Development Report 2022: rapid recovery of the Slovenian economy; further measures are needed to reduce the development gap with the EU average by accelerating the transformation to a highly productive low-carbon circular economy

Slovenia’s economy saw a quick rebound in 2021 with the help of massive government measures that kept the material and financial situation of the population relatively stable. The burden of the epidemic assumed by the government was reflected in a high general government deficit and an increase in general government debt, especially in 2020. The main challenge remains to overcome the development gap with the EU average. The Development Report, with which the Institute of Macroeconomic Analysis and Development annually monitors the implementation of the Slovenian Development Strategy (SDS) 2030, contains important recommendations in this regard. To achieve long-term sustainable development and a better quality of life, development policy measures should focus on accelerating the inclusive transition to innovation-driven growth with a highly productive low-carbon circular economy. In this way, the measures would also help increase the resilience of the economy and society to crises, such as the current aggravation of the geopolitical situation due to the war in Ukraine.

The transition to innovation-driven economic growth with a highly productive economy has been slow since the global financial crisis, and the transition to a low-carbon circular economy has been insufficient. The gap with the EU average in GDP per capita in purchasing power standards (an indicator of economic development and material well-being of the population) has only approached the 2008 level in 2021, and Slovenia is still far from achieving the SDS 2030 target. The reason for the slow narrowing of the development gap in the last decade is modest productivity growth, which is mainly due to low investment after the global financial crisis. At the same time, the impact of several years of declining investment in intangible capital after the last crisis (R&D, ICT, on-the-job training), slowing the transition to innovation-driven growth with a highly productive economy, is becoming increasingly evident; progress in decoupling economic growth from resource use and emissions has also been slow. Recently, there have been some shifts in addressing the challenges of the green transition and the transition to the fourth industrial revolution. For example, more resources will be allocated for these purposes in the future than in the previous medium-term period. This will be supported by the reformed part of the Recovery and Resilience Plan (RRP). Nevertheless, the ambitious targets for achieving the twin transition indicate that their achievement will need to be further supported by systemic measures and resources. A growing obstacle to effective economic transformation and productivity growth is the increasing shortage of appropriate labour resulting from demographic change and the slow response to demand for new skills.

The COVID-19 epidemic has severely affected the health status of the population and has exacerbated the problem of access to healthcare and long-term care. The long-standing trend of improving the health status of the population has been interrupted by the epidemic. The epidemic has contributed to a further increase in mental health problems, health inequalities are expected to worsen and problems with accessibility of healthcare have also worsened. Accessibility of healthcare is good in terms of financial coverage of rights, while the healthcare system faces significant shortages of health workers and long waiting times. Several short-term measures were taken to increase the resilience of the healthcare system. A special law was passed to ensure investment in healthcare until 2031, and significant funds were earmarked for this purpose in the RRP for the coming years. In the last two years, the long-standing problem of access to long-term care (LTC) has worsened significantly. A framework law (adopted in 2021) will give the beneficiaries a wide scope of rights, but the biggest challenge remains the regulation of compulsory LTC insurance. In the long term, in addition to a sustainable structure of funding sources, adequate employment planning and improvement of working conditions will be crucial to increase the resilience of the healthcare system and the accessibility of LTC.

Slovenia’s main development challenges analysed in the Development Report 2022

Among Slovenia’s main development challenges analysed in the Development Report 2022, we highlight the following areas:

accelerating productivity growth by (a) strengthening education and (re)qualification for the skills of the future based on modernised and future-oriented education and training systems; (b) significantly increasing investment in smart (especially digital) and sustainable transformation, both by the government (especially, but not exclusively, with EU funds) and by the business sector; (c) fostering a dynamic business environment and strengthening the scientific research, innovation and digital ecosystem on the public side, as well as accelerating the adoption of new business models, breakthrough and disruptive innovations and customised business processes and organisation, including domestic and international networking, on the corporate side; (d) accelerating change through social dialogue and active management of transformation;

accelerating transition to a low-carbon circular economy by (a) significantly increasing the production of energy from renewable sources, particularly through more efficient siting of new projects, which is becoming increasingly important in view of the challenges related to the Ukrainian-Russian military conflict by reducing energy dependence; (b) promoting sustainable mobility, especially by upgrading the related infrastructure; (c) introducing new low-carbon circular business models, including more efficient waste management; (d) radical systemic shifts based on new knowledge, innovations and sustainable investments in clean technologies;

strengthening the resilience of the healthcare system and the financial sustainability of social protection systems, in particular in view of an ageing population, while providing quality services and adequate incomes to vulnerable groups by a) increasing investment in prevention and public health and in the resilience of the health system, including by more effectively addressing labour shortages in the health and social care sectors; b) implementing the Long-Term Care Act to increase the capacity of the system, especially with regard to home care, and adequately regulating the financing of long-term care; c) reducing the risk of (long-term) poverty and eliminating severe social and material deprivation among the most vulnerable groups in society; d) implementing a comprehensive pension reform to ensure the fiscal sustainability of the pension system and adequate pensions; e) ensuring a sufficient workforce by creating the conditions for attracting skilled workers (foreign and domestic) and actively integrating immigrants in social and civic life; f) providing quality jobs and facilitating the entry of young people into the labour market; g) strengthening lifelong learning and adapting workplaces for older people so that they can remain active longer and better integrate into society;

strengthening the developmental role of the government and its institutions by (a) improving the strategic governance of public institutions to ensure that development challenges are identified early and addressed in a coordinated and effective manner; (b) ensuring a high quality legal framework and a reduction in government regulation to increase the competitiveness of the economy, create a predictable business environment and simplify the lives of citizens; and (c) restructuring general government revenues and expenditures by strengthening their developmental role, whereby it is crucial to strike the right balance between the economic growth and sufficient support for economic transformation to boost productivity and address the challenges of climate change and sustainability of public finances.

Economic transformation and the acceleration of productivity growth, to be supported primarily by domestic and all available EU resources, are essential to increase the prosperity of the population towards achieving the central SDS target, i.e. to ensure quality of life for all.