As a new member of the European Union, Slovenia made several legislation changes during the accession process and as a small country could benefit a great deal from thelarge EU single market. Despite so many changes almost none were at the local level.Local government in Slovenia has to deal with a high level of centralization of public finance. Local expenditure represents only about 11% of total public expenditure in Slovenia. Local budgets therefore depend heavily on state transfers and financial equalization. A further issue that should be mentioned is that municipalities are very small and even decentralization would not help these micro-local governments to raise enough funds for delegated services. The lack of staff and funds would probably remain even if some steps towards decentralization were taken. In practical terms, local governments in Slovenia could not raise their own resources. They could introduce specific charges, but all taxes are determined by state. According to law, until 2005 local governments could borrow funds from different financial institutions while local debt should not exceed 10% of local revenues. Before borrowing, local governments need approval from the Ministry of Finance.
The main objective of this paper is to present financial centralization in Slovenia, and to analyze local borrowing and debt repayment. The main constraints on managing local debt are also presented. The ratio of local expenditure to total public expenditure and the ratio of local revenues to total public revenues are used to describe the level of fiscal decentralization. The results showed that both ratios are among the lowest in the European Union and far below the Europe average.