Slovenia: Solid fundamentals protect during the international crisis

1. Slovenia: Solid fundamentals protect during the international crisis October 2010 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 three 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 with low exposure to toxic assets • 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 3 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- PortugalA1/ A- /AA- A strong sovereign credit in the euro zone • Double A credit rating (Aa2 / AA /AA) with stable outlook • 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: Mood’y/ Standard & Poors/Fitch (October26, 2010)

7. Source: Standard&Poor`s, October 26, 2010 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 Real GDP 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 current account balance (% GDP) Current account balance % GDP (2009) Source: Eurostat Source: Eurostat, October 2010 (provisional data)

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. Total Assets of Banks % GDP, 2008 702 694 582 2523 500 450 400 350 300 250 200 150 100 50 0 Italy Spain Malta France Austria Ireland Cyprus Greece Finland Belgium Portugal Slovakia Slovenia Germany Luxemburg Netherlands Banking system still to catch up Source: Bank of Slovenia Annual Report 2008; EU banking structures; Statistical Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis

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: Ameco, DG ECOFIN

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 supervisory institution’s endorsement Measures to be 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 • 2010 and 2011 adopted budgets foresee 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 • Government proposal of further modernization and reform of pension system to contribute to long-term sustainability of public finances is to be submitted to the parliament for discussion and to be passed into law.

33. Financing Programme

34. The 2010 borrowing requirement • The max. gross borrowing: 4.4 Bn. EUR • Purpose of borrowing: • Gross borrowing for 2010 central government budget: 3.6 Bn. EUR • Pre-financing of debt due for redemption in 2011 and 2012: 2.2 Bn. EUR • Already executed borrowing: • Pre-financing of part of 2010 repayments executed in 2009: 1.4 Bn. EUR • Central Government Budget financing 2.5 Bn. EUR • Expected structure of borrowing at the end of 2010: • Short term (end of the year) 25 Ml. EUR • Long term Up to2.5 Bn. EUR

35. The 2011 borrowing requirement • The max. gross borrowing: 4.5 Bn. EUR • Purpose of borrowing: • Gross borrowing for 2011 central government • budget:3.2 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) 50Ml. EUR • Long term Up to2.5 Bn. EUR

36. 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

37. Strong performance and support Source: MTS Slovenia, Bloomberg, 19October 2010; Ministry of Finance Slovenia 03/15: Slovenia 03/15: 36

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

39. 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 (31.12.09) Source: Ministry of Finance

40. Contact details • Republic of SloveniaMinistry of Finance • Treasury Directorate Boštjan PlešecDirector Generalbostjan.plesec@mf-rs.siTel: +386 1 369  6410 • Public Debt Management DepartmentMarija EberHeadmarija.eber@mf-rs.siTel: +386 1 369  6442