In its 2002 Report on the Observance of Standards and Codes, the International Monetary Fund (IMF) assessed Slovenia as meeting the requirements of the fiscal transparency code in several important respects, although Slovenia has not yet adopted all the requirements of the code. Slovenian legislation and practice harmonizes with those of the member countries of the Organization for Economic Cooperation and Development (OECD) and the European Union (EU). Roles and responsibilities of the relevant institutions and different governmental levels are clearly specified, and the publication of information comports with international practices. The IMF deemed the budget preparation process and structure to be "quite advanced." The budget preparation process also includes the development of the macroeconomic framework. The independence of the Court of Audits and the Statistical Office is mandated by statute.

General Overview

According to the International Monetary Fund's (IMF) 2002 Report on the Observance of Standards and Codes (ROSC) "Slovenia meets the requirements of the fiscal transparency code in many respects" (p. 12). Both policy and basic legislation is appropriate to the practices of both the OECD and EU communities, and the independence of the Statistical office (SORS) and Court of Audit is asserted via strong statutes. In addition, the roles and responsibilities of governmental levels and institutions are, for the most part, clearly specified. The budget process includes development of a macroeconomic framework and is well advanced. In the words of the ROSC assessment, "This situation is the result of the very impressive improvements in the fiscal management process in Slovenia throughout the 1990s. Since independence in 1991, successive governments have taken far-reaching and decisive actions towards establishing a modern framework for fiscal management and information" (p. 13).

According to Mitja Kok, reporting for the International Budget Project's (IBP) 2006 Open Budget Initiative (OBI), Slovenia's compliance on this measure is assessed as "extensive," the highest ranking offered in the OBI. Slovenia publishes six of the seven classes of budgetary documents that have been determined by the IBP to be key: Pre-Budget Statement, Executive's Budget Proposal, in-year reports, a mid-year review, a year-end report, and an auditor's report, all of which are publicly available. No Citizens' Budget is produced. With an overall score of 81 (out of a possible 100), Kok notes that "Slovenia's performance indicates that the government provides citizens with extensive information on the central government's budget and financial activities," but adds that room for improvement remains. Specifically, the IBP recommends the more regular issuance of in-year reports, and the facilitation of greater citizen participation in the budget process, particularly through more extensive engagement of the citizenry in public hearings.

The 2002 ROSC made several recommendations to improve Slovenia's performance in the area of fiscal transparency. In particular, Slovenia was advised to expand budget and fiscal reports to provide a more complete picture of the general government sector, and to develop a more comprehensive system for reporting on public sector finances. In addition, the accounting and reporting system should be made more comprehensive with regard to coverage of the central government in its entirety.

Since August 1996, Slovenia has been a subscriber to the Special Data Dissemination Standard (SDDS) and has met the SDDS specifications since July 2000. It posts its metadata on the Fund's Dissemination Standards Bulletin Board. (IMF SDDS website)

In January 2007, Slovenia adopted the Euro. It therefore is subject to the EU's Stability and Growth Pact (SGP), limiting its annual budget deficit to not more than 3 percent of GDP. Slovenia's prudential fiscal policy and efforts to keep wage growth and productivity in the proper balance, along with a sound monetary stance has helped to keep inflation and interest rates within the levels mandated by Maastricht. Continued policy discipline is urged by the IMF in its 2007 Article IV Consultation, although the IMF did recognize that Slovenia is limited in its fiscal flexibility, given that the nation exhibits "one of the most rigid public spending structures in Europe" (p. 3). Nonetheless, the 2007 Consultation staff suggested that expenditure reform was possible, and recommended that Slovenia's fiscal framework be strengthened. Attention should be paid to the medium-term budget framework. Authorities have excused the perceived lag in progress in this area, pointing to a continued lack of the appropriate analytical expertise. The 2007 IMF staff report judged the conservative assumptions underpinning their budget projections were adequately in line with international best practice.

The near-term fiscal neutrality policy stance was judged to be appropriate by IMF staff writing the 2006 Article IV Consultation. Over the medium term, however, the Slovenian authorities (with IMF concurrence) looked to the introduction of significant reforms in the areas of taxation and expenditures. Such reforms are intended to address recognized problems, particularly in the areas of work incentives and pension issues, given Slovenia's anticipated economic sustainability problems deriving from an aging population.

The 2006 IMF report also noted that the Fund dispatched a technical assistance mission to Slovenia to assist authorities in developing a classification system that would help Slovenia's MoF and Government Statistics Office (SORS) develop reporting standards that comport with the requirements of the European Commission (p. 46). It is expected that this collaboration will result in a new chart of accounts, to be introduced during 2008, which will facilitate Slovenia's adoption of the methodology employed by the 2001 Government Financial Statistics Manual.

The Institute of Macroeconomic Analysis and Development (IMAD), which is headed by the Slovenian Prime Minister, published a report in 2005 that addressed upcoming challenges, including the now-concluded adoption of the euro. The report focused on how fiscal policy has contributed to the process of macroeconomic stabilization. It argued the case for increased flexibility with regard to expenditures, acknowledging the heavy impact of high levels of nondiscretionary spending, particularly in the areas of wages and social transfers. The IMF's 2005 Consultation noted that such flexibility "would be important in order to release fiscal resources for investment and co-financing of EU funds" (p. 2). In a 2007 "selected issues" report, the IMF noted that IMAD prepares the macroforecasts employed in the state budgetary process. In turn, revenue projections are generated on the basis of these forecasts, and provide the foundation for negotiations between the MoF and line ministries regarding the budget for the current and upcoming year.

In its 2007 report, the IMF called this budgetary process "unique," and praised it for its capacity to add "a medium term orientation to the budget procedures much akin to a multiannual expenditure framework, but without its automatic countercyclical feature" (p. 56). The IMF makes the argument that "by providing a longer term horizon for budget negotiations and limiting the scope of amendments to the budget in the upcoming year, the two-year budgeting system ensures that requests for additional spending are narrowed down substantially, contributing to budgetary discipline" (p. 56)

The Principles

Clarity of roles and responsibilities.

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The IMF's 2002 ROSC reported that Slovenia provides clear statutory definition of general government roles and responsibilities. The Decree on Introduction and Use of the Standard Classification of Institutional Sectors establishes the lines of demarcation separating the general government and the rest of the economy. This delineation, however, is somewhat undercut by provisions of the Public Finance Act, which differentiates between "direct" and "indirect" budget users. The former category includes both line ministries and major agencies, whereas the latter typically comprises smaller organizations (hospitals, schools, cultural institutions, et al). For consistency with Government Finance Statistics standards, this latter group should not be separated out from the general government sector. This is not made explicit in the case of Slovenia. Transfers to indirect budget users are accounted for in government budgets and accounts, but their actual revenues and expenditures are not reported in the official figures. This results in an underestimate of the actual size of the government sector, as does the fact that Slovenia maintains several extrabudgetary funds. However, quasi-fiscal activities (QFAs) on the part of the Central Bank do not appear to be significant, and appear not to have occurred in recent years. In addition, the process of privatization has been conducted with transparency.

On the other hand, the Slovenian Constitution clearly defines the roles of the executive, legislative, and judicial branches of government and mandates judicial independence from both the executive and legislative branches. The IMF's 2002 ROSC elaborates on these roles as follows: "The government proposes laws, the state budget, national programs and other general documents to the national assembly, and answers to the national assembly for implementation of the budget. The national assembly adopts the state budget and supervises final accounts. The national assembly has limited powers to amend the budget. Proposals for increasing expenditure must include solutions for increasing receipts or decreasing other expenditures" (p. 6).

Slovenia employs a clear legal and administrative framework to develop its fiscal management policy, based on the provisions of the Public Finance Act. According to the IMF's 2002 ROSC, this act "regulates the composition, preparation and implementation of budgets, management of state and municipal property, borrowing of the central and local governments, guarantees, management of public debt, accounting, and budgetary supervision. It also covers extrabudgetary funds, including the two large social security funds and the activities of the indirect budget users" (p. 6).

The Constitution establishes independent status for the Bank of Slovenia, which reports directly to the National Assembly. The Law on the Bank of Slovenia sets forth the fiscal agent roles of the bank as well. For instance, the bank is legally empowered to extend short-term credit to government up to a maximum of 5 percent of the budget and a maximum of 20 percent of the anticipated deficit. Such funds are legally required to be repaid before the end of the fiscal year. There is no specific prohibition against the bank's participation in QFAs.

The 2002 ROSC noted that the trend in non-banking, private sector regulation has been towards clarity, simplicity, and openness. The State Aid Control Act of 1999 governs state involvement in the broader economy. Whereas the government has extensive equity holdings, these are not yet subject to clear reporting practices.

Legislation also covers the allocation of responsibilities between different levels of government. There remains some ambiguity here, however, with regard to an estimated 2,000 indirect budget users, according to the 2002 ROSC. Many of these institutions are subordinate to local governments, but they receive direct transfers from both state and local government sources, and must answer to both.

The Public Finance Act, issued in 1999, sets forth the way in which extrabudgetary activities are to be managed, and clearly distinguishes the relationship between the budget and the extrabudgetary funds. The Act further establishes approval requirements and reporting standards. Taxation, customs duties, regulation, and administrative procedures are also set forth in law, as required by Article 147 of the Slovenian Constitution. The provisions of such laws are clear and, according to the 2002 IMF ROSC, these laws are observed in practice (p. 7). Specific laws also govern basic taxpayer obligations and rights, as well as the obligations and rights accruing to payers of customs and other public duties, and laws are in place to address procedural questions regarding taxes

The 2002 ROSC reported that the government had established a Code of Behavior to which public employees must comply, and which is consistent with recommendations from the Council of Europe. The performance of public tasks are regulated by this code, the provisions of which are also accessible to the public.

Open budget processes

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In 2002, the IMF's ROSC noted that Slovenia's "budget preparation process, including the development of the macroeconomic framework and the program budget structure, is quite advanced" (p. 12). The ROSC also noted that Slovenia's budget documents provide clear fiscal and macroeconomic forecasts. The Slovenian Prime Minister heads the IMAD, which is responsible for the twice-yearly preparation of aggregate macroeconomic forecasts, based on the system of national accounts. These reports, which are included in the budget documents are, in turn, used by the Ministry of Finance (MoF) to create macro-fiscal projection at the beginning of the current and four ensuing budget years, and the MoF's scenarios are themselves included in the budget. The government's budget systems are based on the MoF's projections. According to the 2002 ROSC, the MoF had begun to take on the responsibility of creating longer-term fiscal assessments, and addressing issues of fiscal sustainability and, as of 2002, the budget documents still failed to present long-term analyses of the fiscal position (p. 9).

Slovenia's budget documents offer only limited analysis of the degree to which budget estimates are sensitive to changes in economic variables, and they do not usually specify what may be the principle fiscal risks ahead. Both IMAD and the MoF do make significant attempts to assess and offset such risks and uncertainties, the budget documents do not present the results of such analyses. Contingent liabilities are not explicitly discussed, for example. Budget estimates, although generally based on a single set of estimates, do tend to be reliable, in the estimation of the IMF's 2002 ROSC, which notes that "there have not been any major fiscal problems due to systemic over- or underestimation of fiscal movement the last few years" (p. 9).

The IMF's 2002 ROSC describes certain aspects of the budget process in the following terms: "The main indicator of the fiscal position is the budget balance as a percentage of GDP. The balance concept used by the Ministry of Finance for policy purposes is the overall balance excluding financial transactions (net lending and transactions in financial assets). The deficit target is related to the consolidated general government. The government also pursues a maximum level of public debt as a percentage of GDP as a fiscal target. The Annual Law on the execution of the budget establishes legal restrictions on borrowing during the budget year. Estimates of ongoing costs of government policies are not clearly distinguished in the budget documents. A program classification structure was introduced with the 2001 budget. The objective is to focus more attention on the objectives and actual achievements of the government sector, and gradually to introduce a system of performance budgeting. The recent and planned changes in budget preparation, in particular the shift to program budgeting, will facilitate improved monitoring and assessment of expenditures" (p. 10).

Problems of ambiguity and data reconciliation remain in the budget process, however. For instance, The Ministry of Finance (MoF), which has the responsibility for account preparation for most direct budget users, employs one accounting system, while the Ministry of Defense and the Ministry of the Interior employ their own systems. This is also true of the National Assembly, the Court of Audit, and the Courts, all of which are direct budget users outside of the MoF accounting purview. The ambiguity arising from this situation is compounded by the fact that extrabudgetary funds and indirect budget users also prepare their accounts according to systems that are separate from that employed by the MoF (IMF 2002).

The MoF's Government Accounts and Analysis Department and the Public Debt and Liquidity Management Department prepare a monthly bulletin in which fiscal reporting is made available to the public and the legislature, specifically covering the cash flow of the central government, local government, and social security.

Public availability of information.

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The IMF's 2002 ROSC assessed Slovenia's performance regarding the public availability of information as being "well in line with international practices" (p. 12). Since August 1996, Slovenia has been a subscriber to the Special Data Dissemination Standard (SDDS) and has met the SDDS specifications since July 2000. It posts its metadata on the Fund's Dissemination Standards Bulletin Board. (IMF SDDS website)

The IMF's 2002 ROSC judged Slovenia's budget document as fairly comprehensive, offering "detailed coverage of fiscal activity" (p. 8). Most of the central government's financial operations are covered, but extrabudgetary funds are completely excluded, A further weakness is the only partial coverage of indirect budget users. Outturns for 2 years prior and estimates for 3 years ahead are included in the budget, which is published by the Slovenian parliament and made publicly available. However, there is no provision of summary documentation in languages other than Slovenian.

The budget reports defense expenditures but excludes defense procurements, even though the special loans that finance these activities are subject to parliamentary approval. Instead, such borrowings are reported separately, on tables dealing with outstanding indebtedness. However, defense procurement loan payments are reported in the budget of the year when they are due. Audits of the Ministry of Defense are handled by the Court of Audits on a regular basis, but the results of these audits are not publicly available. (IMF 2002)

Excluded from budget documents are any statements on contingent liabilities, tax expenditures, or quasi-fiscal activities. The IMF's 2002 ROSC reports that the Ministry of Finance (MoF) lacks the means to undertake comprehensive identification and monitoring of the government's contingent liabilities (p. 8). The MoF has, however, attempted some reporting of this sort with regard to state guarantees in a regularly published document on public debt. This report does not include any forecasts for the future. The MoF does not report on financial assets, but its monthly bulletin, available on its website, includes quarterly debt data and a detailed presentation of state debt (including the entire government debt at all levels, as well as social security and other funds) once every year.

Slovenia has formally committed itself to regular publication of information about public finance, in accordance with SDDS requirements. The MoF regularly publishes public finance information on its website and in the pages of its monthly Bulletin of Public Finance. In addition, The MoF provides an advance-release calendar of its publications, three months ahead of their issuance. The Bank of Slovenia also meets SDDS requirements by providing an advance-release calendar for its publications dealing with debt, government securities interest rates, and state and general budget data. This calendar is made available at the end of the week preceding the week of publication.

Independent assurances of integrity.

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In the IMF's 2002 ROSC, it was reported that Slovenian law provides for "strong statutory provisions for the institutional independence of the Court of Audits and the Statistical Office" (p. 12). The ROSC deemed that Slovenia's budget data was reliable, the presentation of the underlying assumptions for budget estimates was clear, and supplementary budgets were used infrequently. Both the budget and fiscal reports provide statements of accounting policy, which are presented on a modified cash basis. One problem identified in the ROSC was the failure to consolidate across government the accounts payable and receivable reported by individual budget organizations. The cash-flow accounting of both receipts and expenses for a given year, but which are made at the outset of the following year, is adjusted at year's end, prior to actual payment.

The 2002 ROSC also noted a lack of full integration in the processes of accounts reconciliation and fiscal reporting. A consolidated report dealing with budget outcomes is prepared by the Ministry of Finance, incorporating both the central accounting system and reports generated by certain outside agencies. As a result, there can be inconsistencies in the ways that transfers are recorded, and there is, at present, no way to fully reconcile these differences. However, the system does permit the reconciliation of budget appropriations and monetary data.

The budget audit is conducted by the Court of Audits, whose independence from the executive branch is legislatively established by the Slovenian constitution. The Law on the Court of Audits stipulates both performance and compliance standards. According to the constitution, the court's purview includes all government activities and its membership is determined by appointment through the National Assembly, which can also request special audits outside the annual audit cycle. Most audit results are publicly available, although the audit of the Ministry of Defense is held confidential. Regulation of the court's activities, including follow-up procedures, is handled through the Law on the Court of Audits.

The Prime Minister of Slovenia directs the activities of the IMAD, a fairly autonomous agency which is responsible for generating macroeconomic forecasts and estimates and conducts research. IMAD also engages with outside agencies and experts to discuss its findings. The IMF's 2002 ROSC noted that "there is some ambiguity regarding the precise nature of the relationship between the Ministry of Finance and IMAD" (p. 12)

The Law on National Statistics confers technical independence upon the National Statistics office. The IMF's Special Data Dissemination System (SDDS) website records that Slovenia subscribes its standards and has been in full compliance with its requirements since 2000.