Slovenia: Solid fundamentals protect during the international crisis August 2010 Ministry of Finance Republic of Slovenia
Slovenia: Solid fundamentals protect during the international crisis
August 2010
Ministry of FinanceRepublic of Slovenia
2
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 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
4
Country Overview
5
Slovenia: Member of the Euro area for 3 years
Population of 2 million
Track record of strong macroeconomic performance
GDP per capita 86 % of EU average
Stable multi-party democracy
Joined the euro area in January 2007
Joined OECD in June 2010
Austria
Slovenia
Hungary
Croatia
Italy
6
A strong sovereign credit in the euro zone
Double A credit rating (Aa2 / AA /AA) with stable outlook
Well diversified and open economy
Sustained real convergence
Low public debt burden (35.9 % of GDP in 2009)
ECB eligibility for government paper
Well recognised economic and political stability
Peer credit ratings
SloveniaAa2 / AA /AA
BelgiumAa1/ AA+/AA+
PortugalA1/ A- /AA-
ItalyAa2/A+/AA-
Source: Mood’y/ Standard & Poors/Fitch (August 2010)
Also a strong credit in European Union
BB LV
BBB- HU
A- PT; PL
BB+ GR; RO
BBB BG; LT
AA+ BEAA SLOVENIA; ES
A+ IT; CY; SKA MT; CZ; EE
AA- IRL
AAA AU; DK; FI; FR; DE; LU; NL; SE; UK
Source: Standard&Poor`s, August 24, 2010
7
8
Strong Economic Performance over Past Years
9
High and sustained degree of real convergence
Source: Eurostat
GDP per capita PPS 2009 (EU-27=100)
0
20
40
60
80
100
120
140
Ire
lan
d
Ne
the
rla
nd
s
Au
str
ia
Sw
ed
en
De
nm
ark
Ge
rma
ny
Un
ite
d K
ing
do
m
Be
lgiu
m
Fin
lan
d
Fra
nce
Sp
ain
Ita
ly
Cyp
rus
Gre
ece
Slo
ve
nia
Cze
ch
Re
pu
blic
Ma
lta
Po
rtu
ga
l
Slo
va
kia
Hu
ng
ary
Esto
nia
Lith
ua
nia
La
tvia
GDP per capita in PPS (EU 27 = 100)
70
75
80
85
90
95
100
105
110
115
120
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Euro area (16 countries) Slovenia
10
Growth led by exports and investments
Real GDP
Source: Eurostat
11
Industry, agriculture and services value added, 2009
Slovenia has a highly diversified economy
Comparable to EUmember 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
Exports of goods (2009) Geographic distribution, 2009
Source: SORS
Food and beverages; 4,2%
Fuels and raw materials; 6,3%
Chemicals products; 16,5%
Manufactured goods; 32,8%
Machinery and equipment; 40,3%
13
Good labour market performance
Source: Eurostat
Total employement rate in 2009 (%)
0
10
20
30
40
50
60
70
80
90
Net
herla
nds
Aust
ria
Ger
man
y
Cyp
rus
Finl
and
Slov
enia
Portu
gal
Luxe
mbo
urg
Fran
ce
Irela
nd
Belg
ium
Gre
ece
Slov
akia
Spai
n
Italy
Mal
ta
Unemployement rate in May 2010 (%)
0
5
10
15
20
25
Spai
n
Slov
akia
Irela
nd
Portu
gal
Fran
ce Italy
Belg
ium
Finl
and
Cyp
rus
Slov
enia
Ger
man
y
Mal
ta
Luxe
mbo
urg
Net
herla
nds
Aust
ria
14
Competitiveness preserved and convergence to EU levels sustained
Source: Eurostat
ProductivityReal effective exchange rate index (1999 = 100)
Source: Eurostat
80
85
90
95
100
105
110
115
120
125
130
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
EU (27 countries) Germany Slovenia
Labour productivity per person employed (EU 27 = 100)
60
70
80
90
100
110
120
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Euro area (16 countries) Slovenia
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
Source: Eurostat, July 2010 (provisional data)
Current account balance % GDP (2009) Slovenia current account balance (% GDP)
Source: BS
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
Gre
ece
Portu
gal
Cypr
us
Mal
ta
Italy
Slov
akia
Irela
nd
Fran
ce
Slov
enia
Belg
ium
Ger
man
y
Neth
erla
nds
Luxe
mbo
urg
17
Good financial position and sound banking system
Low external indebtedness of the economy
Lowest household indebtedness in EMU 30% of GDP in 2008 and 33% in 2009
Banking sector assets in GDP only one third of EMU average
Banking system’s cross-border indebtedness of about 46% of GDP
Comfortable banking system capital adequacy of 11.4% and Tier 1 of 9.1% (June 2010)
Short-term net creditor position of domestic banking system vis-a-vis euro area
Banking system’s external debt maturity profile is spread out (bulk more than 2 years)
Banks have low exposure to toxic assets
Source:IMF
Outstanding gross external debt in euro area % GDP (2009)
0
200
400
600
800
1000
1200
1400
1600
18
Banking system still to catch up
Source: Bank of Slovenia Annual Report 2008; EU banking structures; Statistical Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis
Total Assets of Banks % GDP, 2008
0
50
100
150
200
250
300
350
400
450
500
Luxe
mbu
rg
Irelan
dM
alta
Cypru
s
Belgium
Nethe
rland
s
Franc
e
Austri
a
Germ
any
Spain
Portu
gal
Italy
Greec
e
Finlan
d
Sloven
ia
Slovak
ia
2523 702 694 582
19
Housing market: High owner occupation rate and low indebtedness
Institutional mortgage market characteristics in euro area
0
10
20
30
40
50
60
70
80
90
Nethe
rland
s
Irelan
d
Portu
gal
Spain
Cypru
s
Germ
any
Luxe
mbu
rgM
alta
Belgium
Finlan
d
Franc
e
Greec
e
Austri
aIta
ly
Sloven
ia
Owner-occupation rate (2005) 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
Source: ECB Source: Eurostat
Exports of goods and services (annual % change)
-20
-15
-10
-5
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f
Euro area Slovenia
22
External openness strongly affected growth and investment
Source: Eurostat
Gross fixed capital formation; Growth % (q/q-4)
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
2007Q
2
2007Q
3
2007Q
4
2008Q
1
2008Q
2
2008Q
3
2008Q
4
2009Q
1
2009Q
2
2009Q
3
2009Q
4
2010Q
1
Euro area (16 countries) Slovenia
23
Stabilization and gradual recovery in line with major trading partners
Source: Eurostat
Industrial production (excluding construction); Growth % (m/m-12)
-25
-20
-15
-10
-5
0
5
10
15
20ju
n.09
jul.0
9
aug.
09
sep.
09
oct.
09
nov.
09
dec.
09
jan.
10
feb.
10
mar
.10
apr.
10
may
.10
Euro area (16 countries) Germany Slovenia
24
Gradual recovery to influence fiscal consolidation path
Source: European Commission,DG Economy and Finance
Economic Sentiment Indicator
0
20
40
60
80
100
120
140
jan.0
0
maj
.00
sep.
00
jan.0
1
maj
.01
sep.
01
jan.0
2
maj
.02
sep.
02
jan.0
3
maj
.03
sep.
03
jan.0
4
maj
.04
sep.
04
jan.0
5
maj
.05
sep.
05
jan.0
6
maj
.06
sep.
06
jan.0
7
maj
.07
sep.
07
jan.0
8
maj
.08
sep.
08
jan.0
9
maj
.09
sep.
09
jan.1
0
Euro area Slovenia
25
The downturn also reflected in inflation trends
Source: Eurostat
HICP annual rate of change (%)
0
0,5
1
1,5
2
2,5ju
l.09
avg.0
9
sep.0
9
oct.
09
nov.0
9
dec.0
9
jan.1
0
feb.1
0
mar.
10
apr.
10
may.1
0
jun.1
0
Euro area (16 countries) Slovenia
26
Coordinated EU policy response to crisis….
Source: European Commission. Ameco
27
…in line with existing debt levels
Source: Ameco, DG ECOFIN
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: 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.
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 to be 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
Source: Ministry of Finance
General government deficit as % GDP and deficit structure in 2009
-2,7
-1,6
-5,5
0,5
-2,7
-2,2
-1,4 -1,3-0,9
-6
-5
-4
-3
-2
-1
0
1
2003 2004 2005 2006 2007 2008 2009
Deficit
Discretionary response
Automatic stabilizers
Stability Programme submitted to EU
General government deficit to return into the scope of Maastricht criteria (3% of GDP) by 2013
Source: Ministry of Finance 31
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.
32
33
Financing Programme
34
The 2010 borrowing requirement
The max. gross borrowing: 4.4 Bn. EUR
Purpose of borrowing:— Gross borrowing for 2010 central government
budget: 3.6 Bn. EUR— Pre-financing of debt due for redemption in 2011
and 2012: 2.2 Bn. EUR
Already executed borrowing:— Pre-financing of part of 2010 repayments executed
in 2009: 1.4 Bn. EUR— Central Government Budget financing 2.5 Bn.
EUR
Expected structure of borrowing at the end of 2010:— Short term (end of the year) 50 Ml. EUR— Long term Up to
2.5 Bn. EUR
The 2011 borrowing requirement
35
The max. gross borrowing: 4.5 Bn. EUR
Purpose of borrowing:— Gross borrowing for 2011 central government
budget: 2.6 Bn. EUR— Pre-financing of debt due for redemption in 2012
and 2013: 2.2 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) 50 Ml. EUR— Long term Up to
2.5 Bn. EUR
36
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
37
Strong performance and support
Source: MTS Slovenia, Bloomberg, 23rd August 2010; Ministry of Finance
Slovenia 03/15: Slovenia 03/15:Distribution by investor type Distribution by region
Other 0.2%
Pension funds 11.7%
Central Banks / Official
Institutions 3.7%
Banks 46.9%
Asset Managers
37.5%
Germany33.5%
Other2.2%
Italy11.5%
Switzerland3.8%
Benelux 10.9%
the UK9.9%
Slovenia10.2%
France8.3%
Austria 4.1%
Scandinavia5.6%
Name RatingsSize EUR
mln Issue Date Maturity CpnMid
Price Mid YieldBid Spr vs MS
(at lunch)Bid Spr vs MS
(current) Dur (yrs)Slovenia
02/12 Aa2/AA/AA 1,000 05.02.200905.02.201
2 4,250% 104,69 0,97% 165 bps -29,2 bps 1,36Slovenia
04/14 Aa2/AA/AA 1,500 02.04.200902.04.201
4 4,375% 108,45 1,92% 160 bps 40,1 bps 3,22Slovenia
03/15 Aa2/AA/AA 1,000 17.03.201017.03.201
5 2,750% 101,48 2,40% 37 bps 66,5 bps 4,19Slovenia
02/16 Aa2/AA/AA 1,066 17.01.200517.02.201
6 4,000% 105,91 2,82% - 94,1bps 4,75Slovenia
03/18 Aa2/AA/AA 1,000 22.03.200722.03.201
8 4,000% 104,92 3,25% -8 bps 107,1 bps 6,33Slovenia
02/19 Aa2/AA/AA 1,000 06.02.200806.02.201
9 4,375% 106,08 3,53% -3 bps 125,2 bps 6,79Slovenia
01/20 Aa2/AA/AA 1,500 26.01.201026.01.202
0 4,125% 104,13 3,60% 68 bps 120,0 bps 7,51Slovenia
09/24 Aa2/AA/AA 1,500 09.09.200909.09.202
4 4,625% 111,64 3,56% 80 bps 85,6 bps 9,74
38
Strong relative performance in turbulent times
Source: MTS.
39
Favourable state budget debt portfolio
Stable debt service profile Most debt denominated in local currency
Source: Ministry of Finance
Outstanding debt by type of currency (31.12.09)
EUR: 99.8%
USD: 0.0%
Other: 0.2%
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Contact details
Republic of SloveniaMinistry of Finance
Treasury Directorate
Boštjan PlešecDirector [email protected]: +386 1 369 6410
Public Debt Management DepartmentMarija [email protected]: +386 1 369 6442