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Slovenia: Solid fundamentals protect during the international crisis

Slovenia: Solid fundamentals protect during the international crisis. January 2011. 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 January 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 over 88 % 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- PortugalA1/ A- /A+ 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 (35.4 % of GDP in 2009) • ECB eligibility for government paper • Well recognised economic and political stability Peer credit ratings Source: Moody’s/ Standard & Poors/Fitch (January 3rd, 2011)

  7. Source: Standard&Poor`s, January 3rd, 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

  10. Growth led by exports and investments Source: Eurostat

  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 2009; 45.9% of GDP Geographic distribution, 2009 Exports of goods (2009) Source: SORS

  13. Good labour market performance Source: Eurostat

  14. Competitiveness preserved and convergence to EU levels sustained Real effective exchange rate index (1999 = 100) Productivity Source: Eurostat Source: Eurostat

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

  16. Strong investment over the past years Slovenia´s current account balance (% GDP) Current account balance % GDP (2009) Source: Eurostat Source: Eurostat, January 2011

  17. 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 of about 46% of GDP • Comfortable banking system capital adequacy of 11.4% and Tier 1 of 9.1% (June 2010) • 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) • Banks have low exposure to toxic assets Source:IMF

  18. Banking system still to catch up Total Assets of Financial Credit % GDP, 2009 Source:AMECO, ECB"EU banking structures"

  19. Housing market: High owner occupation rate and low indebtedness Source: ECB

  20. Policy response to global financial crisis

  21. Global financial crisis and collapse of trade Source: Eurostat Source: ECB

  22. External openness strongly affected growth and investment Source: Eurostat

  23. Stabilization and gradual recovery in line with major trading partners Source: Eurostat

  24. Gradual recovery to influence fiscal consolidation path Source: European Commission,DG Economy and Finance, Eurostat

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

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

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

  28. Policy to safeguard jobs and economic potential • Budgetary stimulus aims at limiting the impact of decline in external demand on productive capacity and jobs • Three types of policy measures: • slowing down the impact of the crisis on enterprises; • enhancing enterprise financial liquidity and safeguarding existing jobs; • increasing expenditure in research and education to improve the growth potential of the economy • Budgetary policy economic support package in 2009 equivalent to 1.6% of GDP. Most of the measures of temporary nature • Additional support to small and medium size enterprises in the form of borrowing guarantees of up to € 1.2 bn.

  29. Preventive measures to ensure functioning of banking system in line with EU Financial system support measures include: • Full retail deposit guarantee • Guarantees for bank borrowing (€12 bn) up to 5 years, pricing according to EU/ECB guidelines • On-lending to banks, insurance, reinsurances, pension companies • Capital injections • Purchase of claims (Banks) Measures other than deposit guarantee are subject to relevant supervisoryinstitution’s endorsement Measures are being gradually phased out with normalization of financial markets and in accordance with EU decisions

  30. General government deficit as % GDP and deficit structure in 2009 1 0,5 0 2003 2004 2005 2006 2007 2008 2009 -1 -0,9 -2,7 -1,3 -1,4 Deficit -2 -2,2 Discretionary response -3 -2,7 Automatic stabilizers -1,6 -4 -5 -5,5 -6 Fiscal Consolidation and policy response • Gradual fiscal consolidation over the past years • 2009 deficit reflects strong economic downturn on tax revenue (automatic stabilizers) and discretionary policy to offset the impact of the crisis • Fiscal policy to reduce deficit below 3% of GDP by 2013 Source: Ministry of Finance

  31. 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

  32. Withdrawal of fiscal stimulus and consolidation • 2011 adopted budget reflects full withdrawal of fiscal stimulus by the end of 2010; however, Slovenia will act in line with EU and EMU policies and recommendations. • 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 • Modernization and reform of pension system.

  33. Financing Programme

  34. 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 • Central Government Budget financing: 1.5Bn. EUR • Expected structure of borrowing at the end of 2011: • Short term (end of the year) 30Ml. EUR • Long term Up to3 Bn. EUR

  35. Further government debt market integration • Established issuer in the Euro debt market • International structure of primary dealers with strong domestic institutions • Abanka; Barclays Capital; BNP Paribas; Crédit Agricole CIB; Commerzbank; Deutsche Bank; Goldman Sachs; HSBC; ING; Jefferies; 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

  36. Strong performance and support Source: MTS Slovenia, Bloomberg, 31January 2011; Ministry of Finance Distribution by region Distribution by investor type 35

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

  38. Favourable state budget debt portfolio Stable debt service profile • EUR: 99.7% • USD: 0.0% • Other: 0.3% Most debt denominated in local currency Outstanding debt by type of currency (31.12.10) Source: Ministry of Finance

  39. 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 Department marija.eber@mf-rs.siTel: +386 1 369  6442

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