Slovenia has been shaken by a new, albeit hidden, affair that must not be overlooked: the erroneous projection of gross domestic product, or rather the downward revision of GDP growth by the Statistical Office of the Republic of Slovenia, which is outrageous. Although the government coalition makes it sound as if there will be no consequences, that it is, in fact, only a revision of data and not a mistake, insiders say otherwise – that this “mistake” could plunge Slovenia into financial difficulties. “And the consequences will be painful,” said economist and Member of Parliament Rado Gladek. The Strategic Council for Macroeconomic Issues is also surprised, and the Fiscal Council says that a revision as significant as this one fundamentally changes the basic starting points for both the design and the assessment of macroeconomic and fiscal policies. In addition to a more precise explanation of the reasons, this revision also requires some efforts to improve the quality of the quarterly national accounts data, according to the Fiscal Council. But will the Golob government take this into account?
Although differences in calculations are not uncommon, this time, the measured difference is as big as three percentage points. From the 5.4 percentage points measured in February, the latest calculations put GDP growth at 2.5%, which puts Slovenia below the European Union average in terms of growth. Last year’s GDP growth was thus significantly lower than initially estimated and also much slower than the post-Covid-19-crisis growth of 8.2% in 2021.
Under the government of Robert Golob, Slovenia is doing much worse economically than under the previous, Janez Janša government, when GDP was growing, according to all calculations. In the regular annual revision of the national accounts estimates for 2022, the Statistical Office has thus significantly revised the estimates compared to the previous quarterly data. Nominal GDP was 57 billion euros last year, down almost 2 billion euros from the previous estimate, mainly due to a downward revision of the estimate of household final consumption. As mentioned above, the estimate for real GDP growth is also lower. As the Fiscal Council further notes, the lower economic growth is already having an impact on public finances in 2023.
What could be the consequences – borrowing? New taxes?
So, the current budget documents were prepared on the basis of wrong calculations or what we now know to be unrealistic data. What should the government do now? “The answer is, of course, quite obvious,” said economist and MP Rado Gladek. “If the documents were prepared on the basis of previous calculations, the government should take this error into account and adjust the documents. These corrections have always been made, and to miss by three percent is, to put it mildly, unusual. This will definitely have consequences, and the government should take this very seriously and take it into account when preparing the budget documents.” The Fiscal Council also believes that the “error” fundamentally changes the basic starting points for macroeconomic and fiscal policymaking, which means that it will be felt in the budget, and it may also be felt in an even greater propensity for additional taxes, the newspaper Finance reports. The consequences will certainly be felt in terms of borrowing or credit ratings – “this will have a major impact on public finances, as well as on the economic part. The consequences could be quite painful,” MP Gladek believes.
The national budget with a deficit of €735 million in eight months
The State Budget had a deficit of -735 million euros in the first eight months of 2023, excluding the impact of expenditure to mitigate the epidemic (161 million euros) and measures to mitigate the rising prices (479 million euros), which amounted to -95 million euros. The evolution of the state budget in the first eight months was thus worse than in the same period last year, with a larger overall deficit and a deterioration of 563 million euros in the so-called “net” balance (excluding intervention measures) after a surplus of 563 million euros in the same period last year.
Unrealistic budget planning – the deficit is twice as big as in 2020, at the time of the pandemic
The eight-month outturn confirms the Fiscal Council’s assessment of continued unrealistic budgetary planning. The second state budget rebalancing adopted in August, according to the realisation so far, allows for a deficit of 2.4 billion euros in the last four months of this year. This would be 1 billion euros more than in the whole of last year and about twice as much as in the last four months of 2020 – at the time of the pandemic.
Will the government adopt a new amended budget based on the new data?
The budget is scheduled to be amended in November, but according to the Fiscal Council, the rebalancing adopted in August allows for a deficit of 2.4 billion euros in the last four months of this year. Should the government do something before November? The Fiscal Council had already warned of unrealistic budgeting in the budget rebalancing linked to the floods, but the government is ignoring it and doing what it wants, says MP Gladek. “Everything, both the Fiscal Council and the “statistical error,” definitely suggests that they should take these matters seriously and take this into account in the budget documents. They are unlikely to do a rebalancing because of this. But if they were to take the issues and all these warnings seriously, they would definitely have to think about it,” concluded MP Gladek.