Development Report 2024: Slowdown in Slovenia’s real convergence process during the epidemic and the energy crisis; development challenges in productivity, decarbonisation of the economy, social protection systems and governance of public institutions

In Slovenia, a robust post-COVID-19 economic recovery, supported by improved conditions in trading partners and substantial fiscal policy measures, was followed by a slowdown in economic growth and an increase in inflation in 2022 and 2023 in the context of the energy crisis. The impact of rising cost pressures on competitiveness and the population's lower purchasing power was cushioned by measures to support businesses and the population. Despite a relatively weak performance in 2022, economic growth surpassed the EU average again last year, with GDP per capita in purchasing power parity reaching 91% of the EU average in 2023. However, the pace of narrowing the gap with the EU average has slowed: while the gap decreased by 6 p.p. from 2016 to 2019, it only declined by 2 p.p. from 2020 to 2023. Due to the epidemic, the general government balance turned from a surplus to a large deficit in 2020. The deficit gradually decreased with the phasing-out of the temporary COVID-19 support measures for businesses and the population. In 2023, however, it was still significantly affected (-2.5% of GDP) by measures aimed at mitigating the energy crisis and addressing the consequences of floods. Given the new fiscal rules, sustainable deficit reduction will require prioritised planning. Human resource development for delivering quality public services and facilitating the green and smart transformation is progressing too slowly and, despite severe labour shortages, access to quality jobs remains a challenge for certain population groups. While quality of life has gradually improved; the at-risk-of poverty rate and inequalities have slightly increased in 2022 and 2023, although they remain relatively low by international standards. Additionally, the accessibility of public health and long-term care systems faces growing challenges. A review of past trends and development challenges, as outlined in this year's Development Report, shows, similar to previous years, that the key areas of development policy requiring prioritization within the framework of public finances are: accelerating productivity growth and the transition to a low-carbon circular economy, reforming social protection systems (healthcare and pensions), and enhancing the strategic governance of public institutions. In view of the scarcity of public funds, the realisation of objectives in a number of areas will have to be combined with the use of private funds.

Below, we outline the priority areas of action, along with challenges and recommendations identified in this year’s Development Report as crucial for Slovenia’s long-term sustainable development and enhancement of the quality of life.


A highly productive economy that generates value added for all

Trend productivity growth remains weak, although some factors have shown gradual improvement in recent years. However, to achieve a significant boost in productivity, it is imperative to accelerate investment in smart and green transitions, as well as to expand and deepen business transformation processes within companies.

- Strengthen productive investment, especially in intangible capital and in the smart and green transformation of the economy.
- Strengthen the development of human resources at all levels, including top experts (researchers, PhDs, etc.), and actively attract top talent from abroad.
- Deepen the innovation activity of companies by promoting more complex, high-risk and collaborative projects and by encouraging a comprehensive integration of technologies and new organisational approaches.
- Expand business transformation processes by promoting innovation, digital and green transformation, especially in small and medium-sized enterprises.
- Improve the business support environment, especially for start-ups.
- Focus economic policy measures on the healthy cores of the economy, especially its development-oriented niche parts.
- Promote the restructuring of regions through the business transformation of existing activities and the development of new ones, taking into account the development potential of each region.
- In the medium term, further reduce the general government deficit based on the prioritisation of government spending and ensure more sustainable ageing-related government expenditure.


Learning for and through life

The educational attainment of the population has been on the rise for several years; however, the pace of human resource development to ensure the provision of quality public services and to facilitate the green and smart transformation of the economy has been too slow; certain indicators of the quality of basic and upper secondary education have shown signs of deterioration in recent years.

- Create a comprehensive system for identifying and forecasting human resources and skills needs to reduce labour market mismatches. 
- Adjust the structure of enrolments, adapt (re)training programmes for adults and promote up-skilling of employees. 
- Adopt a comprehensive and inter-ministerial approach to improving the literacy and other skills of children and young people, with a variety of approaches based on a culture of learning and understanding.
- Take care of the mental health of children and young people and foster their creativity by reinforcing the values of solidarity and tolerance to face new and unpredictable challenges and better prepare them for their life course.
- Strengthen the strategic development of teaching and counselling staff. 
- Ensure inclusion and zero tolerance of discrimination for vulnerable groups of children with long-standing intergenerational transmission of disadvantages.
- Raise awareness of the benefits and necessity of lifelong learning due to demographic, social and technological changes and the increasing frequency of crises and uncertainties, especially among people with a low level of education and the elderly. Pay more attention to adult literacy, raising awareness of discrimination and the benefits of empowering vulnerable and marginalised groups.


A healthy and active life for all 

While the health status of the population has nearly returned to pre-epidemic levels over the last two years, the accessibility of public health and long-term care systems faces growing challenges.

- Improve the accessibility of healthcare by taking measures to reduce the administrative burden on healthcare teams at the primary level and measures for more efficient management and digitalisation of healthcare. 
- Redefine the relationships between healthcare funding sources and optimise the scope of publicly funded services; reform the models for funding individual health activities. 
- Pursue a systematic and interdepartmental approach to the prevention of health inequalities.
- Raise awareness among all generations of the need to take care of their physical and mental health. 


An inclusive labour market and high-quality jobs

Despite a severe labour shortage due to demographic change and employment rates at an all-time high, access to quality jobs is still a challenge for some people.

- Ensure more effective labour market integration of the inactive persons by improving the quality of jobs and providing more incentives to work, investing in education, training and retraining, and increasing the attractiveness of work.
- Improve the alignment of the minimum wage with the tax and social transfer system to reduce the low wage trap and increase the frequency of minimum cost of living calculations that form the basis for setting the minimum wage. 
- Introduce a wage incentive system for the entire public sector to ensure the provision of quality public services.
- Strengthen migration and integration policies and enable a high quality of life for immigrants in Slovenia.
- Ensure a more equal distribution of unpaid or care work between men and women. 
- Develop proposals to systematically eliminate pay inequalities and narrow the pay gap and strengthen women’s efforts to be employed in gender-atypical occupations.


A decent life for all

The at-risk-of-poverty or social exclusion (AROPE) rate and income inequality, which are among the lowest in the EU, have risen slightly in the last two years. However, the at-risk-of poverty rate for some vulnerable groups has consistently exceeded the EU average for many years.

- Modernise and comprehensively reform the extremely complex social legislation. 
Ensure an appropriate social transfer floor through more frequent calculations of the minimum basic income.
- Comprehensively and definitively address the decades-long anomalies in the information system of the social work centres.
- Increase ambition in eradicating poverty among the most vulnerable groups, especially children exposed to intergenerational transmission of disadvantages, through systematic and targeted action.
- Introduce an integrated housing policy to increase the supply of public rental housing, activate vacant housing and create sufficient housing facilities adapted to vulnerable groups, including through a reform of the property tax system. 


A well-preserved and healthy natural environment 

Given the lack of progress in the transport sector and in the use of renewable energy sources, the pace of the transition to a low-carbon economy is too slow and the circular material use rate as a measure of the circular economy remains relatively low.

- Systematically promote low-carbon solutions, identify opportunities and innovate, introduce new clean technologies.
- Reduce reliance on fossil fuels in the transport sector and move to more sustainable forms of mobility. 
- Accelerate the introduction of renewable energy sources through a more efficient finding of compromises when sitting the necessary facilities.
- Develop new business and consumption models to reduce resource consumption, increase resource efficiency and strengthen sustainable circular practices.
- Introduce products designed for circularity, high-quality recycling and the utilisation of secondary material streams.
- Promote sustainable consumption – lower consumption, longer lifetime and reuse of products.
- Improve the ambient air quality through measures to improve the efficiency of wood biomass combustion and reduce pollution from transport.
- Rationalise land use by shifting activities to abandoned and degraded areas.


A high level of cooperation, competence and governance efficiency

Certain aspects of government efficiency have shown improvement in recent years (digitalisation and introduction of quality standards in public administration, improvement of the quality and efficiency of the judicial system, reduction of administrative barriers, modernisation of public procurement practices), although most of the key challenges identified in recent years are still relevant today (lack of effective public sector governance, high burden of state regulation, mistrust in the rule of law and the judiciary, high perception of corruption, lack of predictability of the business environment and legislation); the good results in the areas of safety and global responsibility persist.

- Improve the strategic management of public institutions to identify and address development challenges in a timely, coordinated and effective manner.
- Improve cooperation among key stakeholders in the adoption, implementation and monitoring of policies and regulations. 
- Improve the business environment by supporting business activity and enabling predictable and responsive interactions with the public sector.
- Increase efforts for the prevention, early detection, effective investigation, prosecution and conviction of corruption cases.
- Pursue a systematic approach to prevent, respond to and manage the consequences of climate-related natural disasters, for example through the establishment of dedicated funds, various preventive measures in the field of land use and spatial planning.