Fiscal Affairs Department
Effects of Good Government, by Ambrogio Lorenzetti, Siena, Italy, 1338-39
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
1
Outline
1.
Slovenia in a global context
2.
Key Policy Challenges
3.
The way forward
2
Setting the global context
General Government Gross Debt Ratios 2000-2007
(Percent of GDP)
80
Advanced
Emerging
Slovenia
60
40
20
2000
2002
Source: WEO (2009 PPP-weighted averages)
2004
2006
3
Setting the global context
General Government Gross Debt and Balance Ratios 2008-2012
(Percent of GDP)
120
0.5
2008
2009
2010
2011
2012
100
-1.5
Advanced
Emerging
80
-3.5
Slovenia
60
-5.5
Advanced
40
-7.5
Emerging
Slovenia
20
-9.5
2008
2010
2012
Sources: 2013 Fiscal Monitor and Slovenian authorities (ESA 95 deficit)
4
Setting the global context
Debt Decomposition, 2007–13
(Percent of GDP)
120
100
80
Primary deficit
Stock-flow adjustment
Interest rate–growth differential
Change in debt-to-GDP ratio
60
40
20
0
-20
CHE
ISR
SWE
HKG
KOR
EST
AUT
BEL
DEU
CZE
CAN
FIN
AUS
NZL
DNK
ITA
SLK
NDL
FRA
USA
SLV
GBR
ESP
PRT
JPN
ISL
GRC
IRL
-40
Sources: IMF staff estimates and projections.
5
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/
Austria
Germany
Malta
Belgium
France
Euro area
Netherlands
Cyprus
Luxembourg
Finland
Spain
Italy
Ireland
Portugal
Slovenia
Greece
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
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.
6
Setting the global context
Advanced Economies: According to Debt Level and Trends
(Percent of GDP)
120
Group 2
Group 1
Group 3
Change in debt since 2007
100
IRL
80
GRC
JPN
ESP
60
SVN
40
SVK
AUS NZL
DNK
0
GBR
USA
NLD
FRA
DEU
FIN
CAN
CZE
AUT
KOR
EST
CHE SWE
20
PRT
ITA
BEL
-20
0
50
100
150
200
Debt ,2013
Sources: IMF staff calculations and projections.
7
Setting the global context
Cyclically Adjusted Primary Balance in 2020-30 and Required
Adjustment Needs, 2013–30, across Different Scenarios
(Percent of GDP)
8
7
ITA
CAPB, 2020–30
IRL
PRT
6
5
BEL
4
ESP
3
USA
2
FRA
1
SVN
GBR
0
-4
-2
0
2
4
Required adjustment, 2013–30
6
8
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.
Challenges facing Slovenia




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
9
Challenges: Contingent Liabilities
Government Guarantees, and Debt of SOEs, 2011-12 1/
30
(Percent of GDP)
SOE Debt
Government-guaranteed Debt
25
20
15
10
5
0
Source: EC 2013; Ministry of Finance.
1/ SOE debt for 2011; government guarantees for 2012
10
Challenges: State Ownership
Public Assets¹
(Percent of GDP, 2011)
14
12
10
8
6
4
2
DNK
EST
SVN
PRT
FRA
DEU
NOR
ESP
FIN
CZE
POL
SWE
BEL
AUT
HUN
USA
NLD
0
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.
11
Challenges: Competitiveness
Average Monthly Gross Nominal Manufacturing Wages
(Euros, 2011)
1600
1400
1200
1000
800
600
400
200
0
SVN
CZE
POL
SVK
EST
Sources: Haver; and IMF staff calculations.
HUN
ROM
12
Challenges: Unemployment
Unemployment Rate
(Percent)
12
10
8
6
4
2
Slovenia (LFS)
Euro area
0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Sources: Bank of Slovenia; Ministry of Finance; Statistical Office of Slovenia; and IMF staff projections.
13
Challenges: Unemployment
Labor Force Participation Rate, 2010
(Percent)
Share of Long-term Unemployment in
Total Unemployment, 2010
(Percent)
50.0
100.0
SLV
90.0
45.0
Advanced Europe
80.0
40.0
70.0
35.0
60.0
30.0
50.0
25.0
40.0
20.0
30.0
15.0
20.0
10.0
10.0
SLV
Advanced Europe
Other Advanced
5.0
55-64
25-54
15-24
Female
Male
0.0
0.0
Sources: OECD, Eurostat, ILO, ILO KILM, WEO, and staff estimates
.
14
Challenges: Aging
Pension Expenditure Dynamics in the Euro Area
(Public pensions, gross as percent of GDP)
20
2015
18
2055
16
14
2011
12
10
8
6
4
2
0
Sources: European Commission; EPC; and IMF staff calculations
Note: Slovenia 2011 instead of 2015
15
The Way Forward: The Framework




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 mediumterm 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
16
The Way Forward: Improve Competitiveness
Wages and Productivity
(4Q percentage chances)
20
Nominal Wage
ULC
Real wage
15
10
5
0
-5
2000
2003
2006
2009
2012
Sources: Bank of Slovenia; Ministry of Finance; Statistical Office of Slovenia; and IMF staff projections.
17
-40
Ireland
Japan
Iceland
Sweden
Switzerland
New Zealand
Slovenia
Norway
Hungary
Finland
Netherlands
Czech Republic
Denmark
Greece
Portugal
Slovak Republic
Austria
Canada
Spain
United States
Israel
Estonia
Germany
Belgium
Italy
France
Poland
United Kingdom
Australia
Korea
Participation tax rates (Percent)
The Way Forward: Tackle Unemployment
Participation Tax Rates, 2009
160
(Percent)
Unemployment Benefit
140
Other Social Benefit
120
Including Taxes
100
Including In-work Benefits
80
60
40
20
0
-20
Source: OECD (2011), Taxation and Employment
18
The Way Forward: Boost Employment
Spending on Active Labor Market Programs, 2009
(Percent of GDP)
(Percent of Total)
1.0
0.9
35
Slovenia
Advanced Europe
Slovenia
Advanced Europe
30
0.8
0.7
25
0.6
20
0.5
15
0.4
0.3
10
0.2
5
0.1
0
0.0
Total
PES and
Administration
Training
Hiring Subsidy
Sources: OECD, Eurostat.
19
Conclusion




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 employmentenhancing measures.
20
Thank you!
21