Slovenia: Solid fundamentals protect during the international crisis

Slovenia: Solid fundamentals protect during the international crisis

January 2011

Ministry of FinanceRepublic 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

Austria

Slovenia

Hungary

Croatia

Italy

6

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

SloveniaAa2 / AA /AA

BelgiumAa1/ AA+/AA+

PortugalA1/ A- /A+

ItalyAa2/A+/AA-

Source: Moody’s/ Standard & Poors/Fitch (January 3rd, 2011)

Also a strong credit in European Union

Source: Standard & Poor`s, January 3rd, 2011

7

AAA AU; DK; FI; FR; DE; LU; NL; SE; UK

AA+ BE

AA SLOVENIA; ES

A+ IT; SK

A MT; EE; CZ; IRL; CY

A- PT, PL

BBB BG; LT

BBB- HU

BB+ GR, RO, LV

8

Strong Economic Performance over Past Years

9

High and sustained degree of real convergence

Source: Eurostat

GDP per capita PPS 2009 (EU-27=100)

0

20

40

60

80

100

120

140

Ne

the

rla

nd

s

Ire

lan

d

Au

str

ia

De

nm

ark

Sw

ed

en

Be

lgiu

m

Ge

rma

ny

Fin

lan

d

Un

ite

d K

ing

do

m

Fra

nce

Ita

ly

Sp

ain

Cyp

rus

Gre

ece

Slo

ve

nia

Cze

ch

Re

pu

blic

Ma

lta

Po

rtu

ga

l

Slo

va

kia

Hu

ng

ary

Esto

nia

Lith

ua

nia

La

tvia

GDP per capita in PPS (EU-27=100)

70

75

80

85

90

95

100

105

110

115

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Euro area (16 countries) Slovenia

10

Growth led by exports and investments

Source: Eurostat

Real GDP

-10

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f

% o

f ch

ang

e


11

Industry, agriculture and services value added, 2009

Slovenia has a highly diversified economy

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

Exports of goods (2009) Geographic distribution, 2009

Source: SORS

Food and beverages; 4,2%

Fuels and raw materials; 6,3%

Chemicals products; 16,5%

Manufactured goods; 32,8%

Machinery and equipment; 40,3%

13

Good labour market performance

Source: Eurostat

Total employment in 2009 (%)

0

10

20

30

40

50

60

70

80

90

Neth

erla

nds

Austr

ia

Germ

any

Cypr

us

Finl

and

Slov

enia

Portu

gal

Luxe

mbo

urg

Fran

ce

Irela

nd

Belg

ium

Gree

ce

Slov

akia

Spai

n Italy

Mal

ta

Unemployment rate in October 2010 (%)

0

5

10

15

20

25

Spain

Slov

akia

Irelan

d

Portu

gal

Fran

ce Italy

Belgi

um

Finlan

d

Slov

enia

Cypru

s

Germ

any Ma

lta

Luxe

mbou

rg Austr

ia

Nethe

rland

s

14

Competitiveness preserved and convergence to EU levels sustained

Source: Eurostat

ProductivityReal effective exchange rate index (1999 = 100)

Source: Eurostat

80

85

90

95

100

105

110

115

120

125

130

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

European Union (27 countries) Germany Slovenia

Labour productivity per person employed (EU=27)

60

70

80

90

100

110

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


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

Source: Eurostat, January 2011

Current account balance % GDP (2009) Slovenia´s current account balance (% GDP)

Source: Eurostat

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Gre

ece

Portu

gal

Cypr

us

Mal

ta

Italy

Slov

akia

Irela

nd

Fran

ce

Slov

enia

Belg

ium

Neth

erla

nds

Luxe

mbo

urg

-7

-6

-5

-4

-3

-2

-1

0

2003 2004 2005 2006 2007 2008 2009

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

Outstanding gross external debt in euro area % GDP (2009)

0

200

400

600

800

1000

1200

1400

1600

18

Banking system still to catch up

Source: AMECO, ECB"EU banking structures"

Total Assets of Financial Credit % GDP, 2009

19

Housing market: High owner occupation rate and low indebtedness

Institutional mortgage market characteristics in euro area

0

10

20

30

40

50

60

70

80

90

Nethe

rland

s

Irelan

d

Portu

gal

Spain

Cypru

s

Germ

any

Luxe

mbu

rgM

alta

Belgium

Finlan

d

Franc

e

Greec

e

Austri

aIta

ly

Sloven

ia

Owner-occupation rate (2005) Debt for house purchase-to-GDP ratio 2007

Source: ECB

20

Policy response to global financial crisis

21

Global financial crisis and collapse of trade

Source: ECB Source: Eurostat

Banking sector`s Loans to Non-Financial Corporations Sector, annual growth rate

%

0

5

10

15

20

25

30

35

40

-4

-2

0

2

4

6

8

10

12

14

16

2005

q01

2005

q02

2005

q03

2005

q04

2006

q01

2006

q02

2006

q03

2006

q04

2007

q01

2007

q02

2007

q03

2007

q04

2008

q01

2008

q02

2008

q03

2008

q04

2009

q01

2009

q02

2009

q03

2009

q04

2010

q01

2010

q02

2010

q03

Slovenia (right axis) Euro area (left axis)

Exports of goods and services (annual % change)

-20

-15

-10

-5

0

5

10

15

20

2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f


22

External openness strongly affected growth and investment

Source: Eurostat

Gross fixed capital formation; Growth % (q/q-4)

-30-25-20

-15-10-505

10

152025

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3


23

Stabilization and gradual recovery in line with major trading partners

Source: Eurostat

Industrial production (excluding construction); Growth % (m/m-12)

80

85

90

95

100

105

11020

09M

12

2010

M01

2010

M02

2010

M03

2010

M04

2010

M05

2010

M06

2010

M07

2010

M08

2010

M09

2010

M10

Euro area (16 countries) Germany Slovenia

24

Gradual recovery to influence fiscal consolidation path

Source: European Commission,DG Economy and Finance, Eurostat

Economic Sentiment Indicator

0

20

40

60

80

100

120

140

Euro area Slovenia

25

The downturn also reflected in inflation trends

Source: Eurostat

HICP annual rate of change (%)

0,0

0,5

1,0

1,5

2,0

2,520

09M

12

2010

M01

2010

M02

2010

M03

2010

M04

2010

M05

2010

M06

2010

M07

2010

M08

2010

M09

2010

M10

2010

M11


26

Coordinated EU policy response to crisis….

Source: European Commission. Ameco

27

…in line with existing debt levels

Source: Eurostat

General Government debt in % of GDP 2009

0

20

40

60

80

100

120

140G

ree

ce

Italy

Be

lgiu

m

Fra

nce

Po

rtu

ga

l

Ge

rma

ny

Ma

lta

Au

stri

a

Ire

lan

d

Ne

the

rla

nd

s

Cyp

rus

Sp

ain

Po

lan

d

Fin

lan

d

De

nm

ark

Slo

ven

ia

Slo

vaki

a

Cze

ch R

ep

ub

lic

Bu

lga

ria

Lu

xem

bo

urg

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 are being gradually phased out with normalization of financial markets and in accordance with EU decisions

30

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

General government deficit as % GDP and deficit structure in 2009

-2,7

-1,6

-5,5

0,5

-2,7

-2,2

-1,4 -1,3-0,9

-6

-5

-4

-3

-2

-1

0

1

2003 2004 2005 2006 2007 2008 2009

Deficit

Discretionary response

Automatic stabilizers

Stability Programme submitted to EU

General government deficit to return into the scope of Maastricht criteria (3% of GDP) by 2013

General government deficit as % of GDP

-6

-5

-4

-3

-2

-1

0

2010 2011 2012 2013

Source: Ministry of Finance 31

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.

32

33

Financing Programme

2011 borrowing requirement

34

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 2012

and 2013: 1.3 Bn. EUR

Already executed borrowing:— Pre-financing of part of 2011 repayments executed

in 2010: 0.3 Bn. EUR— Central Government Budget financing: 1.5 Bn. EUR

Expected structure of borrowing at the end of 2011:— Short term (end of the year) 30 Ml. EUR— Long term Up to

3 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, 31 January 2011; Ministry of Finance

Distribution by investor typeDistribution by region

Name RatingsSize EUR

mlnIssue Date Maturity Cpn

Bid Spr vs MS (at lunch)

Bid Spr vs MS (current)

Dur (yrs)

Slovenia 02/12 Aa2/AA/AA 1 05.02.2009 05.02.2012 4,250% 165 bps - 37 bps 1,0

Slovenia 04/14 Aa2/AA/AA 1,5 02.04.2009 02.04.2014 4,375% 160 bps 41 bps 2,8

Slovenia 03/15 Aa2/AA/AA 1 17.03.2010 17.03.2015 2,750% 37 bps 47 bps 3,7

Slovenia 02/16 Aa2/AA/AA 1,066 17.01.2005 17.02.2016 4,000% - 79 bps 4,3

Slovenia 03/18 Aa2/AA/AA 1 22.03.2007 22.03.2018 4,000% -8 bps 89 bps 5,9

Slovenia 02/19 Aa2/AA/AA 1 06.02.2008 06.02.2019 4,375% -3 bps 94 bps 6,4




Bank39,0%

Central Bank3,4%

Fund Manager36,1%

Insurance Company

14,3%

Pension Fund5,8%

Supranational0,8%

Other0,7%

Asia0,3%

Austria / Germany

28,6%

Benelux9,3%

CEE2,4%

France14,6%

Iberia1,0%

Italy7,1%

Other EMU1,6%

Rest of the World1,5%

Scandinavia4,9%

Slovenia14,8%

Swiss2,5%

UK / Ireland11,4%

37

Strong relative performance in turbulent times

Source: MTS.

38

Favourable state budget debt portfolio

Stable debt service profile Most debt denominated in local currency

Source: Ministry of Finance

Outstanding debt by type of currency (31.12.10)

EUR: 99.7%

USD: 0.0%

Other: 0.3%

0

500

1.000

1.500

2.000

2.500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Debt service projection

Repayments Interest

39

Contact details

Republic of SloveniaMinistry of Finance

Treasury Directorate

Boštjan PlešecDirector [email protected]: +386 1 369 6410

Public Debt Management Department

Marija EberHead of Department [email protected]: +386 1 369 6442

Documents

Slovenia: Solid fundamentals protect during the international crisis