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Slovenia: Solid fundamentals protect during the international crisis

Slovenia: Solid fundamentals protect during the international crisis. July 201 1. Ministry of Finance Republic of Slovenia. Table of Contents. Country Overview Key Strengths Strong Economic Performance over the Past Years Policy response to global financial crisis Financing Programme.

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Slovenia: Solid fundamentals protect during the international crisis

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  1. Slovenia: Solid fundamentals protect during the international crisis July 2011 Ministry of Finance Republic of Slovenia

  2. Table of Contents • Country Overview • Key Strengths • Strong Economic Performance over the Past Years • Policy response to global financial crisis • Financing Programme

  3. Key Considerations • Euro area member for over four years (joined January 1st, 2007) • Prudent fiscal policy track record and steady competitiveness position • Low government debt with low borrowing requirement in the future • Sound banking system • Solid economic fundamentals and adequate policy response to crisis to mitigate its impact • Government committed to stability and sustained reform

  4. Country Overview

  5. Slovenia: Member of the Euro area for 4 years • Population of 2 million • Track record of strong macroeconomic performance • GDP per capita 87 % of EU average • Stable multi-party democracy • Joined the Euro area in January 2007 • Joined OECD in June 2010 Hungary Austria Italy Slovenia Croatia

  6. BelgiumAa1/ AA+/AA+ SloveniaAa2 / AA /AA ItalyAa2/A+/AA- PortugalBa2/ A-/BBB- A strong sovereign credit in the euro zone • Double A credit rating (Aa2 / AA /AA) Well diversified and open economy • Sustained real convergence • Low public debt burden (38.1 % of GDP in 2010) • ECB eligibility for government paper • Well recognised economic stability Peer credit ratings Source: Moody’s (July 12, 2011)/ Standard & Poors/Fitch (July 12, 2011)

  7. Source: Standard&Poor`s, July 12, 2011 Also a strong credit in European Union

  8. Strong Economic Performance over Past Years

  9. High and sustained degree of real convergence Source: Eurostat, 21.06.2011

  10. Growth led by exports and investments Source: Eurostat, 21.06.2011

  11. Slovenia has a highly diversified economy Industry, agriculture and services value added, 2009 • Comparable to EUmember states • Growth is driven by manufacturing and services • Successful and growing tourism industry • Small agricultural sector Source: SORS

  12. Export driven economy • Focus on high value-added exports • More than two thirds of exports destined for EU • € 16 bn exports of goods and services in 2010; 46.8% of GDP Geographic distribution, 2010 Exports of goods jan 2011 Source: SORS

  13. Good labour market performance Source: Eurostat

  14. Maintaining market share in EU-15 Exports of goods from Slovenia to EU-15 as % share of EU-15 intra-EU imports Source: Eurostat

  15. Strong investment over the past years Slovenia´s current account balance (% GDP) Current account balance % GDP (2010) Source: Eurostat, 21.06.2011 Source: Eurostat, 21.06. 2011

  16. Good financial position and sound banking system • Low external indebtedness of the economy • Lowest household indebtedness in EMU 30% of GDP in 2008 and 33% in 2009 • Banking sector assets in GDP only one third of EMU average • Banking system’s cross-border indebtedness has fallen from 46% of GDP in 2009 to about 32% at the end 2010 • Comfortable banking system capital adequacy of 11.3% and Tier 1 of 9.6% (March 2011) • Short-term net creditor position of domestic banking system vis-a-vis euro area ??? • Banking system’s external debt maturity profile is spread out (bulk more than 2 years) Source:IMF

  17. Banking system still to catch up Total Assets of Financial Credit % GDP, 2009 Source: Bank of Slovenia Annual Report 2009; EU banking structures; Statistical Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis

  18. Policy response to global financial crisis

  19. Global financial crisis and collapse of trade Source: Eurostat, 22.06.2011

  20. External openness strongly affected growth and investment Source: Eurostat, 22.06.2011

  21. Stabilization and gradual recovery in line with major trading partners Source: Eurostat, 22.06.2011

  22. The downturn also reflected in inflation trends Source: Eurostat

  23. Coordinated EU policy response to crisis…. Source: European Commission. Ameco

  24. …in line with existing debt levels Source: Eurostat

  25. Policy to turn the fiscal position and enhance economic potential • 2010 Stabilization Program targets return to 3% deficit by 2013 • After keeping close to the Program in 2010, a weaker domestic consumption and the need for a systemic bank capitalization prompted the goverment to introduce a supplementary budget to keep the deficit within the Program limits. The supplementary budget is targeting mainly own investments, investment transfers and costs. • Until the budget is enacted by the Parliament, the Ministry of finance used its legal powers to minimize expenditures for wages and salaries and for investements and to keep certain subsidies in check. • The government has already proposed a number of laws that will streamline the management social transfers and has lowered the indexation of pensions to a minimum. • After rejection of 2010 pension reform in a public referendum initiated by the trade unions, the government has reinstated the social dialogue on the issue, intending to propose a new pension law as close to the earliest possible date for the Parliament to pass a new law, which is one year from the referendum.

  26. Preventive measures to ensure functioning of banking system in line with EU • In 2010, the government has used, in line with EU Commission reccomendations, guarantees to provide four local banks with necessary liquidity. A portion of guaranteed loans has already been replaced with fresh funding withiout state guarantees. • No other measures were necessary and Slovenian banks have passed the first EBA stress test. • Measures were phased out end 2010.

  27. Stability Programme submitted to EU • General government deficit to return into the scope of Maastricht criteria (3% of GDP) by 2013 Source: Ministry of Finance

  28. Withdrawal of fiscal stimulus and consolidation • TheStabilization Program, approvedbythe EU Counciland last updated in April 2011, foresees a gradual, primarily expenditure driven fiscal consolidation over the medium term. Deficit below 3% of GDP by 2013 • Rationalization and discontinuation of inefficient government programs • Rationalization of cost of public administration • Rationalization and better targeting of social transfers • Shifting investment financing towards EU funds • Increase in excises’ rates and widening social security contribution tax base • Besidestheaboveandcontinuingthework on pension reform, thegoverment is launching a reform ofthehealthsector in order to achieve a higherefficiency, lowerunitcostand more equitableaccess to thepublichealthservices. • Thegovernment is preparing a liberalizationofthelabour market.

  29. Functioning of minority government • At present, Slovenia is run by a minoritygovernment, thegoverningcoalitionlosingtwosmallerpartnersoutoffour. Despitethisformaldrawback, theregulationproposed so far to theParliament are beingdealtwithandseverallawsfromthe reform andadjustmentpackagehavealreadybeenapprovedandenacted. • Thegovernment is preparing a strategy on managementandprivatizationofstateassets.

  30. Financing Programme

  31. 2011 borrowing requirement • Max. gross borrowing: 4.2 Bn. EUR • Purpose of borrowing: • Gross borrowing for 2011 central government • budget:2.9 Bn. EUR • Pre-financing of debt due for redemption in 2012and 2013: 1.3 Bn. EUR • Already executed borrowing: • Pre-financing of part of 2011 repayments executed • in 2010:0.3Bn. EUR • Expected structure of borrowing at the end of 2011: • Short term (end of the year) 30Ml. EUR • Long term Up to3 Bn. EUR

  32. Further government debt market integration • Established issuer in the Euro debt market • International structure of primary dealers with strong domestic institutions • Abanka; BNP Paribas; Credit Agricole CIB; Commerzbank; Deutsche Bank; Goldman Sachs; HSBC; JP Morgan; Nova Ljubljanska Banka; RBS; Société Générale CIB; UniCredit Banka Slovenija • Newly issued bonds trading on major international trading platforms • MTS Slovenia (www.mtsslovenia.com), Bloomberg (SLOREP Govt <GO>), Bondvision • Benchmark size issues to ensure liquidity (minimum € 1 bn) • Bonds in new S&P Eurozone Government Bond Index • MTS Slovenia established since March 2007 (www.mtsslovenia.com) • Currently 17 system participants (14 international and 3 from Slovenia) • 8 bonds on the system (http://www.mtsdata.com/content/data/public/rsl/bulletin/, http://www.mtsdata.com/content/data/public/rsl/fixing/) • Broaden investor base to increase integration of Slovenia’s signature in the Euro area

  33. Strong performance and support Source: MTS Slovenia, Bloomberg, 24 June 2011; Ministry of Finance Distribution by investor type Distribution by region 32

  34. Strong relative performance in turbulent times Source: MTS.

  35. Favourable state budget debt portfolio Stable debt service profile • EUR: 99.8% • USD: 0.0% • Other: 0.2% Most debt denominated in local currency Outstanding debt by type of currency (31.12.10) Source: Ministry of Finance (financing in 2011 included)

  36. Contact details • Republic of SloveniaMinistry of Finance • Treasury Directorate Boštjan PlešecDirector Generalbostjan.plesec@mf-rs.siTel: +386 1 369  6410 • Public Debt Management Department Marija EberHead of Departmentmarija.eber@mf-rs.siTel: +386 1 369  6442

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