Slovenia: Solid fundamentals protect during the international crisis

August 2010

Ministry of FinanceRepublic of Slovenia

2

Table of Contents

Country Overview

Key Strengths

Strong Economic Performance over the Past Years

Policy response to global financial crisis

Financing Programme

3

Key Considerations

Euro area member for over three years (joined January 1st, 2007)

Prudent fiscal policy track record and steady competitiveness position

Low government debt with low borrowing requirement in the future

Sound banking system with low exposure to toxic assets

Solid economic fundamentals and adequate policy response to crisis to mitigate its impact

Government committed to stability and sustained reform

4

Country Overview

5

Slovenia: Member of the Euro area for 3 years

Population of 2 million

Track record of strong macroeconomic performance

GDP per capita 86 % of EU average

Stable multi-party democracy

Joined the euro area in January 2007

Joined OECD in June 2010

Austria

Slovenia

Hungary

Croatia

Italy

6

A strong sovereign credit in the euro zone

Double A credit rating (Aa2 / AA /AA) with stable outlook

Well diversified and open economy

Sustained real convergence

Low public debt burden (35.9 % of GDP in 2009)

ECB eligibility for government paper

Well recognised economic and political stability

Peer credit ratings

SloveniaAa2 / AA /AA

BelgiumAa1/ AA+/AA+

PortugalA1/ A- /AA-

ItalyAa2/A+/AA-

Source: Mood’y/ Standard & Poors/Fitch (August 2010)

Also a strong credit in European Union

BB LV

BBB- HU

A- PT; PL

BB+ GR; RO

BBB BG; LT

AA+ BEAA SLOVENIA; ES

A+ IT; CY; SKA MT; CZ; EE

AA- IRL

AAA AU; DK; FI; FR; DE; LU; NL; SE; UK

Source: Standard&Poor`s, August 24, 2010

7

8

Strong Economic Performance over Past Years

9

High and sustained degree of real convergence

Source: Eurostat

GDP per capita PPS 2009 (EU-27=100)

0

20

40

60

80

100

120

140

Ire

lan

d

Ne

the

rla

nd

s

Au

str

ia

Sw

ed

en

De

nm

ark

Ge

rma

ny

Un

ite

d K

ing

do

m

Be

lgiu

m

Fin

lan

d

Fra

nce

Sp

ain

Ita

ly

Cyp

rus

Gre

ece

Slo

ve

nia

Cze

ch

Re

pu

blic

Ma

lta

Po

rtu

ga

l

Slo

va

kia

Hu

ng

ary

Esto

nia

Lith

ua

nia

La

tvia

GDP per capita in PPS (EU 27 = 100)

70

75

80

85

90

95

100

105

110

115

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Euro area (16 countries) Slovenia

10

Growth led by exports and investments

Real GDP

Source: Eurostat

11

Industry, agriculture and services value added, 2009

Slovenia has a highly diversified economy

Comparable to EUmember states

Growth is driven by manufacturing and services

Successful and growing tourism industry

Small agricultural sector

Source: SORS

12

Export driven economy

Focus on high value-added exports

More than two thirds of exports destined for EU

€ 16 bn exports of goods and services in 2009; 45.9% of GDP

Exports of goods (2009) Geographic distribution, 2009

Source: SORS

Food and beverages; 4,2%

Fuels and raw materials; 6,3%

Chemicals products; 16,5%

Manufactured goods; 32,8%

Machinery and equipment; 40,3%

13

Good labour market performance

Source: Eurostat

Total employement rate in 2009 (%)

0

10

20

30

40

50

60

70

80

90

Net

herla

nds

Aust

ria

Ger

man

y

Cyp

rus

Finl

and

Slov

enia

Portu

gal

Luxe

mbo

urg

Fran

ce

Irela

nd

Belg

ium

Gre

ece

Slov

akia

Spai

n

Italy

Mal

ta

Unemployement rate in May 2010 (%)

0

5

10

15

20

25

Spai

n

Slov

akia

Irela

nd

Portu

gal

Fran

ce Italy

Belg

ium

Finl

and

Cyp

rus

Slov

enia

Ger

man

y

Mal

ta

Luxe

mbo

urg

Net

herla

nds

Aust

ria

14

Competitiveness preserved and convergence to EU levels sustained

Source: Eurostat

ProductivityReal effective exchange rate index (1999 = 100)

Source: Eurostat

80

85

90

95

100

105

110

115

120

125

130

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EU (27 countries) Germany Slovenia

Labour productivity per person employed (EU 27 = 100)

60

70

80

90

100

110

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Euro area (16 countries) Slovenia

15

Maintaining market share in EU-15

Exports of goods from Slovenia to EU-15 as % share of EU-15 intra-EU imports

Source: Eurostat

16

Strong investment over the past years

Source: Eurostat, July 2010 (provisional data)

Current account balance % GDP (2009) Slovenia current account balance (% GDP)

Source: BS

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Gre

ece

Portu

gal

Cypr

us

Mal

ta

Italy

Slov

akia

Irela

nd

Fran

ce

Slov

enia

Belg

ium

Ger

man

y

Neth

erla

nds

Luxe

mbo

urg

17

Good financial position and sound banking system

Low external indebtedness of the economy

Lowest household indebtedness in EMU 30% of GDP in 2008 and 33% in 2009

Banking sector assets in GDP only one third of EMU average

Banking system’s cross-border indebtedness of about 46% of GDP

Comfortable banking system capital adequacy of 11.4% and Tier 1 of 9.1% (June 2010)

Short-term net creditor position of domestic banking system vis-a-vis euro area

Banking system’s external debt maturity profile is spread out (bulk more than 2 years)

Banks have low exposure to toxic assets

Source:IMF

Outstanding gross external debt in euro area % GDP (2009)

0

200

400

600

800

1000

1200

1400

1600

18

Banking system still to catch up

Source: Bank of Slovenia Annual Report 2008; EU banking structures; Statistical Office RS, Eurostat, elaboration by Institue of Macroeconomic Analysis

Total Assets of Banks % GDP, 2008

0

50

100

150

200

250

300

350

400

450

500

Luxe

mbu

rg

Irelan

dM

alta

Cypru

s

Belgium

Nethe

rland

s

Franc

e

Austri

a

Germ

any

Spain

Portu

gal

Italy

Greec

e

Finlan

d

Sloven

ia

Slovak

ia

2523 702 694 582

19

Housing market: High owner occupation rate and low indebtedness

Institutional mortgage market characteristics in euro area

0

10

20

30

40

50

60

70

80

90

Nethe

rland

s

Irelan

d

Portu

gal

Spain

Cypru

s

Germ

any

Luxe

mbu

rgM

alta

Belgium

Finlan

d

Franc

e

Greec

e

Austri

aIta

ly

Sloven

ia

Owner-occupation rate (2005) Debt for house purchase-to-GDP ratio 2007

Source: ECB

20

Policy response to global financial crisis

21

Global financial crisis and collapse of trade

Source: ECB Source: Eurostat

Exports of goods and services (annual % change)

-20

-15

-10

-5

0

5

10

15

20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f

Euro area Slovenia

22

External openness strongly affected growth and investment

Source: Eurostat

Gross fixed capital formation; Growth % (q/q-4)

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

2007Q

2

2007Q

3

2007Q

4

2008Q

1

2008Q

2

2008Q

3

2008Q

4

2009Q

1

2009Q

2

2009Q

3

2009Q

4

2010Q

1

Euro area (16 countries) Slovenia

23

Stabilization and gradual recovery in line with major trading partners

Source: Eurostat

Industrial production (excluding construction); Growth % (m/m-12)

-25

-20

-15

-10

-5

0

5

10

15

20ju

n.09

jul.0

9

aug.

09

sep.

09

oct.

09

nov.

09

dec.

09

jan.

10

feb.

10

mar

.10

apr.

10

may

.10

Euro area (16 countries) Germany Slovenia

24

Gradual recovery to influence fiscal consolidation path

Source: European Commission,DG Economy and Finance

Economic Sentiment Indicator

0

20

40

60

80

100

120

140

jan.0

0

maj

.00

sep.

00

jan.0

1

maj

.01

sep.

01

jan.0

2

maj

.02

sep.

02

jan.0

3

maj

.03

sep.

03

jan.0

4

maj

.04

sep.

04

jan.0

5

maj

.05

sep.

05

jan.0

6

maj

.06

sep.

06

jan.0

7

maj

.07

sep.

07

jan.0

8

maj

.08

sep.

08

jan.0

9

maj

.09

sep.

09

jan.1

0

Euro area Slovenia

25

The downturn also reflected in inflation trends

Source: Eurostat

HICP annual rate of change (%)

0

0,5

1

1,5

2

2,5ju

l.09

avg.0

9

sep.0

9

oct.

09

nov.0

9

dec.0

9

jan.1

0

feb.1

0

mar.

10

apr.

10

may.1

0

jun.1

0

Euro area (16 countries) Slovenia

26

Coordinated EU policy response to crisis….

Source: European Commission. Ameco

27

…in line with existing debt levels

Source: Ameco, DG ECOFIN

28

Policy to safeguard jobs and economic potential

Budgetary stimulus aims at limiting the impact of decline in external demand on productive capacity and jobs

Three types of policy measures: 1. slowing down the impact of the crisis on enterprises;

2. enhancing enterprise financial liquidity and safeguarding existing jobs;

3. increasing expenditure in research and education to improve the growth potential of the economy

Budgetary policy economic support package in 2009 equivalent to 1.6% of GDP. Most of the measures of temporary nature

Additional support to small and medium size enterprises in the form of borrowing guarantees of up to € 1.2 bn.

29

Preventive measures to ensure functioning of banking system in line with EU

Financial system support measures include:

¨ Full retail deposit guarantee

¨ Guarantees for bank borrowing (€12 bn) up to 5 years, pricing according to EU/ECB guidelines

¨ On-lending to banks, insurance, reinsurances, pension companies

¨ Capital injections

¨ Purchase of claims (Banks)

Measures other than deposit guarantee are subject to relevant supervisory institution’s endorsement

Measures to be gradually phased out with normalization of financial markets and in accordance with EU decisions

30

Fiscal Consolidation and policy response

Gradual fiscal consolidation over the past years

2009 deficit reflects strong economic downturn on tax revenue (automatic stabilizers) and discretionary policy to offset the impact of the crisis

Fiscal policy to reduce deficit below 3% of GDP by 2013

Source: Ministry of Finance

General government deficit as % GDP and deficit structure in 2009

-2,7

-1,6

-5,5

0,5

-2,7

-2,2

-1,4 -1,3-0,9

-6

-5

-4

-3

-2

-1

0

1

2003 2004 2005 2006 2007 2008 2009

Deficit

Discretionary response

Automatic stabilizers

Stability Programme submitted to EU

General government deficit to return into the scope of Maastricht criteria (3% of GDP) by 2013

Source: Ministry of Finance 31

Withdrawal of fiscal stimulus and consolidation

2010 and 2011 adopted budgets foresee full withdrawal of fiscal stimulus by the end of 2010; however, Slovenia will act in line with EU and EMU policies and recommendations.

Gradual, primarily expenditure driven fiscal consolidation over the medium term. Deficit below 3% of GDP by 2013

— Rationalization and discontinuation of inefficient government programs

— Rationalization of cost of public administration

— Rationalization and better targeting of social transfers

— Shifting investment financing towards EU funds

— Increase in excises’ rates and widening social security contribution tax base

Government proposal of further modernization and reform of pension system to contribute to long-term sustainability of public finances is to be submitted to the parliament for discussion and to be passed into law.

32

33

Financing Programme

34

The 2010 borrowing requirement

The max. gross borrowing: 4.4 Bn. EUR

Purpose of borrowing:— Gross borrowing for 2010 central government

budget: 3.6 Bn. EUR— Pre-financing of debt due for redemption in 2011

and 2012: 2.2 Bn. EUR

Already executed borrowing:— Pre-financing of part of 2010 repayments executed

in 2009: 1.4 Bn. EUR— Central Government Budget financing 2.5 Bn.

EUR

Expected structure of borrowing at the end of 2010:— Short term (end of the year) 50 Ml. EUR— Long term Up to

2.5 Bn. EUR

The 2011 borrowing requirement

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The max. gross borrowing: 4.5 Bn. EUR

Purpose of borrowing:— Gross borrowing for 2011 central government

budget: 2.6 Bn. EUR— Pre-financing of debt due for redemption in 2012

and 2013: 2.2 Bn. EUR

Already executed borrowing:— Pre-financing of part of 2011 repayments executed

in 2010: 0.3 Bn. EUR

Expected structure of borrowing at the end of 2011:— Short term (end of the year) 50 Ml. EUR— Long term Up to

2.5 Bn. EUR

36

Further government debt market integration

Established issuer in the Euro debt market

International structure of primary dealers with strong domestic institutions— Abanka; BNP Paribas; Credit Agricole CIB; Commerzbank; Deutsche Bank; Goldman

Sachs; HSBC; JP Morgan; Nova Ljubljanska Banka; RBS; Société Générale CIB; UniCredit Banka Slovenija

Newly issued bonds trading on major international trading platforms— MTS Slovenia (www.mtsslovenia.com ), Bloomberg (SLOREP Govt <GO>), Bondvision— Benchmark size issues to ensure liquidity (minimum € 1 bn)— Bonds in new S&P Eurozone Government Bond Index

MTS Slovenia established since March 2007 (www.mtsslovenia.com) — Currently 17 system participants (14 international and 3 from Slovenia) — 8 bonds on the system (http://www.mtsdata.com/content/data/public/rsl/bulletin /, http://

www.mtsdata.com/content/data/public/rsl/fixing /)

Broaden investor base to increase integration of Slovenia’s signature in the Euro area

37

Strong performance and support

Source: MTS Slovenia, Bloomberg, 23rd August 2010; Ministry of Finance

Slovenia 03/15: Slovenia 03/15:Distribution by investor type Distribution by region

Other 0.2%

Pension funds 11.7%

Central Banks / Official

Institutions 3.7%

Banks 46.9%

Asset Managers

37.5%

Germany33.5%

Other2.2%

Italy11.5%

Switzerland3.8%

Benelux 10.9%

the UK9.9%

Slovenia10.2%

France8.3%

Austria 4.1%

Scandinavia5.6%

Name RatingsSize EUR

mln Issue Date Maturity CpnMid

Price Mid YieldBid Spr vs MS

(at lunch)Bid Spr vs MS

(current) Dur (yrs)Slovenia

02/12 Aa2/AA/AA 1,000 05.02.200905.02.201

2 4,250% 104,69 0,97% 165 bps -29,2 bps 1,36Slovenia

04/14 Aa2/AA/AA 1,500 02.04.200902.04.201

4 4,375% 108,45 1,92% 160 bps 40,1 bps 3,22Slovenia

03/15 Aa2/AA/AA 1,000 17.03.201017.03.201

5 2,750% 101,48 2,40% 37 bps 66,5 bps 4,19Slovenia

02/16 Aa2/AA/AA 1,066 17.01.200517.02.201

6 4,000% 105,91 2,82% - 94,1bps 4,75Slovenia

03/18 Aa2/AA/AA 1,000 22.03.200722.03.201

8 4,000% 104,92 3,25% -8 bps 107,1 bps 6,33Slovenia

02/19 Aa2/AA/AA 1,000 06.02.200806.02.201

9 4,375% 106,08 3,53% -3 bps 125,2 bps 6,79Slovenia

01/20 Aa2/AA/AA 1,500 26.01.201026.01.202

0 4,125% 104,13 3,60% 68 bps 120,0 bps 7,51Slovenia

09/24 Aa2/AA/AA 1,500 09.09.200909.09.202

4 4,625% 111,64 3,56% 80 bps 85,6 bps 9,74

38

Strong relative performance in turbulent times

Source: MTS.

39

Favourable state budget debt portfolio

Stable debt service profile Most debt denominated in local currency

Source: Ministry of Finance

Outstanding debt by type of currency (31.12.09)

EUR: 99.8%

USD: 0.0%

Other: 0.2%

40

Contact details

Republic of SloveniaMinistry of Finance

Treasury Directorate

Boštjan PlešecDirector Generalbostjan.plesec@mf-rs.siTel: +386 1 369  6410

Public Debt Management DepartmentMarija EberHeadmarija.eber@mf-rs.siTel: +386 1 369  6442