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.
This statement provides additional information on developments that took place as the staff report was being finalized. The information does not alter the thrust of the staff appraisal.
Third social package: At the December conference of the governing Smer-SD party, the Prime Minister outlined a third social package to be implemented during 2016-2020 should Smer-SD retain power after the general election in March 2016. The cost of the proposals (about €1 billion or a little above 1 percent of GDP) is larger than expected and exceeds the combined cost of the two previous packages. The package would aim to:
– create 100,000 new jobs by 2020 through an array of measures including support for lagging regions, families, agriculture, construction, and expansion of nursery schools;
– improve second- and third-class roads;
– reduce health insurance contributions for low-wage workers;
– build rental apartments for young people with specific low-cost flats for new teachers, renovate student dormitories, and reduce student housing costs;
– increase support for low-income pensioners, caregivers, and students; and
– raise the number of police officers and special military forces.
The government would prepare implementing legislation in 2016. The Prime Minister indicated that higher revenues from stronger economic growth and better tax collection would finance the package while still allowing a balanced budget to be achieved in 2018.
Jaguar Land Rover: On December 11, 2015, the Slovak government and the carmaker Jaguar Land Rover finalized an investment agreement for construction of a new factory in Nitra. The approximately €1.4 billion investment is in line with assumptions in the staff report. Construction will start in 2016 with the plant expected to become operational in 2018 and directly employ about 2,800 people.
Power producer Slovenské Elektrárne (SE): On December 18, 2015, the Italian energy company Enel agreed to sell its 66 percent stake in SE (currently valued at about €750 million) to the Czech energy company EPH in a two-stage deal, with the second part taking place only after completion of the delayed expansion of the Mochovce nuclear plant. The government retains options in the second stage of the deal to acquire an additional 17 percent stake, which would make it the majority shareholder with 51 percent of total capital, or to buy up to 100 percent of SE’s shares under a right of first refusal.