26 June 2013

ECFIN Country Focus: Slovenia - State-owned and state-controlled enterprises

This Country Focus describes the role of state-owned and state-controlled enterprises (SOEs) in the Slovenian economy by analysing over 40 key SOEs in terms of their financial performance and their impact on public finances, growth and adjustment capacity.

Summary

SOEs generated one sixth of the value added of the Slovenian economy and employed one out of eight people in the corporate sector in 2011.The most recent financial data available for all companies (2011) show that several SOEs have been accumulating losses and losing equity value, partially due to the current downturn, but also due to inefficient capital structures.

The losses and high debt levels increase recapitalisation needs and solvency risks of these companies in the trough of the economic cycle, with direct implications for Slovenia's public finances. Cross-ownership and inter-linkages among some of the financially-troubled SOEs and state-owned banks with increasing non-performing loans (NPLs) amplify these risks. Capital transfers to loss-making SOEs contributed 1.4 pps to the budget deficit of 6.4 per cent of GDP in 2011. The total debt of non-bank SOEs was at least 30 per cent of GDP, with 5.4 pps attributable to companies consolidated with general government accounts. In addition, SOEs are the main beneficiaries of state guarantees worth 25 per cent of GDP, which constitute a contingent liability for the general government.

Part of the current situation can be traced back to the privatisation model chosen during the transition period. Still today, the dominant role of company-internal and public owners is seen as obstacle for strategic investors and foreign direct investment (FDI), while this distorts the allocative function of capital and labour markets and limits the adjustment capacity of the economy. In the coming period, there will be a need to address major fiscal risks related to SOEs and to implement a coherent strategy to improve corporate governance, restructure indebted companies, and reduce the state's participation, particularly in the financial sector and in other sectors, where ownership is typically private in market economies.

Full paper

See also Minimum wages in Slovenia: Reducing employment but not poverty?

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