I. GENERAL PROFILE
Area: 20,252 sq km
Population: 1.928 mln (2000)
Population Density: 98.1 per sq km
Capital: Ljubljana

GDP (2000): 19,837 (mln of 1995$)
GDP (2000) per capita: 10,291(1995$)
2000 GDP growth: 4.6%
Budget deficit as % of GDP: 0.96%
CP Index Change (2000): 9.8%
Foreign debt: $ 6.22 bln

Government: Republic since 1991. Gained independence from Yugoslavia in 1992. Head of State: President Milan Kucan since 1990. Head of Government: Prime Minister Janez Drnovsek.

Religion: 90 per cent Roman Catholic, 3 per cent Eastern Orthodox, with Muslim and Jewish minorities.

This compact and strategically-located country is dominated by mountains, rivers and major north-south and east-west transit routes. Slovenia is bordered by Italy to the west, Austria to the north, Hungary to the northeast and Croatia to the southeast. The country has a 47km (30-mile) Adriatic Sea coastline, where the main port is Koper.

Before the disintegration that began in 1991, Slovenia was the richest and most industrialised republic of Yugoslavia. With few natural resources, Slovenia was affected seriously by the civil war and the collapse of the Yugoslav federal market. However, careful economic management enabled a quick recovery, which has since continued. Successive governments have moved cautiously to reform the economy, introducing market-orientated reforms gradually and effectively. With most of the economy now in private hands, a fully convertible currency and a generally healthy economic performance, Slovenia is in the "first wave" of countries seeking to join the European Union. Membership is likely to be attained around 2003/2004. Slovenia has joined the IMF, World Bank and the European Bank for Reconstruction and Development. It currently enjoys an association agreement with the EU. It became a full member of the World Trade Organisation in July 1995. Germany, Italy, France and Austria are particularly important trade partners; outside the EU, Croatia is most valuable to Slovenian trade.

II. DEFENCE BUDGETS - OVERVIEW (1999-2001)

Here we present a short summarised overview of the general trends, major year-to-year changes and proportion shifts in the Slovenian defence budgets for the 1999-2001 time period. The analysis is based on the official data from the last three fiscal year defence budgets.

Defence/GDP proportions. As Chart 1 shows, in 2001 Slovenia is going to spend 1.6% of its GDP on defence compared to approximately 1.24% in 2000 and 1.36% in 1999. Slovenian defence costs/GDP proportion shifts do not necessary follow the year-to-year changes of the real Gross Domestic Product. The 4.6% GDP growth in 2000 has not resulted in a corresponding increase of the defence budget, and even a slight downward shift of the Defence/GDP proportion has been observed. The 2001 rise of the defence expenditures up to 1.6% of the GDP makes amends for the higher domestic priorities in the previous year.

Total defence expenditures. The total defence expenditure in FY 1999 amounted to USD 275 million (Table1), which is the highest level of defence costs (calculated in USD) reached for the observed period (although in FY 2001 theallocation was not far below the 1999 level). The table shows that, expressed in local currency, appropriations conformed to the same pattern (The dollar values are depicted in Chart 2.)



Operating costs. The operating costs hold the biggest share of the military budget as usual, varying between 74% and 86% of the total defence expenditures. They have shifted from USD 217 million in 1999 to USD 197 million in 2001. They are divided in two categories, of which the personnel costs have an outstanding predominance over the operation and maintenance costs. However, a restructuring tendency in the operating costs is taking place: the personnel costs show a 9% decline, while the operation and maintenance costs rose by 27.5% over the three-year period.
Procurement and construction costs. The procurement and construction costs have more significant fluctuations. Having in mind the extreme changes of their rates -- expressed by a decrease of 88% in 2000 being followed by an increase of 128% in 2001--, a confident projection about any future trends could hardly be made if relying on these data only.
Research and development costs. The funds allocated for research and development in the Slovenian military budgets are very small in comparison with the other budget divisions. They hardly exceed 1% of the total military expenditure through all the years. In 2001 their amount approaches USD 200,000, which represents a 69% increase over 2000, but is still only a tiny piece of the total expenditure.
Chart 3 illustrates these facts and trends.



Defence forces costs. Analysing costs another way, we can show a division among three basic groups (in the case of Slovenia):

• Military forces
  
• Support administration
  
• Command
  

The figures are in Table 2 below and depicted in the two parts and Chart 3(absolute values and percentage shares of the yearly totals).
For budgetary purposes the Slovenian military forces are not divided into land forces, naval forces and air forces, which is in contradiction to the traditional approach in most countries.



Slovenian military forces receive their finances from two resource funds. The basic funds located at the Ministry of Defence provide the main part of the financing while the Ministry of Finance, which allocates target funds for defence investment programs, represents a second source.




III. ESTIMATED TRENDS OF DEFENCE EXPENDITURE 2001-2005

Defence/GDP proportion. The Slovenian Ministry of Defence estimates a 10 % increase of the Defence/GDP proportion for the year 2002, which is obviously the second stage of a five-years plan for upward shifting of defence expenditure volume till 2005. The total defence costs are expected to stabilize their share at about 2% of GDP (See Chart 4). The intention of the government to set defence budget at the "2% level" seems to be directed to the achievement of a better national defence maintenance, and to creating budgetary headroom for investment (see Table 3, third line.)

Development of the defence budget. The estimations of the Slovenian Ministry of Defence clearly show a tendency of gradual reform, involving step-by-step modernization of the army and the whole national defence, as a …. of which the budget - share for the investments is expected to increase, while that for operating costs will be diminished