Brussels, 29/10/2013 (Agence Europe) - The immediate priority in Slovenia is to clean up and recapitalise the banks, said the International Monetary Fund (IMF) after a fact-finding mission in Ljubljana on Monday 28 October.
The Slovenian economy is mired in recession because of problems facing business, non-performing loans piling up at the banks, low domestic demand and the necessary budget consolidation. The IMF says that cleaning up the banks and recapitalising them is an immediate priority to break the cycle, adding: “A slow, export-driven recovery will likely take hold only in the second half of 2014”.
The IMF experts say: “Cleaning up and recapitalising banks is an immediate priority to break this cycle. However, any recovery can only be sustained by restructuring the over-indebted corporate sector and reducing the role of the state in the economy. Shoring up banks will increase public debt, meaning that further, gradual fiscal consolidation will also be necessary, to ensure that the public finances remain sustainable”. The current round of stress tests on Slovenian banks, the results of which are expected the end of November, should shed light on bank balance sheets. The banks are reducing their debt but non-performing loans are rising, from 12% at the end of 2011 to 17.5% in June 2013. “Gradual, further fiscal consolidation should address the fiscal cost of the recapitalisation and the rising cost of an aging population. Privatisation proceeds should be used for reducing public debt,” recommends the IMF.
For the budget, the IMF says that the deficit reduction targets for 2014 remain credible, but extra efforts might be needed to the tune of 1% of GDP. As a result of the recession and not including any public aid for the banks, the deficit is expected to reach 4.5% of GDP this year.
Bank of Slovenia governor Bostjan Jazbec said at a press conference on Monday with a representative of the IMF that it was unclear whether Slovenia would recapitalise its banks later this year or next year. He was confident that a bailout plan would not be needed. Last week, the head of the Eurogroup, Jeroen Dijsselbloem, made similar comments during a visit to Ljubljana, adding that the eurozone was prepared to help Slovenia if necessary. (EL/transl.fl)