Slovenia: Marjan Sarec set to lead minority government; radical economic reforms unlikely
August 27, 2018
Following a two-month political stalemate, Slovenia’s parliament nominated election runner-up Marjan Sarec—head of the List of Marjan Sarec (LMS) party—to be the country’s prime minister on 17 August. Sarec’s centre-left LMS party will lead a minority government, in coalition with the Social Democrats, the Modern Centre party, the Party of Alenka Bratusek and the Democratic Party of Pensioners of Slovenia. Together, the coalition will control 43 out of 90 parliamentary seats but have struck a deal with left-wing party Levica to support the government on key legislation. Among Sarec’s economic policy priorities are reforming the pension system to minimize the burden of the rapidly-ageing population on the budget, upgrading the national health system, speeding up the judicial process, and cutting red tape. It is unlikely, however, that there will be bold economic policy making, with thorny coalition politics constraining any attempts at radical reforms.
One of the primary tasks of the newly-formed coalition will be to sell Slovenia’s largest bank, Nova Ljubljanska Banka, after the previous cabinet missed a deadline enforced as part of a 2013 aid deal with the European Commission. The sale will also prove as a litmus test on the minority government’s ability to pass legislation. However, as Tajana Striga, Economist at Signalitics Research, points out, plans to sell the bank could be thwarted by opposition from the coalition’s supporters: “Levica which is holding nine seats in Sarec’s slim majority in the parliament opposes the sale. We believe that the market will carefully watch Sarec’s ability to circumvent that issue which will serve as a precedent in his further attempts of tackling radical reforms”.
Sarec inherits a strong economy that has enjoyed rapid growth, while maintaining fiscal discipline. Strong export growth has been a key driver of Slovenia’s rapid expansion, along with healthy private consumption buoyed by a tight labor market that has fuelled robust wage growth. Commenting on Slovenia’s growth prospects, Velimir Bole, Economist at Institute EIPF, states: “Without potential problems on the export markets strong growth could be considerably prolonged, especially because there is a lot of room for additional growth in still modest domestic demand.” However, Bole elaborates that challenges are still facing the Slovenian economy including, “[the] implementation of crucial health sector reforms and keeping the fiscal balance strong […] especially because pressures on public wages and pensions have been building up for some time.”
Slovenia GDP Forecast
FocusEconomics Consensus Forecast panelists project the Slovenian economy to grow 4.5% this year, which is unchanged from last month’s forecasts and 3.5% in 2019.