Report No. PIN38
Report No. PIN38
Slovenia CAS: Public Information Notice
World Bank Board Discusses
Slovenia Country Assistance Strategy Progress Report
On May 4, 2000, the World Bank's Board of Directors discussed the Progress
Report for Bank Group's Country Assistance Strategy for Slovenia covering the
period 1997-98 to 2000.
Country Context
Since its independence in 1991 and subsequent international recognition in 1992,
Slovenia has made remarkable progress in consolidating its status as a nation-
state, achieving macroeconomic stability and embarking on an ambitious program
of structural reforms that will help to ensure timely accession to the EU.
Macroeconomic stabilization was, in fact, achieved in the early years of
transition as marked by external and internal equilibrium, balanced fiscal
budgets, cautious monetary and exchange rate policies and open foreign trade.
Recent economic developments confirm the success of Slovenia's macroeconomic
stabilization, with inflation continuing to decelerate (6.2 percent in 1999),
GDP continuing to grow (4.9 percent in 1999) and an estimated fiscal deficit of
0.6 percent of GDP. In 1999, the current account deficit did deteriorate to 2.9
percent of GDP, but it is expected that the deficit should return to the
neighborhood of 1.5-2 percent of GDP. Slovenia's transition strategy has been
based on a policy of gradualism and consensus building, which has produced a
stable sociopolitical environment and continuity but, to some extent, has also
slowed progress in structural reforms, most notably in the restructuring of the
real and financial sectors. As a result, the public sector share in the economy
remains large at just under 50 percent. A driving political and economic
objectives for Slovenia is membership in the European Union. Slovenia is among
the five countries that have already started accession negotiations; and
Slovenia is now well advanced in the process.
Bank Strategy
The Progress Report assesses developments since the 1997 CAS was prepared and
provides the rationale for a three to five year phase-out of the World Bank's
assistance program as Slovenia moves to take its place in the European Union
(EU) and graduates from the World Bank. Over FY98-00, the Bank supported the
Slovene authorities in their efforts to restructure public finances and increase
domestic savings, complete the systemic transformation of the economy, and
achieve environmentally sustainable growth. This support was essentially
delivered through policy advice and focused reviews, although two lending
operations were also delivered: the Real Estate Registration Modernization and
Health Sector Reform Projects. Working with the Slovene authorities, the work
program that was executed was successful in promoting important reforms in a
number of areas including the pension system, health sector finance and
management, property rights and housing finance and in initiating the
privatization of some state assets, including the two State-owned banks, In
addition, institutional capacity was deepened in the area of debt management,
and frameworks were developed to better promote foreign direct investment,
expand the role of the private sector in infrastructure investments and more



effectively enforce and monitor the environmental regulatory regime.
Priorities for Bank Assistance
Despite substantial progress on many fronts, an ambitious unfinished agenda of
structural reforms remains to be tackled by the Slovene authorities. Key among
these are:
(a) completing the privatization of the State-owned banks, insurance companies,
utilities and the residual stakes in already privatized enterprises; (b)
strengthening the enterprise sector through measures to improve corporate
governance including protecting minority shareholders' rights, improving the
quality and disclosure of information, transforming the present privatization
funds into genuine open mutual funds or into active joint venture funds and
increasing the enforcement capacity of the capital market regulatory agency; (c)
ensuring the expansion of a robust third pillar to the pension system; and (d)
removing certain labor market rigidities. In each of these areas, the Bank
remains prepared to support future Government efforts with policy advice and
analytic activities, recognizing that Slovenia is not likely to need the Bank's
financial support. As the Bank's administrative budget will be limited to the
resources needed to support portfolio implementation and only a small allocation
will be available for additional advisory services, a substantial Bank effort
would require cost-sharing with the Slovene Government.
Slovenia is well prepared to manage its remaining development challenges and to
move from being a recipient of Bank financial and technical assistance to being
an important partner with the Bank, particularly with respect to neighboring
transition countries. Slovenia is already accepting its increasing
responsibilities in the international community as a contributor to the Global
Environment Facility and to the International Monetary Fund's ESAF-HIPC Trust
Fund. In addition, the Slovene authorities have recently initiated discussions
with the Bank, Fund and US Treasury officials concerning the establishment of a
Public Finance Management Center in Ljubljana that would focus on disseminating
recently gained experience first to Stability Pact countries, and later, more
broadly throughout the Region. With graduation, Slovenia will demonstrate that
it not only has reached the per capita income level associated with Part I
members of the Bank, but it also now possesses capable institutions that will
help to ensure the sustainability of its economic gains, and a vision as to its
proper role in the development community. The World Bank looks forward to
working with the Slovene authorities as this new relationship develops.
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