IMF criticises Slovenia's privatisation strategy

IMF criticises Slovenia's privatisation strategy
By Ivana Jovanovic in Belgrade March 30, 2016

The International Monetary Fund (IMF) urged Slovenia to make privatisation a priority in order to accelerate GDP growth, in its Concluding Statement of the Article IV Mission issued on March 29. It recommended that Ljubljana rethink the privatisation method for the country's largest bank Nova Ljubljanska Banka (NLB) and launch a new attempt to sell off Telekom Slovenije.

Slovenia aims to grow its economy, which was heavily affected by the global economic crisis in 2008-2009 and eurozone crisis in 2012-2013, through the government strategy adopted in late 2013 under which the government plans to sell its stakes in 15 major companies. However, the IMF says too many companies have been designated "strategic" and kept under state control.

The IMF singled out privatisation in the banking sector, where several banks were taken under state control during the crisis. Ljubljana is close to finalising the sale of second largest lender Nova KBM to US investment firm Apollo Global Management and the European Bank for Reconstruction and Development (EBRD), and has also launched the privatisation process for NLB.

However, the fund warns that "the chosen privatization model for NLB—a sale of shares on a stock market, with the state retaining the largest stake—is unlikely to attract strategic investors that would want to manage and develop the institution based on sound commercial principles." It also calls for the country’s third largest bank, Abanka, to be sold off before the July 2019 deadline.

Meanwhile, the IMF criticised the Slovenian government’s 2015 strategy for managing state-owned enterprises, which “goes too far in its call for the state to retain direct control over a number of large companies”.

“The number of companies where the state wants to retain control by designating them as “strategic” or “important” should be significantly reduced,” the IMF said.

"In addition, the restriction that no private investor should hold a stake larger than the state’s in the “important” companies should be lifted, as it prevents the entry of strategic investors, which has negative implications for these firms’ performance and governance."

The fund also called for the privatisation of Telecom Slovenje to be restarted. A previous attempt to sell the telecoms incumbent flopped in August 2015, when UK private equity fund Cinven withdrew its bid to buy a 72.75% stake.

Accelerating privatisation and improving the management of state-owned enterprises is one of three policy priorities identified by the IMF, along with rebuilding fiscal buffers and repairing of banking and corporate balance sheets, including SME balance sheets. Ljubljana has been working to support development of SMEs since they account for over 90% of all firms and employ two-thirds of the total workforce in the country.

According to the IMF, the export-led economic recovery in 2014-2015 raised employment and private consumption, strengthened Slovenia’s external position and improved financial stability. However, decisive policy action is required to address significant constraints to growth and mitigate important vulnerabilities.

“With more ambitious reforms, Slovenia can grow faster and more sustainably. Besides exports, solid sustainable growth needs a second engine, namely private investment. However, investment is held back, among other reasons, by over-leveraged company (especially SME) balance sheets,” the fund said.

The IMF’s March 29 press release reads furthermore that Slovenia’s fiscal adjustment is far from complete despite the reduced headline budget deficit in the past two years. The deep recession, persistent budget deficits and the cost of bank recapitalisation quadrupled public debt from 21.5% to over 83% of GDP between 2008 and 2015.

Slovenia’s gross public debt amounts to €32.92bn and accounts for 84.81% of the country’s GDP, according to

Slovenia's accumulated budget deficit in 2015 stood at €1.27bn and was below the target envisaged for the whole year, which was set at €1.39bn. Slovenia’s budget deficit for the whole of 2014 was €1.2bn.

“Under current policies, we project that the budget deficit will start widening again from 2017 on, and the debt ratio to GDP will rise further in the medium term. The costs associated with population ageing exacerbate these trends,” the IMF said.

Slovenia's aging population is a key risk to fiscal sustainability, particularly in the long term, as it puts considerable pressure on the sustainability of the pension, health care and long-term care systems, the European Commission (EC) said in its Slovenia Country Report 2016 published on February 26.

According to the fund, rising exports, a spike in public investment financed by EU funds, and a pick-up in private consumption propelled GDP growth to 3% in 2014 and 2.9% in 2015, but while exports and private consumption should continue to be supportive of growth, public investment is likely to fall significantly this year and remain low going forward as EU structural funds are reduced. Thus, the IMF projects GDP growth to decelerate to 1.9%–2% in 2016–2017.

Slovenia’s foreign trade in 2015 reached its highest level since 2004, when the country joined the European Union. The country’s exports amounted to €23.94bn while imports totaled €23.19bn and the export/import ratio stood at 103.2%. The external trade surplus also reached an 11-year high of €750.7mn, the Slovenian Statistical Office announced on February 9.