Slovenia must boost private sector, privatise banks swiftly: IMF

LJUBLJANA: The International Monetary Fund (IMF) said on Monday that Slovenia, which narrowly avoided having to ask for an international bailout in 2013, needs to encourage private investment and swiftly privatise its banks.

In a report, the IMF also urged the government, which is struggling to reduce the budget deficit and public debt, to agree a deal with unions that would keep a lid on wages.

"To sustain the reasonable growth rates from 2014-15 given the expected drop in public investment, private investment needs to play a much stronger role than at present," the IMF said.

After injecting more than 3 billion euros ($3.4 billion) of state money into the banking sector in 2013 to prevent banks collapsing under the weight of massive bad loans, Slovenia managed to return to growth in 2014, with GDP at 3 percent.

Last year growth eased to 2.9 percent while the IMF sees it at 1.9 percent in 2016, mainly because European Union funds have diminished, hitting public investment.

It urged fast bank privatisation in the country where successive governments had refused to sell banks in the name of the national interest. As a consequence the government still controls about 50 percent of the banking sector.

"Continued state control of banks creates risks of interference in their lending decisions," the IMF said, noting that the government should reconsider its plan to limit potential investors' stakes.

Last week Slovenia said it planned to float its largest bank, Nova Ljubljanska Banka, but stuck to an earlier decision that the government would keep a 25-percent stake and no other investor would be allowed to have a bigger stake than that.

The IMF also criticised the government's plan not to sell Slovenia's second largest bank, Abanka, until July 2019, saying that was "an unnecessary delay that would miss an opportunity to restore a fully competitive market for bank services and may negatively affect the bank's performance".

The IMF warned that the budget deficit and debt, both due to shrink this year, "will start rising again in 2017 under current policies", adding that a wage deal and reforms in the public health and education sectors were necessary to prevent that.

The government expects the deficit to fall to 2.2 percent of GDP this year from 2.9 percent in 2015, while debt is expected to be drop to about 80 percent from 83 percent of GDP last year.