Slovenia is a high income country with Gross National Income (GNI) per capita of US$ 9,810. The country is strategically located at the crossroads between eastern and western Europe, and is endowed with highly skilled human capital. It ranks among the most successful transition economies and is perhaps the most developed EU accession country. Slovenia’s high income levels are in part the result of very high pre-transition standards of living, the highest among all transition economies ( with 70% of the GDP of current EU members in Purchasing Power Standards per capita, the country is more advanced than Portugal or Greece). Slovenia’s relative prosperity has been a key factor in the country’s strategic approach to reform, which has been substantially different from other Central and Eastern European (CEE) countries.

Slovenia has chosen to follow a gradualist and consensual approach to change, frequently postponing many key structural reforms. The slow pace of reform and reluctance toward foreign participation in key areas have contributed to a relatively low incidence of FDI – equivalent to about 1 percent of GDP. However, a major change took place in 2002, when the share of FDI to GDP reached almost 8 percent. Nonetheless, FDI inflows to Slovenia are relatively small compared with the other economies of central and eastern Europe in recent years, especially the Czech and Slovak Republics. This has deprived the country of an important mechanism to speed up the upgradation of production capacities, which has significantly contributed to the improvement in productivity and competitiveness of other transition countries. In 2003, FDI is projected at below 3 percent of GDP .

The Slovene economy has achieved solid growth -- averaging 4.0 percent since 1996 -- while avoiding the major macroeconomic imbalances that characterized most other transition economies in the region. Tight fiscal and monetary policies have contributed to remarkable stability, allowing the economy to enjoy both external and internal equilibrium with balanced fiscal budgets and open foreign trade. Since 1996, the country has enjoyed single digit inflation, maintaining a near balanced current account throughout most of the 90s. Unemployment rates, which have been below the average for the region, have been falling in recent years and reached 6.4 percent in 2002.

Progress in structural reforms, most notably in the restructuring of the real and financial sectors, has moved slowly and shows mixed results in a number of sectors. Prior to 1998, capital controls were extensive while banks were insulated from foreign competition. Privatization has proceeded more slowly than in most other CEE countries with enterprises in key sectors remaining under state ownership.

World Bank Assistance and Slovenia's Move to Donor Status

Given Slovenia’s strong macroeconomic performance, the Bank’s assistance program outlined in the 1997 Country Assistance Strategy (CAS) focused on structural reforms, particularly those that would help to rebalance the roles of state and the private sector, and capacity building to strengthen key institutions so that Slovenia would enter the EU as a strong partner.

Slovenia is well prepared to manage its remaining development challenges and, on March 17, 2004, the country 'graduated' from being a recipient of Bank financial and technical assistance to being a donor as well as an important partner with the Bank. As a partner, Slovenia can still receive limited technical assistance over the next two to three years if it so chooses.

The last two projects which remain to be implemented over the next few years are the Real Estate Registration Modernization (approved in June 1999 with a closing date June 2005) and the Health Sector Management Projects (approved in January 2000 with a closing date June 2004).

Impact on the Ground

Health service delivery being modernized. With Bank support, a National Health Information Clearinghouse has been established. This will allow Slovenia to access critical financial and service performance data from hospitals and other health care providers, in order to facilitate better targeting of health care services.

Real estate registration significantly accelerated. With the Bank's financial and technical assistance, 44 registry offices have been computerized, thereby reducing significantly the backlog of registrations. This is especially noteworthy given that the number of transactions has been rapidly increasing.

Air pollution being reduced. Some 6,500 households and about 65 boilerhouse operators are converting their heating and hot water systems to cleaner fuels under a Bank-financed project.

Water supply and sewerage systems upgraded. Water supply and sewerage systems for the Istria and Slovene coast have been upgraded with Bank assistance.


Challenges Ahead

• Completing the privatization agenda. This includes completing the privatization of the state-owned banks, insurance companies, utilities and residual shares in already privatized enterprises.

• Laying the ground for a smooth transition to Exchange Rate Mechanism 2 (ERM2) - (The objective of ERM2 is to set up an appropriate exchange-rate mechanism between the euro and the national currencies of the countries not participating in the euro area, so as to ensure monetary stability and solidarity.) Inflation in Slovenia is well above the euro-area average (7.5 percent in 2002, down from 8.5 percent in 2001); wage indexation mechanisms contribute to real wage stickiness, and fiscal consolidation is difficult as revenues fall and costs of EU accession rise.

• Removing remaining labor market rigidities. In this, the elimination of wage indexation is the priority.

• Improving corporate governance. This includes the protection of minority shareholders' rights, and improvements in the quality and disclosure of information as well as the enforcement capability of the capital market regulatory agency.

• Completing the reform of the pension system.

	up to 1996	1997	1998	1999	2000	2001	2002	2003	Total
Commitments	104	-	-	15	10	-	-	-	129
Disbursements	213	5	18	5	2	4	3	-	250