Doubtful Sustainability of Public Finances in Slovenia

Abstract

Abstract:In the immediate period before adoption of euro many debates in Slovenia deal with fulfillment of Maastricht criteria. Slovenia has never had any significant problems with Maastricht fiscal criteria, but this does not mean that it has long-term sustainable fiscal situation. The purpose of this analysis is analyze (non)sustainability of Slovenia's fiscal stance. The methodology is based on objective analysis of long-term public finance's stability/sustainability. The analysis shows that Slovenia exceeded several times the level of sustainability in previous years. In next period the circumstances could only worsen unless necessary fiscal reform and other policy measures (especially reform of public-debt management) are introduced.

Sustainability, environmental economics, welfare

“…For economists, including financial professionals, sustainability means something similar to what Dolenc defi nes in the following: 'It is broadly accepted that Maastricht fi scal criterium [sic] is connected with long-term public fi nance's sustainability and that countries […] fulfi lling these criteria […] cannot get into public fi nances diffi culties: their public fi nances are therefore 'healthy'. (Dolenc, 2006) A general consensus exists in the profession that the funding of public finances is sustainable as long as there are no major changes in the ratio of debt to budgetary revenues. Sustainability is not defi ned simply as the capability of a country to maintain its solvency, but also its willingness to fulfi l its debt-servicing obligations.…”

“…It is also generally agreed that it is better for a country to fi nance its debt by borrowing than by relinquishing control of infl ation, which is commonly done by means of printing money. Nevertheless, if a country allows the stable growth of public debt, it can get caught in a trap, which can sooner or later render it incapable of servicing its public debt obligations (Dolenc, 2006). It might be relevant to note that in the literature (e.g.…”

“…In a paper published in 1984, McCallum makes an implicit attempt to determine the optimal level of indebtedness, and demonstrates that, to be sustainable, the long-term public debt-to-GDP ratio should not exceed the nominal interest rate paid on public debt (Dolenc, 2006).…”

“…Researchers have widely proposed that the optimal level of public debt is determined by using the following macroeconomic equation commonly referred to as the dynamic budget constraint of a country (Dolenc, 2006)…”