.
Bajuk also pointed out that new data, gathered after Slovenia sent the report, reduce the projected budgetary deficit in 2006 from 1.7% to between 1.2% and 1.3%.
The deficit would have been even lower, had Slovenia not committed itself to invest into railway infrastructure.
Janez Sustarsic, the head of the government Institute for Macroeconomic Analysis and Development (IMAD), meanwhile said that the Commission's assessment of Slovenia stability programme was expected and is realistic.
"There are recommendations that we knew we would get," he said.
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