Republic of Slovenia: 2022 Article IV Consultation-Press Release; and Staff Report

January2023 IMFCountryReportNo.23/27 REPUBLICOFSLOVENIA 2022ARTICLEIVCONSULTATION—PRESSRELEASE;ANDSTAFFREPORT UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2022ArticleIVconsultationwithSlovenia,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressRelease. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonlapse-of-timebasis,followingdiscussionsthatendedonNovember21,2022,withtheofficialsofSloveniaoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonDecember13,2022. AnInformationalAnnexpreparedbytheIMFstaff. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/06 IMFExecutiveBoardConcludes2022ArticleIVConsultationwiththeRepublicofSlovenia FORIMMEDIATERELEASE Washington,DC–January18,2023:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withtheRepublicofSloveniaonWednesday,January11,2023,andendorsedthestaffappraisalwithoutameeting. Sloveniarecoveredquicklyfromthepandemic,withGDPincreasingbymorethan8percentin2021,largelydrivenbyexportsandprivateconsumption.Strongeconomicperformancehascontinuedinto2022,butgrowthslowedsignificantlyinthethirdquarterasspilloversfromthewarinUkraineandrisingpricesweighedoneconomicactivity.Thelabormarketistight,withunemploymentatanhistoriclow,butwagegrowthremainslowerthaninflation. Growthisexpectedtoslowfurtherto1.8percentin2023from5.4percentin2022,reflectingweakerexternaldemandandsubduedprivateconsumptionandinvestment,partlyoffsetbyanexpectedaccommodativefiscalpolicystance.Inflationisexpectedtodeclinebutwilllikelyremainelevatedforsometimebeforereturningtotarget.Theeconomicoutlookishighlyuncertain,andrisks,mainlyfromwar-relatedspillovers,aremostlyonthedownside.Overthemediumterm,growthisprojectedtoreboundtoitspotentialofaround3percent,underpinnedbyinvestmentsandreforms,includingthosesupportedbyEUfunds. ExecutiveBoardAssessment2 Afteranimpressivepost-pandemicrecovery,Sloveniahascontinuedtoachievestrongeconomicgrowth,buttheoutlookhasbecomemorechallenging.RealGDPincreasedbymorethan8percentin2021,thussurpassingitspre-pandemiclevel,andeconomicactivityremainedstrongin2022.Staff’spreliminaryassessmentsuggeststhattheexternalpositionin2022ismoderatelystrongerthanthelevelimpliedbyfundamentalsanddesirablepolicies. Russia’sinvasionofUkraineposesconsiderablechallenges,however,mainlythroughweakerexternaldemandandhighcommodityprices,whichareweighingontheeconomy.Growthisexpectedtoslowin2023withdownsiderisksstemmingmainlyfromwar-relatedspillovers. Inflationisexpectedtofall,butremainelevated,possiblytriggeringhigherwagedemandsandhigherinflationexpectations. Atighterfiscalstanceiswarrantedin2023andenergypricemitigationmeasuresshouldbemoretargeted.Tightfiscalpolicyshouldsupportmonetarypolicyintheefforttoreduceinflation.Withapositiveoutputgap,tightlabormarket,andrisingcoreinflation,itwouldbe 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2ManagementhasdeterminedthatthisArticleIVConsultationmeetstheestablishedcriteriaassetoutinBoardDecisionNo.15207(12/74);(i)therearenoacuteorsignificantrisks,orgeneralpolicyissuesrequiringaBoarddiscussion;(ii)policiesorcircumstancesareunlikelytohavesignificantregionalorglobalimpactinthenearterm;and(iii)theuseofFundresourcesisnotunderdiscussionoranticipated. 2 prudenttosavepartofthelargecontingencyfundandtoreducethefiscaldeficitincyclicallyadjustedtermsrelativeto2022.Publicdebtremainssustainablebutisvulnerabletoshocks.Temporaryandtargetedsupportshouldbedeployedtoprotectthevulnerableagainsthighenergypricesandlesstargetedmeasuresshouldbephasedout.Shoulddownsiderisksmaterialize,automaticstabilizersshouldbeallowedtooperatefullyandincaseofalargeadversedemandshockconsiderationcouldbegiventodeployingdiscretionaryfiscalstimulus. Agrowth-friendlyconsolidationwouldhelprebuildfiscalbuffers.Improvingthetaxpolicymixtoreducerelianceonlabortaxes,whileincreasingpropertytaxesandbroadeningthetaxbase,couldgenerateadditionalrevenueandinduceapositivelaborsupplyresponse. Reformingthepensions,health,andlong-termcaresystemsisapriority.Onpensions,whichaccountforthebulkofage-relatedfiscalcostsoverthelongterm,optionsincludegradualadjustmentstotheretirementageandto