Slovenia: Solid fundamentals protect during the international crisis

May 2011

Ministry of FinanceRepublic of Slovenia

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Table of Contents

Country Overview

Key Strengths

Strong Economic Performance over the Past Years

Policy response to global financial crisis

Financing Programme

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Key Considerations

Euro area member for over four years (joined January 1st, 2007)

Prudent fiscal policy track record and steady competitiveness position

Low government debt with low borrowing requirement in the future

Sound banking system

Solid economic fundamentals and adequate policy response to crisis to mitigate its impact

Government committed to stability and sustained reform

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Country Overview

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Slovenia: Member of the Euro area for 4 years

Population of 2 million

Track record of strong macroeconomic performance

GDP per capita over 88 % of EU average

Stable multi-party democracy

Joined the Euro area in January 2007

Joined OECD in June 2010

Austria

Slovenia

Hungary

Croatia

Italy

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A strong sovereign credit in the euro zone

Double A credit rating (Aa2 / AA /AA) Well diversified and open economy

Sustained real convergence

Low public debt burden (38.0 % of GDP in 2010)

ECB eligibility for government paper

Well recognised economic and political stability

Peer credit ratings

SloveniaAa2 / AA /AA

BelgiumAa1/ AA+/AA+

PortugalBaa1/ A- /A+

ItalyAa2/A+/AA-

Source: Moody’s (May 5, 2011)/ Standard & Poors/Fitch (May 5, 2011)

Also a strong credit in European Union

Source: Standard&Poor`s, May 5, 2011

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BB- GR

BBB BG; LT

AA+ BEAA SLOVENIA; ESA+ IT; SKA MT; EE; CZ;

BBB- HU, PT

A- PL,CY

BB+ RO, LV

BBB+ IRL

AAA AU; DK; FI; FR; DE; LU; NL; SE; UK

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Strong Economic Performance over Past Years

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High and sustained degree of real convergence

Source: Eurostat

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Growth led by exports and investments

Source: Eurostat

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Industry, agriculture and services value added, 2009

Slovenia has a highly diversified economy

Comparable to EUmember states

Growth is driven by manufacturing and services

Successful and growing tourism industry

Small agricultural sector

Source: SORS

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Export driven economy

Focus on high value-added exports

More than two thirds of exports destined for EU

€ 16 bn exports of goods and services in 2010; 46.8% of GDP

Exports of goods jan 2011 Geographic distribution, 2010

Source: SORS

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Good labour market performance

Source: Eurostat

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Competitiveness preserved and convergence to EU levels sustained

Source: Eurostat

ProductivityReal effective exchange rate index (1999 = 100)

Source: Eurostat

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Maintaining market share in EU-15

Exports of goods from Slovenia to EU-15 as % share of EU-15 intra-EU imports

Source: Eurostat

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Strong investment over the past years

Source: Eurostat, February 2011

Current account balance % GDP (2009) Slovenia´s current account balance (% GDP)

Source: Eurostat

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Good financial position and sound banking system

Low external indebtedness of the economy

Lowest household indebtedness in EMU 30% of GDP in 2008 and 33% in 2009

Banking sector assets in GDP only one third of EMU average

Banking system’s cross-border indebtedness of about 46% of GDP

Comfortable banking system capital adequacy of 11.4% and Tier 1 of 9.1% (June 2010)

Short-term net creditor position of domestic banking system vis-a-vis euro area

Banking system’s external debt maturity profile is spread out (bulk more than 2 years)

Banks have low exposure to toxic assets

Source:IMF

Outstanding gross external debt in euro area % GDP (2009)

0

200

400

600

800

1000

1200

1400

1600

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Banking system still to catch up

Source: Bank of Slovenia Annual Report 2008; EU banking structures; Statistical Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis

Total Assets of Financial Credit % GDP, 2009

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Housing market: High owner occupation rate and low indebtedness

Institutional mortgage market characteristics in euro area

0

10

20

30

40

50

60

70

80

90

Nethe

rland

s

Irelan

d

Portu

gal

Spain

Cypru

s

Germ

any

Luxe

mbu

rgM

alta

Belgium

Finlan

d

Franc

e

Greec

e

Austri

aIta

ly

Sloven

ia

Owner-occupation rate (2005) Debt for house purchase-to-GDP ratio 2007

Source: ECB

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Policy response to global financial crisis

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Global financial crisis and collapse of trade

Source: ECB Source: Eurostat

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External openness strongly affected growth and investment

Source: Eurostat

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Stabilization and gradual recovery in line with major trading partners

Source: Eurostat

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Gradual recovery to influence fiscal consolidation path

Source: European Commission,DG Economy and Finance, Eurostat

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The downturn also reflected in inflation trends

Source: Eurostat

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Coordinated EU policy response to crisis….

Source: European Commission. Ameco

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…in line with existing debt levels

Source: Eurostat

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Policy to safeguard jobs and economic potential

Budgetary stimulus aims at limiting the impact of decline in external demand on productive capacity and jobs.

Three types of policy measures: 1. slowing down the impact of the crisis on enterprises;

2. enhancing enterprise financial liquidity and safeguarding existing jobs;

3. increasing expenditure in research and education to improve the growth potential of the economy

Budgetary policy economic support package in 2009 equivalent to 1.6% of GDP. Most of the measures of temporary nature.

Additional support to small and medium size enterprises in the form of borrowing guarantees of up to € 1.2 bn.

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Preventive measures to ensure functioning of banking system in line with EU

Financial system support measures include:

¨ Full retail deposit guarantee

¨ Guarantees for bank borrowing (€12 bn) up to 5 years, pricing according to EU/ECB guidelines

¨ On-lending to banks, insurance, reinsurances, pension companies

¨ Capital injections

¨ Purchase of claims (Banks)

Measures other than deposit guarantee are subject to relevant supervisory institution’s endorsement

Measures are being gradually phased out with normalization of financial markets and in accordance with EU decisions

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Fiscal Consolidation and policy response

Gradual fiscal consolidation over the past years

2009 deficit reflects strong economic downturn on tax revenue (automatic stabilizers) and discretionary policy to offset the impact of the crisis

Fiscal policy to reduce deficit below 3% of GDP by 2013

Source: Ministry of Finance

General government deficit as % GDP and deficit structure in 2009

-2,7

-1,6

-5,5

0,5

-2,7

-2,2

-1,4 -1,3-0,9

-6

-5

-4

-3

-2

-1

0

1

2003 2004 2005 2006 2007 2008 2009

Deficit

Discretionary response

Automatic stabilizers

Stability Programme submitted to EU

General government deficit to return into the scope of Maastricht criteria (3% of GDP) by 2013

Source: Ministry of Finance 31

Withdrawal of fiscal stimulus and consolidation

2011 adopted budget reflects full withdrawal of fiscal stimulus by the end of 2010; however, Slovenia will act in line with EU and EMU policies and recommendations.

Gradual, primarily expenditure driven fiscal consolidation over the medium term. Deficit below 3% of GDP by 2013

— Rationalization and discontinuation of inefficient government programs

— Rationalization of cost of public administration

— Rationalization and better targeting of social transfers

— Shifting investment financing towards EU funds

— Increase in excises’ rates and widening social security contribution tax base

Modernization and reform of pension system.

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Financing Programme

2011 borrowing requirement

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Max. gross borrowing: 4.2 Bn. EUR

Purpose of borrowing:— Gross borrowing for 2011 central government

budget: 2.9 Bn. EUR— Pre-financing of debt due for redemption in 2012

and 2013: 1.3 Bn. EUR

Already executed borrowing:— Pre-financing of part of 2011 repayments executed

in 2010: 0.3 Bn. EUR

Expected structure of borrowing at the end of 2011:— Short term (end of the year) 30 Ml. EUR— Long term Up to 3 Bn.

EUR

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Further government debt market integration

Established issuer in the Euro debt market

International structure of primary dealers with strong domestic institutions— Abanka; BNP Paribas; Credit Agricole CIB; Commerzbank; Deutsche Bank; Goldman

Sachs; HSBC; JP Morgan; Nova Ljubljanska Banka; RBS; Société Générale CIB; UniCredit Banka Slovenija

Newly issued bonds trading on major international trading platforms— MTS Slovenia (www.mtsslovenia.com ), Bloomberg (SLOREP Govt <GO>), Bondvision— Benchmark size issues to ensure liquidity (minimum € 1 bn)— Bonds in new S&P Eurozone Government Bond Index

MTS Slovenia established since March 2007 (www.mtsslovenia.com) — Currently 17 system participants (14 international and 3 from Slovenia) — 8 bonds on the system (http://www.mtsdata.com/content/data/public/rsl/bulletin/ ,

http://www.mtsdata.com/content/data/public/rsl/fixing/ )

Broaden investor base to increase integration of Slovenia’s signature in the Euro area

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Strong performance and support

Source: MTS Slovenia, Bloomberg, 28 February 2011; Ministry of Finance

Asia0,2%

Austria / Germany

29,2%

Benelux9,4%

CEE2,5%

France11,9%

Iberia1,2%

Italy7,5%

Other EMU1,8%

Rest of the World0,8%

Scandinavia5,6%

Slovenia15,8%

Swiss2,6%

UK / Ireland11,5%

Distribution by region

Bank41,5%

Central Bank3,5%

Fund Manager32,4%

Insurance Company

14,6%

Pension Fund6,4%

Supranational1,0%

Other0,8%

Distribution by investor type

Name RatingsSize EUR

mln Issue Date Maturity Cpn Mid Price Mid Yield

Bid Spr vs MS (at lunch)

Bid Spr vs MS

(current) bps Dur (yrs)

Slovenia 02/12

Aa2/AA/AA 1 05.02.2009 05.02.2012 4,25% 102,745 1,25% 165 bps -34,1 0,9

Slovenia 04/14

Aa2/AA/AA 1,500 02.04.2009 02.04.2014 4,375% 103,98 3,00% 160 bps 3,9 2,73

Slovenia 03/15

Aa2/AA/AA 1,000 17.03.2010 17.03.2015 2,750% 98,075 3,27% 37 bps 19,7 3,68

Slovenia 02/16

Aa2/AA/AA 1,066 17.01.2005 17.02.2016 4,000% 101,46 3,67% - 43,9 4,42

Slovenia 03/18

Aa2/AA/AA 1,000 22.03.2007 22.03.2018 4,000% 99,56 4,07% -8 bps 71,7 5,83

Slovenia 02/19

Aa2/AA/AA 1,000 06.02.2008 06.02.2019 4,375% 101,26 4,18% -3 bps 92,5 6,57

Slovenia 01/20

Aa2/AA/AA 1,500 26.01.2010 26.01.2020 4,125% 98,32 4,35% 68 bps 91 7,31

Slovenia 01/21

Aa2/AA/AA 1.500 18.01.2011 18.01.2021 4,375% 99,505 4,44% 125bps 97,9 7,85

Slovenia 09/24

Aa2/AA/AA 1,500 09.09.2009 09.09.2024 4,625% 101,545 4,47% 80 bps 79,2 9,69

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Strong relative performance in turbulent times

Source: MTS.

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Favourable state budget debt portfolio

Stable debt service profile Most debt denominated in local currency

Source: Ministry of Finance

Outstanding debt by type of currency (31.12.10)

EUR: 99.8%

USD: 0.0%

Other: 0.2%

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Contact details

Republic of SloveniaMinistry of Finance

Treasury Directorate

Boštjan PlešecDirector Generalbostjan.plesec@mf-rs.siTel: +386 1 369  6410

Public Debt Management Department

Marija EberHead of Departmentmarija.eber@mf-rs.siTel: +386 1 369  6442