The IMF concluded that the negative loop between financial distress, fiscal consolidation and weak corporate balance sheets is prolonging the recession. Prompt policy actions are necessary to break this loop and restart the economy.
The mission expects the economy to contract further by about 2 per cent in 2013 and projects growth to turn positive in 2014, but this is predicated upon implementation of reforms and continued market access as well as a recovery in the euro area. Against this background, the risks are mainly on the downside.
Slovenia has made progress in setting up the Bank Asset Management Company (BAMC), which is an effective way to clean up the balance sheet of troubled banks, while at the same time helping restructure the highly indebted corporate sector. This process should be carried out with the utmost transparency, avoiding any moral hazard arising from the close relationship between banks, corporates, and the public sector. For this reason, the mission sees favourably the appointment of international technical experts as non-executive members of the board of the BAMC.
The front-loaded, expenditure-based, fiscal consolidation strategy remains broadly on track in 2013. The reduction in public sector wages and in transfers to households is projected to translate into sizeable expenditure savings this year, while the bulk of the impact of the pension reform will be felt over the medium term. However, the deepening of the recession, and in particular the decline in domestic demand, is projected to reduce revenues signifantly, raising the deficit (excluding bank recapitalisation costs) to about €1½ billion in 2013.
Full press release
© International Monetary Fund
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article