Slovenia became a full member of The Organization for Economic Co-operation and Development (OECD) in 2007. Soon after the county entered the club of the most developed economies the young nation faced the toughest economic crisis since the independence. The latest OECD’s biannual report on Slovenia, published this fall, focuses on how well has the country managed to reform the economy and restore growth.
»Economic growth has gathered pace since 2013, after a double-dip recession over the previous six years, and could reach nearly 4% in 2017, in part owing to the stronger international environment and the series of structural reforms implemented in recent years, « stress the OECD analysts in the report. GDP is growing faster than the EU15 average and much faster than OECD's previous 1.75 percent estimate. The growth is driven by Slovenia's strong exports: the exporting industry is in fact the main driver behind the nation's firm recovery.
Yet the achievements of the financial and structural reforms also cannot be overlooked. In the crisis of the eurozone in 2012, Slovenia was hit hard. In 2013 the banking system seemed to be on the brink of a collapse and the Alpine republic was being portrayed in media as potentially the next Greece or Cyprus. The Slovenian government adopted many measures to cope with the crisis and these measures were successful to a large degree.
The OECD report emphasizes that: »The health of the banking system has greatly improved in recent years. Liquidity risk has fallen, as the share of total assets held in liquid form has risen to 10%. Required capital reserves have decreased, as the quality of credit portfolios is improving. Operational risks are declining, boosting capital adequacy.«
One of the key elements of the reform program was the establishment of the Bank Asset Management Company (BAMC), which bought a part of the non-performing loans from the banks. The BAMC has also absorbed two bankrupt banks. Yet the share of non-performing loans in banks portfolios has also fallen due to restructuring, greater write-offs, realization of collateral and sales to investors. The BAMC’s mandate has been extended until 2022.
The report also finds out that the macroeconomic vulnerabilities have shrunk in many aspects, including the current account turnaround, the reduction in public deficit and an increase of the average duration of government debt. 2017's comparatively faster growth has sill further reduced the public deficit by nearly 1 percent of the GDP. The OECD estimates that to achieve the government’s medium term fiscal objective of an underlaying balance in 2020, additional fiscal consolidation of 0.75 percent of GDP will be needed between 2018 and 2020.
The OECD’s report finds that surprisingly Slovenians enjoy higher living standard than the OECD average in many respects. Slovenia’s key strengths are personal safety, clean environment, educational outcomes, and work-life balance. Slovenia is also highly egalitarian with a low poverty rate, small gender-wage gap, and relatively equal income distribution. Moreover, the Alpine republic is among the first OECD countries using the United Nations’ 17 Sustainable Development Goals in designing a national strategy. A move which could – according to OECD’s experts – further improve the well-being of Slovenians.
However, the OECD also notes that incomes remain “well below the OECD average and have not gained from leading OECD economies over the past decade”. The main reasons are related to labor market: high long-term unemployment and too low labor productivity. The too high minimum wage also hampers the prospects of low-skilled workers. “A number of policies are required to meet the challenge of preparing people for successful careers in competitive and innovative firms that are globally integrated, including training for the unemployed and strengthening vocational and university education,” OECD experts suggest.
More effort should also be directed to attract investment and foster competitive firms: both measures would lead to higher productivity and living standards. Further privatization should ensure a more competitive market and thus better conditions for innovative companies. Slovenia has recently been successful in attracting FDIs from companies like Yaskawa, Sumitomo and Magna. The OECD suggests to further reduce the high regulatory barriers. The country could become more attractive to both domestic and foreign investors by making inter-agency co-ordination, regulatory impact assessments and the competition authority stronger