SLOVENIA
Rank: 58 Regional Rank: 27 of 41
lovenia’s economy is 63.6 percent free, according to our 2007 assessment, which makes it the world’s 58th freest economy. Its overall score is 0.1 percentage point higher than last year, partially reflecting new methodological detail. Slovenia is ranked 27th out of 41 countries in the European region, and its overall score is lower than the regional average.
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The economy is 63.6% free
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Slovenia enjoys high levels of business freedom, investment freedom, trade freedom, and freedom from corruption. The average tariff rate is low, although non-tariff barriers include distortionary EU subsidies, and business regulations are transparent. Foreign investment is encouraged, and the streamlining of investment rules has left virtually no restrictions on foreign capital. Slovenia has low levels of corruption but, as a member of the European Union, could still improve. Slovenia is weak in freedom from government, labor freedom, and property rights. Total government spending equals more than two-fifths of GDP. Slovenia’s labor market, like those of many other EU social democracies, is highly rigid. The judiciary is constitutionally protective of private property but suffers from understaffing, long delays in case resolution, and traces of corruption. BACKGROUND: As the first entity to secede from the former Yugoslavia in 1991, Slovenia managed to avoid the bloody conflict that followed Croatia’s secession. As a result, Slovenia’s economic infrastructure was left intact, and it continues to be the richest country in East Central Europe. The nation was invited to join both NATO and the EU in 2002, which it did by referendum approvals in 2004. In 2007, Slovenia is expected to become the first former Communist state to join the European single currency, the euro.
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Europe Average = 67.5 World Average = 60.6
20
0
1995
2007
QUICK FACTS
Population: 2 million GDP (PPP): $41.8 billion 4.2% growth in 2004 3.4% 5-yr. comp. ann. growth $20,939 per capita Unemployment: 10.6% Inflation (CPI): 3.6% FDI (net inflow): $18.2 million Official Development Assistance: Multilateral: $58 million Bilateral: $9 million (10% from the U.S.) External Debt: $19.0 billion (2005 estimate) Exports: $19.5 billion Primarily manufactured goods, machinery, transport equipment, chemicals, food
How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
Imports: $19.9 billion Primarily machinery, transport equipment, manufactured goods, chemicals, fuels and lubricants, food
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SLOVENIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 74.2 76.6 69.7 56.8 79 70 50 50 61 48.7
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ties. Consequently, an additional 10 percent is deducted from Slovenia’s monetary freedom score to account for these policies.
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INVESTMENT FREEDOM — 70%
Foreign investors are accorded national treatment, restrictions on portfolio investment have been abolished, and the government has streamlined the investment process. Residents and non-residents may hold foreign exchange accounts after proving their identity. There are no restrictions on payments and transfers. Nearly all restrictions on capital and money market instruments were removed in 2003. Most direct investment is unrestricted, but a license is required to invest in the trading or producing of armaments or military equipment. Non-EU foreigners may face restrictions on investment in real estate.
100 = most free,
= world average
BUSINESS FREEDOM — 74.2%
Starting a business takes an average of 60 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license and closing a business are relatively simple. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.
FINANCIAL FREEDOM — 50%
Slovenia has been pursuing privatization and financial reform to meet EU standards. The banking system is relatively well developed and sound, although concentrated, with the top three banks accounting for a majority of banking assets. At the end of 2004, there were 20 banks and two savings institutions. The government owns a majority share in Slovenia’s two largest banks and sold 39 percent of the largest bank in 2002. The state also owns 85 percent of the country’s largest insurer, Zavarovalnica Triglav, which dominates the general and life insurance markets. Capital markets are relatively small and centered on the Ljubljana Stock Exchange.
TRADE FREEDOM — 76.6%
Slovenia’s trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.7 percent in 2005. Various non-tariff barriers are reflected in EU policy, including agricultural and manufacturing subsidies, regulatory and licensing restrictions, and other market access restrictions. The government also implements burdensome pharmaceutical and non-transparent government procurement regulations. Consequently, an additional 20 percent is deducted from Slovenia’s trade freedom score.
PROPERTY RIGHTS — 50%
Private property is guaranteed by Slovenia’s constitution, but the courts are inadequately staffed and procedurally slow, and there are reports of corruption. Investors are usually frustrated about the weak protection afforded by the judiciary.
FISCAL FREEDOM — 69.7%
Slovenia has a very high income tax rate and a moderate corporate tax rate. The top income tax rate is 50 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT), a property transfer tax, and a tax on insurance. In the most recent year, overall tax revenue as a percentage of GDP was 37.6 percent.
FREEDOM FROM CORRUPTION — 61%
Corruption is perceived as present. Slovenia ranks 31st out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
FREEDOM FROM GOVERNMENT — 56.8%
Total government expenditures in Slovenia, including consumption and transfer payments, are high. In the most recent year, government spending equaled 42.7 percent of GDP, and the government received 2 percent of its revenues from state-owned enterprises and government ownership of property.
LABOR FREEDOM — 48.7%
The labor market operates under highly inflexible employment regulations that retard overall productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is relatively costly. Regulations related to increasing or contracting the number of work hours are not flexible. Comprehensive overhauls to reduce labor market rigidities are necessary to foster productivity and job creation.
MONETARY FREEDOM — 79%
Inflation in Slovenia is moderate, averaging 3 percent between 2003 and 2005. Relatively moderate and unstable prices explain most of the monetary freedom score. As a participant in the EU’s Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. The government also controls pharmaceutical prices and influences prices through regulation and state-owned enterprises and utili-
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2007 Index of Economic Freedom