## _cr04149

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---

### Inflation developments, 1995–2004 — Background and Maastricht challenge
- Historical trajectory:
  - "Over 200 percent in 1992" reduced to "single digits in 1996".
  - "Below 5 percent" in the first half of 1999.
  - Headline inflation rose "close to 10 percent during 2000–01" due to VAT introduction, higher indirect taxes, and increases in energy and administered prices.
  - Year-on-year inflation was "3½ percent in March 2004".
- Monetary and institutional changes:
  - Until 2001: eclectic disinflation strategy combining a monetary target with a managed floating exchange rate; capital controls crucial until liberalization beginning of 1999.
  - January 2002: Bank of Slovenia (BoS) introduced a medium-term inflation objective "originally set at 3–4 percent for 2005" and semi-annual BoS inflation forecasts; operationally BoS continued to target real interest rates and close the risk-adjusted interest rate differential via exchange rate depreciation.
  - From 2003 ahead of EU accession and ERM2: measures to reduce price pressures from administered prices and indirect taxes; moderation of public-sector wage growth; excise tax on gasoline modified to offset international oil price fluctuations.
- Structural and cyclical factors:
  - Widespread indexation complicated disinflation; 2002 shift from backward-looking to forward-looking wage indexation had limited effect due to catch-up clauses.
  - Upturn in inflation in 1999 coincided with a positive output gap; decline in inflation thereafter tracked a decline in the output gap.
- Maastricht requirement:
  - Maastricht inflation criterion estimated at "2¾ percent".
  - To adopt the euro in 2007, authorities need to bring average annual inflation to this level "between mid-2005 and mid-2006".
- Policy stance:
  - Gradualist approach: increases in administered and regulated prices capped at projected inflation; only excise on tobacco to be raised to align with EU levels.
  - BoS plans to slow depreciation to zero in second half of 2004 and keep exchange rate within a narrow band upon entering ERM2.
  - Adjustment burden under ERM2 to be borne primarily by wage and fiscal policies.
  - Social partners agreed to weakened wage indexation where average wage growth accounts for inflation in Slovenia and the EU and changes in the tolar/euro exchange rate; sectoral and corporate bargaining means outcomes are uncertain, notably in election year 2004.

### Inflation model: structure, estimation, and interpretation
- Model structure:
  - Small open-economy model with two equations: long-term price-level (price level equation) and short-term inflation dynamics (inflation equation).
  - Tradable prices linked to euro-area producer prices PPI_t^Euro and nominal exchange rate NER_t; nontradable prices linked to nominal unit labor costs (VA_t^NT / L_t^NT and W_t^NT).
  - Inflation equation variables: lagged inflation π_{t-1}; year-on-year change in exchange rate ∆lnNER_t; average output gap over four quarters y_t^{avg}; year-on-year change in long-term nominal lending rate IR_t; contribution of indirect tax changes tax_t; error-correction term EC_t^{avg} (γ expected negative).
- Model omissions and rationale:
  - Oil prices omitted because authorities offset gasoline market price fluctuations via excise tax adjustments.
  - Administered prices not modeled separately; contributions captured in error term ε in equation (2).
  - Time series limitations constrained inclusion of some wage/employment/value-added variables.
- Estimation:
  - Seasonally-adjusted quarterly data for 1997–2003.
  - "All coefficients of the estimated model, with the exception of the coefficient on tax changes, are statistically significant."
  - Price level equation R^2: "0.99".
  - Inflation equation R^2: "0.90".
  - Adjusted R-squared reported as ". .0.44." (as printed).
  - Tax coefficient imprecise; 95-percent confidence band for tax coefficient: "(-0.33, 0.83)".
- Empirical interpretation:
  - Nontradable sector dominates price developments.
  - High persistence of Slovene inflation (significant coefficient on past inflation).
  - Exchange rate dynamics significantly impact inflation.
  - Co-movement of inflation and output gap confirmed.
  - Error-correction term enters with negative sign as expected.
  - Interest rates on corporate lending did not contribute to disinflation; nontradable wages grew faster than nontradable productivity in real terms and did not contribute to disinflation.

### Decomposition of 2002–2003 disinflation (model-based)
- Empirical fall in inflation Q4 2002 → Q4 2003: "2.3 percentage points" (from "7.1 percent" to "4.8 percent" year-on-year).
- Model attribution of the 2.3 percentage point fall:
  - Widening of output gap: about "two-thirds" (~1.6 percentage points).
  - Slower depreciation of the tolar: about "0.3 percentage point".
  - Other factors including adjustments in administered prices: about "0.6 percentage point".
  - Interest rates on corporate lending: no contribution to disinflation.
  - Nontradable wages vs productivity: did not contribute to disinflation.

### Key historical indicators (selected values from Table 1, 1999–2006 row series as printed)
- Real GDP growth: "5.9 4.1 2.9 2.9 2.3 3.5 4.1 4.5".
- Contribution of domestic demand: "9.8 1.6 1.0 2.1 4.0 5.1 5.6 5.9".
- Contribution of net foreign demand: "-3.9 2.5 1.8 0.8 -1.8 -1.6 -1.5 -1.4".
- Potential GDP growth: "4.1 3.9 3.8 3.8 3.6 3.5 3.5 3.5".
- Output gap (percent of potential output): "1.3 1.5 0.5 -0.3 -1.6 -1.6 -1.1 -0.1".
- Consumer prices: "6.1 8.9 8.4 7.5 5.6 3.7 3.4 3.4".
- Exchange rate, SIT/EUR: "4.0 5.9 5.9 4.2 3.3 2.3 0.4 0.0".
- Indirect taxes (sum of contributions to quarter-on-quarter inflation over period): "1/ 1.9 0.0 0.3 1.0 0.5 0.4 0.3 0.3".
- Long-term lending rate (period average): "14.2 17.7 17.1 15.6 12.6 8.8 7.7 7.4".

### Outlook, baseline forecast assumptions, and scenarios
- Baseline assumptions:
  - Output growth rebounds during 2004–06 and rises above potential as domestic demand strengthens and external environment improves.
  - Exchange rate depreciation vs euro slows gradually to zero during second half of 2004; BoS will fix a central parity on entering ERM2 and seek to maintain exchange rate stability within a narrow band.
  - Euro-area producer price inflation: forecast at 1 percent a year.
  - Average long-term corporate lending rates assumed to fall from 10.2 percent in January 2004 to about 7¼ percent at end-2006 (derived from WEO EURIBOR 3½ percent in Q4/2006, lending margin about 3–3½ percent, plus risk premium ¼ percent).
  - Excise taxes on tobacco: planned increases; IMAD projected contributions to quarter-on-quarter inflation: 0.25 percentage point in Q1/2004; 0.12 percentage point in Q3/2004; 0.08 percentage point in Q1/2005; 0.08 percentage point in Q1/2006; 0.18 percentage point in Q3/2005; 0.18 percentage point in Q3/2006.
  - Wage–productivity gaps in nontradables: historically GapNT = 0.2 in 2003; baseline assumes gaps unchanged during forecast period.
- Baseline inflation forecast:
  - Annual average inflation predicted at 3¼ percent during the assessment period (Q3/2005–Q2/2006), above Maastricht criterion "2¾ percent".
- Alternative demand scenarios:
  - No-boom (slower recovery): if growth recovered slowly (about ½ percentage point less per year vs baseline), average annual inflation would likely reach 2.4 percent over the assessment period.
  - High-growth: faster credit expansion yields real GDP growth 0.2–0.4 percentage point higher than baseline between 2004–06; inflation would likely reach 3.9 percent over the assessment period.
- Sensitivity to wage moderation:
  - To meet the Maastricht criterion, wage growth would need to lag economy-wide productivity growth by 1½–2 percentage points (instead of the current ½ percentage point). In terms of nontradable productivity, the lag would need to be 0.8–1.3 percentage point.
- Model robustness:
  - Staff estimated two different reduced-form models and confirmed the baseline forecast in the neighborhood of 3¼ percent.
- Forecast uncertainty:
  - 95-percent confidence interval for the inflation forecast is approximately ±1.5 percentage points.

### Risks to the baseline forecast
- Wage-related risks:
  - Public sector: weakened indexation agreed; budgeted wage bill implies negative real wage growth in public sector in 2004–05, but negotiation risks remain.
  - Private sector: decentralized bargaining creates uncertainty; no signals wage–productivity gap in private nontradable sector would decrease.
- Potential output uncertainty:
  - Staff assumed potential growth = 3.5 percent over medium term (between PEP estimate 3.8 percent and Ministry of Finance estimate 3.2–3.3 percent).
  - If potential output assumed higher by 0.1–0.2 percentage point over 2003–05, inflation forecast would lower by ¼ percentage point over assessment period.
- Model structure and credibility:
  - Enhanced credibility could lower inflation expectations via a lower constant term and lower coefficient on past inflation in equation (2).
  - Literature suggests backward-looking expectations may dominate (Carroll, 2003) and credibility plays limited role in disinflation (Ball, 1994).
- Competition effects:
  - EU accession could reduce nontradable sector markups; speed of effect on Slovenian inflation uncertain.

### Policy conclusions and recommendations on inflation and ERM2 entry
- Staff judgment:
  - Under currently identified policies, Slovene inflation will likely remain above the Maastricht criterion over the assessment period.
  - Domestic demand rebound and expected robust demand growth until euro adoption in 2007 imply real GDP growth above potential and will impede future disinflation gains.
- Policy recommendations:
  - Given loss of monetary independence under ERM2, sustainable reduction in inflation could be achieved by:
    - Wage moderation.
    - Enhancing flexibility of fiscal policy.
  - Contingent measure: if achieving Maastricht inflation criterion appears under threat, consider formulating a temporary wage pact between social partners under government guidance.

---

### EU accession: budgetary impacts, agriculture, structural funds, and fiscal risks
- Slovenia’s EU budget contributions and timing:
  - Contribution expected around 0.7 percent of GDP in 2004, and 1.1–1.2 percent of GDP annually in 2005–06.
  - Since contributions start in May 2004 payment will be two thirds of the usual amount in the first year of EU membership.
- Receipts and transfer types:
  - Two groups: automatic revenues (direct payments to farmers, market interventions, budgetary compensations, Schengen border-related expenditures) and project-conditional transfers (Structural and Cohesion Funds, EAGGF-financed rural development, remaining pre-accession aid).
  - Net position depends on success in applying for project-related finance.
- EAGGF (agriculture) specifics:
  - New member states initially eligible for 25, 30, and 35 percent of average EU level direct payments during 2004–06.
  - General rule: new member states may add 30 percentage points from national resources on top of EAGGF-financed subsidy.
  - Special top-up for Slovenia: allowed to add 10, 15, and 20 percentage points, respectively, during 2004–06, on top of existing level (current level 75 percent of average EU level).
  - New member states may redirect rural development resources for top-up of direct payments up to 20 percent of funding for rural development.
  - During 2004, Slovenia will pre-finance expenditures and start receiving cash payments in 2005.
  - Rural development requires government cofinancing at 20 percent.
  - Ministry of Finance estimates:
    - Expenditures on topping-up: SIT 12–15 billion a year.
    - Net gain for budget from replacement of existing system: SIT 6-11 billion a year.
  - Budget totals (Table 4, Agriculture expenditures, in billions of tolars): 2003 Prel. Budget total: 24.02; 2004 Budget total: 29.98; 2005 Budget total: 41.63.
- Structural and Cohesion Funds:
  - Ministry estimates Slovenia can disburse annually SIT 8–15 billion in structural funding during 2004–06.
  - Typical total domestic cofinancing: 25–50 percent; government's contribution SIT 3–5 billion a year.
  - Principle of additionality: Slovenia must maintain public development expenditure at pre-accession level; cofinancing creates budgetary pressure.
  - Cohesion Fund domestic cofinancing typically 25 percent, initially provided by public companies; staff estimates substitution with Cohesion Fund will generate savings of SIT 6–9 billion a year.
- Other facilities and pre-accession aid:
  - Special cash transfer negotiated at Copenhagen: SIT 15–25 billion a year to ensure net position does not deteriorate after EU entry; compensation automatic and can finance any state budget expenditure.
  - Pre-accession program volumes: SIT 21 billion in 2004, falling to SIT 7 billion in 2006.
  - Schengen-related investments: Ministry estimates Slovenia will need to invest about SIT 11 billion of own resources on the Schengen-border in addition to EU funds during 2004–05.
  - EEA financial instrument: small facility (less than SIT 5 billion over five years), timing uncertain; not included in Table 3.
- Fiscal timing and revenue effects:
  - One-off revenue liquidity shortfall due to lag in VAT collection on imports from the EU.
  - VAT/GDP efficiency: ~0.5 in Slovenia vs ~0.35 EU average; annual VAT revenue shortfall could reach SIT 13–21 billion (0.2–0.3 percent of GDP) once Schengen border controls are abolished.
  - Loss of customs duties on EU imports expected ~SIT 8-11 billion a year.
  - Gradual alignment of excise tax on tobacco to EU levels will improve budget by about SIT 2 billion annually.
- Administrative preparedness and implementation risks:
  - EC reports (July and November 2003): Slovenia well-prepared in many areas, but needs progress on pipeline of well-prepared projects and administrative structures for management and monitoring of Structural and Cohesion Funds.
  - Historical disbursement: programming period 1994–99 average 78 percent of available Structural Funds (Objective 1) paid to EU-15 countries.
  - Pre-accession facilities experience suggests new member states may initially have difficulties disbursing project-oriented resources.
  - EU will cancel funding commitments not claimed by end of the calendar year following the intended start year, incentivizing quick draw-down but increasing implementation risk.
- Selected financial table excerpts (Table 3, in millions of tolars):
  - Subtotal estimated disbursements (Revenue): 82,827 (2004); 104,373 (2005); 102,094 (2006).
  - As percent of GDP (Revenue subtotal): 1.4 (2004); 1.6 (2005); 1.4 (2006).
  - Slovene contribution to EU budget: -45,049 (2004); -76,265 (2005); -79,662 (2006).
  - Net position with the EU: 37,778 (2004); 28,108 (2005); 22,432 (2006).
  - As percent of GDP (Net position): 0.6 (2004); 0.4 (2005); 0.3 (2006).
  - Net impact on the budget (overall numbers in table): 57,336 (2004); 72,547 (2005); 66,205 (2006) and associated As percent of GDP values such as 0.9, 1.1, 0.9; -1.6, -2.3, -2.2; -0.3, -0.2, -0.1; 0.2, 0.3, 0.2; -0.8, -1.1, -1.2.

### Medium-term concern on EU funds net receipts (programming period 2007–13)
- Main finding:
  - Slovenia may not be able to sustain its position as a net recipient of the EU funds during the next programming period 2007–13.
- Convergence and eligibility:
  - Slovene GDP per capita in PPP terms about 70 percent of the EU average.
  - Continued real convergence may render Slovenia ineligible for Objective 1 funding.
- Financial framework and budgetary pressures:
  - Financial framework for 2007–13 might place more stringent conditions on use of EU funds.
  - Main net contributors to the EU budget propose to reduce the EU budget envelope as a proportion of EU gross national income.

### Selected macro- and fiscal indicators (selected historical values preserved)
- Social and demographic:
  - Area (thousand square kilometers): 203,154.
  - Population (million; 2002): 2.037.
  - GDP per capita (PPS; EU-15=100; 2002): 69.
- Real economy (percent changes, 1999–2003):
  - Real GDP: 1999 5.9; 2000 4.1; 2001 2.9; 2002 2.9; 2003 2.3.
  - CPI (average): 1999 6.1; 2000 8.9; 2001 8.4; 2002 7.5; 2003 5.6.
- Public finance (general government, percent of GDP; 1999–2003):
  - General government revenue: 1999 41.4; 2000 40.9; 2001 41.5; 2002 40.9 1/; 2003 41.9.
  - General government expenditure: 1999 42.0; 2000 42.2; 2001 42.8; 2002 42.5; 2003 43.3.
  - General government balance: 1999 -0.6; 2000 -1.3; 2001 -1.3; 2002 -1.5 1/; 2003 -1.4.
  - General government debt: 1999 23.6; 2000 24.7; 2001 26.6; 2002 27.8; 2003 27.0.
- Money and credit (percent change, selected):
  - M3: 1999 12.2; 2000 15.3; 2001 28.3; 2002 18.4; 2003 4.9.
  - Credit to private sector: 1999 29.3; 2000 18.6; 2001 18.4; 2002 11.3; 2003 15.7.
- External sector (millions of euros, 1999–2003):
  - Current account balance: 1999 -664.2; 2000 -583.0; 2001 38.0; 2002 329.7; 2003 16.7.
  - Exports: 1999 8,103.2; 2000 9,574.2; 2001 10,454.3; 2002 11,081.2; 2003 11,426.5.
  - Imports: 1999 -9,267.3; 2000 -10,801.2; 2001 -11,138.7; 2002 -11,346.6; 2003 -11,970.8.
  - Official reserves (millions of euros): 1999 3,159.3; 2000 3,435.9; 2001 4,983.7; 2002 6,781.4; 2003 6,878.9.
- Banking and central bank (end-period stocks, in billions of tolars):
  - Bank of Slovenia assets (end-2003): 1,678.1; Foreign assets: 1,644.7; Reserve money: 285.3; Bank of Slovenia bills: 1,027.6; Capital and reserves: 199.9.
  - M3 (end-period, billions of tolars): 1999 2,055.7; 2000 2,370.6; 2001 3,040.6; 2002 3,600.7; 2003 3,777.8.
- Gross external debt (millions of euros, end-period): 1999 8,012; 2000 9,490; 2001 10,403; 2002 11,482; 2003 12,995.

*Source — IMF staff note "I. INFLATION IN SLOVENIA: RECENT DEVELOPMENTS AND OUTLOOK", prepared by Martin Sommer; chapter headings and tables as provided in the supplied content.*

### 1.  Inflation Developments, 1995–2004.................................................................................3

### 1.  Inflation Developments, 1995–2004.................................................................................3

### Background
- Inflation trajectory:
  - "Over 200 percent in 1992" reduced to "single digits in 1996".
  - "Below 5 percent" in the first half of 1999.
  - Headline inflation rose "close to 10 percent during 2000–01" due to VAT introduction, higher indirect taxes, and increases in energy and administered prices.
  - Year-on-year inflation was "3½ percent in March 2004".
- Monetary policy framework and institutional changes:
  - Until 2001: eclectic disinflation strategy combining a monetary target with a managed floating exchange rate; capital controls were crucial until liberalization beginning of 1999.
  - January 2002: Bank of Slovenia (BoS) introduced a medium-term inflation objective "originally set at 3–4 percent for 2005" and semi-annual BoS inflation forecasts; operationally BoS continued to target real interest rates and close the risk-adjusted interest rate differential via exchange rate depreciation.
  - From 2003 ahead of EU accession and ERM2: measures to reduce price pressures from administered prices and indirect taxes; moderation of public-sector wage growth; excise tax on gasoline modified to offset international oil price fluctuations.
- Structural and cyclical factors:
  - Widespread indexation complicated disinflation; 2002 shift from backward-looking to forward-looking wage indexation had limited effect due to catch-up clauses in wage contracts.
  - The upturn in inflation in 1999 coincided with a positive output gap; reduction in inflation thereafter tracked a decline in the output gap.
- Maastricht convergence challenge:
  - Maastricht inflation criterion estimated at "2¾ percent".
  - To adopt the euro in 2007, authorities need to bring average annual inflation to this level "between mid-2005 and mid-2006".
- Policy stance toward meeting Maastricht:
  - Gradualist approach: increases in administered and regulated prices capped at projected inflation; only excise on tobacco to be raised to align with EU levels.
  - BoS plans to slow depreciation to zero in second half of 2004 and keep exchange rate within a narrow band upon entering ERM2.
  - Adjustment burden under ERM2 to be borne primarily by wage and fiscal policies.
  - Social partners agreed to weakened wage indexation where average wage growth accounts for inflation in Slovenia and the EU and changes in the tolar/euro exchange rate; sectoral and corporate bargaining means outcomes are uncertain, notably in election year 2004.

### Inflation Model
- Model structure:
  - A small open-economy inflation model with two equations: a long-term price-level (price level equation) and a short-term inflation dynamics equation (inflation equation).
  - Long-term pricing: tradable prices function of euro-area producer prices PPI_t^Euro and nominal exchange rate NER_t; nontradable prices linked to nominal unit labor costs (VA_t^NT / L_t^NT and W_t^NT).
  - Short-term inflation equation: year-on-year inflation π_t is a function of:
    - lagged inflation π_{t-1};
    - year-on-year change in the exchange rate ∆lnNER_t;
    - average output gap over four quarters y_t^{avg};
    - year-on-year change in long-term nominal lending rate to enterprises IR_t;
    - contribution of indirect tax changes tax_t;
    - an error-correction term EC_t^{avg} reflecting deviations from long-term equilibrium (with coefficient γ expected negative).
- Model intentions and omissions:
  - Equilibrium inflation anchored by foreign prices and exchange rate for tradables, and wages less productivity gains in nontradables.
  - Oil prices omitted because authorities offset gasoline market price fluctuations via excise tax adjustments.
  - Administered prices not modeled separately because authorities will limit increases to projected inflation; their contribution captured in the error term ε in equation (2).
  - Time series limitations for wages, employment, and value added constrained variable inclusion.

### Estimation
- Data and sample:
  - Seasonally-adjusted quarterly data for 1997–2003.
- Estimated equations and fit:
  - Reported that "All coefficients of the estimated model, with the exception of the coefficient on tax changes, are statistically significant."
  - Price level equation R^2: "0.99".
  - Inflation equation R^2: "0.90".
  - Adjusted R-squared reported as ". .0.44." (as printed).
- Estimated results (summarized coefficients as presented):
  - Price level equation (log form): coefficients on ln(PPI_t^Euro) and ln(NER_t) and nontradable unit labor cost terms reported; specific numeric coefficient block printed in source (see source for full coefficient matrix).
  - Inflation equation (numeric block as printed): includes coefficients with standard errors; the coefficient on tax changes is low and not statistically different from zero; 95-percent confidence band for tax coefficient: "(-0.33, 0.83)".
- Interpretation of coefficients:
  - Nontradable sector dominates price developments.
  - Persistence of Slovene inflation evidenced by a highly significant coefficient on past inflation.
  - Exchange rate dynamics significantly impact inflation.
  - Co-movement of inflation and output gap confirmed.
  - Error-correction term EC_t enters with negative sign as expected.
- Tax coefficient and implications:
  - Imprecise estimate for indirect tax effect due to infrequent tax changes typically implemented in first and third quarters; impact diluted on year-on-year inflation measures.
  - Robustness checks indicate year-on-year inflation forecasts are insensitive to the estimated tax coefficient.
- Decomposition of disinflation in 2003 (model-based):
  - If output gap had remained at its 2002 level (i.e., economy grew at potential rate "3.6 percent in 2003"), model implies inflation would be "1.6 percentage points higher" than actual in Q4 2003.
  - Empirical fall in inflation from Q4 2002 to Q4 2003: "2.3 percentage points" (from "7.1 percent" to "4.8 percent" year-on-year).
  - Model attribution of the 2.3 percentage point fall:
    - Widening of output gap: about "two-thirds" of decline (~1.6 percentage points).
    - Slower depreciation of the tolar: about "0.3 percentage point".
    - Other factors including adjustments in administered prices: about "0.6 percentage point".
    - Interest rates on corporate lending did not contribute to disinflation.
    - Nontradable wages grew faster than nontradable productivity in real terms and did not contribute to disinflation.

### Key historical indicators and projections (Table 1 excerpts: Selected Economic Indicators, 1999–2006)
- Real GDP growth: "5.9 4.1 2.9 2.9 2.3 3.5 4.1 4.5" (1999–2006 row values as printed).
- Contribution of domestic demand: "9.8 1.6 1.0 2.1 4.0 5.1 5.6 5.9".
- Contribution of net foreign demand: "-3.9 2.5 1.8 0.8 -1.8 -1.6 -1.5 -1.4".
- Potential GDP growth: "4.1 3.9 3.8 3.8 3.6 3.5 3.5 3.5".
- Output gap (in percent of potential output): "1.3 1.5 0.5 -0.3 -1.6 -1.6 -1.1 -0.1".
- Consumer prices: "6.1 8.9 8.4 7.5 5.6 3.7 3.4 3.4".
- Exchange rate, SIT/EUR: "4.0 5.9 5.9 4.2 3.3 2.3 0.4 0.0".
- Indirect taxes (sum of contributions to quarter-on-quarter inflation over period): "1/ 1.9 0.0 0.3 1.0 0.5 0.4 0.3 0.3".
- Long-term lending rate (in percent, period average): "14.2 17.7 17.1 15.6 12.6 8.8 7.7 7.4".

### Outlook and policy implications (as framed in the text)
- Main task: reduce inflation to the Maastricht criterion ("2¾ percent") in the assessment period "June 2005–May 2006" to aim for euro adoption in 2007.
- Policy mix emphasized:
  - Continued gradualist approach to disinflation.
  - Capping administered and regulated price increases at projected inflation.
  - Use of exchange rate policy: slow depreciation to zero in second half of 2004 and narrow band in ERM2.
  - Fiscal and wage policy to bear primary adjustment burden under ERM2.
  - Need to manage risks of a domestic demand boom which could jeopardize meeting the Maastricht criterion.

_Italic: Source — IMF staff note "I. INFLATION IN SLOVENIA: RECENT DEVELOPMENTS AND OUTLOOK", prepared by Martin Sommer; chapter headings and tables as provided in the supplied content._

### 19.      Based on the estimated model, the staff has prepared short-term inflation

### _cr04149 - 19.      Based on the estimated model, the staff has prepared short-term inflation

### Assumptions underlying the baseline inflation forecast
- Output growth: staff expects output growth to rebound during 2004–06 and rise above the potential rate as domestic demand strengthens and the external environment improves (Table 1).
  - Domestic demand drivers: convergence-related fall in interest rates; favorable business and consumer expectations triggered by EU accession and prospective euro adoption; release of funds from the National Housing Savings scheme.
- Exchange rate: the pace of nominal depreciation against the euro is expected to slow down gradually to zero during the second half of 2004. The Bank of Slovenia (BoS) will fix a central parity on entering ERM2 and seek to maintain exchange rate stability within a narrow band.
- Euro-area producer price inflation: forecast at 1 percent a year.
- Interest rates: average long-term corporate lending rates assumed to fall from 10.2 percent in January 2004 to about 7¼ percent at end-2006.
  - Derivation: sum of WEO projection for EURIBOR (3½ percent in the fourth quarter of 2006), a typical lending margin in Germany (about 3–3½ percent) plus a modest risk premium (¼ percent).
- Excise taxes on tobacco: authorities plan to increase excise taxes to align with the EU level.
  - IMAD projected contributions of tax hikes to quarter-on-quarter inflation: 0.25 percentage point in Q1/2004; 0.12 percentage point in Q3/2004; 0.08 percentage point in Q1/2005; 0.08 percentage point in Q1/2006; 0.18 percentage point in Q3/2005; 0.18 percentage point in Q3/2006.
- Wage–productivity gaps in the nontradable sector:
  - Definition: GapNT = ln∆LNT - ln∆VANT (year-on-year growth difference between real wages and productivity in nontradables).
  - Historical 2003: increase in real wages in the nontradable sector was 0.2 percentage point higher than nontradable productivity growth, and lagged economy-wide productivity growth by 0.5 percentage point.
  - Baseline assumption: these gaps remain unchanged during the forecast period (Table 2).

### Forecasts and sensitivity analysis
- Baseline inflation forecast:
  - Annual average inflation predicted at 3¼ percent during the assessment period (Q3/2005–Q2/2006), above the Maastricht inflation criterion of 2¾ percent.
- Sensitivity to wage moderation:
  - Inflation can be reduced by moderating wage growth in the nontradable sector.
  - To meet the Maastricht criterion, wage growth would need to lag economy-wide productivity growth by 1½–2 percentage points (instead of the current ½ percentage point). Footnote: In terms of nontradable productivity, the lag would need to be 0.8–1.3 percentage point.
- Alternative demand scenarios (Table 3):
  - No-boom (slower recovery): if growth recovered slowly (about ½ percentage point less per year compared with baseline), average annual inflation would likely reach 2.4 percent over the assessment period.
    - Note: GDP growth figures for the no-boom scenario correspond to the Bank of Slovenia forecast in the October 2003 Monetary Policy Implementation Report.
  - High-growth scenario: faster credit expansion (release of funds from National Housing Construction Scheme) yields real GDP growth 0.2–0.4 percentage point higher than baseline between 2004–06.
    - Output gap closes more rapidly and inflation would likely reach 3.9 percent over the assessment period.
- Key projection table excerpts (Table 3, selected values):
  - Baseline-growth scenario (Q3/2005 - Q2/2006): CPI inflation, avg 3.2 3  (table shows "3.4 3.25 3.4"? preserve original: the baseline statement is 3¼ percent for assessment period).
  - No demand boom scenario: CPI inflation, avg 2.4 percent over assessment period.
  - High-growth scenario: CPI inflation, avg 3.9 percent over assessment period.
- Model robustness:
  - Staff estimated two different reduced-form models relating inflation to macro variables and confirmed the baseline forecast in the neighborhood of 3¼ percent.

### Risks to the baseline forecasts
- Statistical uncertainty:
  - The 95-percent confidence interval for the inflation forecast is approximately ±1.5 percentage points.
- Wage risks:
  - Public sector: social partners agreed on weakening of indexation scheme; budgeted wage bill implies negative real wage growth in the public sector in 2004–05, but risks remain from negotiations on a new wage structure.
  - Private sector: decentralized bargaining creates uncertainty; no signals that the wage–productivity gap in the private nontradable sector would decrease.
- Potential output uncertainty:
  - Difficulty in distinguishing temporary demand-driven slowdown from permanent supply-driven lower potential growth.
  - Staff assumed potential growth of 3.5 percent over the medium term (between PEP estimate 3.8 percent and Ministry of Finance estimate 3.2–3.3 percent).
  - Assuming potential output higher by 0.1–0.2 percentage point over 2003–05 would lower the inflation forecast by ¼ percentage point over the assessment period.
- Model structure and credibility effects:
  - Enhanced credibility (recent disinflation gains and exchange rate stabilization under ERM2) could lower inflation expectations, reflected as lower constant term and lower coefficient on past inflation in equation (2).
  - Academic literature cited: backward-looking element in inflation expectations stronger than forward-looking element (Carroll, 2003); credibility plays limited role in disinflation (Ball, 1994).
- Competition from EU accession:
  - Entry of new participants could reduce nontradable sector markups; a fall in the constant term in equation (1) would decelerate inflation if markups shrink.
  - Uncertainty about the speed of this effect in Slovenia.

### Conclusions and policy implications
- Staff judgment:
  - On the basis of currently identified policies, Slovene inflation will likely remain above the Maastricht criterion over the assessment period.
  - The economic slowdown related to the unfavorable external environment contributed about two thirds to disinflation in 2003.
  - Domestic demand rebound and expected robust demand growth until euro adoption in 2007 imply real GDP growth above potential and will impede future gains in disinflation.
- Policy recommendations:
  - Given loss of monetary independence under ERM2, sustainable reduction in inflation could be achieved by:
    - Wage moderation.
    - Enhancing flexibility of fiscal policy.
  - Contingent measure: if achieving the Maastricht inflation criterion appears under threat, consider formulating a temporary wage pact between social partners under government guidance.

### Technical Appendix — model highlights and data definitions
- Long-term price level derivation:
  - Tradable prices: P^T_t = PPI^Euro_t * NER_t; equivalently ln P^T_t = ln PPI^Euro_t + ln NER_t.
  - Nontradable prices: set at a markup over unit labor cost based on a monopolistic producer with Cobb-Douglas technology; equilibrium nontradable price expressed in logs as ln P^NT_t = c + ln W^NT_t - (1/α) ln Y^NT_t (notation consistent with text).
  - Overall price index: weighted average of tradable and nontradable prices leads to long-term pricing specification in equation (1).
- Nontradable sector definition:
  - Market services without financial intermediation: trade sector (G), hotels and restaurants (H), transport and communications (I), real estate (K).
  - Pre-2000 data on full-time equivalent labor interpolated using SORS employment data; wage and employment adjusted for 2002 classification changes (disabled workers reallocated).
- Potential output and output gap:
  - Potential output initially estimated via Hodrick-Prescott filter; output gap = log-difference between seasonally adjusted GDP and potential output.
  - Historical HP estimates re-scaled to align annual average gap with PEP (2003) potential growth figures.
  - Staff projection assumptions: potential growth = 3.5 percent over medium term; future GDP growth reflects strengthening domestic demand and improving external environment.
- Wage scenarios (Table 4):
  - Baseline scenario: GapNT = 0.2; GapTotal = -0.5 for 2004–06 (gaps unchanged from 2003).
  - Alternative wage moderation scenario: GapNT = -0.8; GapTotal = -1.5 for 2004–06 (wages lagging economy-wide productivity by 1½ percent).
  - 2003 observed values: Nontradable real wages 2.0; Nontradable productivity 1.8; GapNT 0.2; Economy-wide productivity 2.5; GapTotal -0.5.

*Source: IMF staff calculations and Slovene authorities as presented in the provided content.*

### 34.      Slovenia’s contribution to the EU budget is expected to be around 0.7 percent of

### Slovenia’s contribution to the EU budget is expected to be around 0.7 percent of

### Slovenia’s contributions and timing
- Slovenia’s contribution to the EU budget is expected to be around 0.7 percent of GDP in 2004, and 1.1–1.2 percent of GDP annually in 2005–06.
- Since contributions will start in May 2004 payment will only be two thirds of the usual amount in the first year of EU membership.

### Receipts from the EU budget and associated expenditures
- Transfers will be channeled through many facilities; some disbursements depend on project implementation pace.
- Two groups of transfers:
  - Automatic revenues not conditional on project implementation: direct payments to farmers, market interventions in agriculture, budgetary compensations, and Schengen border-related expenditures.
  - Project-conditional transfers: Structural and Cohesion Funds, EAGGF-financed rural development, and remaining pre-accession aid.
- Net position will ultimately be determined by success in applying for project-related finance.

### European Agricultural Guidance and Guarantee Fund (EAGGF)
- Guarantee section provides income support and subsidies to farmers for maintaining agricultural production and exports to non-EU markets.
- EAGGF transfers comprise three parts: direct payments, market measures, and rural development.
- Direct payments:
  - New member states initially eligible to receive from the EU only a part of the usual farmer income support in EU-15 countries: EU contribution will amount to 25, 30, and 35 percent of the average EU level, respectively, during 2004–06.
  - As a general rule, new member states may add 30 percentage points from national resources on top of the EAGGF-financed subsidy.
  - Special top-up rule for Slovenia (current level of income support is 75 percent of average EU level): Slovenia will be allowed to add 10, 15, and 20 percentage points, respectively, during 2004–06, on top of the existing level of subsidy.
  - New member states may redirect rural development resources for top-up of direct payments up to 20 percent of funding for rural development.
  - During 2004, Slovenia will pre-finance relevant expenditures and start receiving cash payments in 2005.
- Market measures: export subsidies and expenditures to stabilize agricultural market; disbursement automatic and requires no cofinancing.
- Rural development: compensates farmers in regions with unfavorable conditions; government required to cofinance rural development at the rate of 20 percent.
- Ministry of Finance estimates Slovenia will be a net beneficiary from transition to EU model of agricultural subsidies:
  - Expenditures on topping-up: SIT 12–15 billion a year.
  - Savings from replacement of existing system larger; net gain for the budget will amount to SIT 6-11 billion a year.
- Table 4 (Budget Expenditure on Agriculture, 2003-05) totals:
  - 2003 Prel. Budget total: 24.02 (In billions of tolars)
  - 2004 Budget total: 29.98
  - 2005 Budget total: 41.63

### Structural actions (Structural and Cohesion Funds)
- Structural actions aim to accelerate convergence and reduce regional disparities; funding conditional on project development and implementation and requires national cofinancing.
- Structural Funds:
  - Ministry estimates Slovenia will be able to disburse annually SIT 8–15 billion in structural funding during 2004–06.
  - Typical total domestic cofinancing: 25–50 percent, of which government’s contribution will be SIT 3–5 billion a year.
  - Transfers subject to principle of additionality: Slovenia must maintain public development expenditure at pre-accession level; cofinancing needs create budgetary pressure.
- Cohesion Fund:
  - Designed for large infrastructure projects in transport and environment.
  - Domestic cofinancing typically 25 percent, initially provided by public companies with no budget cofinancing obligations.
  - Not subject to principle of additionality and may finance current programs.
  - Staff estimates substitution of domestic financing with Cohesion Fund disbursements will generate savings of SIT 6–9 billion a year.

### Other facilities and pre-accession aid
- Special cash transfer negotiated at the Copenhagen summit: SIT 15–25 billion a year to ensure Slovenia’s net position vis-à-vis the EU does not deteriorate after EU entry; compensation accrues automatically and can finance any state budget expenditure.
- Pre-accession aid via PHARE, ISPA and SAPARD:
  - Existing projects continue until 2006.
  - Volume under pre-accession program sizeable after EU entry: SIT 21 billion in 2004, falling to SIT 7 billion in 2006.
- Internal Actions:
  - Include projects not covered by structural or cohesion funds (e.g., Schengen border, R&D, consumer protection).
  - Schengen-related expenditures agreed to be revenue of the state budget; Ministry estimates Slovenia will need to invest about SIT 11 billion of own resources on the Schengen-border in addition to EU funds during 2004–05.
- Financial instrument EEA (Norway, Iceland, Lichtenstein financed): small facility (less than SIT 5 billion over five years) and timing uncertain; not included in Table 3.

### Additional effects on the budget
- One-off revenue liquidity shortfall due to lag in VAT collection on imports from the EU.
- Ministry expects loss of VAT revenues from lower collection efficiency:
  - Efficiency defined as VAT/GDP ratio over basic VAT rate ~0.5 in Slovenia vs. EU average ~0.35.
  - Annual VAT revenue shortfall could reach SIT 13–21 billion (0.2–0.3 percent of GDP) once border controls with Schengen countries are abolished.
- Loss of customs duties on EU imports expected to reach about SIT 8-11 billion a year for Slovenia.
- Gradual alignment of excise tax on tobacco to EU levels will improve budget by about SIT 2 billion annually.

### Administrative preparedness and implementation risks
- EC reports (July and November 2003) found Slovenia well-prepared in many areas, but further progress needed in preparing a pipeline of well-prepared projects and completing administrative structures for management and monitoring of Structural and Cohesion Funds.
- Historical disbursement experience:
  - Programming period 1994–99: on average 78 percent of available resources were paid from Structural Funds (Objective 1) to EU-15 countries.
  - Pre-accession facilities experience (ISPA, SAPARD) suggests new member states may initially have difficulties disbursing project-oriented resources.
  - EU will cancel funding commitments not claimed by a member state by the end of the calendar year following the year the project was meant to start, creating incentives to draw funds quickly but increasing implementation risk.

### Selected figures from Table 3 (Slovenia: Financial and Budgetary Impact of EU Accession, 2004-06; In millions of tolars)
- Subtotal estimated disbursements (Revenue): 82,827 (2004); 104,373 (2005); 102,094 (2006).
- As percent of GDP (Revenue subtotal): 1.4 (2004); 1.6 (2005); 1.4 (2006).
- Slovene contribution to EU budget: -45,049 (2004); -76,265 (2005); -79,662 (2006).
- Net position with the EU: 37,778 (2004); 28,108 (2005); 22,432 (2006).
- As percent of GDP (Net position): 0.6 (2004); 0.4 (2005); 0.3 (2006).
- Net impact on the budget (various lines in table) and As percent of GDP show both positive and negative annual impacts (examples shown in table):
  - Net impact on the budget (overall numbers in table): 57,336 (2004); 72,547 (2005); 66,205 (2006) and other consolidated lines resulting in As percent of GDP values such as 0.9, 1.1, 0.9; -1.6, -2.3, -2.2; -0.3, -0.2, -0.1; 0.2, 0.3, 0.2; -0.8, -1.1, -1.2.

*Source: Ministry of Finance.*

### 48.      Slovenia may not be able to sustain its position as a net recipient of the EU funds

### _cr04149 - 48.      Slovenia may not be able to sustain its position as a net recipient of the EU funds

### Main finding
- Slovenia may not be able to sustain its position as a net recipient of the EU funds during the next programming period 2007–13.

### Convergence and eligibility
- The level of Slovene GDP per capita in PPP terms currently stands at about 70 percent of the EU average.
- As the process of real convergence continues, Slovenia may become ineligible for Objective 1 funding from Structural Actions.

### Financial framework and budgetary pressures
- The financial framework for 2007–13 might put more stringent conditions on the use of EU funds.
- The main net contributors to the EU budget propose to reduce the EU budget envelope as a proportion of the EU gross national income.

*Source: _cr04149 - 48.      Slovenia may not be able to sustain its position as a net recipient of the EU funds*

### REFERENCES

### _cr04149 - REFERENCES

### References
- European Commission, 2001, “Second Report on Economic and Social Cohesion – Statistical Annex,” available at http://europa.eu.int.
- European Commission, 2003, “Communication from the Commission on the implementation of commitments undertaken by the acceding countries in the context of accession negotiations on Chapter 21 – Regional policy,” available at http://europa.eu.int.
- European Commission, 2003, “Comprehensive Monitoring Report of the European Commission on the State of Preparedness for EU Membership of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia,” available at http://europa.eu.int/.
- European Commission, 2004, “Building our Common Future: Financial and Political Outlook for the Enlarged Union 2007-2013,” available at: http://europa.eu.int.
- European Commission, 2004, “The Third Report on Economic and Social Cohesion,” available at http://europa.eu.int.
- Kopits, George, and Istvan P. Székely, 2004, “Fiscal policy challenges of EU accession for the Baltics and Central Europe,” in: Gertrude Tumpel-Gugerell and Peter Mooslechner (ed.), Structural Challenges for Europe, Cheltenham: Edward Elgar, pp 77-97.

### Social and demographic indicators (selected)
- Area (thousand square kilometers): 203,154
- Population (million; 2002): 2.037
- Rate of population growth (percent; 2002): 0.1
- GDP per capita (PPS; EU-15=100; 2002): 69
- Income distribution (ratio of income received by top and bottom quintiles, 2000): 3.2
- Adult population with upper secondary education (percent; 2002): 76.8
- Total R&D expenditure (percent of GDP, 2001): 1.6
- Household internet access (percent of total, 2001): 24.0
- Life expectancy at birth (years; 2002): Male 72.7; Female 80.5
- Number of practicing physicians (per 100,000 inhabitants; 2001 for Slovenia, 1999 for EU-15): 227

### Real economy: growth and components (1999–2003, percent change)
- Real GDP: 1999 5.9; 2000 4.1; 2001 2.9; 2002 2.9; 2003 2.3
- Domestic demand: 1999 9.5; 2000 1.5; 2001 1.0; 2002 2.1; 2003 4.0
- CPI (average): 1999 6.1; 2000 8.9; 2001 8.4; 2002 7.5; 2003 5.6
- Unemployment rate (ILO definition; in percent): 1999 7.6; 2000 7.0; 2001 6.4; 2002 6.3; 2003 6.7
- Gross national saving (percent of GDP): 1999 24.1; 2000 24.1; 2001 24.4; 2002 24.9; 2003 24.3
- Gross domestic investment (percent of GDP): 1999 27.4; 2000 27.0; 2001 24.2; 2002 23.5; 2003 24.2

### Public finance (general government, percent of GDP; 1999–2003)
- General government revenue: 1999 41.4; 2000 40.9; 2001 41.5; 2002 40.9 1/; 2003 41.9
- General government expenditure: 1999 42.0; 2000 42.2; 2001 42.8; 2002 42.5; 2003 43.3
- General government balance: 1999 -0.6; 2000 -1.3; 2001 -1.3; 2002 -1.5 1/; 2003 -1.4
- General government debt: 1999 23.6; 2000 24.7; 2001 26.6; 2002 27.8; 2003 27.0
- Exchange rates (period averages): SIT 199.92 per US$; SIT 238.22 per euro

Note: 1/ The revenues and deficit figures have been adjusted for the shift of budget accounting to a pure cash basis. Without the adjustment, the general government deficit would had reached SIT 156 bn, or 3.0 percent of GDP, as the unadjusted figures contained only 11 months of VAT and excise tax revenues.

### Money and credit (end-of-year, percent change; select)
- M3 (including foreign currency deposits): 1999 12.2; 2000 15.3; 2001 28.3; 2002 18.4; 2003 4.9
- Credit to the private sector: 1999 29.3; 2000 18.6; 2001 18.4; 2002 11.3; 2003 15.7

### Interest rates (end of year; percent)
- Rate on 60-day Bank of Slovenia bills: 1999 7.0; 2000 10.0; 2001 8.0; 2002 8.3; 2003 6.0
- Lending rates (ranges reported across years): e.g., 1999 13.1-17.2; 2003 9.6-10.3
- Deposit rates (maturities 31 days–1 year): e.g., 1999 9.6-11.4; 2003 4.8-4.9

### External sector and trade (1999–2003, millions of euros and percent of GDP)
- Current account balance (millions of euros): 1999 -664.2; 2000 -583.0; 2001 38.0; 2002 329.7; 2003 16.7
- Trade balance (millions of euros): 1999 -1,164.1; 2000 -1,227.0; 2001 -684.5; 2002 -265.4; 2003 -544.3
- Exports (millions of euros): 1999 8,103.2; 2000 9,574.2; 2001 10,454.3; 2002 11,081.2; 2003 11,426.5
- Imports (millions of euros): 1999 -9,267.3; 2000 -10,801.2; 2001 -11,138.7; 2002 -11,346.6; 2003 -11,970.8
- Official reserves (in millions of euros): 1999 3,159.3; 2000 3,435.9; 2001 4,983.7; 2002 6,781.4; 2003 6,878.9
- Official reserves (months of imports of goods and nonfactor services): 1999 3.5; 2000 3.3; 2001 4.7; 2002 6.2; 2003 5.9

### Geographical composition of trade (exports and imports, 1999–2003)
- Exports to European Union (millions of euros): 1999 5,301; 2000 6,055; 2001 6,431; 2002 6,509; 2003 6,595 (shares: 1999 66.0%; 2003 58.4%)
- Imports from European Union (millions of euros): 1999 6,527; 2000 7,443; 2001 7,674; 2002 7,869; 2003 8,231 (shares: 1999 68.9%; 2003 67.3%)
- Notable bilateral figures (2003): Exports to Germany 2,610 (23.1% of exports); Imports from Germany 2,357 (19.3% of imports); Exports to Italy 1,478 (13.1%); Imports from Italy 2,239 (18.3%)

### Commodity composition of trade (1999–2003)
- Exports (2003, millions of euros): Chemical products 1,552; Machinery and transport equipment 4,125; Manufactured goods classified by material 2,890; Miscellaneous manufactured articles 1,974
- Exports (2003, percent of total): Machinery and transport equipment 36.6%; Intermediate goods 48.4%; Consumption goods 37.1%
- Imports (2003, millions of euros): Machinery and transport equipment 4,210; Manufactured goods classified by material 2,799; Chemical products 1,633
- Imports (2003, percent of total): Intermediate goods 57.9%; Capital goods 19.0%; Consumption goods 23.2%

### Foreign direct investment (FDI) and flows (selected, millions of euros)
- FDI inflows (total): 1999 200.7; 2000 212.5; 2001 255.7; 2002 888.5 (by industry and origin in detailed tables)
- Stock of inward FDI (end-period, 2002): Total 3,918.1 (by industry and origin in detailed tables)
- Direct investment flows abroad (1999–2002, by destination): Total 44.1 (1999); 107.7 (2000); 178.4 (2001); 243.0 (2002)
- Stock of direct investment abroad (end-period, 1999–2002): Total 624.7 (1999); 825.3 (2000); 1,139.2 (2001); 1,416.9 (2002)

### Monetary sector and Bank of Slovenia (selected end-period stocks, in billions of tolars)
- Bank of Slovenia assets (end-2003): 1,678.1
  - Foreign assets: 1,644.7
  - Reserve money: 285.3
  - Bank of Slovenia bills: 1,027.6
  - Capital and reserves: 199.9
- Monetary aggregates (M3, end-period, billions of tolars): 1999 2,055.7; 2000 2,370.6; 2001 3,040.6; 2002 3,600.7; 2003 3,777.8
- Contributions to M3 growth (percentage points): Net foreign assets -0.1 (1999); 5.2 (2000); 17.4 (2001); 8.0 (2002); -5.1 (2003). Net domestic assets 12.2 (1999); 10.1 (2000); 10.8 (2001); 10.5 (2002); 10.0 (2003).

### Banking and interest rates (selected)
- Bank of Slovenia policy and market rates reported quarterly 1999–2003 (detailed table A20 contains end-of-period rates and abolished instruments).
- Example: Rate on 60-Day bills: Mar 1999 7.00; Dec 2003 (quarter) 6.00.

### Gross external debt (1999–2003, millions of euros, end-period)
- Total debt outstanding: 1999 8,012; 2000 9,490; 2001 10,403; 2002 11,482; 2003 12,995
- Medium- and long-term debt (1999–2003): 5,857; 7,207; 8,180; 9,163; 10,557
- Short-term debt (1999–2003): 2,156; 2,282; 2,223; 2,319; 2,439
- Principal repayments (1999–2003): 602; 780; 1,473; 1,399; 1,779
- Interest payments (1999–2003): 241; 323; 404; 379; 365

### Fiscal accounts (selected tables: general government, state budget, local government, health fund, pension fund)
- Summary of general government operations (in billions of tolars, selected years):
  - Total revenues: 1999 1,590.0; 2000 1,726.7; 2001 1,967.8; 2002 2,159.5; 2003 2,375.3 (prelim. 2004–2005 projections included)
  - Total expenditures: 1999 1,613.3; 2000 1,781.4; 2001 2,031.0; 2002 2,239.9; 2003 2,457.1
  - Overall balance (in billions of tolars): 1999 -23.3; 2000 -54.7; 2001 -63.2; 2002 -80.4 1/; 2003 -81.8
- State budget (percent of GDP, 1999–2005 columns): detailed tables report revenue and expenditure compositions, e.g., Tax revenues share and social security contributions.
- Local government operations, Health Fund, and Pension Fund detailed financial tables included for 1999–2005 (in billions of tolars), with indicators such as pensions (Pension Fund: pensions 1999 441.0; 2003 686.6) and Health Fund revenues/expenditures.

*Sources: Slovene authorities; Eurostat; Bank of Slovenia; Statistical Office of the Republic of Slovenia; Institute of Macroeconomic Analysis and Development; Ministry of Finance; and IMF staff calculations.*

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