Slovenia Won’t Meet EU Budget Limit Before 2012, Krizanic Says

By Agnes Lovasz

Oct. 7 (Bloomberg) -- Euro region member Slovenia, which is facing European Union criticism over its fiscal policy, won’t bring the budget deficit back in line with EU rules before 2012 to sustain a recovery, Finance Minister Franc Krizanic said.

Stimulus measures equivalent to 1.2 percent of gross domestic product swelled the deficit to more than 5 percent this year, Krizanic said in an interview in Istanbul yesterday. Next year, he expects “about the same” level, as growth will be “sluggish,” with expansion estimated at 1 percent.

“There will be very moderate or slow growth,” he said. “If this forecast is right, we will also have a relatively high budget deficit next year. With 1 percent growth, we couldn’t go very fast to balance the budget. It would be senseless. It would cause political turmoil and a decline in GDP.”

A widening budget deficit would be “worrying,” Fitch Ratings analyst Chris Pryce said in an interview last week. The Adriatic nation’s credit rating, the highest in eastern Europe, may be downgraded if the worst-performing economy to use the euro deteriorates further, according to Fitch, which rates Slovenia’s debt AA.

The government of Prime Minister Borut Pahor will spend about 15 percent of GDP this year to stabilize the financial system and reignite growth. The government is also providing state guarantees to companies such as appliance maker Gorenje Group d.d., the second-biggest exporter after the nation’s Renault SA unit.

Exit Strategy

“Now we should think about our exit strategy after the crisis, when and how we should balance our budget,” said Krizanic. “We will go down in 2011, with the improvement of growth. In 2012 we should be below 3 percent.”

The government will implement fiscal rules that cap expenses, Krizanic said. “The combination of growing revenues and fixed expenditure will lead to a balanced budget.”

Krizanic said the ultimate goal is a surplus, though he wouldn’t say when. “Fiscal policy should be led in the sense that we should have a deficit during the bad times, and a surplus in the upturn,” he said.

The government expects growth to pick up to 2 percent in 2011, which is “still slow for a catching-up economy,” according to Krizanic.

“We are now feeling an improvement” in the economy, which the government predicts will contract 7 percent this year,” he said. “Tax receipts show that we are in an upturn now.

To contact the reporter on this story: Agnes Lovasz in Istanbul at alovasz@bloomberg.net