Slovenia Shows Resilience Amid Shocks, but Fiscal Pressures Persist – IMF
The Executive Board of the International Monetary Fund (IMF) has completed its 2025 Article IV Consultation with the Republic of Slovenia, endorsing the staff appraisal on a lapse-of-time basis, with the authorities consenting to the publication of the Staff Report.
According to the IMF, Slovenia has demonstrated notable resilience in the face of multiple shocks, with improving fiscal balances between 2021 and 2024 reversing the sharp rise in public debt recorded during the COVID-19 pandemic. The Fund noted that these gains helped rebuild fiscal buffers while preserving strong social outcomes, adding that the country’s banking system remains healthy. It also commended ongoing pension, long-term care and health sector reforms aimed at addressing challenges linked to population ageing.
The IMF reported that real GDP contracted in the first quarter of 2025 due to weaker investment and exports amid subdued external demand. However, the economy rebounded later in the year, supported by stronger investment and private consumption, with growth projected at 0.8 per cent for 2025. The labour market, despite some softening, remains tight, with job vacancies still above long-term averages.
Inflation, which fell sharply in 2024 from multi-decade highs recorded in 2022–23, rose temporarily in 2025, largely driven by higher food prices.
On fiscal developments, the Fund said the general government deficit widened significantly in 2025, rising from 0.9 per cent of GDP in 2024 to an estimated 2.2 per cent. This was attributed mainly to higher post-flood reconstruction spending and a sharp increase in the public sector wage bill following wage reforms and the introduction of a winter holiday allowance. Gross public debt, however, is projected to have declined slightly to about 66 per cent of GDP in 2025.
In its assessment, the IMF Executive Board noted that Slovenia’s economy has recovered strongly since the early-2025 contraction, with investment and private consumption expanding on the back of favourable financial conditions and rising real incomes. The Fund assessed the external position in 2025 as moderately stronger than levels implied by fundamentals and desirable policies.
Growth is projected to strengthen further in 2026–27 before moderating to its potential rate over the medium term, supported by improved investor confidence and stronger export demand. Medium-term growth is expected to stabilise at just above 2 per cent, with investment and productivity gains offsetting demographic pressures. Inflation is projected to gradually decline towards the European Central Bank’s 2 per cent target.
However, the IMF cautioned that risks to the outlook are tilted to the downside, citing escalating trade tensions, prolonged uncertainty and higher import prices as potential threats to growth and disinflation. Domestically, delays in public investment, structural reforms or wage growth outpacing productivity could undermine competitiveness.
While noting that the 2026 budget would support economic activity, the Fund said a smaller deficit would have better preserved fiscal space, recommending measures to curb current spending amid heightened uncertainty and medium-term fiscal pressures.
The IMF further warned of mounting spending pressures linked to ageing-related pension and healthcare costs, defence needs and the green and digital transitions. Although the overall risk of sovereign debt distress remains low, the Fund stressed the need for gradual, growth-friendly fiscal consolidation to place public debt on a firm downward path.
It also called for continued fiscal and structural reforms, stronger public spending efficiency, and policies to boost long-term growth through productivity-enhancing investments, labour market reforms and improvements in the business environment.
