Meeting of the Governing Board of the Bank of Slovenia of 17 May 2011

1. The Governing Board of the Bank of Slovenia discussed and adopted the May 2011 Financial Stability Review. It will be presented at a press conference held today, Friday, 20 May 2011, at 1 pm at the Bank of Slovenia’s premises.

2. The Governing Board warns of the danger of deepening imbalance in the public finances, and supports the implementation of the necessary pension reform. Any rejection of the necessary adjustments to the pension system could in the medium and long terms cause a divergence between pension commitments and the ability to secure the requisite public/budget funds, which would widen the general government deficit and thus the general government debt, which has already almost doubled in recent years.

A rejection of the pension reform would sharply reduce the government’s ability to carry out the necessary structural reforms and fiscal consolidation. According to the latest projections of the fiscal deficit in the government’s Stability Programme, the deficit is not expected to narrow this year, and in contrast to previous commitments is forecast to remain at a level of 5.5% of GDP. Slovenia is therefore likely to face a downgrading of its sovereign debt, and thus a rise in interest rates on borrowing abroad . There would be a deterioration in access to foreign funding on the international financial markets for the government, banks, companies and individuals, which would reduce competitiveness and economic growth.

Slovenia is one of the countries more heavily exposed to an ageing population, and growth in expenditures on healthcare and pensions is expected to be high. Without adjustments in the pension system now, the measures required later can be expected to be even stricter, as otherwise it will be impossible to provide funding for pensions in the current extent. Such stricter measures would also have to focus on stemming budget expenditures. An increase in the tax burden and in social contributions would further reduce competitiveness, and the chances of a recovery in the economy, which has already been hit hard by the crisis. From the point of view of the stabilisation of the macroeconomic situation, the adjustments are unequivocally vital to maintaining the sustainability of the public finances.

3. The Governing Board issued the Regulation on the issue of collector coins for sale and circulation to mark the 20th anniversary of the independence of the Republic of Slovenia (2,500 gold coins, 3,500 silver coins and 300,000 bimetallic collector coins). The coins will be on sale at Deželna banka Slovenije d.d. and in circulation from 20 June 2011.