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Published: 03/06/2023

Some challenges of the EU economic governance framework reform

The Fiscal Council has published two studies that present the challenges associated with two key elements of the European Commission’s proposal regarding the change in the EU’s economic governance: the medium-term fiscal plan and a study of debt sustainability and the related sensitivity of projections to changed assumptions.

The proposed binding medium-term fiscal plan represents an appropriate basis for achieving a more predictable, stable and sustainable fiscal policy. Its implementation, however, will be a significant challenge for Slovenia, as there has been a considerable gap between the formal arrangements and the actual practice of medium-term planning, where the projections reflected backloading of consolidation. Given the need for operational and technical improvement of the planning processes, the support of economic policy makers will be key to the introduction of an effective medium-term fiscal framework.

In addition to sustainable public debt, the setting of fiscal policy orientations based on medium-term budget projections should also play an important role in the proposed EU economic governance framework. These projections relate to a period that is longer than that usually presented in budget documents. Due to the longer-term orientation, medium-term macroeconomic and fiscal projections and the resulting assumptions should be given greater importance. Simulations show that the sensitivity of projections to changed assumptions increases with the lengthening of the forecasting horizon; therefore, special caution is required when choosing assumptions.

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