## 1. Medium- and Long-term Projections for  Spending on Healthcare and Long-term

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### A. The Context: A Fast-aging Population
- Population aging in Slovenia is projected to accelerate over the medium to long term, driven by rising life expectancy and a declining fertility rate.
- Aging in Slovenia is occurring faster than in other EU countries and is projected to be among the most intensive among EU and OECD countries.
- By 2060, the shares of the population aged 65+ (elderly) and 80+ (very elderly) are projected to exceed the EU average, with “aging intensity” accelerating beyond the EU average.
- Slovenia crossed the “demographic turning point” in 2010 (when the share of working-age population starts declining).
- In 2016 the rising share of elderly (age 65+) surpassed the share of young (age <19).
- Aging increases demand for healthcare and long-term care (LTC) spending, and reduces financing sources (compulsory health contributions) as the workforce shrinks.

### B. Rising Need for Higher Health Expenditure: Recent Patterns and Pressures
- Health outcomes:
  - Longer life expectancy and higher shares reporting good health have outpaced regional peers and surpassed the EU average since 2015.
- Healthcare spending:
  - Averaged 7.6 percent of GDP during 2016-19.
  - Increased in 2020 and averaged 8.4 percent of GDP during 2020-2023.
  - The average annual real growth rate of health spending in Slovenia is among the highest in the EU.
- Long-term care spending:
  - Remains comparatively low historically due to fragmentation in organization and financing.
  - Implementing the new LTC Act starting 2024 marks a major milestone.
- Health sector challenges and labor:
  - Persistent labor shortages and aging healthcare workers have hindered the supply of health services.
  - Delayed treatment from longer waiting times often results in more expensive treatment, sometimes more than twice as costly.
  - National Strategy for the Management and Development of Human Resources in Healthcare (2026-2036) is under preparation.
- Sick leave benefits and impacts:
  - Slovenia has among the most generous sick leave benefits among EU and OECD countries covered by compulsory social health insurance (SHI).
  - Cash compensation for loss of salary during temporary absence is provided without caps on compensation and duration (historical data up to 2020: longest absence due to illness was 11.5 years and the highest monthly payment was over €21,000).
  - Spending on sick leave benefits by the Health Insurance Institute of Slovenia (HIIS) grew close to 10 percent annually in real terms in the last decade and annual spending has now surpassed 1 percent of GDP.
  - Absence from work due to illness has nearly doubled in the last decade, now averaging close to 20 days per employee (EU average is 12 days).
  - Data in 2025 showed that one-third of workers have been on sick-leave for over one year.
  - Long-term absenteeism reduces labor productivity and prompts early retirement, shrinking the working-age population and reducing SHI contributions.
  - Measures implemented: A cap introduced in 2024 limits compensation to 2.5 times the average gross monthly salary; taken together, recent measures could save at least 0.1 percent of GDP annually (staff estimate based on information provided by HIIS).
  - Ongoing efforts: tighter controls, enhanced governance, more data collection, streamline assessment and monitoring of sick leave, integrate sick leave and disability insurance, and create incentives for timely return to work.

### C. Medium- and Long-term Spending Projections (EC Aging Report 2024)
- Projection framework:
  - Healthcare projections: function of demographics, health status, and non-demographic factors.
    - Baseline: prominent impact of aging and a moderate impact from non-demographic factors; assumes no changes to current policies and health systems. Projections for Slovenia account for higher salaries in the health sector following the public sector wage reform in 2024, additional coverage on mental health, and integration of the voluntary health insurance into the compulsory scheme.
    - Alternative scenarios:
      - Healthy aging scenario: lowers spending by assuming years from longer life expectancy are spent in good health (baseline assumes only half are spent in good health).
      - Risk scenario: introduces greater demand for health services due to non-demographic factors (e.g., costly new technology).
  - LTC projections: demographics have a larger impact; model augmented by dependency ratio and institutional setup for LTC (formal care vs. cash benefits). Baseline accounts for higher salaries in health sector and additional services under the LTC Act adopted in 2023. Alternative scenarios mirror those for healthcare.
- Healthcare spending increases (change in percentage points of GDP):
  - Baseline, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.7; 2025-2060 = 0.9.
  - Healthy aging, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.5; 2025-2060 = 0.6.
  - Risk, Slovenia: 2025-2030 = 0.5; 2025-2040 = 1.4; 2025-2060 = 2.1.
  - EU baseline (comparison): 2025-2060 = 0.6; EU risk: 2025-2060 = 1.3.
- Long-term care spending increases (change in percentage points of GDP):
  - Baseline, Slovenia: 2025-2030 = 0.1; 2025-2040 = 0.4; 2025-2060 = 0.8.
  - Healthy aging, Slovenia: 2025-2030 = 0.1; 2025-2040 = 0.3; 2025-2060 = 0.7.
  - Risk, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.8; 2025-2060 = 2.3.
  - EU baseline (comparison): 2025-2060 = 0.7; EU risk: 2025-2060 = 1.9.
- Interpretation:
  - Even under the healthy aging scenario, gains (savings in spending) appear limited; under risk scenarios increases are substantially larger.
  - Other sources (OECD, 2024 and IMAD, 2019) indicate rising health spending will coincide with declining government revenues over the long run as the working population shrinks.

### D. A Health Financing Structure That is Not Fit for Purpose
- Financing structure characteristics:
  - Heavy reliance on compulsory payroll contributions via mandatory social health insurance (SHI), administered centrally by HIIS as the sole public insurer.
  - Employee-employer contribution is highly cyclical and is expected, ceteris paribus, to decline over time as the workforce shrinks.
  - Voluntary health insurance (VHI) was abolished; a new compulsory contribution to the SHI replaced the VHI in January 2024, raising the public-to-private funding ratio to nearly 85:15 (from 75:25 previously).
  - Share of private sources is small; household out-of-pocket payment (OOP) is among the lowest in the EU.
  - The abolished VHI had been used to fully cover co-payments; its removal contributed to higher reliance on compulsory contributions.
- State budget role and risks:
  - Government sources of revenues for HIIS include the state budget, local government budgets, and transfers from social security funds.
  - The share of the state budget in SHI revenues grew from 4 percent (average 2015-2019) to reach 10 percent (2020-2024), partly due to discretionary health measures during the pandemic.
  - The share of the state budget in financing could be much higher ex post when needed to close funding gaps.
  - General government spending by function shows the share of health spending in total spending in Slovenia has exceeded the EU average since 2017.
- Long-term care financing under the new LTC Act:
  - Effective July 2025, the new social security fund for LTC collects compulsory contributions from employers, employees, pensioners, self-employed and farmers.
  - The LTC fund is supplemented by an annual allocation up to €190 million from the state budget (about 0.3 percent of GDP).
  - The LTC Act includes a provision allowing for the introduction of co-payment (10-20 percent of the cost) to start in 2028 if the LTC contributions are inadequate.

### E. Reform Imperatives and Recent Measures Highlighted in the Text
- Urgency:
  - Comprehensive reforms in healthcare and LTC are needed to provide care for an increasingly older population and maintain financial sustainability.
- Recent and planned policy measures:
  - Implementation of the LTC Act (beginning 2024; fund effective July 2025) with compulsory contributions and state budget support up to €190 million annually (about 0.3 percent of GDP).
  - Abolition of VHI and introduction of a new compulsory SHI contribution in January 2024 (public-to-private funding ratio nearly 85:15).
  - Introduction of a cap in 2024 limiting sick-leave compensation to 2.5 times the average gross monthly salary (estimated savings of at least 0.1 percent of GDP annually).
  - Preparation of the National Strategy for the Management and Development of Human Resources in Healthcare (2026-2036).
  - Ongoing efforts to tighten controls, enhance governance, collect more data on absenteeism, streamline assessment and monitoring of sick leave, and better integrate sick leave and disability insurance.

---

### 9.      The narrow funding structure creates fiscal risks and uncertainty over the quality and 

### Fiscal risks and current funding pressures
- Annual spending of HIIS is capped to prevent budget overruns, but revenues can fall short of spending, creating potential risks for the state budget.
- The Fiscal Council (2024) estimates that revenues may not be sufficient to cover liabilities of HIIS in the near and medium term.
- Insufficient funding has reduced the range of fully financed services in recent years.
- Short-term responses:
  - Use HIIS reserve funds and interim adjustments in spending to fill gaps.
  - Annual negotiations determine additional government contributions; there is no legal requirement for government funds to cover HIIS financing gaps.
  - The state budget can impose temporary caps on allocations made to HIIS (e.g., €420 million in 2024 and 2025).
- Key numeric indicators:
  - Share on health spending in 2023: 15.9 percent in Slovenia (EU average was 14.8 percent).
  - Employee-employer contributions accounted for over 80 percent of total revenue in 2024.

### Reforms: Progress and priorities — summary
- Historical and estimated impacts:
  - A comprehensive review (2015) was followed by Slovenia’s National Healthcare Plan 2016-2025; lack of quantification limited assessment of realized savings.
  - Staff estimates: effective implementation of current policies and measures could yield savings of approximately 0.4 percent of GDP by 2040, primarily from healthcare reforms.
  - EC Ageing Report projected increase in total health spending of 1.1 percent of GDP (0.7 and 0.4 percent of GDP, respectively, in healthcare and LTC under the baseline scenario).
  - Closing the projected gap and ensuring financial sustainability will require addressing gaps in three priority areas before significant spending pressures materialize.

### Priority area 1 — Strengthen financing structure
- Main points:
  - The current financing structure, even with the LTC Act, is not suitable for a rapidly aging population and a shrinking workforce.
  - The LTC Act represents an important improvement; prompt implementation of other critical measures to ensure sustainable health financing should be prioritized.
- Policy options and recommendations:
  - Diversify financing sources beyond payroll contributions to alleviate pressures on the state budget.
    - Primary measure: widen the revenue base to finance the SHI.
    - Secondary measure: increase private financing through more OOP and co-payment schemes for targeted health goods and services.
    - Example consideration: a review of the contribution rates in the SHI, which have not changed over the last three decades.
  - Introduce countercyclical mechanisms to address reductions in SHI revenues during downturns:
    - Example: establish a health stabilization fund to accumulate surpluses in good times for use in bad times under specific crisis conditions, managed through legislative oversight with strong governance.

### Priority area 2 — Pursue efficiency gains
- Rationale:
  - International evidence indicates a significant share of health spending is inefficient; more care or better outcomes could be produced without additional spending.
- Key recommendations:
  - Conduct a comprehensive spending review of the health sector to identify operational bottlenecks and cost-inefficient practices.
  - HIIS, MoH and MoF should jointly monitor the savings delivered and introduce mechanisms to reward efficiency gains and responsible spending, such as linking funding to performance indicators.
- Quantitative efficiency context:
  - Historical estimates: IMF (2015) quantified a score of 0.5 and estimated that closing that gap by half could yield savings of 2 percent of GDP.
  - More recent estimates place Slovenia closer to the frontier, implying savings would be below 1 percent of GDP.
  - Other studies suggest realizing efficiency gains in Slovenia could potentially reduce annual health spending by 0.6 percentage points of GDP from the baseline spending trajectory.

### Priority area 3 — Adapt to demographic changes and promote active aging
- Slovenia adopted the Active Aging Strategy (2017-2030).
- Policy directions:
  - Implement the Strategy for the Development of Health Services in Primary Healthcare (2024-2031) and strengthen health-promotion and prevention to keep Slovenians active and healthy longer.
  - Expand labor supply of the older population to boost contributions for the SHI:
    - Slovenia has one of the lowest employment rates among older workers (e.g., age 55-64) compared to the EU average and relatively low participation of older employees in lifelong learning.
    - Prioritize measures to extend working lives: active labor market policies, job adaptation programs, lifelong up-skilling and re-skilling, corporate age-management and intergenerational cooperation measures.

### Boxes and reform statuses (selected)
- Selected reform statuses:
  - Long-term Care Act — Adopted (2023)
  - Emergency Measures to Ensure Stability of Healthcare System — Adopted (2022)
  - Intervention Measures in Field of Health, Labor and Social Affairs and Health-Related Content — Adopted (2023); Implemented (2024) of which: Tighten sick leave benefits; Replace VHI with a new compulsory contribution
  - Additional Intervention Measures to Ensure Accessibility in Healthcare — Adopted (2024)
  - Quality Assurance in Healthcare Act — Adopted (2025)
  - Health Services Act (to separate public and private health services and prohibit dual practices) — Adopted (2025)
  - Digitalization Act; Strategy: Healthcare Digitalization (2022-2027) — Ongoing implementation
  - Strategy: Development of Health Services in Primary Healthcare (2024-2031)
  - Strategy: Active Aging (2017-2030)
- Estimating efficiency (selected points):
  - Efficiency scores for Slovenia in studies during 2013-2021 ranged from 0.5 to 0.9; a larger 2022 sample estimated a score above 0.9.
  - Theoretically, applying current health spending more efficiently based on best practices could yield approximately three additional years of healthy life.
  - Illustration of potential savings:
    - IMF (2015) example: closing a 0.5 score gap by half could yield savings of 2 percent of GDP.
    - With Slovenia closer to the frontier in recent estimates, expected savings would be below 1 percent of GDP.
    - Long-term scenario studies suggested potential reduction of annual health spending by 0.6 percentage points of GDP from the baseline trajectory.

### Observed service pressures and indicators
- Waiting time and access:
  - Waiting time in Slovenia is among the longest in the EU for elective surgeries; unmet medical needs due to waiting time are high.
- Labor market and sickness absence:
  - Slovenia records among the largest increase in duration of absence from work due to illness.
  - There is a persistent increase in spending on sick leave under generous social health insurance benefits.
- Financing structure visual points:
  - Financing is reliant on compulsory contributions; sources are narrow with a relatively small share of OOP below the EU average.
  - Revenues transferred from state and local budget as a share of total HIIS revenues have grown strongly from 2009 to 2025.

### Conclusion (health sector)
- The Slovenian health sector faces financial challenges driven by one of the most intensive aging trajectories among EU and OECD countries.
- Population aging creates a dual structural concern: rising demand for healthcare and long-term care increases financing pressures while a shrinking workforce lowers contributions to the SHI.
- Despite ongoing reforms, further action is required to mitigate long-term fiscal risks with focus on:
  - (i) strengthening and diversifying the financing structure;
  - (ii) pursuing efficiency gains; and
  - (iii) accelerating adaptation to active aging.
- Implementing these measures would contain spending pressures, maintain access to quality care, and safeguard long-term sustainability of the health system.

---

### BOOSTING LABOR PRODUCTIVITY IN SLOVENIA: WHAT IS THE ROLE OF INTANGIBLE INVESTMENTS?

### Context and recent trends
- Slovenia’s labor productivity—measured as output per worker—increased by 3.4 percent annually during 2001–2007, driven by capital deepening and gains in total factor productivity (TFP).
- Labor productivity declined during the Global Financial Crisis and the ensuing banking crisis even though capital intensity continued to increase; it recovered in 2014-2019 at a lower growth rate due to declining capital intensity.
- Labor productivity growth slowed in 2020-2023 as capital intensity continued to decline and TFP weakened.
- The drop in capital intensity during 2014-23 reflects a fixed investment gap of 1.7 percentage points of GDP compared to the EU average.
- Non-residential fixed investment shortfall was particularly pronounced in intangible assets.
- Under the extended Corrado-Hulten-Sichel (2005) definition, intangible investment comprises:
  - I. Computerized information (software, databases);
  - II. Innovative property (R&D, other intellectual property, industrial design, developing new financial products);
  - III. Economic competencies (organizational capital, brand development, training).
- Average intangible investments included in Slovenia’s national accounts (computerized information, R&D and other intellectual property) in 2000-2024 constituted about 30 percent of total intangibles in the extended definition.
- Industrial design and development of new financial products contributed 20 percent of extended intangibles; economic competences accounted for about half of all intangible investments.
- Slovenia’s intangible investment under the extended definition slowed compared to the EU average in the past 10 years.
- The gap with EU innovation leaders widened to about 4.5 percent of GDP in 2024, largely due to lower investment in software and databases, R&D, and organizational capital.

### How much do intangibles contribute to labor productivity?
- Literature and empirical findings:
  - Intangible capital deepening accounts for approximately 40-50 percent of productivity gains at both aggregate and sectoral levels in European economies.
  - Roth and Mitra (2024): productivity gap between the EU and United States largely attributable to insufficient investment in non-R&D intangibles.
  - Corrado et al. (2022): intangible investments in knowledge-based capital produce significant productivity spillovers; complementarities between ICT and intangible capital generate particularly strong effects.
  - Sectoral heterogeneity: manufacturing benefits primarily from R&D investments; market services derive greater productivity gains from organizational capital and software investments.
  - Corrado, Haskel, and Jona-Lasinio (2017): non-R&D intangible capital exhibits higher output elasticities than conventional factor shares.
- Empirical contributions (EU-KLEMS 2001-2021 and panel elasticities):
  - For the EU during 2001-2021, the share of intangibles amounted to about one-third of overall productivity growth, higher than the one-fourth contributed by non-residential tangible investment.
  - In Slovenia, intangible investments accounted for about 20 percent of labor productivity growth, and tangible investment accounted for about 21 percent.

### Supporting intangible investments: Challenges and policy options
- Financing constraints:
  - Intangible investments often lack collateral; traditional banking systems are poorly suited to finance them.
  - Slovenian financial system is bank-centric; European capital markets are shallow and nationally segmented.
  - Venture capital is virtually non-existent in Slovenia; firms often rely on own resources to finance intangibles.
  - High proportion of small firms, including SMEs and micro-enterprises, increases financial constraints.
- Fragmented innovation ecosystem:
  - Many support organizations with unclear roles and limited intellectual property competences (National Intellectual Property Strategy 2030).
- Existing policy measures and targets:
  - National Research and Innovation Strategy 2030 (adopted 2022) aims to increase investment in research and innovation to 3½ percent of GDP by 2030 (of which 1¼ percent of GDP in the public sector).
  - Public Agency for Scientific Research and Innovation (ARIS) set up in 2023.
  - National Intellectual Property Strategy 2030 (adopted 2024) aims to enhance intellectual property valuation capacity and develop intellectual property-backed financing; pilot credit line through SID Bank allowing SMEs to use intellectual property rights as loan collateral is being launched.
  - Planned Startup Strategy measures include: (i) strengthening support environment for start-ups and scale-ups; (ii) developing the VC market with public incentives to strengthen private and pension fund investments in VC; (iii) introducing an internationally comparable framework for implementing employee stock options and profit-sharing; (iv) introducing a start-up visa to attract global tech talent; (v) developing a new simplified legal form tailored for start-ups.
  - Authorities planning additional grants and financial instruments of about 0.9 percent of GDP, primarily financed by European cohesion funds.
  - SID Bank initiatives: seed capital and convertible loans; SEGIP expanded to 0.3 percent of GDP in 2021-2022; Technology Transfer Fund, Venture Capital Fund, Succession Fund.
  - SEF involvement in Central Europe Fund of Funds (CEFoF) with €87 million that leverages private investments to increase total available volume close to €700 million (multiplier of 8.6 relative to commitments under the CEFoF).
- EU-level considerations:
  - Deepening the Capital Markets Union (CMU) would broaden funding and exit options.
  - Slovenia can expand the pool of capital by further developing its Pillar 2 pension scheme and implementing the new law on individual savings accounts to foster retail investment.
  - Regulations should not unduly restrict institutional investors from investing in early-stage risky assets; familiarity with the venture capital asset class can be improved through public initiatives (example: Tesi in Finland) (Arnold and others, 2025).
  - Strengthening domestic innovation financing infrastructure and improving SME access to EU programs like InvestEU are recommended.
- Business environment and skills:
  - Heavy regulatory and administrative burdens and slow procedures increase costs and hinder business dynamism (OECD 2022).
  - Improving skills availability: expand vocational and tertiary education programs in STEM fields; strengthen lifelong learning and reskilling initiatives; promote closer collaboration between industry and educational institutions.
  - Streamline recognition of foreign qualifications and facilitate integration of skilled migrants.

### Policy Recommendations (summary)
- Increase investment in software, databases, and organizational capital to close the gap with the EU average; pursue across-the-board increases to narrow the 4.5 percent of GDP gap with EU innovation leaders.
- Expand access to finance for intangible investments:
  - Develop venture capital markets and complementary public instruments (building on SID Bank and SEF initiatives).
  - Use pension reform and retail savings measures to increase available domestic capital.
  - Improve SME access to EU instruments (e.g., InvestEU) and pilot intellectual property-backed financing.
- Strengthen the innovation and entrepreneurship ecosystem:
  - Clarify roles of support organizations and build intellectual property competences.
  - Implement Startup Strategy measures (VC incentives, employee stock option frameworks, start-up visa, simplified legal form).
- Enhance the business environment and skills supply:
  - Streamline regulatory and administrative procedures.
  - Expand STEM education, lifelong learning, reskilling, and industry-education cooperation.
  - Improve recognition of foreign qualifications and integration of skilled migrants.
- Ensure industrial policy is targeted to market failures, time-bound, WTO-consistent, and EU-coordinated.

---

### 12.      Closing Slovenia’s productivity gap with EU innovation leaders requires strengthening

### Innovation ecosystem gaps and priorities
- Slovenia performs above the EU average in public-private co-publications but science-industry collaboration remains fragmented, with limited long-term institutional partnerships.
- Strengthening linkages between firms and academia, and between MNEs and SMEs, would accelerate knowledge diffusion, technology adoption and innovation across the economy.
- Institutionalizing cooperation across the ecosystem could unlock Slovenia’s knowledge base and raise its innovation capacity to the level of EU leaders.
- Slovenia could leverage existing multinational presence in sectors such as automotive (Revoz/Renault), pharmaceuticals (Lek/Sandoz), and manufacturing.

### Policy options and examples
- Expand collaborative R&D funding to promote sustained partnerships between universities, MNEs, and SMEs.
- Develop industrial PhD programs to deepen long-term research linkages between academia and industry.
- Develop innovation hubs and clusters embedding universities, MNEs and SMEs in shared research agendas.
- Example: The Tyndall National Institute in Ireland as a model for institutional mechanisms tailored to sectoral strengths.

### Empirical approach and key quantitative findings
- Box 1 — Estimating the link between intangible investments and productivity:
  - Uses EU-KLEMS database (1995-2021) and Cobb-Douglas production function approach.
  - Specifications estimated using the Arellano-Bond dynamic estimation procedure.
  - All coefficients have expected signs and nearly all are statistically significant at 1 percent level.
- Box 1 — Key quantitative findings:
  - Increasing intangible capital by one percent would contribute about 0.14 percentage points to productivity growth.
  - Training elasticity: improving training expenditure by one percent would contribute 0.12 percentage points to productivity growth.
- Table 1 — Selected panel regression coefficients (1995-2021):
  - Specification (1):
    - Tangible capital, % change: 0.300 (0.023)***
    - Intangible capital, % change: 0.138 (0.015)***
    - Lagged labor productivity growth: -0.106 (0.020)***
    - Output gap (differenced): 0.862 (0.020)***
    - Distance to per capita income leader: 0.011 (0.001)***
    - Constant: -1.625 (0.235)***
    - Number of observations: 615
  - Specification (2):
    - Tangible capital, % change: 0.279 (0.023)***
    - Software and databases, % change: 0.028 (0.006)***
    - Innovative property, % change: 0.058 (0.012)***
    - Economic competencies, % change: 0.094 (0.014)***
    - Lagged labor productivity growth: -0.119 (0.020)***
    - Output gap (differenced): 0.856 (0.020)***
    - Distance to per capita income leader: 0.011 (0.001)***
    - Constant: -1.746 (0.235)***
    - Number of observations: 592
  - Specification (3):
    - Tangible capital, % change: 0.272 (0.023)***
    - Software and databases, % change: 0.029 (0.005)***
    - Innovative property, % change: 0.054 (0.012)***
    - Organizational capital, % change: 0.029 (0.010)**
    - Brand, % change: 0.013 (0.009)
    - Training, % change: 0.117 (0.014)***
    - Lagged labor productivity growth: -0.127 (0.019)***
    - Output gap (differenced): 0.858 (0.020)***
    - Distance to per capita income leader: 0.010 (0.001)***
    - Constant: -1.469 (0.225)***
    - Number of observations: 615

*Source: IMF staff chapter “Medium- and Long-term Projections for  Spending on Healthcare and Long-term Care Under Different Scenario” (1svnea2026002-source-pdf) and related IMF chapter excerpts included in the provided PDF content.*

### 1. Medium- and Long-term Projections for  Spending on Healthcare and Long-term

### 1. Medium- and Long-term Projections for  Spending on Healthcare and Long-term Care Under Different Scenario

### A. The Context: A Fast-aging Population
- Population aging in Slovenia is projected to accelerate over the medium to long term, driven by rising life expectancy and a declining fertility rate.
- Aging in Slovenia is occurring faster than in other EU countries and is projected to be among the most intensive among EU and OECD countries.
- By 2060, the shares of the population aged 65+ (elderly) and 80+ (very elderly) are projected to exceed the EU average, with “aging intensity” accelerating beyond the EU average.
- Slovenia crossed the “demographic turning point” in 2010 (when the share of working-age population starts declining).
- In 2016 the rising share of elderly (age 65+) surpassed the share of young (age <19).
- Aging increases demand for healthcare and long-term care (LTC) spending, and reduces financing sources (compulsory health contributions) as the workforce shrinks.

### B. Rising Need for Higher Health Expenditure: Recent Patterns and Pressures
- Health outcomes have improved over the past decade; longer life expectancy and higher shares reporting good health have outpaced regional peers and surpassed the EU average since 2015.
- Healthcare spending:
  - Averaged 7.6 percent of GDP during 2016-19.
  - Increased in 2020 and averaged 8.4 percent of GDP during 2020-2023.
  - The average annual real growth rate of health spending in Slovenia is among the highest in the EU.
- Long-term care spending:
  - Remains comparatively low historically due to fragmentation in organization and financing.
  - Implementing the new LTC Act starting 2024 marks a major milestone.
- Health sector challenges:
  - Uncertainty remains about financial resources required for measures such as short-term interventions to stabilize unprecedented long waiting times, updating payment models to reflect actual costs, and staffing for healthcare and LTC.
  - Persistent labor shortages, including aging healthcare workers, have hindered the supply of health services.
  - Delayed treatment from longer waiting times often results in more expensive treatment, sometimes more than twice as costly.
  - National Strategy for the Management and Development of Human Resources in Healthcare (2026-2036) is under preparation to optimize, develop, and strengthen the healthcare workforce.
- Sick leave benefits:
  - Slovenia has among the most generous sick leave benefits among EU and OECD countries covered by compulsory social health insurance (SHI).
  - Cash compensation for loss of salary during temporary absence is provided without caps on compensation and duration (historical data up to 2020: longest absence due to illness was 11.5 years and the highest monthly payment was over €21,000).
  - Spending on sick leave benefits by the Health Insurance Institute of Slovenia (HIIS) grew close to 10 percent annually in real terms in the last decade and annual spending has now surpassed 1 percent of GDP.
  - Absence from work due to illness has nearly doubled in the last decade, now averaging close to 20 days per employee (EU average is 12 days).
  - Data in 2025 showed that one-third of workers have been on sick-leave for over one year.
  - Long-term absenteeism reduces labor productivity and prompts early retirement, shrinking the working-age population and reducing SHI contributions.
  - Measures implemented: A cap introduced in 2024 limits compensation to 2.5 times the average gross monthly salary; taken together, recent measures could save at least 0.1 percent of GDP annually (staff estimate based on information provided by HIIS).
  - Ongoing efforts: tighter controls, enhanced governance, more data collection, streamline assessment and monitoring of sick leave, integrate sick leave and disability insurance, and create incentives for timely return to work.

### C. Medium- and Long-term Spending Projections (EC Aging Report 2024)
- Projection framework:
  - Healthcare projections: function of demographics, health status, and non-demographic factors.
    - Baseline: prominent impact of aging and a moderate impact from non-demographic factors; assumes no changes to current policies and health systems. Projections for Slovenia account for higher salaries in the health sector following the public sector wage reform in 2024, additional coverage on mental health, and integration of the voluntary health insurance into the compulsory scheme.
    - Alternative scenarios:
      - Healthy aging scenario: lowers spending by assuming years from longer life expectancy are spent in good health (baseline assumes only half are spent in good health).
      - Risk scenario: introduces greater demand for health services due to non-demographic factors (e.g., costly new technology).
  - LTC projections: demographics have a larger impact; model augmented by dependency ratio and institutional setup for LTC (formal care vs. cash benefits). Baseline accounts for higher salaries in health sector and additional services under the LTC Act adopted in 2023. Alternative scenarios mirror those for healthcare.
- Healthcare spending increases (change in percentage points of GDP):
  - Baseline, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.7; 2025-2060 = 0.9.
  - Healthy aging, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.5; 2025-2060 = 0.6.
  - Risk, Slovenia: 2025-2030 = 0.5; 2025-2040 = 1.4; 2025-2060 = 2.1.
  - For comparison, EU aggregates are reported in the EC Aging Report 2024 (EU baseline: 2025-2060 = 0.6; EU risk: 2025-2060 = 1.3).
- Long-term care spending increases (change in percentage points of GDP):
  - Baseline, Slovenia: 2025-2030 = 0.1; 2025-2040 = 0.4; 2025-2060 = 0.8.
  - Healthy aging, Slovenia: 2025-2030 = 0.1; 2025-2040 = 0.3; 2025-2060 = 0.7.
  - Risk, Slovenia: 2025-2030 = 0.2; 2025-2040 = 0.8; 2025-2060 = 2.3.
  - EU aggregates reported for comparison (EU baseline: 2025-2060 = 0.7; EU risk: 2025-2060 = 1.9).
- Even under the healthy aging scenario, gains (savings in spending) appear limited; under risk scenarios increases are substantially larger.
- Other sources (OECD, 2024 and IMAD, 2019) indicate rising health spending will coincide with declining government revenues over the long run as the working population shrinks.

### D. A Health Financing Structure That is Not Fit for Purpose
- Financing structure characteristics:
  - Heavy reliance on compulsory payroll contributions via mandatory social health insurance (SHI), administered centrally by HIIS as the sole public insurer.
  - Employee-employer contribution is highly cyclical and is expected, ceteris paribus, to decline over time as the workforce shrinks.
  - Voluntary health insurance (VHI) was abolished; a new compulsory contribution to the SHI replaced the VHI in January 2024, raising the public-to-private funding ratio to nearly 85:15 (from 75:25 previously).
  - Share of private sources is small; household out-of-pocket payment (OOP) is among the lowest in the EU.
  - The abolished VHI had been used to fully cover co-payments; its removal contributed to higher reliance on compulsory contributions.
- State budget role and risks:
  - Government sources of revenues for HIIS include the state budget, local government budgets, and transfers from social security funds.
  - The share of the state budget in SHI revenues grew from 4 percent (average 2015-2019) to reach 10 percent (2020-2024), partly due to discretionary health measures during the pandemic.
  - The share of the state budget in financing could be much higher ex post when needed to close funding gaps.
  - General government spending by function shows the share of health spending in total spending in Slovenia has exceeded the EU average since 2017.
- Long-term care financing under the new LTC Act:
  - Effective July 2025, the new social security fund for LTC collects compulsory contributions from employers, employees, pensioners, self-employed and farmers.
  - The LTC fund is supplemented by an annual allocation up to €190 million from the state budget (about 0.3 percent of GDP).
  - The LTC Act includes a provision allowing for the introduction of co-payment (10-20 percent of the cost) to start in 2028 if the LTC contributions are inadequate.

### E. Reform Imperatives and Recent Measures Highlighted in the Text
- Urgency for comprehensive reforms in healthcare and LTC to provide care for an increasingly older population and maintain financial sustainability.
- Recent and planned policy measures mentioned:
  - Implementation of the LTC Act (beginning 2024; fund effective July 2025) with compulsory contributions and state budget support up to €190 million annually (about 0.3 percent of GDP).
  - Abolition of VHI and introduction of a new compulsory SHI contribution in January 2024 (public-to-private funding ratio nearly 85:15).
  - Introduction of a cap in 2024 limiting sick-leave compensation to 2.5 times the average gross monthly salary (estimated savings of at least 0.1 percent of GDP annually).
  - Preparation of the National Strategy for the Management and Development of Human Resources in Healthcare (2026-2036) to address staffing shortages.
  - Ongoing efforts to tighten controls, enhance governance, collect more data on absenteeism, streamline assessment and monitoring of sick leave, and better integrate sick leave and disability insurance.

*Source: IMF staff chapter “Medium- and Long-term Projections for  Spending on Healthcare and Long-term Care Under Different Scenario” (1svnea2026002-source-pdf).*

### 9.      The narrow funding structure creates fiscal risks and uncertainty over the quality and

### 9.      The narrow funding structure creates fiscal risks and uncertainty over the quality and 

### Fiscal risks and current funding pressures
- Annual spending of HIIS is capped to prevent budget overruns, but revenues can fall short of spending, creating potential risks for the state budget.
- The Fiscal Council (2024) estimates that revenues may not be sufficient to cover liabilities of HIIS in the near and medium term.
- Insufficient funding has reduced the range of fully financed services in recent years.
- As a short-term response, the gap between revenue and spending could be filled using HIIS reserve funds and interim adjustments in spending.
- Without a legal requirement for government funds to cover HIIS financing gaps, annual negotiations determine additional government contributions.
- The state budget can impose temporary caps on allocations made to HIIS (e.g., €420 million in 2024 and 2025).
- Key numeric indicators and comparisons:
  - Share on health spending in 2023: 15.9 percent in Slovenia (EU average was 14.8 percent).
  - Employee-employer contributions accounted for over 80 percent of total revenue in 2024.

### Reforms: Progress and priorities — summary
- A comprehensive review (2015) was followed by Slovenia’s National Healthcare Plan 2016-2025. Progress has been made, but the lack of quantification has prevented an assessment of realized savings from reform measures.
- Staff estimates: effective implementation of current policies and measures could yield savings of approximately 0.4 percent of GDP by 2040, primarily from healthcare reforms.
- EC Ageing Report projected increase in total health spending of 1.1 percent of GDP (0.7 and 0.4 percent of GDP, respectively, in healthcare and LTC under the baseline scenario).
- Closing the projected gap and ensuring financial sustainability will require addressing gaps in three priority areas before significant spending pressures materialize.

### Priority area 1 — Strengthen financing structure
- Main points:
  - The current financing structure, even with the LTC Act, is not suitable for a rapidly aging population and a shrinking workforce.
  - The LTC Act represents an important improvement; prompt implementation of other critical measures to ensure sustainable health financing should be prioritized.
- Policy options and recommendations:
  - Diversify financing sources beyond payroll contributions to alleviate pressures on the state budget.
    - Primary measure: widen the revenue base to finance the SHI.
    - Secondary measure: increase private financing through more OOP and co-payment schemes for targeted health goods and services.
    - Example consideration: a review of the contribution rates in the SHI, which have not changed over the last three decades.
  - Introduce countercyclical mechanisms to address reductions in SHI revenues during downturns:
    - Example: establish a health stabilization fund to accumulate surpluses in good times for use in bad times under specific crisis conditions, managed through legislative oversight with strong governance.

### Priority area 2 — Pursue efficiency gains
- International evidence indicates a significant share of health spending is inefficient; more care or better outcomes could be produced without additional spending by doing things differently and promoting responsible use of resources.
- Slovenia has scope to strengthen governance, increase usage of digital health solutions, and optimize processes.
- Key recommendations:
  - Conduct a comprehensive spending review of the health sector to identify operational bottlenecks, cost-inefficient practices, and areas with higher returns and efficiency gains.
  - HIIS, MoH and MoF should jointly monitor the savings delivered and introduce mechanisms to reward efficiency gains and responsible spending, such as linking funding to performance indicators.
- Quantitative efficiency context:
  - Historical estimates: IMF (2015) quantified a score of 0.5 and estimated that closing that gap by half could yield savings of 2 percent of GDP.
  - More recent estimates place Slovenia closer to the frontier, implying savings would be below 1 percent of GDP.
  - Other studies suggest realizing efficiency gains in Slovenia could potentially reduce annual health spending by 0.6 percentage points of GDP from the baseline spending trajectory.

### Priority area 3 — Adapt to demographic changes and promote active aging
- Slovenia adopted the Active Aging Strategy (2017-2030) to integrate health, long-term care, education and labor market policies.
- Key policy directions:
  - Implement the Strategy for the Development of Health Services in Primary Healthcare (2024-2031) and strengthen health-promotion and prevention to keep Slovenians active and healthy longer, reducing avoidable utilization and shifting resources away from costly inpatient care.
  - Expand labor supply of the older population to boost contributions for the SHI:
    - Slovenia has one of the lowest employment rates among older workers (e.g., age 55-64) compared to the EU average and relatively low participation of older employees in lifelong learning.
    - Prioritize measures to extend working lives, including active labor market policies, job adaptation programs, lifelong up-skilling and re-skilling, and corporate age-management and intergenerational cooperation measures.

### Boxes and reform statuses (selected items)
- Box 2: Status of Selected Health Reforms (selected entries):
  - Long-term Care Act — Adopted (2023)
  - Emergency Measures to Ensure Stability of Healthcare System — Adopted (2022)
  - Intervention Measures in Field of Health, Labor and Social Affairs and Health-Related Content — Adopted (2023); Implemented (2024) of which: Tighten sick leave benefits; Replace VHI with a new compulsory contribution
  - Additional Intervention Measures to Ensure Accessibility in Healthcare — Adopted (2024)
  - Quality Assurance in Healthcare Act — Adopted (2025)
  - Health Services Act (to separate public and private health services and prohibit dual practices) — Adopted (2025)
  - Digitalization Act; Strategy: Healthcare Digitalization (2022-2027) — Ongoing implementation
  - Strategy: Development of Health Services in Primary Healthcare (2024-2031)
  - Strategy: Active Aging (2017-2030)

- Box 3: Estimating health spending efficiency — key points:
  - Efficiency scores for Slovenia in studies during 2013-2021 ranged from 0.5 to 0.9; a larger 2022 sample estimated a score above 0.9.
  - Theoretically, applying current health spending more efficiently based on best practices could yield approximately three additional years of healthy life.
  - Illustration of potential savings:
    - IMF (2015) example: closing a 0.5 score gap by half could yield savings of 2 percent of GDP.
    - With Slovenia closer to the frontier in recent estimates, expected savings would be below 1 percent of GDP.
    - Long-term scenario studies suggested potential reduction of annual health spending by 0.6 percentage points of GDP from the baseline trajectory (Medeiros and Schwierz, 2015 and IMAD, 2016a and 2016b).

### Observed service pressures and indicators
- Waiting time and access:
  - Waiting time in Slovenia is among the longest in the EU for elective surgeries; unmet medical needs due to waiting time are high.
- Labor market and sickness absence:
  - Slovenia records among the largest increase in duration of absence from work due to illness.
  - There is a persistent increase in spending on sick leave under generous social health insurance benefits.
- Financing structure visual points:
  - Financing is reliant on compulsory contributions; sources are narrow with a relatively small share of OOP below the EU average.
  - Revenues transferred from state and local budget as a share of total HIIS revenues have grown strongly from 2009 to 2025 (trend shown).

### Conclusion
- The Slovenian health sector faces financial challenges driven by one of the most intensive aging trajectories among EU and OECD countries.
- Population aging creates a dual structural concern: rising demand for healthcare and long-term care goods and services increases financing pressures while a shrinking workforce lowers contributions to the SHI, the main source of financing.
- Despite ongoing reforms, further action is required to mitigate long-term fiscal risks with focus on:
  - (i) strengthening and diversifying the financing structure;
  - (ii) pursuing efficiency gains; and
  - (iii) accelerating adaptation to active aging.
- Implementing these measures would contain spending pressures, maintain access to quality care, and safeguard long-term sustainability of the health system.

*Source: Excerpt from the IMF chapter titled "9.      The narrow funding structure creates fiscal risks and uncertainty over the quality and" (Republic of Slovenia). PDF content provided.*

### 2024. Copenhagen: European Observatory on Health Systems and Policies, WHO Regional Office for

### BOOSTING LABOR PRODUCTIVITY IN SLOVENIA: WHAT IS THE ROLE OF INTANGIBLE INVESTMENTS?

### Context
- Slovenia’s labor productivity—measured as output per worker—increased by 3.4 percent annually during 2001–2007, driven by capital deepening and gains in total factor productivity (TFP).
- Labor productivity declined during the Global Financial Crisis and the ensuing banking crisis even though capital intensity continued to increase; it recovered in 2014-2019 at a lower growth rate due to declining capital intensity.
- Labor productivity growth slowed in 2020-2023 as capital intensity continued to decline and TFP weakened.
- The drop in capital intensity during 2014-23 reflects a fixed investment gap of 1.7 percentage points of GDP compared to the EU average.
- Non-residential fixed investment shortfall was particularly pronounced in intangible assets: investment in non-residential tangible assets (machinery, equipment, and others) in the past 10 years was on par with or above the EU average, while intangible assets recorded in the national accounts (software, databases, and R&D) were lower.
- Under the extended Corrado-Hulten-Sichel (2005) definition, intangible investment comprises three broad areas: I. Computerized information (software, databases); II. Innovative property (R&D, other intellectual property, industrial design, developing new financial products); III. Economic competencies (organizational capital, brand development, training).
- Average intangible investments included in Slovenia’s national accounts (computerized information, R&D and other intellectual property) in 2000-2024 constituted about 30 percent of total intangibles in the extended definition.
- Industrial design and development of new financial products contributed 20 percent of extended intangibles; economic competences (organizational capital, brand development and training) accounted for about half of all intangible investments.
- Slovenia’s intangible investment under the extended definition slowed compared to the EU average in the past 10 years; historically Slovenia exceeded the EU average but declined toward the EU average around 2014-15.
- Slovenia invests more in intangibles than CESEE peers, but significantly less than EU innovation leaders (Denmark, Finland, Netherlands, and Sweden). The gap with EU innovation leaders widened to about 4.5 percent of GDP in 2024, largely due to lower investment in software and databases, R&D, and organizational capital.

### How Much Do Intangibles Contribute to Labor Productivity?
- Literature and empirical findings:
  - Intangible capital deepening accounts for approximately 40-50 percent of productivity gains at both aggregate and sectoral levels in European economies.
  - Roth and Mitra (2024) find the productivity gap between the EU and United States is largely attributable to insufficient investment in non-R&D intangibles, particularly software, training, and organizational capital.
  - Corrado et al. (2022) show intangible investments in knowledge-based capital produce significant productivity spillovers beyond traditional R&D channels; complementarities between ICT and intangible capital generate particularly strong effects.
  - Sectoral heterogeneity: manufacturing benefits primarily from R&D investments; market services derive greater productivity gains from organizational capital and software investments.
  - Corrado, Haskel, and Jona-Lasinio (2017) demonstrate non-R&D intangible capital exhibits higher output elasticities than conventional factor shares.
  - UK post-2010 productivity slowdown largely driven by reduced investment in intangible capital following the GFC.
- Empirical contributions (EU-KLEMS 2001-2021 and panel elasticities):
  - For the EU during 2001-2021, the share of intangibles amounted to about one-third of overall productivity growth, higher than the one-fourth contributed by non-residential tangible investment.
  - Averages for EU innovation leaders are slightly higher in both intangible investments and non-residential tangible investments.
  - In Slovenia, intangible investments accounted for about 20 percent of labor productivity growth, and tangible investment accounted for about 21 percent.

### Supporting Intangible Investments: Challenges and Policy Options
Findings and constraints
- Financing constraints:
  - Intangible investments often lack collateral; traditional banking systems are poorly suited to finance them.
  - The Slovenian financial system is bank-centric; European capital markets are shallow and nationally segmented.
  - Venture capital is virtually non-existent in Slovenia; firms often rely on own resources to finance intangibles.
  - High proportion of small firms, including SMEs and micro-enterprises, increases financial constraints.
- Fragmented innovation ecosystem:
  - Many support organizations with unclear roles and limited intellectual property competences (National Intellectual Property Strategy 2030).
- Existing policy measures and targets:
  - National Research and Innovation Strategy 2030 (adopted 2022) aims to increase investment in research and innovation to 3½ percent of GDP by 2030 (of which 1¼ percent of GDP in the public sector) and calls for better commercialization of research.
  - Public Agency for Scientific Research and Innovation (ARIS) set up in 2023 to facilitate transfer of academic knowledge into the economy and society.
  - National Intellectual Property Strategy 2030 (adopted 2024) aims to enhance intellectual property valuation capacity and develop intellectual property-backed financing; pilot credit line through SID Bank allowing SMEs to use intellectual property rights as loan collateral is being launched.
  - Planned Startup Strategy measures include: (i) strengthening support environment for start-ups and scale-ups; (ii) developing the VC market with public incentives to strengthen private and pension fund investments in VC; (iii) introducing an internationally comparable framework for implementing employee stock options and profit-sharing; (iv) introducing a start-up visa to attract global tech talent; (v) developing a new simplified legal form tailored for start-ups.
  - Authorities planning additional grants and financial instruments of about 0.9 percent of GDP, primarily financed by European cohesion funds, for supporting RDI, entrepreneurship and investments, circular economy, tourism and space.
  - SID Bank initiatives: seed capital and convertible loans; Slovenian Capital Growth Investment Program (SEGIP) expanded to 0.3 percent of GDP in 2021-2022; Technology Transfer Fund, Venture Capital Fund, Succession Fund.
  - SEF involvement in Central Europe Fund of Funds (CEFoF) with €87 million that leverages private investments to increase total available volume close to €700 million (multiplier of 8.6 relative to commitments under the CEFoF).
- EU-level and structural considerations:
  - Deepening the European Capital Markets Union (CMU) would broaden funding and exit options for young, innovative firms.
  - Slovenia can expand the pool of capital by further developing its Pillar 2 pension scheme and implementing the new law on individual savings accounts to foster retail investment.
  - To channel savings to early-stage risky assets, regulations should not unduly restrict institutional investors from investing in these projects; familiarity with the venture capital asset class can be improved through public initiatives (e.g., Tesi in Finland) (Arnold and others, 2025).
  - Strengthening domestic innovation financing infrastructure—establishing an efficient, cost-effective mix of instruments, improving SME access to EU programs like InvestEU, and improving financial literacy—will help Slovenia benefit more from a stronger CMU.
  - Industrial policy should focus on addressing specific market failures, be targeted, time-bound, consistent with WTO rules, and coordinated at the EU level.
- Business environment and skills:
  - Heavy regulatory and administrative burdens and slow procedures (e.g., lengthy permitting, complex regulations) increase costs and hinder business dynamism (OECD 2022).
  - Improving skills availability is critical: expand vocational and tertiary education programs in STEM fields; strengthen lifelong learning and reskilling initiatives; promote closer collaboration between industry and educational institutions to align curricula with evolving labor market needs.
  - Streamline recognition of foreign qualifications and facilitate integration of skilled migrants to address immediate shortages.

### Policy Recommendations (summary bullets)
- Increase investment in software, databases, and organizational capital to close the gap with the EU average; pursue across-the-board increases to narrow the 4.5 percent of GDP gap with EU innovation leaders.
- Expand access to finance for intangible investments:
  - Develop venture capital markets and complementary public instruments (building on SID Bank and SEF initiatives).
  - Use pension reform and retail savings measures to increase available domestic capital.
  - Improve SME access to EU instruments (e.g., InvestEU) and pilot intellectual property-backed financing.
- Strengthen the innovation and entrepreneurship ecosystem:
  - Clarify roles of support organizations and build intellectual property competences.
  - Implement Startup Strategy measures (VC incentives, employee stock option frameworks, start-up visa, simplified legal form).
- Enhance the business environment and skills supply:
  - Streamline regulatory and administrative procedures (permitting, regulatory complexity).
  - Expand STEM education, lifelong learning, reskilling, and industry-education cooperation.
  - Improve recognition of foreign qualifications and integration of skilled migrants.
- Ensure industrial policy is targeted to market failures, time-bound, WTO-consistent, and EU-coordinated to avoid inefficiencies.

*Source: REPUBLIC OF SLOVENIA — INTERNATIONAL MONETARY FUND chapter excerpt on intangible investments and labor productivity.*

### 12.      Closing Slovenia’s productivity gap with EU innovation leaders requires strengthening

### 12.      Closing Slovenia’s productivity gap with EU innovation leaders requires strengthening

### Innovation ecosystem gaps and priorities
- Slovenia performs above the EU average in public-private co-publications but science-industry collaboration remains fragmented, with limited long-term institutional partnerships.
- Strengthening linkages between firms and academia, and between MNEs and SMEs, would accelerate knowledge diffusion, technology adoption and innovation across the economy.
- Institutionalizing cooperation across the ecosystem could unlock Slovenia’s knowledge base and raise its innovation capacity to the level of EU leaders.
- Slovenia could leverage its existing multinational presence in sectors such as automotive (Revoz/Renault), pharmaceuticals (Lek/Sandoz), and manufacturing to catalyze domestic innovation and entrepreneurship.

### Policy options and examples
- Expand collaborative R&D funding to promote sustained partnerships between universities, MNEs, and SMEs.
- Develop industrial PhD programs to deepen long-term research linkages between academia and industry.
- Develop innovation hubs and clusters embedding universities, MNEs and SMEs in shared research agendas.
- Example: The Tyndall National Institute in Ireland brings together leading global companies and Irish SMEs in semiconductors technology, promoting startups and facilitating the creation of high-value-added jobs. Drawing on this model, Slovenia could explore institutional mechanisms tailored to its sectoral strengths.

### Box 1 — Estimating the link between intangible investments and productivity: approach
- Uses the latest available update of the EU-KLEMS database to calculate contributions to labor productivity growth of distinct types of investments based on estimated elasticities.
- Estimation motivated by the Cobb-Douglas production function with multiple types of capital (Equation 1), converted to intensive form (Equation 2), logged (Equation 3) and differenced to produce specifications for estimating elasticities.
- Dataset includes EU countries, UK, and the US and contains data from 1995 to 2021 (many countries have data only from 2001).
- Regressions include two control variables: the differenced output gap and a distance to the leader in per capita income.
- Specifications estimated using the Arellano-Bond dynamic estimation procedure to control for possible endogeneity.
- All coefficients have expected signs and nearly all are statistically significant at 1 percent level.

### Box 1 — Key quantitative findings and implications
- Specification (1) suggests that increasing intangible capital by one percent would contribute about 0.14 percentage points to productivity growth.
- Training has a large elasticity: improving training expenditure by one percent would contribute 0.12 percentage points to productivity growth.

### Table 1 — Panel regression: labor productivity and capital stock, 1995-2021 (selected coefficients)
- Dependent variable: Growth rate of labor productivity per worker
- Specification (1)
  - Tangible capital, % change: 0.300 (0.023)***
  - Intangible capital, % change: 0.138 (0.015)***
  - Lagged labor productivity growth: -0.106 (0.020)***
  - Output gap (differenced): 0.862 (0.020)***
  - Distance to per capita income leader: 0.011 (0.001)***
  - Constant: -1.625 (0.235)***
  - Number of observations: 615
- Specification (2)
  - Tangible capital, % change: 0.279 (0.023)***
  - Software and databases, % change: 0.028 (0.006)***
  - Innovative property, % change: 0.058 (0.012)***
  - Economic competencies, % change: 0.094 (0.014)***
  - Lagged labor productivity growth: -0.119 (0.020)***
  - Output gap (differenced): 0.856 (0.020)***
  - Distance to per capita income leader: 0.011 (0.001)***
  - Constant: -1.746 (0.235)***
  - Number of observations: 592
- Specification (3)
  - Tangible capital, % change: 0.272 (0.023)***
  - Software and databases, % change: 0.029 (0.005)***
  - Innovative property, % change: 0.054 (0.012)***
  - Organizational capital, % change: 0.029 (0.010)**
  - Brand, % change: 0.013 (0.009)
  - Training, % change: 0.117 (0.014)***
  - Lagged labor productivity growth: -0.127 (0.019)***
  - Output gap (differenced): 0.858 (0.020)***
  - Distance to per capita income leader: 0.010 (0.001)***
  - Constant: -1.469 (0.225)***
  - Number of observations: 615

*Source: IMF Country Report chapter "12. Closing Slovenia’s productivity gap with EU innovation leaders requires strengthening."*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1svnea2026002-source-pdf.pdf_