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Development Report 2021: The measures for economic recovery should be combined with structural reforms to make the economy and society more resilient to future shocks
The Development Report, an annual publication prepared by the Institute of Macroeconomic Analysis and Development, which monitors the realisation of the Slovenian Development Strategy 2030, brings important recommendations for development policy. Short-term priorities continue to be highly related to preventing the spread of the covid-19 epidemic and mitigating its socio-economic consequences. These measures still play a very important role in sustaining economic and social potential, so their withdrawal should be gradual and well planned. At the same time, it is increasingly important to design well-targeted and efficient measures for the recovery, which should be combined with structural reforms for greater resilience of the economy and society to shocks and more sustainable development in the long term.
In 2020, the Slovenian economy was strongly marked by the covid-19 epidemic, which significantly affected quality of life, while also bringing certain new opportunities. The crisis caused by the covid-19 epidemic interrupted several years of economic growth and favourable labour market developments, although its impact on the economy and the population was markedly mitigated by government measures. In the period before the covid-19 epidemic and after the financial and economic crisis, Slovenia was again catching up with more developed Member States, achieving historically high employment rates and favourable values of social inclusion indicators. The efficiency of resource and energy consumption was also rising steadily. However, Slovenia also entered the year 2020 with some unresolved development challenges, which have been further deepened by the epidemic. Many of them also have increased its vulnerability in this period. Economic convergence in the last few years has been based only to a small extent on productivity gains, which is closely linked to insufficient investment, particularly in various forms of intangible capital. In the phase of recovery, it will therefore be necessary to strengthen investment activity and compensate for the lack of appropriate knowledge and skills of the future, which has so far been insufficiently addressed. Due to their high exposure to temporary employment forms, unemployment of young people rose at an above-average rate in 2020. But above all, the problems of social protection systems (long-term care, health system capacities and waiting times, the long-term sustainability of financing, especially pension expenditure) were exacerbated during the epidemic. From the environmental perspective, a pressing problem is a too slow introduction of changes towards a low-carbon circular economy, high GHG emissions from transport, a several-year stagnation in the use of renewable energy sources and insufficiently sustainable land use.
Among Slovenia’s main long-term development challenges analysed in the Development Report 2021, we highlight the following areas:
- accelerating productivity growth by (i) strengthening R&D activity and innovation with greater focus on breakthrough innovation, (ii) accelerating digital transformation by introducing new business models, servitisation and shifting to smart factories and other most advanced technologies, and (iii) increasing investment in human resources and the development of the ‘workforce of the future’, including by retraining workers to accelerate their transition to high-quality jobs with high value added and lower carbon footprint;
- strengthening inclusive social development and intergenerational solidarity by (i) establishing appropriate systemic regulation of financing and increasing the capacity of the long-term care and health system, (ii) undertaking a comprehensive pension reform to ensure the fiscal sustainability of the pension system and adequate pensions, (iii) ensuring a sufficient workforce, also by active inclusion of immigrants in social and societal life, (iv) strengthening lifelong learning and adapting workplaces for older people to remain active longer and better integrate into society, (v) strengthening the culture of dialogue and the processes of democratic co-decision, communication and consultation among all relevant stakeholders, including civil society, and (vi) promoting healthy lifestyles;
- accelerating the transition to a low-carbon circular economy by (i) appropriately promoting sustainable mobility and upgrading related infrastructure, also by using state-of-the-art technological solutions, (ii) introducing new low-carbon circular business models, including more efficient waste management, and (iii) significantly increasing capacity for greater use of renewable energy sources, particularly through more efficient siting of new projects;
- strengthening the developmental role of the government and its institutions by (i) improving the strategic governance of public institutions for early identification and coordinated and effective dealing with developmental challenges, (ii) improving the legislative and business environment, and (iii) restructuring general government revenue and expenditure by strengthening their developmental component.
To this end, it is particularly important to make best use of the European Commission’s funds, increasing particularly the share of available funds for the strengthening of R&D and innovation, a faster digital transformation and an efficient transition to a low-carbon circular economy, as this is the only way to address Slovenia's key development challenges in a targeted and efficient manner.