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Slovenia Business Week no. 19: D&B Says Slovenia Should Improve Productivity

International rating firm Dun & Bradstreet is upbeat about Slovenia's outlook in its latest country report

International rating firm Dun & Bradstreet is upbeat about Slovenia's outlook in its latest country report. But it points out that Slovenia needs to raise productivity by improving incentives to work, enhancing labour market flexibility, improving the regulatory environment and reducing the cost of doing business.

Productivity growth is one area in which Slovenia has been falling behind its regional competitors; labour utilisation rates have declined relative to the EU average over the past decade and high marginal effective tax rates discourage work, the report reads.

D&B also notes the report of the latest International Monetary Fund (IMF) mission to Slovenia. It says that although in the past the IMF has been somewhat critical of what it has seen as the relatively slow pace of reform in Slovenia, the latest findings acknowledge the strength of the economy and its ability to withstand the energy price shocks of the past two years.

Nevertheless, certain risks remain. Most notably, the country will remain vulnerable to persistent increases in unit labour costs that could lead to an erosion of competitiveness within the EMU after the adoption of the euro, planned for 2007.

Euro adoption will virtually eliminate exchange rate risk, but the banking sector is likely to become increasingly vulnerable to market risk. As EU interest rates rise, the quality of loans could be affected. This will provide a challenge for banking supervision going forward.

The rating firm meanwhile disagrees with the IMF's recommendation for a deficit ceiling of 1.0% of GDP in '06, with the aim of achieving balance by 2009. It argues that fears of incipient overheating are overstated.

Notwithstanding the potential risks, D&B keeps Slovenia firmly on top in Eastern Europe, with a rating of DB2c and a growth sign.

Source: Slovene Press Agency STA

Author: STA