Download Slovenia: Euro Area Member Presiding the EU

Slovenia: Solid fundamentals protect
during the international crisis
October 2010
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
1
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
2
Country Overview
3
Slovenia: Member of the Euro area for 3 years
 Population of 2 million
Austria
Italy
Hungary
 Track record of strong
macroeconomic performance
Slovenia
Croatia
 GDP per capita 87 % of EU average
 Stable multi-party democracy
 Joined the euro area in January 2007
 Joined OECD in June 2010
4
A strong sovereign credit in the euro zone
 Double A credit rating (Aa2 / AA /AA) with
Peer credit ratings
stable outlook
 Well diversified and open economy
Belgium
Aa1/ AA+/AA+
 Sustained real convergence
Slovenia
Aa2 / AA /AA
 Low public debt burden (35.4 % of GDP in
2009)
Italy
Aa2/A+/AA-
 ECB eligibility for government paper
 Well recognised economic and
political stability
Portugal
A1/ A- /AA-
Source: Mood’y/ Standard & Poors/Fitch
(October 26, 2010)
5
Also a strong credit in European Union
AAA
AA+
AA
AAA+
A
ABBB
BBBBB+
BB
AU; DK; FI; FR; DE; LU; NL; SE; UK
BE
SLOVENIA; ES
IRL
IT; CY; SK
MT; EE; CZ
PT, PL
BG; LT
HU
GR, RO
LV
Source: Standard&Poor`s, October 26, 2010
6
Strong Economic Performance over Past Years
7
High and sustained degree of real convergence
GDP per capita PPS 2009 (EU-27=100)
140
120
100
80
60
40
20
Latvia
Lithuania
Hungary
Estonia
Slovakia
Malta
Portugal
Czech Republic
Slovenia
Greece
Cyprus
Italy
Spain
France
Finland
United Kingdom
Germany
Belgium
Denmark
Sweden
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
2004
Euro area (16 countries)
Source: Eurostat
2005
2006
2007
2008
2009
Slovenia
8
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
Euro area (16 countries)
Slovenia
Source: Eurostat
9
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
10
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
11
Source: Eurostat
12
Austria
Netherlands
Luxembourg
Malta
Germany
Cyprus
Slovenia
Italy
Finland
Belgium
0
France
30
Portugal
50
Ireland
60
Slovakia
80
Spain
Malta
Italy
Spain
Slovakia
Greece
Belgium
Ireland
France
Luxembourg
Portugal
Slovenia
Finland
Cyprus
Germany
Austria
Netherlands
Good labour market performance
Total employement in 2009 (%)
90
Unemployement rate in August 2010 (%)
25
70
20
15
40
10
20
10
5
0
Competitiveness preserved and convergence to EU levels
sustained
Real effective exchange rate index
(1999 = 100)
Productivity
Labour productivity per person employed (EU=27)
130
120
125
120
110
115
100
110
105
90
100
95
80
90
70
85
80
60
1998 1999
2000 2001 2002 2003
EU (27 countries)
Source: Eurostat
2004 2005 2006 2007
Germany
2008 2009
1998 1999
Slovenia
2000 2001 2002 2003
2004 2005 2006 2007
Euro area (16 countries)
2008 2009
Slovenia
Source: Eurostat
13
Maintaining market share in EU-15
Exports of goods from Slovenia to EU-15 as % share of EU-15 intra-EU imports
Source: Eurostat
14
Strong investment over the past years
Slovenia current account balance (% GDP)
Current account balance % GDP (2009)
2003
8
2004
2005
2006
2007
2008
2009
0
6
-1
4
2
-2
-6
Luxembourg
Netherlands
Belgium
Slovenia
France
Ireland
Italy
Malta
Cyprus
Slovakia
-4
Portugal
-2
Greece
0
-3
-4
-8
-5
-10
-12
-6
-14
-7
Source: Eurostat, October 2010 (provisional data)
Source: Eurostat
15
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
16
Banking system still to catch up
Total Assets of Banks % GDP, 2008
2523
702
694
582
500
450
400
350
300
250
200
150
100
50
0
Source: Bank of Slovenia Annual Report 2008; EU banking structures; Statistical
Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis
17
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
18
Policy response to global financial crisis
19
Global financial crisis and collapse of trade
Exports of goods and services (annual % change)
20
15
10
5
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010f 2011f
-5
-10
-15
-20
Euro area
Source: ECB
Source: Eurostat
Slovenia
20
External openness strongly affected growth and investment
Gross fixed capital formation; Growth % (q/q-4)
Euro area (16 countries)
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
2007Q4
2007Q3
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
Slovenia
Source: Eurostat
21
Stabilization and gradual recovery in line with major
trading partners
Industrial production (exluding construction); Growth % (m/m-12)
110
105
100
95
90
85
Euro area (16 countries)
Germany
avg.10
jul.10
jun.10
maj.10
apr.10
mar.10
feb.10
jan.10
dec.09
nov.09
okt.09
sep.09
80
Slovenia
Source: Eurostat
22
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
23
The downturn also reflected in inflation trends
HICP annual rate of change (%)
2,0
1,8
1,6
1,4
1,2
1,0
0,8
0,6
0,4
0,2
Euro area (16 countries)
sep.10
avg.10
jul.10
jun.10
maj.10
apr.10
mar.10
feb.10
jan.10
dec.09
nov.09
okt.09
0,0
Slovenia
Source: Eurostat
24
Coordinated EU policy response to crisis….
Source: European Commission. Ameco
25
…in line with existing debt levels
Source: Ameco, DG ECOFIN
26
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:
1. slowing down the impact of the crisis on enterprises;
2. enhancing enterprise financial liquidity and safeguarding existing jobs;
3. 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.
27
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
28
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
29
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
30
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.
31
Financing Programme
32
The 2010 borrowing requirement
 The max. gross borrowing:
4.4 Bn. EUR
 Purpose of borrowing:
—
—
Gross borrowing for 2010 central government
budget:
Pre-financing of debt due for redemption in 2011
and 2012:
3.6 Bn. EUR
2.2 Bn. EUR
 Already executed borrowing:
—
—
Pre-financing of part of 2010 repayments executed
in 2009:
Central Government Budget financing
1.4 Bn. EUR
2.5 Bn. EUR
 Expected structure of borrowing at the end of 2010:
—
—
Short term (end of the year)
Long term
25 Ml. EUR
Up to 2.5 Bn. EUR
33
The 2011 borrowing requirement
 The max. gross borrowing:
4.5 Bn. EUR
 Purpose of borrowing:
—
—
Gross borrowing for 2011 central government
budget:
Pre-financing of debt due for redemption in 2012
and 2013:
3.2 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
50 Ml. EUR
Up to 2.5 Bn. EUR
34
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
35
Strong performance and support
Name
Slovenia
02/12
Slovenia
04/14
Slovenia
03/15
Slovenia
02/16
Slovenia
03/18
Slovenia
02/19
Slovenia
01/20
Slovenia
09/24
Ratings
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Aa2/AA/A
A
Size EUR
mln
Issue Date
Maturity
Cpn
Mid Price
Mid Yield
Bid Spr vs
MS (at
lunch)
Bid Spr vs
MS
(current)
bps
Dur (yrs)
1
05.02.2009 05.02.2012
4,25%
104,05
1,07%
165 bps
-34,1
1,20
1,500
02.04.2009 02.04.2014
4,375%
108,7
1,75%
160 bps
3,9
3,07
1,000
17.03.2010 17.03.2015
2,750%
102,78
2,08%
37 bps
19,7
4,03
1,066
17.01.2005 17.02.2016
4,000%
107,52
2,47%
-
43,9
4,60
1,000
22.03.2007 22.03.2018
4,000%
105,92
3,09%
-8 bps
71,7
6,17
1,000
06.02.2008 06.02.2019
4,375%
106,96
3,40%
-3 bps
92,5
6,64
1,500
26.01.2010 26.01.2020
4,125%
104,8
3,51%
68 bps
91
7,36
1,500
09.09.2009 09.09.2024
4,625%
109,78
3,71%
80 bps
79,2
10,03
Source: MTS Slovenia, Bloomberg, 19 October 2010; Ministry of Finance
Slovenia 03/15:
Slovenia 03/15:
Distribution by investor type
Distribution by region
Austria
4.1%
Banks 46.9%
Switzerland
3.8%
Other
2.2%
Scandinavia
5.6%
Other 0.2%
Germany
33.5%
Slovenia
10.2%
Central
Banks /
Official
Institutions
3.7%
France
8.3%
Pension
funds 11.7%
Asset
Managers
37.5%
the UK
9.9%
Benelux
10.9%
Italy
11.5%
36
Strong relative performance in turbulent times
Source: MTS.
37
Favourable state budget debt portfolio
Stable debt service profile
Most debt denominated in local
currency
Outstanding debt by type of currency (31.12.09)
 EUR: 99.8%
 USD: 0.0%
 Other: 0.2%
Source:
Ministry of Finance
38
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
[email protected]
Tel: +386 1 369 6442
39