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IMAD: Slovenia Missed on Development Opportunities in Past Years

Ljubljana, 10 May (STA) - Slovenia is among the countries that were the hardest hit by the global economic and financial crisis and 2012 was yet another year of decline. In terms of development, the country reached the level of 2005, the Institute for Macroeconomic Analysis and Development (IMAD) says in its latest development report.

All these years are lost for Slovenia as far as development is concerned and the opportunities for growth in the next year are close to non-existing, the government think-tank says.

"This situation calls for radical solutions," IMAD head Boštjan Vasle said at Friday's presentation of the report in Ljubljana.

Among the most urgent issues he underscored the salvaging of banks, balancing of public finances, implementation of measures boosting competitiveness, and radical reforms of the pension and health systems.

People's trust in state institutions also needs to be restored otherwise further structural changes will not be possible, he said.

As regards the public financial imbalances, Vasle proposes that the cost cutting continue. Public spending must be adjusted to the current situation, he said.

Raising taxes on the other hand always negatively affects economic activity, but raising VAT is the least damaging choice here, according to the official.

Based on IMAD calculations, the proposed raising of VAT (from 20% to 22% for standard rate and from 8.5% to 9.5% for reduced rate as of 1 July) will slow down economic activity by 0.2 to 0.3 percentage points in 2013. IMAD initially forecast a 1.9% shrinking of Slovenian economy for the year.

IMAD says in the report that in 2011 GDP per inhabitant slid to 84% of the EU average, which is 7 percentage points below the pre-crisis level.

The think-tank attributes this drastic deterioration of the economic situation to the credit crunch on the one hand and to low competitiveness of the economy on the other. "This is why our economy is less capable of adapting to a drop in demand," IMAD official Rotija Kmet Zupančič said.

This is reflected in a significant drop of Slovenia's market share on the global market. According to preliminary data, its market share was 25% lower than before the start of the crisis in 2007.

IMAD believes this happened because the Slovenian economy did not go through enough restructuring in boom times. Companies should have increased investments and entered new markets, the institute notes.

All this affected the labour market and the standard of living, Lidija Apohal Vučkovič of IMAD said. While employment in the private sector has been dropping quickly since 2008, the public services sector even saw a slight boost at the beginning of the crisis and the start of this year.

The employment rate started dropping more quickly towards the end of last year, and the share of unemployed among the young has been increasing particularly quickly. The share of jobless older people is also high.

The financial situation of the people has been deteriorating for several years now but last year saw a particularly noticeable downturn. The risk of poverty, especially among families with several children, increased.

Income inequality also increased somewhat last year.

Indices of the quality of life still mostly point to improvement, which IMAD attributes to a lot of investment in the development of public services in the past.

But the indices of social climate show a different picture. While the index measuring people's satisfaction with their lives remains relatively high, people's expectations are low.

People are mostly happy with the situation in the education and health systems but very unhappy with the state of democracy and the economy. The trust in state institutions is also very low. The only exception here is the police force.

After a long delay, Slovenia made some positive moves last year: It lowered the deficit, passed legislation to tackle the banking system problems and implemented the pension and labour reforms.

IMAD thinks this will help stop the negative trends in the social and economic development and cause a turnaround.

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