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1
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
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
Austria
Italy
Hungary
 Track record of strong
macroeconomic performance
Slovenia
Croatia
 GDP per capita over 88 % of EU
average
 Stable multi-party democracy
 Joined the euro area in January 2007
 Joined OECD in June 2010
6
A strong sovereign credit in the euro zone
 Double A credit rating (Aa2 / AA /AA) Well
Peer credit ratings
diversified and open economy
 Sustained real convergence
Belgium
Aa1/ AA+/AA+
 Low public debt burden (35.4 % of GDP in
2009)
Slovenia
Aa2 / AA /AA
 ECB eligibility for government paper
Italy
Aa2/A+/AA-
 Well recognised economic and
political stability
Portugal
A1/ A- /A+
Source: Moody’s/ Standard & Poors/Fitch
(January 3rd, 2011)
7
Also a strong credit in European Union
AAA
AU; DK; FI; FR; DE; LU; NL; SE; UK
AA+
BE
AA
SLOVENIA; ES
A+
A
IT; SK
MT; EE; CZ; IRL; CY
A-
PT, PL
BBB
BG; LT
BBBBB+
HU
GR, RO, LV
Source: Standard & Poor`s, January 3rd, 2011
8
Strong Economic Performance over Past Years
9
High and sustained degree of real convergence
GDP per capita PPS 2009 (EU-27=100)
140
120
100
80
60
40
20
Latvia
Lithuania
Estonia
Hungary
Slovakia
Portugal
Malta
Czech Republic
Slovenia
Greece
Cyprus
Spain
Italy
France
United Kingdom
Finland
Germany
Belgium
Sweden
Denmark
Austria
Ireland
Netherlands
0
GDP per capita in PPS (EU-27=100)
120
115
110
105
100
95
90
85
80
75
70
1998
1999
2000
2001
2002
2003
Euro area (16 countries)
Source: Eurostat
2004
2005
2006
2007
2008
2009
Slovenia
10
Growth led by exports and investments
Real GDP
8
6
4
% of change
2
0
-2
-4
-6
-8
-10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
Euro area (16 countries)
Slovenia
Source: Eurostat
11
Slovenia has a highly diversified economy
Industry, agriculture and services value added, 2009
 Comparable to EU
member 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)
Food and
beverages; 4,2%
Fuels and raw
materials; 6,3%
Machinery and
equipment; 40,3%
Chemicals
products; 16,5%
Manufactured
goods; 32,8%
Source: SORS
13
0
Source: Eurostat
14
Netherlands
Austria
Luxembourg
Malta
Germany
Cyprus
Slovenia
Finland
Belgium
Italy
France
Total employment in 2009 (%)
Portugal
20
Ireland
50
Slovakia
70
Spain
Malta
Italy
Spain
Slovakia
Greece
Belgium
Ireland
France
Luxembourg
Portugal
Slovenia
Finland
Cyprus
Germany
Austria
Netherlands
Good labour market performance
Unemployment rate in October 2010 (%)
90
80
25
20
60
15
40
30
10
5
10
0
Competitiveness preserved and convergence to EU levels
sustained
Real effective exchange rate index
(1999 = 100)
Productivity
Labour productivity per person employed (EU=27)
120
130
125
110
120
115
100
110
105
90
100
95
80
90
85
70
80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
60
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
European Union (27 countries)
Germany
Slovenia
Euro area (16 countries)
Source: Eurostat
Slovenia
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)
2003
8
2004
2005
2006
2007
2008
2009
0
6
-1
4
2
-2
Luxembourg
Netherlands
Belgium
Slovenia
France
Ireland
Italy
Malta
Cyprus
Slovakia
-4
Portugal
-2
Greece
0
-3
-4
-6
-8
-5
-10
-12
-6
-14
-7
Source: Eurostat, January 2011
Source: Eurostat
17
Good financial position and sound banking system
 Low external indebtedness of the
Outstanding gross external debt in euro area % GDP (2009)
economy
1000
indebtedness of about 46% of GDP
800
 Comfortable banking system capital
600
 Banking system’s external debt maturity
profile is spread out (bulk more than 2
years)
0
Ire
lan
d
domestic banking system vis-a-vis euro
area
200
M
al
ta
 Short-term net creditor position of
400
Sl
ov
ak
ia
Sl
ov
en
ia
adequacy of 11.4% and Tier 1 of 9.1%
(June 2010)
Fi
nl
an
d
Sp
ai
n
G
re
ec
e
Fr
an
ce
Au
st
ria
Po
rtu
ga
l
Be
lg
iu
Ne
m
th
er
la
nd
s
 Banking system’s cross-border
1200
an
y
third of EMU average
er
m
 Banking sector assets in GDP only one
1400
Ita
ly
30% of GDP in 2008 and 33% in 2009
1600
G
 Lowest household indebtedness in EMU
Source:IMF
 Banks have low exposure to toxic assets
18
823%
717%
388%
378%
375%
341%
326%
310%
310%
243%
226%
210%
151%
86%
Cyprus
Malta
Netherlands
Austria
France
Belgium
Spain
Germany
Portugal
Italy
Finland
Greece
Slovenia
Slovakia
0%
829%
2096%
50%
Ireland
Luxembourg
Banking system still to catch up
Total Assets of Financial Credit % GDP, 2009
500%
450%
400%
350%
300%
250%
200%
150%
100%
Source: AMECO, ECB"EU banking structures"
19
Housing market: High owner occupation rate and low
indebtedness
Institutional mortgage market characteristics in euro area
90
80
70
60
50
40
30
20
10
Owner-occupation rate (2005)
a
ve
ni
Sl
o
ly
Ita
Au
s
tri
a
ce
re
e
G
Fr
an
ce
d
nl
an
Fi
um
Be
lg
i
al
ta
M
rg
m
bu
Lu
xe
G
er
m
an
y
ru
s
C
yp
in
Sp
a
ga
l
Po
rtu
nd
la
Ire
N
et
he
rla
nd
s
0
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
Banking sector`s Loans to Non-Financial
Corporations Sector, annual growth rate
%
16
14
Exports of goods and services (annual % change)
40
20
35
15
30
10
12
10
8
25
6
20
4
5
0
15
-5
2
2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
10
0
-10
5
-4
0
2005q01
2005q02
2005q03
2005q04
2006q01
2006q02
2006q03
2006q04
2007q01
2007q02
2007q03
2007q04
2008q01
2008q02
2008q03
2008q04
2009q01
2009q02
2009q03
2009q04
2010q01
2010q02
2010q03
-2
Slovenia (right axis)
Source: ECB
Euro area (left axis)
-15
-20
Euro area (16 countries)
Source: Eurostat
Slovenia
22
External openness strongly affected growth and investment
Gross fixed capital formation; Growth % (q/q-4)
Euro area (16 countries)
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
2007Q4
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
Slovenia
Source: Eurostat
23
Stabilization and gradual recovery in line with major
trading partners
Industrial production (excluding construction); Growth % (m/m-12)
110
105
100
95
90
85
Euro area (16 countries)
Germany
2010M10
2010M09
2010M08
2010M07
2010M06
2010M05
2010M04
2010M03
2010M02
2010M01
2009M12
80
Slovenia
Source: Eurostat
24
ja
n
m .00
a
se j.0 0
p.
ja 0 0
n
m .01
aj
se .0 1
p.
ja 0 1
n
m .02
aj
se .0 2
p.
ja 0 2
n
m .03
aj
se .0 3
p.
ja 0 3
n
m .04
aj
se .0 4
p.
ja 0 4
n
m .05
aj
se .0 5
p.
ja 0 5
n
m .06
aj
se .0 6
p.
ja 0 6
n
m .07
a
se j.0 7
p.
ja 0 7
n
m .08
aj
se .0 8
p.
ja 0 8
n
m .09
aj
se .0 9
p.
ja 0 9
n
m .10
aj
se .1 0
p.
10
Gradual recovery to influence fiscal consolidation path
Economic Sentiment Indicator
140
120
100
80
60
40
20
0
Euro area
Slovenia
Source: European Commission,DG Economy and Finance, Eurostat
25
The downturn also reflected in inflation trends
HICP annual rate of change (%)
2,5
2,0
1,5
1,0
0,5
Euro area (16 countries)
2010M11
2010M10
2010M09
2010M08
2010M07
2010M06
2010M05
2010M04
2010M03
2010M02
2010M01
2009M12
0,0
Slovenia
Source: Eurostat
26
Coordinated EU policy response to crisis….
Source: European Commission. Ameco
27
0
Luxembourg
Bulgaria
Czech Republic
Slovakia
Slovenia
Denmark
Finland
Poland
Spain
Cyprus
Netherlands
Ireland
Austria
Malta
Germany
Portugal
France
Belgium
Italy
Greece
…in line with existing debt levels
General Government debt in % of GDP 2009
140
120
100
80
60
40
20
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 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
General government deficit as % GDP and deficit structure in 2009
1
0,5
0
2003
2004
2005
2006
-1
2007
2008
-0,9
-1,4
-1,3
2009
-2,7
-2
-2,2
-3
-2,7
-1,6
Deficit
Discretionary response
Automatic stabilizers
-4
-5
-5,5
-6
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
General government deficit as % of GDP
2010
2011
2012
2013
0
-1
-2
-3
-4
-5
-6
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:
Pre-financing of debt due for redemption in 2012
and 2013:
2.9 Bn. EUR
1.3 Bn. EUR
 Already executed borrowing:
—
Pre-financing of part of 2011 repayments executed
in 2010:
0.3 Bn. EUR
 Expected structure of borrowing at the end of 2011:
—
—
Short term (end of the year)
Long term
30 Ml. EUR
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
Name
Ratings
Size EUR
mln
Issue Date
Maturity
Cpn
Bid Spr vs MS (at
lunch)
Dur (yrs)
Slovenia 02/12
Aa2/AA/AA
1
05.02.2009
05.02.2012
4,25%
165 bps
1,1
Slovenia 04/14
Aa2/AA/AA
1,5
02.04.2009
02.04.2014
4,38%
160 bps
2,9
Slovenia 03/15
Aa2/AA/AA
1
17.03.2010
17.03.2015
2,75%
37 bps
3,9
Slovenia 02/16
Aa2/AA/AA
1,066
17.01.2005
17.02.2016
4,00%
-
4,5
Slovenia 03/18
Aa2/AA/AA
1
22.03.2007
22.03.2018
4,00%
-8 bps
6,1
Slovenia 02/19
Aa2/AA/AA
1
06.02.2008
06.02.2019
4,38%
-3 bps
6,5
Slovenia 01/20
Aa2/AA/AA
1,5
26.01.2010
26.01.2020
4,13%
68 bps
7,2
Slovenia 09/24
Aa2/AA/AA
1,5
09.09.2009
09.09.2024
4,63%
80 bps
9,9
Source: MTS Slovenia, Bloomberg, 04 January 2011; Ministry of Finance
Distribution by region
UK / Ireland
11,5%
Distribution by investor type
Asia
0,2%
Austria /
Germany
29,2%
Swiss
2,6%
Supranational Other
0,8%
1,0%
Pension Fund
6,4%
Insurance
Company
14,6%
Slovenia
15,8%
Scandinavia
5,6%
Rest of the
World
0,8% Other EMU
1,8% Italy
7,5%
Bank
41,5%
Benelux
9,4%
Iberia
1,2%
France
11,9%
CEE
2,5%
Fund Manager
32,4%
Central Bank
3,5%
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
Outstanding debt by type of currency (31.12.10)
 EUR: 99.7%
 USD: 0.0%
 Other: 0.3%
Source:
Ministry of Finance
39
Contact details
 Republic of Slovenia
Ministry of Finance
 Treasury Directorate
Boštjan Plešec
Director General
[email protected]
Tel: +386 1 369 6410
 Public Debt Management Department
Marija Eber
Head of Department
[email protected]
Tel: +386 1 369 6442
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