Slovenia is pushing to implement austerity measures to lower its borrowing costs, ease access to funding from abroad and spur economic growth, the chief of the government’s forecasting institute said.
The export driven economy is at risk of undergoing a deeper contraction than previously estimated as the European economy teeters on the brink of recession and another vote in Greece adds to uncertainty on the financial markets, Bostjan Vasle, director of the government’s forecasting institute said in an interview in Portoroz, Slovenia today.
“Access to funding for our banks, the government and companies as well is quite limited,” Vasle said. “The main focus should be to consolidate public finances, which will in turn enable greater access to funding sources and that in turn will boost economic growth.”
Lawmakers on May 11 adopted savings measures proposed by the government as Slovenia seeks to implement the so-called fiscal compact inspired by Germany. Slovenia’s second recession in three years will probably complicate the government’s efforts to cut the budget gap to below 3 percent of total output by cutting public sector wages, benefits and other spending.
Slovenia’s borrowing costs started to rise about a year ago, when voters rejected the pension changes that would have extended the retirement age and eased pressure on public spending.
Yields on the benchmark 2021 notes surged past the 7 percent mark in November when the European debt crisis threatened Italy and Spain. The yield was at 5.279 percent at 4:20 p.m. in Ljubljana, according to mid-pricing data compiled by Bloomberg.
The worsening debt crisis in Europe and the shrinking Slovenian economy are affecting business at the country’s banks, which should reduce dependence on funding from the European Central Bank, the Slovenian central bank said yesterday.
“The turmoil on the financial markets is affecting not only those countries that have great difficulties, but also Slovenia, since we are a part of these larger processes and our yields are relatively high,” Vasle said in the interview.
Slovenia, the first post-communist country to adopt the euro in 2007, is still better off within the euro region, according to Vasle.
“We have to be aware that Slovenia gained a lot by joining the single currency since we have achieved some macroeconomic balance with it,” Vasle said. “If we weigh all the advantages and disadvantages, I believe Slovenia is still benefiting from the euro.”
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