Slovak Republic: Staff Report for the 2015 Article IV Consultation
Author:
International Monetary Fund. European Dept.
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Publication Date:
14 Jan 2016
eISBN:
9781513588780
Language:
English
Keywords:
ISCR; CR; energy company Enel; energy company; ente nazionale per l'energia elettrica; EU capital markets union; output gap; job creation; capital formation; private sector; Europe
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This 2015 Article IV Consultation highlights that Slovakia remains among Europe's stronger economies, with growth continuing to pick up in 2015, driven by strong domestic demand. A push to spend expiring European Union funds has underpinned rising investment while job creation and real wage growth have supported private consumption. Unemployment has fallen significantly since 2013, but is still about 11 percent overall, and is much higher for the long-term unemployed, youth, and women. The outlook is favorable with growth of 3-3.5 percent expected through the medium-term, reflecting sustained domestic demand as well as further contributions from the important export sector as substantial additional foreign auto sector investment is planned.

Abstract

This 2015 Article IV Consultation highlights that Slovakia remains among Europe's stronger economies, with growth continuing to pick up in 2015, driven by strong domestic demand. A push to spend expiring European Union funds has underpinned rising investment while job creation and real wage growth have supported private consumption. Unemployment has fallen significantly since 2013, but is still about 11 percent overall, and is much higher for the long-term unemployed, youth, and women. The outlook is favorable with growth of 3-3.5 percent expected through the medium-term, reflecting sustained domestic demand as well as further contributions from the important export sector as substantial additional foreign auto sector investment is planned.

Recent Developments and Outlook

A. Solid Domestic Demand-Driven Growth

1. Growth is strengthening, driven by domestic demand (Figure 1 and Table 1). A dynamic export sector made Slovakia one of the fastest growing economies in Europe after the crisis, and domestic demand has now picked up. A concerted push to spend expiring EU funds has boosted public investment, while accommodative ECB policies and improving lending conditions have supported a recovery in private investment. Job creation and real wage growth have fueled private consumption. Export growth remains strong, but imports have risen even faster.

Figure 1.
Figure 1.

Slovak Republic: Main Economic Developments

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat; Haver Analytics; and IMF staff calculations.
Table 1.

Slovak Republic: Summary of Economic Indicators, 2012–20

article image
Sources: National Authorities and IMF staff calculations.

Average of interest rates on new housing loans to households and loans of less than EUR 1 million to nonfinancial corporations (all maturities).

Average of interest rates on new deposits with agreed maturity (up to 1 year) from households and nonfinancial corporations.

A01ufig1

Real Output Growth

(in percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: Haver.1/ CE3 comprises the Czech Republic, Hungary and Poland.

2. The labor market is on the mend (Figure 2). Job creation has accelerated and unemployment has fallen, but regional disparities remain large, and skills shortages are starting to put pressure on wages. Youth and long-term unemployment, albeit declining, remain high, and women’s labor force participation continues to be low.

Figure 2.
Figure 2.

Slovak Republic: Labor Market Developments

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat; OECD; and IMF staff calculations.1/ CE3 comprises the Czech Republic, Hungary, and Poland.
A01ufig2

Labor Shortage Indicator

(Balance of firms indicating labor shortage as a factor limiting production; in percent)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: Haver.

3. Inflation remains weak. Headline inflation has been marginally negative, reflecting weak food prices and declining administered energy prices, while core inflation has hovered just below 0.5 percent. Inflation expectations, however, remain well-anchored, and prices are forecast to rise as the output gap closes. Risks from deflation remain low due to robust wage growth and limited leverage.

4. The 2015 fiscal target is likely to be missed by a small amount (Figure 3, Tables 2–3). Solid GDP growth and tax administration improvements have boosted revenue, and interest costs remain low amidst ECB quantitative easing (QE). Nonetheless, the budget deficit is likely to overshoot the 2015 target (2.5 percent of GDP) by a small amount (0.2 percent of GDP) owing to spending overruns for wages, intermediate consumption, and healthcare, as well as sizeable EU funds corrections. With the sale of state shares in Slovak Telekom in May (about 1 percent of GDP), government debt is expected to decline to around 53 percent of GDP, keeping it just below strict Fiscal Responsibility Act (FRA) debt brakes. Amid favorable market conditions, the authorities have further lengthened the maturity of public debt, although the share of non-resident holdings remains relatively high (Annex III).

Figure 3.
Figure 3.

Slovak Republic: Fiscal Developments

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Bloomberg; Eurostat; National Authorities; and IMF staff calculations.
Table 2A.

Slovak Republic: Statement of Operations of the General Government, 2012–20

(In millions of euros)

article image
Sources: National Authorities; Eurostat; and IMF staff estimates and projections.
Table 2B.

Slovak Republic: Statement of Operations of the General Government, 2012–20

(In percent of GDP)

article image
Sources: National Authorities; Eurostat; and IMF staff estimates and projections.
Table 3.

Slovak Republic: General Government Balance Sheet, 2009–14

article image
Source: Eurostat.

5. The external position is broadly in line with fundamentals (Figures 4–6, Table 4, Box 1, and Annex IV). With solid export performance, Slovakia’s market shares have continued to rise, but buoyant domestic demand has boosted imports. The narrowing of the trade surplus has moved the current account into a small deficit. External debt, which rose in recent years partly due to increases in non-resident holdings of government debt, has stabilized. Overall, the real exchange rate is assessed to be broadly in line with fundamentals.

Figure 4.
Figure 4.

Slovak Republic: External Developments

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat; Haver; and IMF staff estimates.
Figure 5.
Figure 5.

Slovak Republic: Competitiveness Indicators

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat; Haver; World Economic Forum; IMF DOTS; IMF WEO; and IMF staff calculations.
Figure 6.
Figure 6.

Slovak Republic: Structural Indicators 1/

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: OECD.1/ Performance is measured on a scale of 0 to 6 with lower values considered better in terms of the business environment.
Table 4.

Slovak Republic: Medium-term Balance of Payments, 2012–20

article image
Sources: National Bank of Slovakia and IMF staff estimates and projections.

6. Household credit growth remains brisk despite macroprudential measures (Figure 7 and Table 5). Recent macroprudential recommendations by the National Bank of Slovakia (NBS) have not slowed household credit growth, which is expanding by about 12 percent year-on-year, although household debt remains low compared to peers. Corporate loans have picked up as lending standards and interest rates have eased. Non-performing loans (NPLs) have increased in line with total loan growth, leaving the low NPL ratio roughly stable; impaired assets are well-provisioned on average. Bank profitability and capital buffers remain sound.

Figure 7.
Figure 7.

Slovak Republic: Monetary and Banking Developments

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: EBA; Haver; National Bank of Slovakia; Global Financial Stability Report; SNL; and IMF staff calculations.1/ Values are weighted by total assets of banks within each country.2/ Average of deposit interest rates in Italy, Portugal and Spain.3/ Net income after taxes on average assets.
Table 5.

Slovak Republic: Financial Soundness Indicators for the Banking Sector, 2010–15

(Percent, unless otherwise indicated)

article image
Sources: National Bank of Slovakia; Haver; IMF FSI Database; and IMF staff estimates.

7. The recent migration crisis has had limited impact on Slovakia. Relatively few refugees have passed through or stayed in the country, perhaps reflecting low per-capita income and benefits compared to other EU destinations. Nonetheless, the authorities have objected strongly to the EU quota system, which would place around 1,000 migrants in the country. Slovakia has allocated resources to help secure the EU’s external border and provide aid to refugees abroad.

B. Outlook and Risks

8. Growth is expected to gather momentum, driven by new automotive investment. Growth should accelerate from 3.4 percent this year to 3.6 percent in 2016 (closing the output gap), and will be a little more than 3 percent over the longer term, generally in line with potential growth. Despite lower public investment as EU funds drawings return to more normal levels, accommodative monetary and credit conditions, weaker oil prices, and tightening capacity utilization should support private investment. In addition, a fourth carmaker (Jaguar Land Rover) plans to invest almost 2 percent of GDP over 2016–17 in a new plant that would raise car production by one-third, boosting net exports from 2018. Finally, improving labor market conditions and real wage growth are likely to foster private consumption.

9. A number of buffers help counter vulnerabilities, primarily to external shocks (Risk Assessment Matrix, Annex I). A sound and liquid banking sector, low private sector leverage, and limited public debt bolster resilience to shocks. If, however, growth were to falter among key trading partners such as Germany—whether due to weakness in the euro area itself, a slowdown in China or other emerging market economies, or tensions in Russia and Ukraine—Slovakia’s important export sector would be affected, lowering growth and leading to an increase in the public debt ratio. On the domestic side, rapid household credit growth could lead to financial sector risks, while high long-term unemployment could erode human capital, undermine growth, and exacerbate demographic challenges. The consequences of Volkswagen’s emissions scandal remain uncertain but they represent an important downside risk given substantial operations in Slovakia (Box 2).

External Assessment

Slovakia’s real exchange rate appears broadly in line with fundamentals. The EBA-Lite current account model suggests a marginal undervaluation of the real effective exchange rate (REER) (4 percent). In contrast, the EBA-Lite REER model seems a poor fit for Slovakia—the panel estimations on which it is based do not capture the dynamics of a catching-up economy—and points to a large overvaluation (about 30 percent) despite solid trade surpluses and growing export market shares. More tailored REER analysis using a panel of peer transition economies confirms limited undervaluation (7 percent).

A01ufig3

Current Account

(in percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF staff.

Analysis suggests Slovakia’s policies are generally appropriate. The small policy gap from the EBA-Lite model (0.7 percent) indicates that Slovakia’s fiscal, external and financial policies are close to equilibrium, but the model estimates a current account norm of negative 2.5 percent of GDP. The actual current account is broadly in balance, but the large negative errors and omissions, possibly reflecting an overstatement of export prices, may blur the real picture. While the norm might be consistent with Slovakia still catching up with more advanced economies, a current account deficit would imply growing stress on the country’s net international investment and debt positions, and hence on its external financing requirements—a risk flagged in the public sector debt sustainability analysis.

article image

Capital and financial account. The downward trend in FDI inflows is estimated to have bottomed out in 2015, with a recovery projected in 2016–17, reflecting the planned investment of a fourth car maker. After a period of exceptionally large inflows, portfolio investment declined in 2014–15, partly due to lower net borrowing from abroad by the government. Net flows are projected to gradually converge to balance.

Foreign asset and liability position. External debt is forecast to reach 93 percent of GDP in 2015, while the net international investment position would stabilize at negative 70 percent. External vulnerabilities are mitigated by the long maturities of external debt and the large share of FDI among liabilities. Small current account surpluses are nonetheless appropriate in the medium term given the negative net international investment position.

A01ufig4

External Debt

(quarterly data; in percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat; NBS; and IMF staff calculations.
A01ufig5

Net International Investment Position

(quarterly data; in percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Slovakia’s Automotive Sector and Trade Profile

The automotive sector plays a crucial role in Slovakia’s economy. The automotive sector grew out of large FDI inflows, attracted by competitive labor costs and a strategic location in the EU and at the heart of Europe. The adoption of the euro in 2009 reduced exchange rate risk, thus providing an additional incentive. The automotive industry accounts for 43 percent of Slovakia’s total industrial production, and world market shares for Slovak vehicles have grown in recent years. The three car producers (Volkswagen, PSA Peugeot-Citroën, and Kia) employ 80,000 workers; taking into account suppliers boosts auto industry employment to 200,000 (about 9 percent of total employment). In 2014, car production was just under 1 million vehicles, making Slovakia the world’s largest per capita car producer. Volkswagen accounts for about 40 percent of automobile production, while PSA Peugeot-Citroën and Kia have a share of 30 percent each. The core automotive industry generates 17 percent of Slovakia’s gross value added, while suppliers account for an additional 22 percent, suggesting potentially significant spillovers within the economy.

A01ufig6

Car Production

(per thousand people)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Oica; WDI; and IMF staff calculation
A01ufig7

Car Exports: Top 10 Partners

(yearly data; in percent of total car exports)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: ITC and IMF staff calculation

Slovakia’s trade is concentrated among relatively few countries. Five countries account for about 50 percent of total nominal exports: Germany (22 percent), Czech Republic (13 percent), Poland (8 percent), Austria and Hungary (6 percent each). Similar concentration can be observed on the import side with Germany ranking first (15 percent), followed by the Czech Republic (10 percent), and China (8 percent). If only the car industry is considered, almost all exports are shipped to Europe, with some re-routed to Asia and other markets via Germany. However, as an example, Slovakia’s share of domestic value added consumed by China remains relatively low (around 2 percent).

Participation in global value chains (GVCs) has fostered convergence, but it also poses risks. Specialization in more downstream stages of GVCs and in a few specific industries makes Slovakia vulnerable to global market conditions.1/ For instance, it is estimated that a 10 percent fall in car exports would shave 0.3–0.7 percentage points from GDP growth. Strong cost competition from neighboring countries adds to the challenges. To reduce risks, Slovakia might try to move up GVCs while also seeking gradually to diversify its production and trade partners, including by encouraging FDI from other countries and in other sectors. To this end, improving the business environment, fostering R&D through greater development of clusters, and upgrading skills and physical infrastructure are essential, while improving labor market efficiency (both in terms of flexibility and mobility) would help the economy adjust more rapidly to external shocks.

A01ufig8
1/ Bubble size is proportional to export value in US dollars (thousands).
1/ Additional background can be found in: “German-Central European Supply Chain-Cluster Report,” IMF Country Report No. 13/263, August 2013.

There are as yet no signs of broad changes in economic policy direction ahead of March 2016 parliamentary elections, although relatively modest “social packages” of spending and tax measures have been introduced.

Authorities’ views

10. The authorities broadly agreed on the outlook and risks. They expect similarly solid growth through the medium term, but treat the Jaguar Land Rover investment as a further upside risk in their autumn forecasts, and foresee a somewhat faster decline in unemployment. They agree on the real exchange rate being in line with fundamentals. Direct spillovers from a slowdown in China or other emerging markets would likely be small, but indirect effects via major trading partners could be more sizeable. While acknowledging risks associated with the Volkswagen emissions scandal, high productivity at the company’s relatively new Slovak plants is viewed as an important mitigating factor. The NBS stands ready to tighten macroprudential policies if needed (see below). The authorities viewed the EU quota system as unworkable given migrants’ strong desire to reach wealthier destination countries, but have provided temporary housing to migrants awaiting asylum processing in Austria.

Promoting Broad-Based and Job-Rich Growth

Growth is strengthening and labor market conditions are improving. Nonetheless, high unemployment, especially long-term and among youth and women, as well as sharp regional differences remain key challenges. Spurring job-rich growth in lagging regions while addressing labor market exclusion and long-term demographic challenges calls for a comprehensive approach focused on accelerating infrastructure investment, lowering the tax wedge, orienting education toward workforce requirements, strengthening active labor market policies (ALMPs), and improving the business climate.

11. Strong exports have powered Slovakia’s economy, but left some regions behind. Despite Slovakia’s rapid economic convergence, regional disparities in terms of income and employment remain among the largest in the EU. Jobs are mostly created in the wealthiest regions, especially in or near Bratislava, where unemployment is low. Poor infrastructure discourages investment and job creation in less dynamic areas, and regional disparities are aggravated by low labor mobility, owing in part to high home-ownership and underdeveloped rental markets.

A01ufig9

Per Capita Income

(in purchasing power standard, in percent of EU average)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: Regional Statistical Office.
A01ufig10

Beveridge Curve by Region (2008–2014)

(in percent)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

12. The labor market is recovering, but subsets of the labor force face particular challenges, thereby depressing potential growth. About two-thirds of jobless are long-term unemployed, with a large share concentrated in eastern and southern regions. Youth unemployment, albeit declining, remains near 25 percent (Box 3). Slovakia compares unfavorably with European peers in terms of women’s labor force participation and the gender pay gap. In addition, a disproportionate share of the Roma community is unemployed or inactive. Persistent unemployment and inactivity erodes skills and lowers participation, compounding adverse demographics and holding back potential growth.

A01ufig11

Working Age Population

(in percent of total population)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: OECD.

13. Spurring job-rich growth in lagging regions while addressing longer-term labor market and demographic challenges calls for a comprehensive approach:

  • Enhancing transportation infrastructure and strengthening the business climate (e.g., improvements to the legal and procurement systems to address governance weaknesses) could encourage investment in weaker regions, and together with reforms to promote rental housing (e.g., phasing out support for home ownership, expanding means-tested rental housing allowances, and easing regulations that discourage property owners from renting), could promote labor mobility.

Tackling High Youth Unemployment in Slovakia

Youth unemployment remains a key concern amidst improving labor market conditions. Even though overall unemployment is falling toward the EU average, more than two-thirds of the young population remains excluded from the job market, with the share of young people not in education, employment, or training high relative to EU peers. This suggests that for the young, skill mismatches and a poor school-to-work transition may exacerbate broader labor market challenges (e.g., a high tax wedge), and not getting off to a good career start can have a lasting impact on individuals (e.g., diminished skills and attachment to the workforce) and potential growth of the economy.

A01ufig12

Young People Not in Education, Employment or Training

(in percent of total young population)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: OECD.

Economic disincentives help explain high youth unemployment in Slovakia. While growth has a powerful effect—indeed, youth unemployment in Slovakia has clearly fallen as growth has picked up in recent years—panel-based and country-specific analysis also highlight the labor tax wedge, which has increased over the past ten years, as an important factor contributing to youth unemployment in Slovakia. The gross replacement rate (GRR) also stands out and may reflect similar effects to the extent that high social contributions push up the GRR.1/ These results reinforce the general arguments for reducing the relatively high tax wedge for low-income and low-skill workers.2/

A01ufig13

Marginal Effect of Labor Market Characteristics on Youth Unemployment Level

(coefficient value, percentage points) 1/

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: Eurostat and IMF staff estimates.Results based on country-specific regressions.1/ Boxplots include the m ean (black dot), the 25th and 75th percentiles (grey box, with the change of shade indicating the median), and the maximum and minimum (whiskers;). The separate markers show the results for Slovakia (red dot = significant) and (red, empty dot = insignificant). Results for employment protection of temporary workers; total ALMP expenditure per unemployed; and ALMP spending on training, per unemployed were excluded for presentational clarity.

Better education and training initiatives should help address specific challenges faced by new workforce entrants. Legislation has sought to improve exchanges between schools and employers, including to tailor curriculums and vocational training to business needs, and importantly, a dual system for vocational education and practical training was launched in September 2015. EU-funded schemes have also helped create temporarily subsidized jobs for 700 young job-seekers (slightly more than 1.2 percent of total youth unemployment).

1/ See also Banerji, Angana, Sergejs Saksonovs, Huidan Lin, and Rodolphe Blavy, 2014, “Youth Unemployment in Advanced Economies in Europe: Searching for Solutions,” IMF Staff Discussion Note No. 14/11, December (https://www.imf.org/external/pubs/ft/sdn/2014/sdn1411.pdf). 2/ European Commission, 2015, “Study on the Effects and Incidence of Labour Taxation,” Taxation Papers, WP No. 56 (http://ec.europa.eu/taxation_customs/common/publications/services_papers/working_papers/index_en.htm).

  • Lowering the labor tax wedge, especially for low-wage or part-time workers, would foster labor force participation and help reduce disincentives to hiring. In this spirit, the reduction in the health contribution allowance to offset the impact of the minimum wage increase in early 2015 was welcome.

  • Strengthening education and training would allay skill shortages, which are becoming more binding. Effective implementation of the recently launched dual vocational education system is essential to help meet labor market needs. Efforts to improve elementary and secondary education, especially for marginalized populations such as Roma where integration needs are substantial, should also be a high priority.

  • Comparatively low levels of active labor market policy (ALMP) spending should be raised and sustained, and the planned evaluation of the various ALMPs should be completed to help maximize effectiveness.

  • Additional and more affordable childcare could improve female labor force participation.

A01ufig14

Tax Wedge

(in percent of labor cost)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: OECD.

Authorities’ views

14. The authorities agreed that regional disparities, skill mismatches, and especially high long-term unemployment, which can erode skills and undermine potential growth, are key challenges. The government is taking or considering action in a number of areas:

  • Infrastructure and regional disparities. Stepped-up use of EU Funds is helping improve infrastructure and some incentives are being offered for investment in weaker regions. Initiatives to promote growth of the very limited rental housing market may be considered in the context of a third social package.

  • Education and training. Financial incentives are being used to align better education and training with labor market needs; the recently launched dual system for vocational education will be scaled up in future years, and new curricula more relevant for potential jobs are being prepared; and temporary subsidies are being provided for jobs for unemployed young people. Efforts are also being made to support integration of marginalized communities.

  • Public Employment Service (PES) and ALMPs. The government is committed to reform the PES and improve ALMP effectiveness. Steps have been taken to realize synergies through centralization of PES activities and reallocation of employees toward high need areas to strengthen the quality and efficiency of services. Reforms are to be implemented by 2020.

  • Labor taxes. In November 2013, the government introduced a twelve month exemption from social security contributions for long-term unemployed returning to work. In January 2015, a reduction in health contributions for low-paid workers was adopted, which helped offset the impact of an increase in the minimum wage. The authorities felt both measures have supported the recent labor market upswing.

  • Female labor force participation. Kindergarten capacity is being expanded and the childcare allowance has been increased modestly.

The authorities, however, cautioned that cultural and other non-economic factors meant near-term progress was likely to be limited in areas such as labor mobility, female labor force participation, and integration of marginalized groups.

15. The government outlined a broad strategy to improve the business climate. Initiatives are underway to assist development of start-ups, including a streamlined process for registration of public companies. Steps have been taken to strengthen contract enforcement through establishment of electronic registries of insolvent entities and disqualified persons. Use of an electronic marketplace for selected public procurements is now mandatory, as is disclosure of beneficial owners for companies interested in public procurement. A number of amendments have been passed to speed up the judicial process and promote court specialization.

Ensuring High Quality Fiscal Consolidation

After a substantial narrowing of fiscal imbalances through 2013 to exit the EU’s Excessive Deficit Procedure (EDP), fiscal consolidation progress has petered out. While economic conditions could argue for a supportive fiscal stance, other factors and especially the need for policy maneuver under FRA debt brakes point to the need for fiscal adjustment over the medium term. Broadening the tax base, enhancing revenue collection, and achieving spending efficiencies would help secure fiscal adjustment while funding key priorities and allowing for lower taxes on factors of production.

16. Institutional and structural factors point to the need for resuming fiscal consolidation. After four year of consolidation through 2013, which culminated in EDP exit, fiscal policy has been broadly neutral or even somewhat expansionary, with the deficit remaining between 2½ and 3 percent of GDP. Still high unemployment, large infrastructure needs, and subdued inflation could argue for a supportive fiscal stance, and borrowing conditions are favorable. However, the negative output gap is closing rapidly. In addition, for Slovakia, a prudent public debt ratio is likely to be lower than the current level (Box 4). Moreover, to allow fiscal policy to play a counter-cyclical role—crucial for a small open economy in a monetary union—a debt ratio safely below binding FRA debt brakes is necessary, and the debt brakes will begin falling in 2018, eroding already narrow fiscal space. Finally, lower debt is warranted in light of long-term fiscal challenges from one of the steepest population aging rates in Europe—challenges that have been aggravated by repeated opening of the private pension pillar.

Should The Fiscal Responsibility Act Be Reformed?1/

To shore up budget credibility, Slovakia adopted the FRA in 2011. The framework includes rules to strengthen budget discipline, enhance accountability, and foster transparency.

Does the FRA provide a good fiscal rule?

In principle, debt rules can help improve countries’ fiscal discipline. However, they may heighten procyclicality and hamper the quality of fiscal adjustment when sanctions are substantial, as is the case for the FRA. In order to allow automatic stabilizers to operate and avoid pro-cyclical sanctions, debt levels need to be kept well below the thresholds.

Fiscal Responsibility Act

article image
Source: Constitutional Act of December 8, 2011 on Fiscal Responsibility.

Starting in 2018, the debt ceilings will be gradually reduced by one percentage point of GDP each year to reach 40–50 percent of GDP by 2027.

Are FRA debt brakes reasonable?

Unfortunately, there is no clear-cut answer. Empirical evidence shows that the relationship between debt and growth may be non-linear, suggesting country-specific thresholds beyond which negative effects kick in. For Slovakia, which lacks independent monetary policy as a euro area member but also shares some characteristics of an emerging economy, a prudent public debt ratio is likely to be below 50 percent of GDP. Two additional considerations support this view: (i) despite one of the lowest debt-to-GDP ratios in the EU and very narrow interest spreads, interest payments absorb about 5 percent of total revenue, which is broadly in line with the EU average and reflects a relatively low level of revenue-to-GDP; (ii) given limited absorption capacity of domestic markets, the share of government debt held by non-residents has steadily risen, thereby increasing vulnerability to sudden stops.

Should the debt brakes be on a gross or a net basis?

In principle, gross debt should be tracked separately from government assets since sharp swings in prices can distort underlying debt developments. Nonetheless, defining debt brakes on a gross basis may unduly constrain a country’s debt management.

1/ For more detailed analysis, see related Selected Issues Paper.

17. The 2016–18 budget plan sets ambitious fiscal targets to achieve a sharp adjustment and will be challenging to implement. The government targets deficits of 1.9 percent of GDP in 2016 and 0.4 percent of GDP in 2017 (thereby reaching the EU medium-term objective (MTO) of a structural deficit of 0.5 percent of GDP), and overall balance in 2018. The 2016 budget contains a number of deficit-increasing measures as part of social packages such as a reduction of the VAT rate on basic foodstuffs from 20 to 10 percent, gas price reimbursements for households, wage increases for some public sector employees and healthcare staff, and increases in maternity benefits and childcare allowances. Given that offsetting spending cuts, largely in government consumption, have not been specified in great detail, staff’s baseline estimate is for a 2016 deficit of around 2.2 percent of GDP. Further negative risks stem from a possible third social package (to be specified in December and implemented if the current governing party remains in power), potential additional EU funds corrections, or other outlays (e.g., there is significant interest in a PPP road project which could entail initial costs). Under staff’s no-policy change baseline scenario (measures to meet the 2017 and 2018 targets are still to be specified and thus are not reflected), the deficit would fall below 2 percent of GDP and the debt-to-GDP ratio would drop below 50 percent by 2020. A fiscal adjustment path broadly in line with EU requirements (0.5 percent of GDP annual improvement in the structural balance), and hence smoother than the one envisaged by the authorities, could be preferable in that it would have a lower impact on near-term growth while still putting the debt ratio on a safe downward trend, though this would imply postponing MTO achievement by two years.

A01ufig15
Sources: Slovak Ministry of Finance and IMF staff projections.The analysis is based on the IMF macroeconomic framework, which differs from that of the authorities.

18. High-quality and growth-friendly fiscal consolidation would call for:

  • Enhancing tax compliance. Slovakia has one of the largest VAT gaps in Europe and corporate income tax (CIT) compliance could also be strengthened. Building on good VAT collection progress in recent years, a one percentage point improvement in the effective VAT rate could yield 0.5 percent of GDP. It will be important to minimize risks from the reduced VAT rate on basic foodstuffs. As part of efforts to strengthen tax administration, plans to merge the tax, customs, and social security agencies should be sped up.

  • Broadening the tax base. The government has adopted measures to fight CIT base erosion and profit shifting, but other areas should also be considered. Slovakia now collects little from a relatively regressive property tax based on square meters, and should accelerate the introduction of a market-value-based property tax; this could yield about 1 percent of GDP in revenue and would be more equitable and less harmful to growth than other taxes.

    Environmental taxation is also low compared to peers and could yield up to 2½ percent of GDP over the medium-term, according to EC estimates. Targeted measures could mitigate potential social concerns from tax regime changes.

A01ufig16

Tax on Property and Income Level

(in percent of GDP and in purchasing-power standards)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: AMECO and OECD.

  • Rebalancing the tax mix. Slovakia’s current tax structure is distortive, with a comparatively high reliance on social security contributions (SSCs). The average tax wedge as well as the SSC share is higher in Slovakia than the OECD average. Although the CIT rate compares favorably with other OECD countries, it is the highest among the Visegrad countries. To preserve competitiveness and foster job creation, Slovakia should shift from labor and corporate taxes toward the less distortive revenue sources mentioned above.

A01ufig17

Average Tax Wedge - Breakdown

(single person and 0 children, in percent)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: OECD.

  • Improving spending efficiency. Public expenditure remains relatively low compared to peers, and its structure is rather rigid; compensation of employees, interest payments, social benefits, and subsidies account for over 70 percent of total outlays. Consequently, cutting spending appears challenging. Nonetheless, beyond the ongoing initiative to make the government more efficient (ESO program), there is scope for expenditure rationalization, especially in the health sector, where the comparatively high level of spending does not translate into positive health outcomes. A comprehensive review of social benefits, where there is scope for better targeting, could also yield savings.

A01ufig18

Social Benefits

(2013–14 average)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: Eurostat.

General Government Expenditure by Function, 2010–13

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Sources: Eurostat and IMF staff calculations. 1/ Red cell indicates a value above the average of the Czech Republic, Hungary and Poland.

  • Funding priorities. The above-mentioned measures could secure needed fiscal adjustment while still funding key spending priorities. In particular, Slovakia’s low level and quality of capital infrastructure call for additional public investment, which could be supported by better implementation of EU funds, including through preparation of projects for the 2014–20 programming period.

A01ufig19

Funds Absorption Rate, Cohesion Policy 2007–2013

(in percent of the total)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: European Commission; Eurostat; and IMF staff calculations.
A01ufig20

EU Funds: Per-Capita Allocation

(in euros)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

  • Reducing state ownership. Even after full privatization of Slovak Telekom, state ownership remains sizeable with (direct or indirect) participation in a number of companies, mainly in the energy sector. Reducing state shareholdings would help lower debt in a growth-friendly way.

19. Modifications could make the FRA a more growth-friendly fiscal discipline tool. More gradual adjustment under the FRA would lessen potential pro-cyclicality, escape clauses could be better tailored to the size and nature of shocks Slovakia might face (e.g., it could take a 2009-size growth shock to trigger flexibility), and there might be less of a bias toward expenditure cuts. Although a prudent debt ratio should be maintained, keeping the FRA debt thresholds at the current levels would help preserve limited fiscal space. Netting out cash balances from government debt could facilitate debt management, for example through cash buffers or pre-financing when market conditions are favorable, but should be backed up by clear cash management guidelines.

Authorities’ views

20. The authorities reaffirmed their commitment to sustainable public finances while improving living standards.

  • Budget. The authorities are confident that improvements in tax compliance and expenditure savings, mainly in healthcare and public administration, will achieve the 2016 fiscal target. Moreover, early next year the government plans to start a major spending review program based on value-for-money analysis. The authorities underscored the results achieved so far in fighting tax evasion and fraud, especially regarding the VAT. In 2016, with a view to improving VAT collection efficiency, the so-called reverse-charge mechanism will be introduced for the construction sector, which has one of the highest VAT gaps. The government has also added 30 measures to its action plan to combat tax fraud aimed at enhancing collection.

  • Market-based real estate tax. Implementing a market-based real estate tax will take time. The government is preparing reforms to upgrade the cadastre and to collect property transaction prices, which have not been available since the transaction tax was abolished in 2004.

  • FRA reform. The benefits of reforms such as netting out cash balances were acknowledged, but amending the FRA is unlikely in the near term.

Safeguarding Financial Soundness Amid High Credit Growth

Despite recently introduced macroprudential measures, bank lending to households is growing at a brisk pace. Low private sector debt and high banking sector capital buffers limit vulnerabilities, but a stronger macro-prudential stance could be warranted.1 The low interest rate environment associated with ECB QE calls for closer monitoring of non-bank financial institutions. Steps are needed to deepen capital markets and improve access to finance.

21. Accommodative monetary policy and robust domestic demand are fueling already strong household borrowing. Falling interest margins have led banks to boost lending, especially mortgages but also consumer loans, to maintain profitability. The increase in household debt, albeit from a low base, is among the largest in the EU, partially reflecting equity withdrawals through loan refinancing. In contrast, year-on-year credit from banks to non-financial corporates only recently turned positive.

A01ufig21

Households’ Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: BIS and Haver.
A01ufig22

Nonfinancial Corporations’ Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

22. Together with low private leverage, banks’ sound capital and provision buffers mitigate immediate vulnerabilities. Banks are well-capitalized, with the Tier 1 capital ratio at 16 percent and leverage at a moderate 7.8 percent. In addition, a capital add-on of 2–3 percent for domestically systemically important banks will be phased in during 2016–18. Although NPLs have edged up, loan loss provisions still cover almost 70 percent of all impaired loans despite a recent slowdown in provisioning. The loan-to-deposit ratio is marginally above 90 percent, and liquid assets are high at 30 percent of total assets. Low real interest rates, rising disposable income, and broadly stable property prices are further mitigating factors.

23. To limit the buildup of credit risk, a stronger macroprudential stance may be warranted. NBS macroprudential recommendations are relatively lenient compared to those in other countries and might be strengthened to limit risks amidst rapid credit growth by:

  • Lowering the LTV limit. With the planned transposition of its macroprudential recommendations into law, the LTV limit should be lowered from 90 to 85 percent, thus better aligning housing loan regulation with that of peers.

  • Introducing a debt-to-income ratio (DTI). The NBS should use authority under the planned law to issue clear guidance on a maximum ratio for overall debt-to-income of borrowers to enhance the effectiveness of the LTV limit.

A01ufig23

Lending to Households, Credit-to-GDP Ratio1/

(in percent, one-sided HP filter; not seasonally adjusted)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: BIS, ESRB, Haver, and IMF staff calculations.The historical volatility of the credit gap is based on total credit over a five-year rolling window (starting Jan. 2001);1/ GDP adjusted for output gap;2/ statistical signficance based on a standard normal distribution of the cyclical deviation from trend.

  • Applying a counter-cyclical capital buffer (CCB). If above-trend credit growth continues and broadens to the corporate sector, the adoption of a CCB of at least 0.5 percent would be warranted.

  • Adopt more tailored supply-side measures to address real-estate-related exposures. Raising credit risk weights and imposing stricter loss-given-default assumptions on real estate-related exposures would raise the cost of mortgage loans without affecting non-financial corporate borrowing. Implementation of the new European standards for loan classification would help, as would mandatory verification of external appraisals by lenders to avoid inflated collateral valuations.

24. Preparation will help ensure effectiveness of the bank resolution framework. Although there are no immediate risks, tests of the feasibility of resolution tools and cross-border coordination would facilitate readiness under the new European framework, especially given the large deposit base and the important role of foreign-owned banks. Allocation of the proceeds from the bank levy to a dedicated resolution fund would help finance the national contribution to the EU’s Single Resolution Fund (SRF).

25. The low interest rate environment calls for close monitoring of non-bank financial institutions. Falling investment returns and rising long-term liabilities have made asset-liability matching of life insurance companies more difficult, potentially undermining the viability of guarantee-based products. The authorities should facilitate the transition towards unit-linked insurance products and explore the possibility of developing an industry-funded policyholder protection scheme, especially in the absence of a resolution mechanism for non-bank financial institutions.

26. Capital market development and integration could improve access to financing. A better functioning capital market could offer firms alternative sources of finance, provide additional investment options for savers, and make it easier for banks to issue more long-term debt such as covered bonds. A more stable approach to the second pension pillar, as well as regulations that encourage more diversified investment strategies, could help foster institutional investors and capital market development. Targeted efforts underway to promote financing for small and innovative firms are welcome and could be further supported by an EU Capital Markets Union. Links to other stock exchanges in the region should also be explored to promote market access.

Authorities’ views

27. The NBS viewed the macro-prudential policy stance as appropriate but reaffirmed its readiness to act if needed. While the direct impact on credit growth of current measures has been limited, recommendations have improved lending standards in general. The NBS is currently reviewing the possibility of introducing a CCB but has deferred any action until there is more conclusive evidence of excessive credit growth, including a broadening to corporate borrowing. The NBS considers macro-financial vulnerabilities associated with the low-interest rate environment limited since most insurance companies have started offering non-guaranteed products. The government plans to reduce capital gains taxes and transaction fees, including through establishment of a new central depository, which would support domestic capital market development.

Staff Appraisal

28. Growth is picking up as domestic demand strengthens further. Rising investment, reflecting especially stepped-up use of EU funds, as well as strong private consumption in the context of a recovering labor market and real wage gains, have led to solid domestic demand-driven growth. Although inflation is expected to remain slightly negative this year due to falling energy costs, prices should rise in 2016 as the output gap closes.

29. External factors present the greatest risks to Slovakia’s largely positive outlook. A sound and liquid banking sector, low private sector leverage, and limited public debt enhance resilience to shocks. If, however, key trading partners such as Germany were hit by adverse developments—whether due to euro area weakness, a China or emerging market slowdown, or tensions between Russia and Ukraine—Slovakia’s important export sector would be affected. On the domestic side, rapid household credit growth could sow financial sector risks, while high long-term unemployment could undermine potential growth.

30. High unemployment, inactivity, and regional disparities call for a comprehensive approach. Despite the recent pickup in job creation, the unemployment rate remains in double digits, with particular challenges for the long-term unemployed, youth, and women. Enhancing transportation infrastructure and strengthening the business climate would encourage investment in weaker regions, and together with reforms to promote rental housing, could facilitate labor mobility. Reducing the labor tax wedge, especially for low-wage or part-time workers, would encourage labor force participation and hiring. Enhancing education and training, together with strengthening the effectiveness of ALMPs, would allay rising skill shortages. Improved childcare options could facilitate greater workforce participation by women.

31. High-quality fiscal measures are needed to ensure room for policy maneuver while advancing priorities. A moderate pace of further fiscal adjustment would ensure sufficient headroom under domestic debt rules so that fiscal policy could play a counter-cyclical role in the future, and would help address longer-term fiscal challenges associated with population aging. Enhancing revenue collection, broadening the tax base including through a market value-based real estate tax, and achieving spending efficiencies, especially in the health sector and through a review of social benefits, would help secure needed adjustment while funding key priorities. These include steps to address labor market challenges and regional disparities, and to reduce the tax burden on production factors. Reducing still sizeable state shareholdings would enable further growth-friendly debt reduction.

32. Modifications to the FRA should be considered to lessen potential negative economic effects while maintaining fiscal discipline. Possible changes include a more gradual pace of adjustment when debt brakes are crossed, more realistic escape clauses, netting out cash balances, and less bias toward expenditure cuts. Keeping current debt brake levels (50–60 percent of GDP) rather than allowing them to progressively fall starting in 2018 as stipulated under the FRA would help preserve fiscal space.

33. Additional macroprudential measures would help guard against risks from rapid credit growth. Although household debt is relatively low and banks enjoy sound capital and liquidity buffers, to limit financial stability risks, the LTV limit should be lowered and clear guidance should be issued on a maximum DTI ratio. If above-trend credit growth continues and broadens to the corporate sector, a counter-cyclical capital buffer of at least 0.5 percent would be warranted. In the near term, more targeted measures on real estate-related exposures should be considered.

34. Bank resolution tools should be tested. Although there are no immediate risks on the horizon, the new European resolution framework and cross-border coordination should be tested, especially given the importance of deposit funding and foreign-owned banks. Bank levy proceeds should be placed in a dedicated resolution fund to be used for Slovakia’s SRF contribution.

35. Low interest rates call for close monitoring of non-bank financial institutions. With exceptionally low interest rates potentially undermining the viability of guarantee-based products for life insurers, development of an industry-funded policyholder protection scheme should be explored.

36. Further capital market development would enhance access to finance. Steps to facilitate financing for small and innovative firms and plans to reduce capital gains taxes and transaction fees are welcome, and could be complemented by an EU Capital Markets Union and links to other stock exchanges. A more stable second pension pillar would encourage growth of institutional investors.

37. It is proposed that the next Article IV consultation with the Slovak Republic take place on the standard 12–month cycle.

Annex I. Slovak Republic: Risk Assessment Matrix1/

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Staff analysis based on VECM model.

Annex II. Slovak Republic: Authorities’ Response to Past IMF Policy Recommendations

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Annex III. Public Sector Debt Sustainability Analysis (DSA)

A01ann1ufig1

Slovak Republic: Public DSA - Baseline Scenario

(in percent of GDP unless otherwise indicated)

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF staff.1/ Public sector is defined as general government.2/ Based on available data.3/ Long-term bond spread over German bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
A01ann1ufig2

Slovak Republic: Public DSA - Composition of Public Debt and Alternative Scenarios

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF staff.
A01ann1ufig3

Slovak Republic: Public DSA - Realism of Baseline Assumptions

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF Staff.1/ Plotted distribution includes surveillance countries percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Not applicable for Slovak Republic.4/ Data cover annual Obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.
A01ann1ufig4

Slovak Republic: Public DSA - Stress Tests

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF Staff.
A01ann1ufig5

Slovak Republic: Public DSA - Risk Assessment

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 85% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 20% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:400 and 600 basis points for bond spreads; 17 and 25 percent of GDP for external financing requirement; 1 and 1.5 percent for change in the share of short-term debt; 30 and 45 percent for the public debt held by non-residents.4/ Long-term bond spread over German bonds, an average over the last 3 months, 25-Aug-15 through 23-Nov-15.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.

Annex IV. External Debt Sustainability Analysis

A01ann1ufig6

Slovak Republic: External DSA - Bound Tests, 2010–201/2/

Citation: IMF Staff Country Reports 2016, 013; 10.5089/9781513588780.002.A001

Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2010.

Slovak Republic: External DSA- Framework, 2010–20

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Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
1

For more detailed analysis, see related Selected Issues Paper.

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Cover IMF Staff Country Reports
Slovak Republic: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Slovak Republic
Author:
International Monetary Fund. European Dept.
Volume/Issue:
Volume 2016: Issue 013
Publisher:
International Monetary Fund
ISBN:
9781513588780
ISSN:
1934-7685
Pages:
59
DOI:
https://doi.org/10.5089/9781513588780.002
Figure 1.

Slovak Republic: Main Economic Developments

Real Output Growth

(in percent of GDP)
Figure 2.

Slovak Republic: Labor Market Developments

Labor Shortage Indicator

(Balance of firms indicating labor shortage as a factor limiting production; in percent)
Figure 3.

Slovak Republic: Fiscal Developments
Figure 4.

Slovak Republic: External Developments
Figure 5.

Slovak Republic: Competitiveness Indicators
Figure 6.

Slovak Republic: Structural Indicators 1/
Figure 7.

Slovak Republic: Monetary and Banking Developments

Current Account

(in percent of GDP)

External Debt

(quarterly data; in percent of GDP)

Net International Investment Position

(quarterly data; in percent of GDP)

Car Production

(per thousand people)

Car Exports: Top 10 Partners

(yearly data; in percent of total car exports)

Per Capita Income

(in purchasing power standard, in percent of EU average)

Beveridge Curve by Region (2008–2014)

(in percent)

Working Age Population

(in percent of total population)

Young People Not in Education, Employment or Training

(in percent of total young population)

Marginal Effect of Labor Market Characteristics on Youth Unemployment Level

(coefficient value, percentage points) 1/

Tax Wedge

(in percent of labor cost)

Tax on Property and Income Level

(in percent of GDP and in purchasing-power standards)

Average Tax Wedge - Breakdown

(single person and 0 children, in percent)

Social Benefits

(2013–14 average)

Funds Absorption Rate, Cohesion Policy 2007–2013

(in percent of the total)

EU Funds: Per-Capita Allocation

(in euros)

Households’ Debt

(In percent of GDP)

Nonfinancial Corporations’ Debt

(In percent of GDP)

Lending to Households, Credit-to-GDP Ratio1/

(in percent, one-sided HP filter; not seasonally adjusted)

Slovak Republic: Public DSA - Baseline Scenario

(in percent of GDP unless otherwise indicated)

Slovak Republic: Public DSA - Composition of Public Debt and Alternative Scenarios

Slovak Republic: Public DSA - Realism of Baseline Assumptions

Slovak Republic: Public DSA - Stress Tests

Slovak Republic: Public DSA - Risk Assessment

Slovak Republic: External DSA - Bound Tests, 2010–201/2/