The scale of the August floods in Slovenia represents an exceptional macroeconomic and fiscal shock. Although their financial impact is currently unknown, the draft revised state budget for 2023 is only the first step in the budgetary financing aimed at addressing the large financial impact of the floods. The impact will be more clearly reflected in the autumn draft budget documents for 2024 and 2025, which should include damage assessments and estimates of the effects of the Government’s recovery measures.
In April this year, the Fiscal Council presented its assessment of the Stability Programme and, on this basis, an assessment of the 2023 revised state budget in May. In this context, it highlighted the expansionary fiscal policy stance in the year in which exceptional circumstances are still in place. According to the Fiscal Council, the change in only one component of budget expenditure, amounting to EUR 220 million, in the current draft revised state budget for 2023 does not affect the assessment of the state of fiscal policy and compliance with the fiscal rules adopted at the time of the first revised budget this year. The impact of the projected amendment of EUR 300 million in the financial assets and liabilities account on the state budget balance and debt position, and thus on compliance with the fiscal rules, cannot be assessed at this stage. In principle, a large-scale natural disaster is a “one-off event”, which is not taken into account in the calculation of the indicators of compliance with the fiscal rules. In addition, the amendment presented in the draft revised state budget will increase the net debt but not the gross debt of the general government, as the financing will come from the reduction of funds in the state budget account.
The Fiscal Council regularly draws attention to deficient budgeting, insufficient assessment of the impact of discretionary measures, systematic under- or over-estimation of individual revenue and expenditure categories, and uncoordinated processes for the preparation of budget documents. All of the above warnings will be particularly relevant in the uncertain situation ahead, when the Government will have to ensure even greater transparency in the preparation and implementation of the state budget, in particular in the case of the establishment of an extra-budgetary flood relief fund and in the case of a fund that would be part of the entire general government sector subject to fiscal rules. The same applies to already existing budgetary funds that could be a source of financing for flood relief.