He said the government was "dead serious" about long-delayed sale of state assets and yields on sovereign bonds should fall by the first quarter of next year, when Slovenia plans to tap markets again, making borrowing cheaper.

Slovenia's finances are under pressure from bad debts accumulated by state-owned banks and worth about 20 percent of the small euro zone economy's output, raising fears it might have to follow Cyprus in seeking aid.

"Important steps have been made, which should influence the financial markets," Virant, who is also Slovenia's interior minister and is in charge of public administration, said in an interview.

In May the government and trade unions agreed that all public sector wages will be cut by up to 5 percent from June.

The government also intends to prune public sector jobs by 1 percent each year from 2013, after a steady rise over much of the past two decades that has taken state payrolls to 158,000, almost eight percent of the total population of two million.

Last month parliament enforced a fiscal rule which will oblige governments to run balanced budgets from 2015 and also clamped down on referendums which have often been used to block economic change, preventing future public votes on budget, tax and human rights issues.

"Slovenia will avoid a bailout," said Virant.

Prime Minister Alenka Bratusek's two-month-old government also intends to crack down on businesses that evade tax and regulation, which Virant said accounted for up to 50 percent of gross domestic product (GDP).

However, central bank Governor Marko Kranjec said on Tuesday he could not exclude the possibility that the country might need international help for its banks.

Most bad loans will be transferred to a newly established bad bank from June, enabling bank privatisation.

Slovenia bought some time in May when it issued two bonds in the joint value of $3.5 billion with the yield on a 10-year issue at 6 percent.

Since then the yield on its 10-year benchmark bond has risen to reach 6.17 percent on Tuesday, according to Reuters data.

The government plans to start selling 15 state firms from September, among them the second largest bank Nova KBM (>> Nova Kreditna Banka Maribor d.d.), telecoms operator Telekom Slovenia (>> Telekom Slovenije d.d.), Ljubljana airport and flag carrier Adria Airways.

(Reporting by Marja Novak; Editing by Zoran Radosavljevic and Ruth Pitchford)

By Marja Novak