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Govt Think-Thank Notes Stagnation of Prosperity Growth

Ljubljana, 05 May (STA) - Institute of Macroeconomic Analysis and Development (IMAD) head Vinko Vasle told the press on Thursday that no progress in prosperity had been recorded in Slovenia in the past two years and that the real disposable income of the population had decreased last year for the first time since the institute started monitoring these data.

Presenting the 2011 Development Report, the director of the government think-tank said that the main reason for this was a decline in employment and rise in unemployment, which have expanded the group of people dependent on social transfers.

While the disposable income was up in nominal terms last year, it decreased when also taking into account inflation, states the report, which monitors progress in Slovenia's development strategy striving for greater prosperity.

On the other hand, Vasle said that good results had also been recorded. Above all, recent years did not bring increases in inequality when it comes to income, wages and access to certain services. He noted that Slovenia was one of the best performing EU countries in this respect.

Vasle added that no increases had been recorded in the poverty risk rate, which remained relatively low.

On the other hand, GDP by purchasing power parity decreased during the crisis compared to EU average, with the latest data putting it at 88%. This means a step back in efforts to reach the average EU development level, while the negative trend is expected to continue this year.

IMAD sees the high level of employment and relatively low productivity as the main reasons for this, urging faster progress towards technologically more demanding and knowledge-based activities and noting that problems here were rooted in how the wider society is functioning.

This deterioration of competitiveness is accompanied by financing problems, which are also related to a significant drop in the profitability of Slovenian companies. The drop here was among the worst in the EU, leaving companies with little opportunities for development and investments.

At the same time, the macroeconomic imbalance moved into the area of public finances. A substantial increase in public deficit made IMAD project that state debt will increase from the 23% of GDP before the crisis to more than 40% by the time the crisis ends.

Thus, IMAD concluded that structural reforms are the only way forward. Vasle mentioned the need for changes which will increase competitiveness, adjustments to social protection systems such as the pension and health care system, and the consolidation of public finances.

Prime Minister Borut Pahor said in response to the report that when it took on the crisis, the government decided to focus on social cohesion in the first two years at the expense of competitiveness and then compensate for this with two years of structural reforms.

He noted that "the government policies have a clear structure" and that contrary to some other countries, the government gave social cohesion priority "because Slovenia was hurt here more than the majority of countries".

However, if this cohesion is to be preserved it needs to be followed up by an increase in competitiveness, Pahor added.

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