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The sustainability of public
finances in Slovenia:
medium- and long-term
challenges
Per Eckefeldt
European Commission
Ljubljana, 8 July 2014
The views expressed herein are those of the individual authors and do not necessarily reflect
the views of the European Commission.
Short-term risk for
indicator and
fiscal crisis (S0
market perceptions)
Slovenia
2009
2013
Financial market information
Sovereign Ratings as
of May14, SI
Moody's
S&P
Fitch
Local currency
long term
short term
Ba1
AA-2
BBB+
Foreign currency
long term
short term
Ba1
AA-2
BBB+
Financial market information as of May 2014, SI
Sovereign yield
spreads(bp)*
CDS (bp)
2-year
n.a.
10-year
5-year
n.a.
149
2
Short-term risk for fiscal crisis (S0 indicator)
• Risks markedly reduced since 2009 in the EA countries and SI
High risk
Low risk
3
Gov’t debt prospects
SI and EA
(1)
Stochastic debt projections 2014-18, SI
(% of GDP)
Stochastic
debt
projections:
110
100
90
80
70
60
50
40
2011
2012
2013
2014
p10_p20
2015
2016
2017
p20_p40
p40_p60
p60_p80
p80_p90
p50
gdebt_gdp_DSM
2018
Debt maturity structure (as % of GDP), baseline scenario - SI
90
80
70
60
50
Rather stable
baseline debt
developments
in SI while on a
downward path
in the EA, but
with some
uncertainty
40
30
20
10
00
2014
2015
2016
New long-term debt
Rolled-over short-term debt
2017
2018
2019
2020
New short-term debt
Outstanding (non maturing) debt
2021
2022
2023
Rolled-over long-term debt
2024
4
Gov’t debt prospects
SI and EA
(2)
(2) Snow ball effect
1.2
3.3
2.7
1.8
0.8
Interest expenditure
1.9
2.2
2.6
3.0
2.9
Growth effect
-0.3
1.2
0.6
-0.5
-1.1
Inflation effect
-0.4
-0.1
-0.5
-0.7
-1.0
(3) Stock flow adjustm ent and one-off m easures
3.7
2.2
13.0
6.3
0.0
Per memo
Structural def icit
5.0
2.7
2.5
2.5
2.4
Notes: f or primary balance, structural primary balance and structural def icit, a positive sign indicates a def icit in the table above.
-0.1
2.3
-1.0
-1.4
0.0
-0.5
2.1
-1.1
-1.6
0.0
-0.4
2.0
-0.8
-1.6
0.0
2.0
2.1
2.1
2.0
Deterministic
debt
projections:
Gross public debt as % of GDP - SI
110
0.3
2.5
-0.9
-1.2
0.0
110
100
100
90
90
80
80
70
70
60
Gross public
Risks much
50
higher in both
40
SI2011
and
the EA in
2012 2013 2014 2015 2016
the event of a
return to the Gross public
110
historically
100
observed lower
90
structural fiscal
80
positions, and
70
even more so in
60
combination
50
with historical
40
2011 2012 2013 2014 2015 2016
interest (and 5
growth) rates
60
50
40
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Baseline no-policy change scenario
No-policy change scenario without ageing costs
Historical SPB scenario
Combined historical scenario
Baseline no-pol
Stability and Gro
Stability and Co
Gross public debt as % of GDP - SI
110
100
90
80
70
60
50
40
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Baselin e n o-policy chan ge scena rio
Standa rdized (permane nt) neg ative shock (-1p .p.) to the sho rt- and lon g-term intere st r ate s on newly issued and rolle d o ver de bt
Standa rdized (permane nt) positive shock (+ 1p.p.) to the short- and long -ter m interest rates o n n ewly issu ed a nd rolled over debt
Baselin e n o-policy chan
Standa rdized (permane
Standa rdized (permane
Standa rdized (permane
Standa rdized (permane
Gov’t debt prospects
SI and EA
(3)
Deterministic debt projections:
Risks relating to the fiscal starting point: necessary to
sustain a primary surplus so as to keep gov’t debt levels in
check in SI (in contrast with past experience)
6
Gov’t debt prospects
SI and EA
60
60
50
50
40
(4)
40
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Baseline no-policy change scenario
No-policy change scenario without ageing costs
Historical SPB scenario
Combined historical scenario
Gross public debt as % of GDP - SI
110
Baseline no-policy change scenario
Stability and Growth Pact (SGP) institutional scenario
Stability and Convergence Programme (SCP) scenario
110
100
100
90
90
80
80
70
70
60
60
50
50
40
Gross public debt as % of GDP - SI
40
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Baseline no-policy change scenario
Standardized (permanent) negative shock (-0.5p.p.) on GDP growth
Standardized (permanent) positive shock (+0.5p.p.) on GDP growth
Standardized (permanent) negative shock (-0.5p.p.) on inflation
Standardized (permanent) positive shock (+0.5p.p.) on inflation
Baseline no-policy change scenario
Standardized (permanent) negative shock (-1p.p.) to the short- and long-term interest rates on newly issued and rolled over debt
Standardized (permanent) positive shock (+1p.p.) to the short- and long-term interest rates on newly issued and rolled over debt
Gross public debt as % of GDP - SI
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
Gross public debt as % of GDP - SI
Sensitivity
analysis:
introducing
shocks to the
key
assumptions
underpinning
the baseline
debt
projections
40
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Baseline no-policy change scenario
Standardized (permanent) negative shock (-1p.p.) to the short- and long-term interest rates on newly issued and rolled over debt
Enhanced (permanent) positive shock (+2p.p./+1p.p) to the short- and long-term interest rates on newly issued and rolled over debt
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Baseline no-policy change scenario
Enhanced (permanent) negative shock (-stdev(11-13)/-0.5p.p.) on GDP growth
Enhanced (permanent) positive shock (+stdev(11-13)/+0.5p.p.) on GDP growth
Standardized (permanent) negative shock (-0.5p.p.) on inflation
Standardized (permanent) positive shock (+0.5p.p.) on inflation
7
Gov’t debt prospects
SI and EA
0.8
2.9
1.1
1.0
0.0
2.4
above.
0.3
2.5
-0.9
-1.2
0.0
-0.1
2.3
-1.0
-1.4
0.0
-0.5
2.1
-1.1
-1.6
0.0
-0.4
2.0
-0.8
-1.6
0.0
-0.6
1.9
-0.9
-1.6
0.0
-0.9
1.6
-1.0
-1.5
0.0
-0.9
1.7
-1.1
-1.5
0.0
-0.9
1.8
-1.2
-1.5
0.0
2.0
2.1
2.1
2.0
1.9
1.7
1.8
2.1
(5)
-0.5
2.1
-1.2
-1.5
0.0
2.6
Deterministic
debt
projections:
Gross public debt as % of GDP - SI
110
100
90
80
policy scenarios
70
60
50
40
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2022
2023
2024
Baseline no-policy change scenario
Stability and Growth Pact (SGP) institutional scenario
Stability and Convergence Programme (SCP) scenario
Gross public debt as % of GDP - SI
110
100
90
80
70
60
50
40
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Baselin e n o-policy chan ge scena rio
Standa rdized (permane nt) neg ative shock (-0.5p.p.) o n G DP gro wth
Standa rdized (permane nt) positive shock (+ 0.5p.p.) on GDP growth
Standa rdized (permane nt) neg ative shock (-0.5p.p.) o n in fla tion
Standa rdized (permane nt) positive shock (+ 0.5p.p.) on inflation
Government debt
very high in the SI
and the EA, but:
firstly, sticking to
the EU fiscal rules
(SGP); and,
secondly, rigorously
implementing the
fiscal plans laid
down in the 2014
SCPs
would set it on a
clear downward path
(towards 60% of 8
GDP)
Fiscal sustainability gaps in the medium/longterm significant
challenges in SI (1)
9
Fiscal sustainability gaps in the medium/longterm significant
challenges in SI (2)
12
Sustainability indicator (S2)
10
8
6
4
2
0
IT
PT
LV
ES
HU
FR
EA
EE
DE
HR
DK
EU
PL
IE
BG
SE
LT
RO
UK
AT
SK
S2
S2 (SCP scenario)
CZ
NL
FI
MT
SI
BE
-2
CoA - Others
CoA - HC&LTC
CoA - Pensions
IBP
S2 (COM 2013 scenario)
-4
10
LU
Thank you for your attention!
11
Background slides