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Published: 07/07/2022

Public Finance and Macroeconomic Developments, July 2022

Public finance position continues to improve gradually on the back of strong revenue growth, coupled with a rapid recovery in economic activity and the withdrawal of support to mitigate the effects of the epidemic, while the rest of public spending is growing markedly. For the time being, heightened macroeconomic risks are mainly reflected in the worsening economic outlook and an increase in pessimism. At present, economic activity remains broadly favourable, although labour market imbalances are deepening and the current account surplus is shrinking rapidly. At the same time, inflation is rising and becoming more broad-based. A key short-term economic policy challenge is to mitigate the consequences of inflation, where the measures taken so far are broad and, to a certain extent, inadequate from a long-term perspective, as they reduce dedicated resources for the green transition. The challenges of achieving long-term sustainability, in particular the health and pension funds, have been highlighted again more clearly thanks to recent measures. Despite the reduction, the government debt-to-GDP ratio remains higher than before the epidemic, with some manoeuvring room to cope with the already existing tightening of financing conditions, notably in the form of a very favourable balance in the treasury account. The autumn budgetary documents should provide for a slightly restrictive fiscal policy in the coming years, which would open room for action were significant current risks to be realized, and indicate the course of action to address the relatively high medium- and long-term risks to the sustainability of Slovenia’s public finances.

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