OECD Economic Surveys: Slovenia 2026

Permanently higher defence spending and ageing-related costs require reprioritisation of spending and further measures, including further restraining pension costs and a growth-friendly tax reform.

Population ageing and the need to sustain public investment pose difficult challenges for fiscal policy. In recent years, fiscal policy balanced the objectives of supporting economic activity and maintaining debt sustainability. Fiscal deficits need to be reduced to rebuild fiscal buffers and create space for permanently higher defence spending. Pension costs need to be further reduced, for example by fully indexing pensions on inflation.

Broadening the tax base and implementing a growth-friendly tax reform are essential to improve public finances. Tax exemptions associated with personal income taxation should be reduced and the VAT rates streamlined. Taxation of labour is high and should be reduced, financed by increased property and consumption taxation. Timely completion of the reforms and investments under the national Recovery and Resilience Plan (RRP) would help boost potential growth, while public sector wages will add fiscal cost of 0.7% of GDP annually to the fiscal outlook.

Challenges remain in the anti-corruption framework, for example regarding lobbying and whistleblower protection, and need to be addressed by fully implementing the anti-corruption strategy.

Slovenia’s highly open economy has weathered past shocks well, but it remains vulnerable to trade disruptions, including those associated with the Middle East conflict. Deepening trade integration and further reducing barriers to trade and capital flows would help reduce effective trade costs and create more resilient and diversified economy.

Slovenia’s high participation in global value chains makes it vulnerable to elevated geopolitical risks and growing protectionism. Reliance on foreign inputs is high, particularly in the automotive and chemical industries, well-integrated in global value chains. Still, the economy has been resilient amid recent external shocks, mainly due to its strong trade linkages to the EU.

Slovenia’s state commodity reserves system can be further improved. The Covid-19 pandemic raised interest in stockpiling for emergencies, but also made clear several weaknesses, such as generic descriptions of goods and problems with data collection regarding existing stocks. Increasing the involvement of the private sector in planning and managing commodity reserves could help improve the system. The strategic documents and the annual reports of the agency managing the reserves could be made public, at least partly and with a delay, if needed.

Effective trade costs in manufacturing and services could be further reduced. The cross-border shipping of goods continues to involve costs that could be further reduced. Moreover, Slovenia is restricting trade in services more than other OECD countries. Conditions for entry of persons providing services on a temporary basis are cumbersome and regulatory restrictions on FDI could be further reduced.

AI adoption is limited by skill shortages, regulatory uncertainty and data protection concerns (Figure 2). Boosting uptake requires targeted business support for compliance alongside structural reforms to strengthen adoption incentives. Systematically integrating AI skills in education and training, including skills necessary to use AI in the workplace, are essential, while easing non-EU work permits could help address skill shortages.

AI adoption is growing in knowledge-intensive services and industry, especially among larger firms integrated into global value chains such as the automotive sector. However, scaling AI adoption and training remains challenging, particularly for smaller firms operating in less competitive domestic markets.

Low workplace AI skills hinder adoption. Job-specific training is essential yet demand for adult training is low. Weak training incentives stem from compressed wages that weaken links between pay, productivity and skill demand. Public spending on training for employees and the unemployed is also below most EU countries. A more comprehensive, strategic approach to reskilling, prioritising workplace AI skills, would help address these challenges.

Attracting skilled foreign workers can ease skill shortages, but strict labour market test requirements for highly skilled non-EU workers limit access to working and residence permits. Easing permit rules by removing labour market tests could better attract foreign talent. At the same time, automatically granting work permits to non-EU graduates could help better retain foreign talent.

Low business investment reflects a bank-based financial system that poorly channels household savings into productive uses, signalling weak financial intermediation. Raising investment requires deeper capital markets, including broadening the retail and institutional investor base, advancing stock market listings of state-owned enterprises, regulatory alignment with European peers, and strengthening competition to attract domestic and foreign investment (Figure 3).

Competition in retail investment products is weak. Bank-based distribution limits access to products of competitors and keeps retail investors exposed to high fees. Strengthening competition requires empowering the Bank of Slovenia and the Securities Market Agency to ensure banks offer third-party products and prevent preferential treatment of proprietary funds.

Capital taxation favours property over capital market investment. Owner-occupied residential property benefits from lower marginal effective tax rates than on bonds or shares. Making capital taxation more neutral across assets, including through higher recurrent immovable property taxation, would help channel savings into capital markets.

Corporate interest is tax deductible, encouraging firms to favour debt over equity. Limiting interest deductibility would promote equity-based financing. Such tax reforms should be paired with measures to strengthen equity markets and private venture capital, such as enabling private investors to buy out government stakes in public venture funds.

Private pensions are underdeveloped, with high social security contribution rates discouraging long-term pension savings. From 2026, employers with over 10 staff must negotiate with social partners to implement second pillar pensions. The government also banned entry fees and capped annual management fees of pension fund providers in 2026. Reducing social security contribution rates in the context of a shift away from labour taxation, then introducing employer matching or auto-enrolment in occupational pension schemes could further boost pension savings. Increasing competition in the occupational pension market could help reduce fees and attract more long-term retirement savings.

Shallow capital markets also reflect the limited role of state-owned insurers as equity investors. Their conservative investment policies limit their exposure to capital markets and contribute to an underdeveloped local venture capital and private equity ecosystem. Moreover, the Ljubljana Stock Exchange is dominated by a few state-owned enterprises, limiting market depth, private financing, and foreign investment. Strengthening capital markets requires adjusting insurers’ investment policies and gradually extending stock-market listings of SOEs to allow for more free-floating shares on the stock exchange. Reassessing the extent of public ownership of insurers and advancing stock market listings to strengthen private-sector investment and market development would help to deepen capital markets.

Regional capital market integration remains limited due to regulatory differences, including tax number requirements and lengthy account-opening procedures for non-resident investors. Aligning financial regulations with European peers and strengthening cooperation among regulators would reduce fragmentation of capital markets, broaden the investor base and deepen market liquidity.

Regulatory impact assessment remains weak in practice, with limited use of rigorous economic impact assessments. Oversight of these assessments is fragmented across ministries and lacks quality control or enforcement. Centralising regulatory impact assessment oversight in a single authority with powers to ensure quality, review stakeholder input, and reject inadequate proposals would strengthen the regulatory framework and support investment.

Weak competition enforcement reduces deterrence. Few cartel and abuse of dominance infringement decisions and frequent reliance on out-of-court settlements reduce judicial scrutiny over potential infringements and may lead to lower fines. This weak enforcement record undermines incentives for firms to comply with competition rules. Stronger competition enforcement is needed to restore deterrence.

Investors continue to face high entry barriers in services, notably due to numerous regulated professions. Extensive occupational licensing requirements, lengthy mandatory training, compulsory chamber membership, and restrictive concessions limit competition. Reducing the number of regulated professions towards OECD best practice, notably in legal and engineering services, would lower entry barriers, strengthen competition, and encourage investment in service sectors.