2009 Index of Economic Freedom

Quick Facts

Population:

• 2.0 million

GDP (PPP):

• $48.9 billion
• 5.7% growth
• 4.2% 5-year compound annual growth
• $24356 per capita

Unemployment:

• 4.8%

Inflation (CPI):

• 3.6%

FDI Inflow:

• $363.1 million

Slovenia's economic freedom score is 62.9, making its economy the 68th freest in the 2009 Index. Its score is 2.7 points better than last year because of improvements in business freedom, property rights, and freedom from corruption. Slovenia is ranked 30th out of 43 countries in the Europe region, and its overall score is well above the world average.

Slovenia enjoys relatively high levels of business freedom, trade freedom, investment freedom, property rights, and freedom from corruption. The average tariff rate is low, but lingering non-tariff barriers hold down overall trade freedom. Business regulations have become more straightforward and transparent. Foreign investment is encouraged, and the streamlining of investment rules has left virtually no restrictions on foreign capital. Slovenia has adopted another round of tax cuts in recent years; in particular, its corporate tax rate has been made more competitive.

Slovenia has room for improvement in government size and labor freedom. Government spending still remains around 45 percent of GDP, and privatization of state-controlled enterprises has been sluggish. Slovenia's labor market remains very rigid, impeding more dynamic employment and productivity growth.

Background Back to the top

As the first entity to secede from the former Yugoslavia in 1991, Slovenia largely managed to avoid the bloody conflict that followed Croatia's secession. As a result, Slovenia's relatively strong economic infrastructure was left intact, and its economy has become prosperous and stable with good growth in recent years. Slovenia joined both the European Union and NATO in 2004 as part of a broader strategy of integration into the Euro-Atlantic community. It also adopted the euro as its currency on January 1, 2007.

Business Freedom 84.5 Back to the top

The overall freedom to conduct a business is relatively well protected under Slovenia's regulatory environment. Starting a business takes only half the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days. Bankruptcy proceedings are fairly simple and straightforward.

Trade Freedom 85.8 Back to the top

Slovenia's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Pharmaceutical and government procurement regulations exceed general EU policy. Ten points were deducted from Slovenia's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 62.9 Back to the top

Slovenia has implemented another round of tax cuts. The top income tax rate is 41 percent, and the corporate tax rate is now a flat 22 percent, down from 23 percent as of 2008. Other taxes include a value-added tax (VAT), a property transfer tax, and a tax on insurance. The payroll tax is to be phased out entirely by January 1, 2009. In the most recent year, overall tax revenue as a percentage of GDP was 39.3 percent.

Government Size 38.4 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 45.3 percent of GDP. In the lead-up to the general election, privatization of state-controlled companies has slowed.

Monetary Freedom78.6 Back to the top

Inflation is relatively low, averaging 3.2 percent between 2005 and 2007. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. It also controls the prices of pharmaceuticals, oil, electricity, natural gas, and railway transport and influences other prices through regulation and state-owned enterprises and utilities. Ten points were deducted from Slovenia's monetary freedom score to account for these policies.

Investment Freedom60.0 Back to the top

Foreign investors receive national treatment, and all sectors are open to foreign investment with some restrictions. Investors seeking government incentives face some job-creation requirements. Deterrents to investment include an incomplete commercial legal code, restrictive labor regulations, and burdensome bureaucracy. Residents and non-residents may hold foreign exchange accounts after proving their identity. There are few restrictions on foreign exchange or capital transactions, payments and transfers. Foreign investors may acquire property.

Financial Freedom50.0 Back to the top

Slovenia has undertaken privatization and restructuring to enhance the competitiveness of the financial sector, but the sector remains relatively underdeveloped. The banking sector is dominated by the three largest banks, which account for about 50 percent of total assets. Established lending relationships are important in getting credit in Slovenia, and bank lending is biased toward existing big firms. Equity financing can be difficult to raise for start-ups and small and medium-size companies. Capital markets are relatively small and centered on the Ljubljana Stock Exchange. Despite the government's declared intentions, privatization of state-owned financial institutions has been rather slow.

Property Rights60.0 Back to the top

Private property rights are constitutionally guaranteed, but the courts are inadequately staffed and slow, and there are reports of corruption. Foreigners may own property. Comprehensive legislation to protect intellectual property reflects developments in the World Trade Organization's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and various EU directives, but foreign investors complain about enforcement delays. Prosecution of piracy is lax.

Freedom From Corruption66.0 Back to the top

Corruption is perceived as present. Slovenia ranks 27th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The public views corruption as widespread. The government has established an independent commission for the prevention of corruption.

Labor Freedom42.8 Back to the top

Slovenia's rigid labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is relatively high, and the rigidity of hiring and firing a worker creates a disincentive for additional hiring. Regulations related to the number of work hours remain rigid.