development report 2012 - UMAR

24 Development Report 2012
Development by the priorities of SDS – A competitive economy and faster economic growth
Box 3: Net international investment position as a percentage of GDP (external imbalance indicator in the
excessive imbalance procedure at EU level)
The net financial position or the situation in international investments is an indicator that facilitates analysis of
balance-of-payment flows and situations, and serves as a dynamic insight in several factors behind macroeconomic
(external) imbalances. The net financial position shows the situation in the total balance of claims and liabilities that
the domestic economy has towards foreign countries at the end of each year, using a structure which is equal to the
structure of the balance-of-payments financial account. Apart from debt instruments, which are included in the gross
external claims and the gross external debt (the difference between the two shows the country’s net external debt), the
net financial position also includes claims and liabilities relating to ownership relations. For this reason, this constitutes
a more adequate criterion for detecting external imbalances such as net external debt. A net international debt position
may deteriorate due to major current account deficits and/or changes in values which, along with the ever increasing
integration of countries into international capital flows, are becoming very important factors in the net international
financial position.
The indicative threshold, which alerts to a potential imbalance in the economy at issue when breached, was set by
the Commission at -35% of GDP. Slovenia slightly exceeded this value during the period 2009–2010. This threshold has
been significantly breached above all by the countries that stand at the forefront of the debt crisis, reaching between
-90% to -110% of GDP (Portugal, Ireland, Greece and Spain).
Table: Net international investment position of Slovenia, as a percentage of GDP
2000 2004 2005 2006 2007 2008 2009 2010
1 Debt claims 40.4 59.6 68.1 66.6 82.3 78.1 83.4 83.9
2 Equity claims 1.0 6.1 9.7 14.3 17.9 12.8 15.3 15.5
3 Total claims (1+2) 41.4 65.7 77.8 80.9 100.2 90.9 98.6 99.4
4 Gross external debt 44.1 56.4 71.3 77.5 100.6 105.2 114.1 114.9
5 Equity liabilities 9.2 17.1 17.5 20.5 20.9 19.4 20.4 20.2
Total liabilities (4+5) 53.3 73.5 88.8 98.0 121.5 124.7 134.5 135.2
7 Net external debt/claims (1–4) -3.7 3.2 -3.2 -10.9 -18.4 -27.1 -30.8 -31.1
Net equity debt/claims (2–5) -8.1 -11.0 -7.8 -6.2 -3.0 -6.6 -5.1 -4.7
9 Net financial position (7+8)* -11.8 -7.8 -11.0 -17.1 -21.3 -33.8 -35.8 -35.7
Source: BS, own calculation. Note:*-negative (positive) sign in the balance concerned indicates a net debtor's (creditor's) financial position.
During the period 2000–2010, with the exception of 2002, Slovenia had a net international debt position which
considerably deteriorated in 2008 (by EUR 5.2 billion or 12.5 percentage points). During the period 2000–2010, its net
financial position exceeded the net external debt by EUR 2.1 billion on average. The above difference appeared in the
segment of equity claims and liabilities, mostly on account of net capital inflows within the context of foreign direct
investments in Slovenia. The share of gross external debt or non-equity liabilities during the reference period constituted
approximately four fifths of the total foreign liabilities, whereas the remaining fifth consisted of equity liabilities (equity
capital and reinvested profits from foreign direct investment to Slovenia, and investments in equity securities).
Given the high rate of private sector foreign borrowing during the pre-crisis period, the strong deterioration in the
net financial position in 2008 also occurred as a result of losses incurred in property values by Slovenian investors
abroad. On the liability side, the deterioration in the net financial position in the aforesaid period was mainly due to
borrowing by domestic business banks. Otherwise, the majority of foreign borrowing consisted of loans, cash and
the savings of non-residents. Since the onset of the crisis, liabilities towards foreign parties grew slower than in boom
times, as a result of which the growth of the gross external debt particularly slowed down. Despite increased state
borrowing abroad, this was mainly a result of the private sector’s reduction of debt. Up to and including 2007, the
claims side’s growth consisted mainly of investments made by the private sector abroad (equity portfolio investments
and outgoing foreign direct investments). Particularly visible growth occurred after 2005 when restrictions on investing
in foreign securities were abolished; as a result, this gave rise to increased investments by mutual funds, the insurance
sector and the public. The introduction of the euro and the liquidity release of matured Bank of Slovenia bills strongly
increased the volume of investments made by Slovenian banks in euro-area bonds. In 2008, due to the financial crisis,
Slovenian companies and households lost a significant part of the value of their property in the form of equity portfolio
investments. That same year, this had a strong effect on Slovenia’s net international investment position, also partly on
account of the fact that the contribution of losses by foreign investors in Slovenian securities was relatively smaller.
Over the past two years, Slovenia’s net financial position has been maintained at approximately the same level, which
is mainly the result of its over-indebtedness and the private sector’s limited access to foreign sources of financing on
the international financial markets.