Slovenia will only be able to issue new bonds and service its debt in 2013 if it enforces reforms, including raising the retirement age, by the end of this year, Prime Minister Janez Jansa told parliament on Monday.
He said the country - which has so far avoided joining other vulnerable euro zone economies in seeking a bailout - would need to take on new debt of 1 billion euros ($1.30 billion) per year in 2013 and 2014 just to finance the budget deficit.
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"It is crucial for Slovenia that reforms are enforced by the end of this year ... to ensure normal repayment of our debts and normal functioning of the public finances," Jansa told parliament when presenting draft budgets for 2013 and 2014.
Jansa's conservative government plans to cut the budget gap to below 3 percent of gross domestic product (GDP) in 2013 from some 4.2 percent this year and reduce it further in 2014 by cutting public sector spending and increasing taxes, including on banks, the media, students and communal services.
Last week Slovenia raised $2.25 billion through a 10-year bond at a yield of 5.7 percent, which analysts said would enable the country to avoid an international bailout for about six months.
But Jansa said Slovenia would not be able to issue more bonds next year unless it adopted the pension reform, made it easier to hire and fire employees, resolved the issue of bad loans in state banks, improved the management of state-owned firms and sped up privatization.
Slovenian banks, mostly state-owned, nurse some 6.5 billion euros of bad loans, which amounts to about 18 percent of GDP.
The government plans to form a new state company that will take over bad loans of state banks in exchange for state-guaranteed bonds and ease the country's credit crunch.
It is also determined to form a new state holding that will manage all state assets and speed up privatization. However, trade unions are threatening to enforce referendums on both laws which would delay or prevent their enforcement.
The government still hopes to reach an agreement with trade unions to avert referendums.
Last year similar pension and labor reforms were rejected at referendums demanded by trade and students' unions. The previous centre-left government fell and a snap election brought to power Jansa's conservative government.
Slovenia was badly hit by the global crisis due to its dependency on exports. After a mild recovery in 2010 and 2011 it is now struggling with a new recession because of lower export demand and a fall in domestic spending amid budget cuts.
($1 = 0.7674 euros)
(Reporting by Marja Novak; editing by Zoran Radosavljevic and Ruth Pitchford)