The European Commission’s Country-Specific Recommendations for Slovenia 2019

1. The European Commission’sCountry-Specific Recommendationsfor Slovenia 2019 Julia Lendvai Head of Unit: Economies of Member States: Finland, Hungary and Slovenia Directorate-General for Economic and Financial Affairs Ljubljana, 11 June2019

2. Topic and Outline Country-specific recommendations (CSRs) for Slovenia • Commission’s views on main challenges to the economy • Published under the European Semester: • Framework for coordination of economic policies across EU • Based on permanent dialogue with policy makers and stakeholders • CSRs derived from the analysis of the Country Report published 27 February 2019 Outline • Overview of recent economic developments • Present each CSR: rationale – perspective

3. Recent economic policies and development • Slovenia has recovered from a double-dip recession • Stabilisation of the financial sector • Structural reforms (pensions, labour market, product markets, SOEs) • Robust growth, elimination of imbalances • Real GDP growth 4.5% (2018) • Employment rate: 71.1%(2018) • Fiscal deficit eliminated • Public debt on downward path • Banks’ balance sheets significantly strengthened (NPL reduction), profitability restored • Challenges remain • Long-term sustainability of public finances (avoid pro-cyclical fiscal policies, social security system) • Sustain potential growth (labour shortages, bottlenecks to investment)

4. Overall strong implementation of reforms over 2011-2018 European Union Slovenia

5. However, 2018 CSRs: Limited progress • Some progress • Alternative sources of financing (Slovenia is preparing further EU-funded instruments to improve equity funding) • Barriers for market entry and administrative burden (Investment Promotion Act) • Privatisation • Limited progress • Older and low skilled workers’ employability • Public procurement with the action plan to professionalise procurement further • No progress • Health care • Long-term care • Pension system

6. Country-Specific Recommendations 2019 • Fiscal, fiscal structural and labour market policies: • Achieve the medium-term budgetary objective in 2020 • Fiscal sustainability: healthcare, long-term care, pension system • Increase the employability of low-skilled and older workers • Financial and product markets: • Equity markets • Business environment: regulatory restrictions, administrative burden • Public procurement: competition, professionalisation, oversight • Privatisation • Investment priorities (aligning EU semester with ESIF) • Research and innovation • Low carbon and energy transition • Sustainable transport, in particular rail • Environmental infrastructure

7. CSR 1 Fiscal and fiscal structural policies: What? Achieve the medium-term objective in 2020 Reforms in healthcare and long-term care: ensure quality, accessibility and long-term fiscal sustainability Pension system: long-term sustainability and adequacy

8. Fiscal CSR: Why? Cont’d Fiscal position has significantly improved Debt/GDP (% of GDP) General government balance (% of GDP)

9. Fiscal CSR: Why? Fiscal effort vs requirement Good economic times could be used more to reduce debt and build fiscal buffers

10. Fiscal CSR: Why? Cont’d Projected change in age-related public expenditure is over 6% of GDP over 2016-2070 • Ageing puts a heavy burden on public finances • Mostly from pensions • Retirement age • Early retirement • Health-care and long-term care • Reduce fragmentation, increase efficiency, adequacy • Central public procurement • Reforms have been announced but details missing (including on financing) Source: 2018 Ageing Report

11. CSR 1: Employment Increase the employability of low-skilled and older workers • Strongest pattern for low-skilled • In addition: labour shortages • Policy measures: • Improve labour market relevance of education and training • Activation measures • Digital literacy Activity rate by age (2018, %) Source: Eurostat

12. CSR2: Business environment: Reduce regulatory and administrative burden Long-term barriers to investment • Regulatory and administrative burden considered as key problem for doing business in SI • Good progress in recent years • Investment Promotion Act • SPOT portal • Single document • More can be done e.g. • simplify permits, reporting requirements, tax procedures • accelerate commercial court proceedings Source: EIB Group Survey on Investment and Investment Finance Country Overview Slovenia

13. CSR 2: Public Procurement • Improve competition, professionalisation and independent oversight in public procurement • Some steps to improve the professionalism of those involved in public procurement – welcome and to be continued • Competition and transparency should be improved • High share of single bid procedures (over 35%), low average number of bids received • 24% of the public contracts concluded through negotiated procedures without publication in 2018 (among the worst in the EU) • Independent oversight not yet addressed: • One-instance remedy system: National Review Commission • Members of the Commission do not benefit of same guarantees of independence as judges • Appointment of members also guarantees less independence from the executive or legislative branches

14. CSR 2: Financing • Support the development of equity markets – alternative sources of financing • Some progress in 2018 but scope for further improvement • Slovenia’s businesses still heavily rely on bank loans and cash flow to meet their funding needs • This is a growth barrier for innovative companies (but not only) • Measures to support the local capital market, amongst others • technical assistance and advisory support on listings and the issuance of bonds to SMEs – provided by Ljubljana Stock Exchange, welcome • raising awareness among potential investors (retail and wholesale) to the privatisation of SOE by going public

15. CSR 2: Privatisation • Carry out privatisations in line with the existing plans • Some progress has been made in recent years, but: • High share of state ownership in the economy restricts the unfolding of the capital market in Slovenia • State ownership in a sector represents a risk of distortion in competition and resource allocation • It is also a significant barrier for many investors.

16. Country-Specific Recommendation 3 • Focus investment-related economic policy on: • research and innovation, • low carbon and energy transition, • sustainable transport (in particular rail) and • environmental infrastructure, • taking into account regional disparities. • Discussed in the next session

17. Investment still below the euro area average Total investment in Slovenia Total investment in the euro area Machineryand equipment Construction Intellectualproperty products Source: Eurostat

18. Thankyou!