Fiscal Council: Floods immense macroeconomic and fiscal shock

Ljubljana, 25 August - The floods that hit Slovenia in early August are a natural disaster whose proportions represent an immense macroeconomic and fiscal shock, the Fiscal Council said on Friday as it assessed the government's plans on financing the post-flood reconstruction and aid to flood victims.

Fiscal Council head Davorin Kračun.
Photo: Bor Slana/STA
File photo

The guardian of public finances says that the revised 2023 budget the government has adopted is the first step in financing the reconstruction with budgetary funds.

It thus expects the floods to have a much bigger impact on the budgets for 2024 and 2025, which the government will be finalising in the autumn.

The council says that the two coming budgets should already contain the assessment of damage and of effects of the planned government measures.

In the revised budget for 2023, EUR 520 million has been allocated to eliminate the consequences of the floods and help the victims.

Of this, EUR 200 million will come from reservations for emergency aid for natural disasters, and this rise in expenditure does not change the council's spring assessment of the government's fiscal policy and its compliance with fiscal rules.

The remaining EUR 300 million that will go for post-flood reconstruction has been repurposed from funds for potential recapitalisations of energy companies.

The council says the impact of this change on public finances, the general government's debt and on compliance with fiscal rules cannot be assessed yet.

The council says it has been regularly drawing attention to poor budgeting, to not assessing the impact of certain measures sufficiently, to systematic underestimation or overestimation of certain sources of revenue or expenditures, among others.

To ensure a greater degree of transparency, all this will be very important as the government engages in budgeting in the future, especially if it sets up a special fund outside the national budget to finance the post-flood reconstruction.

The council believes that, to ensure more stable and sustainable public finances, the floods should serve as an additional impetus to include risk analysis into medium-term budgeting to a greater degree, which is also a recommendation of international institutions.

Such an analysis would probably show that Slovenia should establish a special budgetary fund for natural disasters, given its small size, geographic features and a frequent occurrence of natural disasters.

The government should also enhance efforts to make the private sector more aware of the need to insure one's property to limit "moral hazard", as the country will probably not be able to count on as robust EU funds in the coming decades as it can now.

The council urges spending public money on emergency measures prudently and efficiently. It also calls for addressing in future budgets the challenges "that remained unaddressed before the natural disaster", as procrastination affects the sustainability of public finances in the medium term.

© STA, 2023