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Action Urged as EU Says Slovenia Still Facing Macro Imbalances

Brussels, 05 March (STA) - Slovenia is the only EU member to have received the second consecutive warning that it faces excessive macroeconomic imbalances, as the EU Commission adopted a special recommendation Wednesday that calls for "timely correction of its excessive government deficit."

Slovenia's imbalances have been unwinding over the past year thanks to macroeconomic adjustment and policy action, but "the magnitude of the necessary correction means that substantial risks are still present," says the Commission's report, a part of a review of the economies of 17 member states.

The report highlights risk stemming from the losses in cost competitiveness, corporate debt overhang, the increase in government debt, and weak corporate governance.

"While considerable progress has been made in repairing the banks' balance sheets, determined action with respect to the full implementation of a comprehensive banking sector strategy, including restructuring, privatisation and enhanced supervision is still required."

The Commission expects the headline general government deficit to remain above the targets due to the significant expenditures related to bank recapitalisation in 2013 and 2014, but the deficit is also projected to exceed the target in 2015 assuming fiscal policy does not change.

Slovenia will have to heed the warnings in the budgeting and reform plans that it must submit to the EU in April. If the Commission assesses the action is not robust enough, it can trigger a procedure for correction of excessive imbalances.

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