## 1svkea2019002 — PIMA mission to Slovak Republic (February 6–20, 2019)

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### Mission, mandate, and counterparts
- An FAD mission visited Bratislava, Slovak Republic, during the period February 6–20, 2019 to undertake a Public Investment Management Assessment (PIMA).
- Tasks of the mission:
  - (i) assess Slovak Republic’s public investment management framework using the IMF’s PIMA methodology; and
  - (ii) advise the authorities on options to strengthen further the management of public investment.
- Mission composition: Yasemin Hürcan (FAD, head), Richard Allen, Imran Aziz, Willie du Preez, and Karel Meixner (all FAD experts).
- Counterparts and meetings included senior officials across the MoF, Ministries of Economy, Transport and Construction, and Agriculture; the Supreme Audit Office; Deputy Prime Minister’s Office for Investments and IT; the Slovak Council for Budget Responsibility (CBR); ARDAL; the Slovak Statistics Office; the Regulatory Authority for Communications and Postal Services; the Public Procurement Office (PPO); Slovak Railways; SEPS; Slovak Power Plants Company; regional and municipal governments; and the Representation of the European Commission.

### Financing of public investment and EU funds absorption
- Approximately two-thirds of public investment in Slovakia is financed through the EU Structural and Investment Funds (ESIFs).
- Disbursements under ESIFs were equivalent to a total of 15 percent of GDP during 2007–15.
- ESIF absorption pattern:
  - Less than a fifth of the funds spent after the first three years of the seven-year cycle.
  - Member states allowed three years at the end of each cycle to use up unspent funds (“n+3” rule); spending under the 2007-2013 cycle continued until the end of 2015.
  - By the end of 2018 the Integrated Infrastructure OP (transport and energy) for Slovakia had spent about 30 percent of its planned allocation.
  - By the end of 2018 the overall absorption of EU funds in the current programming period was still lower than nearly all other EU countries.
- Financing sources and distribution:
  - Approximately half of Slovakia’s public investment is provided by SOEs, central government contributes a further third, and local governments provide the rest.
  - Since 2011 and apart from 2015, EU-financed investment spending has systematically underspent compared to the budget while the state budget has overspent in four of these years due to carryovers approved by MoF.

### Investment trends, capital stock, and infrastructure outcomes
- Investment trends:
  - Investment levels declined from 2002 and have been generally below regional peers that also accessed EU funds after 2000.
  - A sharp spike in investment spending in 2015 reflected delayed spending of the EU programming cycle and accounted for almost 80 percent of investment spending that year.
- Capital stock:
  - The capital stock followed a downward trend between 2000 and 2008, before levelling out, and is now one of the lowest in the region.
  - Capital stock has fallen to about 50 percent of GDP.
- Infrastructure quality and coverage:
  - Quality and public access to infrastructure is generally good but falls behind comparators in some key sectors—particularly roads.
  - Coverage of Slovakia’s motorway network is one of the lowest in Europe.
  - Perceptions of infrastructure quality are similar to regional comparators but significantly lower than the EU and advanced economy average.
  - Rail: length of rail tracks was 3,600km in 2016; rail companies rely heavily on state subsidies (on average, between 2013 and 2015, railway subsidies accounted for Euro 500 million).

### Investment efficiency
- Estimated output efficiency gap: approximately 23 percent.
  - Slovakia’s gap (23 percent) is higher than:
    - most EU countries (15 percent),
    - advanced economies (12 percent),
    - the comparator average (18 percent).
- The size of the gap is largely due to lack of infrastructure investment in key areas such as transportation.

### Institutional strengths and weaknesses (planning, allocation, implementation)
- General PIM context:
  - PIM institutions in planning, allocation, and implementation generally perform well, especially in design; design of all PIM institutions in the implementation phase is very strong.
  - The legal framework is comprehensive and uniform rules and procedures cover most investment whether financed domestically or by EU funds.
  - Staff capacity is generally high, but more resources could be dedicated to analytical functions that support PIM.
- Planning phase (Strength—Medium; Effectiveness varies):
  - Fiscal rules support fiscal sustainability and medium-term planning:
    - Constitutional Fiscal Responsibility Act (FRA) of 2011 and Budget Rules Act of 2004 in place.
    - FRA debt brake: upper limit of general government debt set at 60 percent of GDP; automatic sanctions activated when debt reaches a level 10 percentage points below the upper limit (i.e., 50 percent).
    - From 2018 to 2027 these sanction brackets will be reduced by one percentage point a year until the upper limit reaches 50 percent of GDP in 2027.
    - Current estimate of the long-term sustainability indicator is 1.1 percent of GDP.
  - Weaknesses:
    - Lack of an overarching national strategic framework and integrated national public investment plan.
    - Many sector strategies exist but are not part of a medium- or long-term national public investment plan and are hampered by a weak results framework.
    - Capital spending plans of subnational government (SNGs) are not discussed with the central government.
    - Since 2017: standard methodology for major project appraisal and publication of MoT appraisal results (since 2017), but appraisal processes and monitoring need improvement.
- Allocation phase:
  - No central PIM coordination unit and no integrated pipeline of large infrastructure projects.
  - MTBF includes non-binding ceilings for outer years; appropriations for routine and capital maintenance are included in the budget but generally insufficient.
  - Little project-level cost data published with the budget.
  - MoF has wide discretion to reallocate capital spending during the year and to carry over funds; capital spending often exceeds the approved budget.
  - MTBF ceilings are “mostly indicatively” applied; deviations between approved budget and outturns for capital spending can be large (five-year mean deviation: capital spending 40 percent; recurrent spending 3 percent).
  - Carryovers may be applied for two consecutive years (the “n+2” rule); extent of carryovers has been very substantial, up to 1 percent of GDP in some years.
- Implementation phase:
  - Treasury ensures timely cash availability for capital spending and an asset registry exists; fixed assets disclosed in financial statements but not subject to regular revaluation.
  - Procurement: legal framework strong and electronic procurement introduced in 2018; in 2017 most high-value procurements were competitive (91.6 percent by value). Implementation gaps persist: weak administrative capacity, too narrow specifications, unclear evaluation criteria, high proportion of cancelled procedures (38.8 percent in 2017).
  - External audit and PPO reporting: room to improve frequency and depth of external audits of procurement; PPO statistics lack analysis of openness, depth of competition, results of control activities, and complaints review outcomes.
  - Monitoring and ex post evaluation: regular ex post evaluations of major projects should be conducted to improve portfolio management and project implementation.

### State-Owned Enterprises (SOEs)
- Scale and role:
  - Ninety-two SOEs recorded in central government and several hundred in local governments.
  - Capital expenditure by SOEs represents more than half of total public investment.
  - SOEs’ fixed assets account for around 30 percent of GDP.
  - Many large SOEs (highways, rail tracks) classified as part of general government since 2014.
- Reporting and oversight gaps:
  - Only 13 of 92 central government SOEs follow IFRS reporting standards.
  - SOEs are not required to report on profits, liquidity, return on equity, dividends, quasi-fiscal activities, or other key financial indicators; budgets or strategic plans are not submitted to MoF for approval.
  - No consolidated report on SOE financial performance is produced; MoF oversight remains light.
- Fixed assets of largest SOEs (Euro million):
  - National Highway Company: 2015 7,573; 2016 8,136; 2017 8,522
  - Slovakia Electricity Generation: 2015 7,174; 2016 7,575; 2017 7,906
  - Slovak Railways: 2015 3,292; 2016 3,281; 2017 3,355
  - Slovak Water Management: 2015 1,367; 2016 1,368; 2017 1,369
  - Dam Construction: 2015 1,181; 2016 1,158; 2017 1,150
  - Slovak Railway Company: 2015 968; 2016 925; 2017 897
  - Slovak Electricity Transmission: 2015 797; 2016 820; 2017 819
  - Public Ports: 2015 591; 2016 589; 2017 589
  - Total: 2015 22,942 (29); 2016 23,853 (30); 2017 24,607 (29)
- Fiscal risk disclosure:
  - Contingent and implicit liabilities presented as annex in budget documents; projected availability-based payments for PPPs reported as “implicit liabilities” and in 2018 were estimated at 3.3 percent of GDP.
  - Oversight recommendations include strengthening the MoF’s new SOE unit and expanding its financial oversight functions.

### Procurement and IT systems
- Procurement performance and data:
  - Public Procurement Law (PPL) thresholds align with EU legislation; all procurement documents published on PPO website.
  - 2017 procurement structure (figures reproduced as in source): open tender by value and number dominated procedures; high cancellation rate (overall "38.8 percent in 2017").
  - PPO maintains a comprehensive procurement database; since 2018 the whole procurement procedure became electronic.
- PPO and SAO roles:
  - PPO responsibilities: policy making, supervision, management of procurement e-tools, publication of reviews and decisions; PPO statistics do not include openness or depth-of-competition analyses.
  - SAO has not performed thematic audits focused on procurement; PPO found many SNG procedures included breaches of law and low bidder numbers in a 2018 sample.
- IT systems used for PIM (as in source):
  - Budget preparation and reporting system: records revenues and expenditures by budget classification; includes an investment register with project description, cost and annual budgets.
  - Central consolidation system: consolidates financial reports of all public sector entities (8000+) to produce the public sector balance sheet; includes fixed assets information.
  - ITMS (EU): manages all EU projects from inception through to implementation; project monitoring module tracks spending, procurement, physical performance against OP priorities.
- Capacity implications:
  - Technical staff levels appear high, but more time should be dedicated to analytical functions, risk management and challenge roles for public investment decisions, particularly if a PIM Unit is established.

### Key numerical findings and figures cited
- Mission dates: February 6–20, 2019.
- ESIFs disbursements to Slovakia: 15 percent of GDP during 2007–15.
- Share of public investment financed via ESIFs: approximately two-thirds.
- ESIF absorption: less than a fifth spent after the first three years of the seven-year cycle.
- Capital stock: fallen to about 50 percent of GDP; one of the lowest in the region.
- Investment efficiency gap: 23 percent.
- Rail subsidies average (2013–2015): Euro 500 million.
- Implicit liabilities connected to PPPs in 2018: 3.3 percent of GDP.
- Five-year mean deviation between approved budget and actual spending:
  - Recurrent spending: 3 percent.
  - Capital spending: 40 percent.
- Capital spending by EBEs in approved budget for 2019: EBEs total 17,969 (48.3%) total; 921 (36.6%) capital investment and transfers; Total expenditure: 37,228 (100.0%) total; 2,516 (100.0%) capital investment and transfers.

### Main recommendations (summary)
- Recommendation 1: The MoF and the DPMO to finalize the strategic investment planning framework and translate it into a project pipeline. Institutional leads: 2,3.
- Recommendation 2: Expand and strengthen financial oversight functions of the newly established SOE unit in the MoF. Institutional lead: 5.
- Recommendation 3: The MoF to include in the budget documentation information on:
  - (i) in-year reallocations of spending (virements) and carryovers for both capital and recurrent spending, and analysis of reasons; and
  - (ii) all major capital projects—total construction costs, year-by-year breakdown of these costs, and sources of financing. Institutional leads: 6,7,8.
- Recommendation 4: The MoF, in consultation with other ministries, to establish a strategy, benchmarks and standards for routine and capital maintenance budgeting, including:
  - (i) medium term increments for maintenance; and
  - (ii) establishment of static weigh stations in strategic locations to eliminate overloading. Institutional lead: 9.
- Recommendation 5: The MoF and the DPMO to establish:
  - (i) a unified pipeline of appraised major projects based on published selection criteria; and
  - (ii) a Public Investment Unit (PIU) to manage the pipeline, monitor implementation through an integrated project database, and provide advisory functions related to efficient project implementation and infrastructure development. Institutional lead: 10.
- Recommendation 6: The SAO should consider thematic public procurement audits, followed up with corrective measures. The PPO should strengthen reporting on:
  - (i) openness, (ii) depth of competition, (iii) results of PPO control activities, and (iv) results of the complaints review process. Institutional lead: 11.
- Recommendation 7: The MoF and the DPMO to develop an integrated project database for both EU and budget funded projects, based on the project pipeline (Recommendation 5), that can:
  - (i) generate a consolidated report on portfolio oversight for all major projects; and
  - (ii) flag potential risks to implementation of major projects and enable corrective action. Institutional leads: 13,14.

*Source: PREFACE, EXECUTIVE SUMMARY, and selected chapters (PIMA mission report, FAD mission to Slovak Republic, February 6–20, 2019).*

### PREFACE __________________________________________________________________________________________ 6

### PREFACE

### Mission mandate and team
- An FAD mission visited Bratislava, Slovak Republic, during the period February 6–20, 2019 to undertake a Public Investment Management Assessment (PIMA).
- Tasks of the mission:
  - (i) assess Slovak Republic’s public investment management framework using the IMF’s PIMA methodology; and
  - (ii) advise the authorities on options to strengthen further the management of public investment.
- Mission composition: Yasemin Hürcan (FAD, head), Richard Allen, Imran Aziz, Willie du Preez, and Karel Meixner (all FAD experts).

### Counterparts and meetings
- Within the MoF, the mission met with: Mr. R. Kuruc, State Secretary; Mr. Š. Kišš, Director of the Value for Money Division; Mr. J. Šuchta, Head of the Fiscal Analyses Department; Mr. P. Ivánek, Director of the Overall State Reporting Department; Mr. J. Hatrík, Director of the Financial Management Coordination Department; Ms. M. Izakovičová, State Treasury; and other senior staff including Alexander Cirák, Zdenko Krajčír, Marek Hutko, and Lenka Ostrožlíková.
- Other meetings included representatives from: Ministries of Economy, Transport and Construction, and Agriculture; the Supreme Audit Office; the Deputy Prime Minister’s Office for Investments and Information; the Slovak Council for Budget Responsibility (CBR); the Debt and Liquidity Management Agency (ARDAL); the Slovak Statistics Office; the Regulatory Authority for Communications and Postal Services; the Public Procurement Office (PPO); Slovak Railways; the Slovak Energy Grid Company (SEPS); Slovak Power Plants Company; the Banska Bystrica Regional Government; the Bratislava Municipality; and Ludmila Majlathová from the Representation of the European Commission.

### Acknowledgements
- The mission is grateful to the authorities for frank, open and constructive discussions and close cooperation.
- The mission expresses appreciation to Juraj March, Matúš Lupták and Marián Bederka of the Value-for-Money Division at the MoF for mission organization.

### Executive summary — key findings
- Since 2016, the Slovak government has prepared several spending reviews aimed at improving efficiency of public expenditures and consolidating public finances; some reviews (e.g., transport) focused on infrastructure investment.
- The authorities requested a PIMA mission in parallel to the ongoing program of spending reviews to further improve public investment management.
- Financing of public investment:
  - Approximately two-thirds of public investment in Slovakia is financed through the EU Structural and Investment Funds (ESIFs).
  - Disbursements under ESIFs were equivalent to a total of 15 percent of GDP during 2007–15, with the bulk occurring at the end of the cycle, placing large stresses on the PIM system.
  - This absorption pattern seems likely to continue in the current cycle, with less than a fifth of the funds spent after the first three years of the seven-year cycle.
- Infrastructure quality and capital stock:
  - Quality and public access to infrastructure is generally good but falls behind comparators in some key sectors—particularly roads.
  - Coverage of Slovakia’s motorway network is one of the lowest in Europe.
  - In most years since 2003, Slovakia’s public investment levels have been below regional peers and the capital stock has fallen to about 50 percent of GDP.
  - The capital stock is now one of the lowest in the region.
- Investment efficiency:
  - Comparing achieved infrastructure quality for a given level of public capital stock and income, Slovakia’s investment efficiency gap is 23 percent, broadly in line with the EU average and other regional comparators.
- Institutional strengths and weaknesses:
  - PIM institutions in planning, allocation, and implementation generally perform well, especially in design; design of all PIM institutions in the implementation phase is very strong.
  - The legal framework is comprehensive and uniform rules and procedures cover most investment whether financed domestically or by EU funds.
  - Staff capacity is generally high, but more resources could be dedicated to analytical functions that support PIM.

### Assessment highlights (planning, allocation, implementation)
- Planning phase:
  - Fiscal rules support fiscal sustainability and facilitate medium-term planning of public investment.
  - Major projects have been appraised on a standard methodology since 2017, but improvement is needed in appraisal processes and the strategic planning framework.
  - Many sector strategies exist but are not part of a medium- or long-term national public investment plan and are hampered by a weak results framework.
  - Capital spending plans of subnational government (SNGs) are not discussed with the central government.
  - Regulatory framework for economic infrastructure and PPPs is sound, but MoF’s role as a gatekeeper for PPPs and oversight of SOEs is weak.
- Allocation phase:
  - No central PIM coordination unit and no integrated pipeline of large infrastructure projects.
  - MTBF includes non-binding ceilings for outer years; appropriations for routine and capital maintenance are included in the budget but generally insufficient.
  - Little data on the cost of major projects are published with the budget.
  - MoF has wide discretion to reallocate capital spending during the year and to carry over funds; capital spending generally exceeds the approved budget.
- Implementation phase:
  - Treasury ensures timely cash availability for capital spending and an asset registry exists.
  - Fixed assets are disclosed in financial statements but are not subject to regular revaluation.
  - Room to improve frequency and depth of external audits of procurement and PPO reporting.
  - Regular ex post evaluations of major projects should be conducted to improve portfolio management and project implementation.

### Summary of key numerical findings and figures cited
- Mission dates: February 6–20, 2019.
- ESIFs disbursements to Slovakia: 15 percent of GDP during 2007–15.
- Share of public investment financed via ESIFs: approximately two-thirds.
- ESIF absorption: less than a fifth spent after the first three years of the seven-year cycle.
- Capital stock: fallen to about 50 percent of GDP; one of the lowest in the region.
- Investment efficiency gap: 23 percent.
- Many years since 2003: public investment levels below regional peers.

### Main recommendations (summary of Table 2)
- Recommendation 1: The MoF and the DPMO to finalize the strategic investment planning framework and translate it into a project pipeline.
  - Institutional leads: 2,3.
- Recommendation 2: Expand and strengthen financial oversight functions of the newly established SOE unit in the MoF.
  - Institutional lead: 5.
- Recommendation 3: The MoF to include in the budget documentation information on:
  - (i) in-year reallocations of spending (virements) and carryovers for both capital and recurrent spending, and analysis of reasons; and
  - (ii) all major capital projects—total construction costs, year-by-year breakdown of these costs, and sources of financing.
  - Institutional leads: 6,7,8.
- Recommendation 4: The MoF, in consultation with other ministries, to establish a strategy, benchmarks and standards for routine and capital maintenance budgeting, including:
  - (i) medium term increments for maintenance; and
  - (ii) establishment of static weigh stations in strategic locations to eliminate overloading.
  - Institutional lead: 9.
- Recommendation 5: The MoF and the DPMO to establish:
  - (i) a unified pipeline of appraised major projects based on published selection criteria; and
  - (ii) a Public Investment Unit (PIU) to manage the pipeline, monitor implementation through an integrated project database, and provide advisory functions related to efficient project implementation and infrastructure development.
  - Institutional lead: 10.
- Recommendation 6: The SAO should consider thematic public procurement audits, followed up with corrective measures. The PPO should strengthen reporting on:
  - (i) openness, (ii) depth of competition, (iii) results of PPO control activities, and (iv) results of the complaints review process.
  - Institutional lead: 11.
- Recommendation 7: The MoF and the DPMO to develop an integrated project database for both EU and budget funded projects, based on the project pipeline (Recommendation 5), that can:
  - (i) generate a consolidated report on portfolio oversight for all major projects; and
  - (ii) flag potential risks to implementation of major projects and enable corrective action.
  - Institutional leads: 13,14.

*Source: PREFACE and EXECUTIVE SUMMARY of the PIMA mission report (FAD mission to Slovak Republic, February 6–20, 2019).*

### 1.      From 2006, public investment

### 1.      From 2006, public investment

### Trends and levels of public investment
- Investment levels declined from 2002 and have been generally below regional peers that also accessed EU funds after 2000.
- The capital stock followed a downward trend between 2000 and 2008, before levelling out, and is now one of the lowest in the region.
- A sharp spike in investment spending in 2015 reflected delayed spending of the EU programming cycle and accounted for almost 80 percent of investment spending that year.
- Public investment defined as gross fixed capital formation of the general government sector.
- The public capital stock is the accumulated value of public investment over time, adjusted for depreciation (which varies by income group and over time).
- Regional peers are: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovenia.

### Financing sources and volatility
- Approximately half of Slovakia’s public investment is provided by SOEs, central government contributes a further third, and local governments provide the rest.
- The distribution of total public investment has remained broadly stable since 2015.
- The bulk of SOE spending comprises three enterprises that are classified as part of general government, and four large nonfinancial enterprises outside of the general government.
- Substantial investment is also undertaken by extra-budgetary entities (EBEs) such as hospitals and universities.
- Local governments are responsible for smaller-scale social investments and secondary roads.
- Most public investment in Slovakia is financed by the EU’s structural and investment funds (ESIFs), which are quite volatile.
- The pronounced spike in public investment spending in Slovakia means investment spending has the second highest level of volatility amongst comparator countries.
- Volatility is calculated as the standard deviation of year on year growth of investment to GDP.

### Fiscal context and constraints
- Government efforts focused on reducing the fiscal deficit and stabilizing debt levels; combined with rigidities in recurrent spending, this has left little room for increasing public investment in the short to medium term.
- By 2017, the deficit had been reduced by 7 percentage points of GDP, and gross debt stabilized at 50 percent of GDP.
- Levels of recurrent spending as a ratio of GDP were initially reduced, before stabilizing, but at a higher level than regional peers.

### Subnational decentralization and regional allocation
- A constitutional reform in 2001 introduced three layers of government: Central Government, Higher Territorial Units (regions), and Municipalities.
- Following decentralization in the early 2000s, capital spending at regional and municipal levels increased to a peak of 46 percent of total general government investment by 2010; the ratio fell back to 23 percent in 2015.
- This places Slovakia as one of the least decentralized countries in the region.
- Since joining the EU in 2004, the Eastern regions of the country have received approximately two-thirds of public investment spending.
- In 2008, spending was split equally between East and West; a similar trend occurred in 2017.

### Composition by function
- Slovakia invests more on economic infrastructure than other EU countries, but less on defense, education, and health.
- Since 2008, over 90 percent of spending on economic infrastructure has been devoted to transport, but the road network is still significantly smaller than in comparator countries.
- The education sector has experienced financing and performance difficulties; comparatively low spending on educational infrastructure is associated with poor outcomes.

### EU funds absorption and domestic financing
- Between 2011 and 2015, EU funds, on average, accounted for approximately three-quarters of total investment spending.
- Due to slow execution rates early in the current programming period (2014–20), this share dropped to less than a half between 2016 and 2018, with domestic funding playing a much larger role.
- EU-funded capital spending is more volatile than investment financed from the state budget.
- Since 2011, apart from 2015, EU-financed investment spending has systematically underspent compared to the budget.
- The state budget has overspent in four of these years, largely because agencies, with the MoF’s permission, carried forward capital spending from one financial year to the next.
- Based on a five-year average, the absolute forecast error of budget outturns for capital spending one year ahead compared to forecasts is in the mid-range of comparator countries.
- Member states are allowed three years at the end of each programming cycle to use up unspent funds (the “n+3” rule); spending under the 2007-2013 programming cycle continued until the end of 2015.
- The rate of absorption of EU funds accelerated at the end of the programming cycle at a faster rate than comparator countries, with potential efficiency implications.
- By the end of 2018, the overall absorption of EU funds in the current programming period was still lower than nearly all other EU countries.
- By the end of 2018 the Integrated Infrastructure OP (transport and energy) for Slovakia had spent about 30 percent of its planned allocation.
- Reasons for low absorption include delayed spending at the end of the previous programming cycle, weaknesses in planning, coordination, administrative capacity, and delays in issuing calls for projects. Absorption rates have varied widely among Operational Programs.

### Public-Private Partnerships (PPPs)
- PPPs have been economically significant but limited mainly to a few large transportation projects.
- At the national level, there are currently three major active PPPs operating in the motorway and rail sectors, with fixed assets of approximately 3 percent of GDP.
- Smaller scale PPPs exist at the sub-national level for services such as waste collection, public lighting and hospital services.

### Efficiency and impact — transport and infrastructure outcomes
- The quality of Slovakia’s infrastructure and citizens’ access to services is slightly lower than the EU average and regional peers in most sectors, particularly roads.
- Access indicators for electricity production, health, education, and water are similar to comparator countries’ indicators, while indicators for roads perform less well.
- Coverage of Slovakia’s motorway network is one of the lowest in Europe.
- Perceptions of infrastructure quality in Slovakia are similar to regional comparators but significantly lower than the EU and advanced economy average.
- Perceptions of air and road infrastructure have improved in recent years, partly reflecting the completion of several roads and motorway projects since 2013.
- In the roads sector the primary constraint concerns over-usage of the existing infrastructure network which is having an adverse impact on the quality of roads.
- These problems have been compounded by low spending on maintenance.
- The length of rail tracks was 3,600km in 2016, which places Slovakia in the mid-range of cohesion countries.
- Rail companies rely heavily on state subsidies and are unable to sufficiently reinvest in infrastructure; on average, between 2013 and 2015, railway subsidies accounted for Euro 500 million, roughly evenly split between the train (ZSR) and track (ZSSK) operators.
- Slovakia uses rail infrastructure comparatively less than most new member states and is not fully benefiting from neighboring freight corridors (TEN-T corridor) and connections with the River Danube.

_Source: World Economic Outlook, Eurostat, Slovakia National Statistical Office, Ministry of Finance, World Bank World Development Indicators, Slovakia Transport Master Plan 2030, IMF staff estimates._

### 16.      Slovakia’s investment efficiency is broadly aligned with the global average but

### 16.      Slovakia’s investment efficiency is broadly aligned with the global average but lower than in EU and other peer countries

### Investment efficiency and gaps
- Slovakia’s estimated output efficiency gap is approximately 23 percent.
- The size of the gap is largely due to the lack of infrastructure investment in key areas such as transportation.
- Slovakia’s gap (23 percent) is higher than:
  - most EU countries (15 percent),
  - advanced economies (12 percent),
  - the comparator average (18 percent).
- The methodology maps measures of infrastructure output—infrastructure access and quality—against the public capital stock to show an investment efficiency frontier. The vertical distance between the country’s position and the frontier represents the efficiency gap.

### The PIMA framework and assessment approach
- The IMF’s PIMA framework assesses the quality of public investment management (PIM) by identifying institutional strengths and weaknesses and presenting practical recommendations to increase the efficiency of public investment.
- The tool evaluates 15 sets of practices and procedures ("institutions") that contribute to three major stages of the public investment cycle:
  - Planning of investment levels and projects for all public-sector entities;
  - Allocation of resources to appropriate sectors and projects;
  - Delivery of productive and durable public assets.
- For each of the 15 institutions, three dimensions are analyzed and scored on whether criteria are met in full, in part, or not met.
- Each dimension is scored on two aspects:
  - Institutional design — assesses whether appropriate laws, organizations, policies, rules and procedures are in place. The average score of the institutional design of three dimensions provides the institution score (high, medium, or low).
  - Effectiveness — assesses the degree to which intended purpose is achieved in practice. The average score of effectiveness of three dimensions provides the effectiveness score for the institution (high, medium, or low).

### PIM context in Slovakia
- Slovakia has a modern PFM system implementing many recommended practices:
  - Constitutional Fiscal Responsibility Act (FRA) of 2011 and Budget Rules Act of 2004 provide a comprehensive legal framework for PFM in general government.
  - Medium-term budgeting and accrual accounting for the public sector have been established.
  - Cash management is conducted through an effective treasury single account (TSA) arrangement, credible cash forecasts and coordinated cash and debt management.
  - Many practices (e.g., project appraisal and procurement) are underpinned by EU legislation.
  - Digitalization is deployed across the PFM spectrum.
- The Ministry of Finance has initiated spending reviews starting in 2016 to strengthen the efficiency of government expenditures. The first round covered about 8.6 percent of GDP; 2017 reviews covered expenditures amounting to 7.3 percent of GDP. Further reviews in 2018 covered additional sectors with final reports prepared by March 2019.

### Overall assessment and reform priorities
- Areas for strengthening PIM cluster around three themes:
  - Planning and managing public investment as an integrated portfolio;
  - Using standard criteria for project selection;
  - Strengthening transparency and accountability frameworks related to PIM institutions.
- Suggested improvements include:
  - Streamlining strategic planning and preparing a pipeline of major projects;
  - Using standard criteria for project selection;
  - Introducing a central PIM coordination unit to execute coordination and pipeline functions;
  - Strengthening SOE financial oversight functions in the Ministry of Finance;
  - Increasing central oversight of the capital investment project portfolio during project implementation.
- The report’s recommendations provide guidance on designing these reforms.

### Investment planning — fiscal principles and rules (Design—High; Effectiveness—High)
- Legislation on fiscal principles and rules provides a sound framework for fiscal planning and sustainability, including:
  - Constitutional Fiscal Responsibility Act (FRA) of 2011;
  - Budgetary rules for general government and subnational governments;
  - EU rules applying to general government.
- The FRA includes a debt brake with an upper limit of general government debt set at 60 percent of GDP and linked to three numerical sanction brackets. Automatic sanctions are activated when debt reaches a level 10 percentage points below the upper limit (i.e., 50 percent).
- From 2018 to 2027 these sanction brackets will be reduced by one percentage point a year until the upper limit reaches 50 percent of GDP in 2027.
- A proposal to exclude all public investment from the debt brake rule was endorsed by the Council of Ministers in 2017 but has not been implemented and is strongly opposed by the Council for Budgetary Responsibility (CBR).
- An escape clause in the FRA allows sanctions to be modified in defined circumstances (post-election periods, sudden and extreme recessions, natural disasters, major banking failures).
- Provisions for municipalities and higher territorial units (HTUs) subject them to similar debt limits and sanctions (e.g., local governments forbidden to take loans if their debt exceeds 60 percent of actual revenues in the previous year, or annual debt service is greater than 25 percent of these revenues).
- The FRA contains a provision for the government to impose ceilings on public expenditure but does not specify the methodology; imposition would require new legislation currently being considered. The FRA states the expenditure ceiling should be tied to the long-term debt sustainability indicator. The current estimate of the long-term sustainability indicator is 1.1 percent of GDP.
- Fiscal rules have been consistently applied. In 2012, debt rose to 52.1 percent of GDP triggering the debt brake procedure to bring debt down to 50 percent of GDP. The European Commission has pressed for consolidation toward the medium-term objective (MTO).

### Investment planning — national and sectoral plans (Strength—Medium; Effectiveness—Low)
- Slovakia lacks an overarching national strategic framework for public investment that sets goals and strategies to guide investment allocations and prioritization across sectors.
- Many sectoral strategies exist but vary in quality due to a lack of a common methodology.
- Most public investment strategies do not systematically include:
  - a financial dimension,
  - measurable targets for outputs,
  - an adequate monitoring framework.
- Examples:
  - The Slovak Strategic Transport Development Plan and the Environmental Strategy identify high-level strategic objectives and measures to 2030 but do not include a financial framework or a cost benefit analysis (CBA) of selected priority measures, and lack a monitoring matrix.
- There is no comprehensive list of public investment projects financed from domestic or other sources (see Institution 7).
- Strategic planning is robust for programs and projects financed under ESIF, which represent around two-thirds of capital spending in Slovakia and follow a seven-year programming cycle for 2014–2020:
  - The Partnership Agreement negotiated with the European Commission is the main strategic document for 2014–2020.
  - The overall amount allocated from ESIF for 2014–20 is EUR 15.3 billion, with an additional national contribution of EUR 4.7 billion.
  - ESI funds represent around two-thirds of total investment spending.
  - OPs include detailed performance monitoring frameworks with specific objectives, expected outcomes, and indicators with baselines, targets and monitoring frequency.
- Steps underway to remedy weaknesses:
  - 2016: Office of the Deputy Prime Minister for Investments and IT was created to ensure uniform national policy for investments, utilization of ESIF and implementation of IT projects.
  - Since 2017: government published a Roadmap for a National Infrastructure Plan covering 2018–30; a common methodology for preparing public strategies and performing CBA; and a pilot National Investment Plan (NIP) for 2018–30. The NIP identifies priority sectors, strategic objectives, measures, overall estimates of needed funds, and examples of individual projects with some cost information.

### Investment planning — coordination between entities (Strength—Medium; Effectiveness—Medium)
- Subnational governments (8 HTUs and around 2,890 municipalities) have large fiscal autonomy and do not coordinate the preparation of their investment plans with the central government.
- SNG public investment represents about 23 percent of Slovak public investment.
- SNG investments are generally financed from three sources:
  - SNG own resources (around 50 percent);
  - EU funds (35 percent);
  - subsidies from the state budget (15 percent).
- A summary overview of SNG large public works with planned funding is available:
  - Ministry of Transport and Construction must present a “Development Program of Public Works Priorities” for a three-year period listing large public works (> EUR 1.3 million) prepared by state institutions and SNGs, including technical preparation, planned start/end dates, planned costs, and foreseen funding sources.
  - The Development Program is not a plan for realization nor does it confer rights to public funding.
  - The current development program for 2019–21 includes 84 projects with a total value of EUR 5.15 billion, of which seven projects are SNG projects.
  - Out of the 84 projects, 62 are planned to be co-financed by ESI funds through OPs IROP, OP Environment and OPII; the amount of EU co-financing is not specified in the document.

*Source: IMF Staff estimates*

### 34.      Coordination between central authorities and SNGs is stronger in the context of

### Coordination between central authorities and SNGs is stronger in the context of EU-funded programs and projects

### Coordination with SNGs on EU-funded programs
- EU funds (ESIF OPs) are largely managed by line ministries; SNGs were involved in the preparation of OPs, especially on OP objectives (types of funded projects).
- SNGs are large beneficiaries of OPs. The “Integrated Regional OP” (IROP) is dedicated almost entirely to capital investment projects of SNGs, with an allocated EU funding of EUR 1.75 billion for the period 2014–20.
- In the IROP, the 8 higher territorial units and 7 major cities act as intermediary implementing bodies, carrying out responsibilities delegated by the managing authority (the Ministry of Agriculture), including organization of calls and evaluation of applications.
- Individual funding applications are submitted by SNGs based on their needs and priorities, without a central coordination.

### SNG financing and predictability
- Main SNG budget income: a proportion of personal income tax (PIT) collected in respect of their territory: 70 percent of the PIT is allocated to the relevant municipality and 30 percent to the higher territorial unit.
- Ministry of Finance publishes three-year tax forecasts, which are updated every three months.
- State budget institutions can make transfers to SNGs for specific capital projects under law-defined programs. These specific transfers represent only a minor part of SNGs capital spending and are not fully predictable, as they depend on evaluation of financing proposals submitted by SNGs.

### Contingent and implicit liabilities
- Contingent liabilities arising from major public investment projects are presented in government budget documents as an annex, regardless of project responsibility.
- By law, the central government does not guarantee liabilities incurred by SNGs.
- The central government approves a general government budget covering a period of three years; annexes include general government contingent liabilities (including contingent liabilities of SNGs and SOEs) and “implicit liabilities” (“Implicitné záväzky”— Annex 5 of the GG budget).
- Projected “availability-based” payments for PPPs (discounted expected payments for the remaining duration of the concessions) are reported as “implicit liabilities” and are expressed as a percentage of GDP. In 2018, the implicit liabilities connected to PPPs were estimated at 3.3 percent of GDP.

### Project appraisal (Strength—Medium; Effectiveness—Medium)
- EU-funded projects:
  - Subject to comprehensive technical, economic and financial analysis under EU rules.
  - EC guideline for cost-benefit analysis (CBA) applies; updated for 2014–20.
  - EC requires CBA for all major infrastructure projects above EUR 50 million.
  - In Slovakia, all OP projects follow EU rules and conduct required CBA.
  - Around 80 percent of all major projects is funded by the EU, of which more than two-thirds are implemented by the Ministry of Transport (MoT).
  - Standardized CBA is applied for all major projects conducted by the MoT; state expertise involvement in appraisal is mandatory. Since 2017, appraisal results are published on MoT website.
- State budget–financed projects:
  - CBAs mandated for major projects above EUR 40 million and for IT projects above EUR 10 million since 2017.
  - Central support: MoF’s Value-for-Money Division validates CBA calculations before procurement eligibility; MoF opinion is not binding but highly influential.
  - Some municipalities (e.g., Bratislava) conduct feasibility studies after final design and sometimes use MoT CBA methodology.
- Methodology and data issues:
  - Feasibility studies by MoT do not use consistent and reliable traffic data and forecasts; a central database could consolidate data.
  - MoT and MoF commenced a project to harmonize assumptions and methodologies for feasibility studies and value-for-money analysis in roads and railways.
  - More resources needed for technical analysis (e.g., geotechnical investigations by the Slovak Railway Company) to be factored into feasibility studies.
- Risk assessment:
  - Many budget institutions (MoT, Slovak Railway Company, National Highway Company, some municipalities) include risk assessments in appraisals, but these are generally qualitative and lack cost implication analysis and mitigation strategies.

### Alternative infrastructure provision (Design—Medium; Effectiveness—Medium)
- Regulatory framework:
  - Based on EU rules; encourages competition in economic infrastructure markets.
  - Three regulatory bodies cover electronic communications and postal services; energy, water and sewerage; and transportation; operationally and financially independent.
  - Electronic communications: some 1,200 companies and four mobile operators. Postal services: Slovak Posts (100 percent state-owned) and 27 private companies with unlimited market access.
  - A new Electronic Communications Code (Commission, 2018) requires massive investment in new business processes and fiber optics systems.
  - Slovakia’s overall performance in connectivity remains below the EU average.
- Energy and transport liberalization:
  - Electricity sector unbundled into generation, transmission and distribution in early 2000s.
  - New EU directive/regulation on electricity sector provisionally approved in December 2018.
  - Legislation aims to strengthen competition and consumer access to tools (price comparisons, smart meters).
  - EU transport policy supports integrated networks across modes.
- Regulatory deficiencies in energy:
  - Electricity and gas prices for households, small businesses and customers under the “supplier of last resort” regime are regulated, including the commodity component.
  - All household consumers and SMEs are considered vulnerable and supplied at regulated prices, hampering market development.
  - Alternative: better-targeted social policy measures for vulnerable customers could substitute energy price regulation.
- PPPs and public procurement:
  - No dedicated PPP law; government has published a PPP strategy and a methodology for preparing, selecting and managing projects.
  - All PPPs approved so far have been user-funded (concessions).
  - After a financially unsuccessful first PPP (the R1 motorway, operating since 2010), government adopted a cautious approach, favoring EU-financed projects.
  - Current PPP status: one project in construction (D4/R7 motorway), one financially approved (Žilina intermodal transport terminal), one in pipeline (Rimavská Sobota prison).
  - Capital expenditure on the two motorway projects is estimated at about EUR 2.2 billion (2.6 percent of GDP); the other two projects are much smaller.
  - No ex post evaluations of PPP projects have been carried out.
- MoF role in PPPs:
  - PPPs above EUR 5 million require Government approval prior to contract award and must include an MoF opinion on budget implications; this requirement has not been fully tested and does not amount to full MoF value-for-money evaluation.
  - Information on implicit liabilities of approved PPP projects is published as an annex in the budget.
  - Monitoring of PPP projects post-implementation could be improved: MoF receives no reports from procuring authority on post-implementation performance; no regular monitoring by Budget Department or MoF’s PPP Unit of financing or implicit fiscal risks.

### State-owned enterprises (SOEs)
- SOE scale and reporting:
  - Ninety-two SOEs are recorded in central government and several hundred in local governments.
  - Capital expenditure by SOEs represents more than half of total public investment.
  - SOEs’ fixed assets account for around 30 percent of GDP.
  - Many large SOEs (highways, rail tracks) are classified as entities of general government since 2014; others are part of the wider public sector but wholly or partly government-owned (electricity generation, ports).
  - All SOEs required to produce annual financial statements and be externally audited, but only 13 of 92 central government SOEs follow IFRS reporting standards.
  - Provision in the FRA requires government to publish information on fiscal risks associated with SOEs, but this has not been carried out.
- Fixed assets of largest SOEs (Euro million)
  - National Highway Company: 2015 7,573; 2016 8,136; 2017 8,522
  - Slovakia Electricity Generation: 2015 7,174; 2016 7,575; 2017 7,906
  - Slovak Railways: 2015 3,292; 2016 3,281; 2017 3,355
  - Slovak Water Management: 2015 1,367; 2016 1,368; 2017 1,369
  - Dam Construction: 2015 1,181; 2016 1,158; 2017 1,150
  - Slovak Railway Company: 2015 968; 2016 925; 2017 897
  - Slovak Electricity Transmission: 2015 797; 2016 820; 2017 819
  - Public Ports: 2015 591; 2016 589; 2017 589
  - Total: 2015 22,942 (29); 2016 23,853 (30); 2017 24,607 (29)
- Oversight and fiscal risks:
  - SOE sector has not created serious financial problems in recent years, but potential fiscal risks are significant and many risks, including investment-related risks, are not disclosed, contrary to the FRA.
  - Oversight by the MoF is very light, even where MoF is parent ministry and exercises ownership rights (example: electricity transmission company SEPS).
  - Newly established unit in MoF to gather data exists, but financial oversight needs expansion and improvement.
  - SOEs are not required to report on profits, liquidity, return on equity, dividends, quasi-fiscal activities, or other key financial indicators; budgets or strategic plans are not submitted to MoF for approval; no consolidated report on SOE financial performance is produced.
  - No operational review has been carried out on SOE investment framework; gaps exist in managing project appraisal in some SOEs.

### Recommendations
- Issue: Sectoral and regional investment plans have varying coverage, structure, time periods, and project information (including costs), and are poorly coordinated. DPMO has taken steps to improve strategic planning and developed a common methodology and a pilot national investment plan (NIP).
  - Recommendation 1: MoF and DPMO to finalize the strategic investment planning framework and translate it into a project pipeline. DPMO should ensure the NIP does not become an unrealistic “wish list” and work with MoF to transform the plan and its goals and objectives into a national infrastructure pipeline (See Recommendation 5).
- Issue: SOEs are responsible for nearly half of public investment, but MoF exercises very little oversight of their investments, operations and financial performance, heightening fiscal risks.
  - Recommendation 2: MoF should expand and strengthen the newly established SOE unit’s financial oversight functions. Functions could include reviewing annual budgets, investment plans and financial plans of major SOEs; undertaking an operational review of SOEs’ investment framework; analyzing capacity constraints in project management and execution and in carrying out investment appraisal. The unit could also have wider oversight responsibilities as noted under Institution 5.

### Investment allocation — Multi-year budgeting (Strength—Medium; Effectiveness—Medium)
- Projections of total capital spending for general government are published by budgetary entity and program over a three-year period, distinguishing capital projects from recurrent spending.
- Numbers for the first year (appropriated in the Annual Budget Act) are based on generally realistic assumptions but many amendments and virements during the year create substantial differences between approved budget and outturns.
- Projections of EU-financed investment in the first year are broad-based estimates that may change substantially during the year as specific project information firms up and availability of co-financing is confirmed.
- Estimates of spending in years 2 and 3 of the MTBF are even more unreliable.

*Source: IMF country report content provided in the supplied PDF excerpt.*

### 49.      In principle, the MTBF contains ceilings on the spending, capital and recurrent, of

### 49.      In principle, the MTBF contains ceilings on the spending, capital and recurrent, of

### Medium-term budgetary framework and ceilings
- The MTBF contains ceilings on the spending, capital and recurrent, of all general budgetary entities, but these ceilings have no binding force, either legally or politically.
- The CBR has noted that these ceilings should be taken “mostly indicatively.”
- As a result, the ceilings are not binding and have been changed substantially in recent years, both in the first year and in subsequent years, for both recurrent and capital spending.
- The FRA provides for the government to establish a rule that will cap public expenditure, but this rule has not yet been defined or implemented by law.

### Budget comprehensiveness and unity (Strength—Medium; Effectiveness—Medium)
- Government organization is highly fragmented, complicating a unified approach to budgeting.
- Significant capital spending is undertaken by SOEs that belong to the general government sector and other extra-budgetary entities (EBEs), though this spending is not authorized by the parliament or disclosed in the budget documentation.
- In the approved budget for 2019:
  - Capital spending by EBEs accounted for 48 percent of total spending and 36 percent of capital spending.
- Composition of EBEs in Budget 2019 (Euro million):
  - Social security and health insurance funds: 13,310 (35.8%) total; 19 (0.8%) capital investment and transfers.
  - Other EBEs: 4,628 (12.4%) total; 902 (35.9%) capital investment and transfers.
  - Total EBEs: 17,969 (48.3%) total; 921 (36.6%) capital investment and transfers.
  - Total expenditure: 37,228 (100.0%) total; 2,516 (100.0%) capital investment and transfers.
- Very limited project-level information is presented in the annual budget documents; capital projects, even major ones, are not separately authorized with detailed project-level cost and phasing data.
- Capital and recurrent budgets are prepared and presented together using a program classification; budgets are fully integrated at the level of budget entities and subordinate agencies.

### Budgeting for Investment (Strength – Medium; Effectiveness – Low)
- Capital projects are authorized by parliament on an annual basis through the Annual Budget Law; little information on total project costs or expected phasing by year is included.
- Estimates of spending on EU-financed projects are approximate and may be changed during the year.
- Budget execution procedures give the MoF considerable freedom to make in-year reallocations (virements); rules for virements are defined in the Budget Rules Act, Articles 15–18, giving considerable discretion to the Budget Department of the MoF.
- There are no legal limits on the amount of transfers to be made or to prevent funds being transferred from capital to recurrent spending.
- Deviations between budgeted allocations and outturns for capital spending in the first year can be as great as 100 percent.
- Five-year mean deviation:
  - Recurrent spending: 3 percent.
  - Capital spending: 40 percent.
- Table of deviations between approved budget and actual spending, 2013–18 (Euro million):
  - 2013: Current Budget 24,339; Actual 25,146; Deviation 3 (Percent). Capital Budget 1,867; Actual 2,585; Deviation 38 (Percent).
  - 2014: Current Budget 25,030; Actual 26,227; Deviation 5 (Percent). Capital Budget 1,645; Actual 2,573; Deviation 56 (Percent).
  - 2015: Current Budget 26,311; Actual 28,803; Deviation 9 (Percent). Capital Budget 2,776; Actual 5,668; Deviation 104 (Percent).
  - 2016: Current Budget 28,477; Actual 29,390; Deviation 3 (Percent). Capital Budget 2,510; Actual 2,943; Deviation 17 (Percent).
  - 2017: Current Budget 30,215; Actual 29,895; Deviation (1) (Percent). Capital Budget 3,409; Actual 2,872; Deviation (16) (Percent).
  - 2018: Current Budget 31,647; Actual 31,441; Deviation (1) (Percent). Capital Budget 2,392; Actual 3,360; Deviation 40 (Percent).
- Virements may take place within budgetary chapters, or between programs or ministries; no ex ante parliamentary approval is required though ex post information is published on the MoF’s external website.
- For EU-financed projects, funds may only be used to finance capital spending.
- Supplementary budgets are not permitted by law; a provision in the FRA permits the government to increase the overall budget envelope by up to 1 percentage point, provided that the deficit ceiling is not breached.
- Carryover provisions (Article 8 of the Budget Rules Act) apply to both EU-financed and state-financed capital spending and may be applied for two consecutive years (the “n+2” rule).
  - Carryovers may be used to delay spending if the fiscal deficit is under pressure.
  - Extent of carryovers has been very substantial, up to 1 percent of GDP in some years.
  - Carryovers are approved by the MoF and do not require prior authorization of parliament; ex post information is published on the MoF’s website.
- Several expenditure reserves, amounting to up to 1 percent of GDP, are included in the budget and may be used to protect program spending, but not specifically capital investment.
- No other budgetary rules or procedures are specifically designed to protect capital investment.

### Maintenance funding (Strength—Medium; Effectiveness— Medium)
- No standard methodology exists across government for estimating routine maintenance needs, though some sectors (e.g., transport) have developed methodological guidelines and monitor physical condition.
- Sector-specific methodologies exist for routine and capital maintenance (e.g., National Highway Company (NHC), power generation company, railway corporation, electricity generation and distribution).
- Routine and capital maintenance needs are estimated regularly during the state budget preparation process, but estimates are not always reliable.
- Table: Routine and capital maintenance (percent of GDP) and Maintenance/Capital Stock:
  - Routine Maintenance (2011–2017): 0.14 0.15 0.16 0.13 0.05 0.09 0.1
  - Capital maintenance (2011–2017): 0.01 0.01 0.01 0 0.66 0.39 0.34
  - Total Maintenance (2011–2017): 0.15 0.16 0.17 0.13 0.71 0.48 0.44
  - Capital Stock (2011–2017): 48 48 48 48 47 47 47
  - Maintenance/Capital Stock (2011–2017): 0.3 0.3 0.4 0.3 1.5 1.0 0.9
- Compare to depreciation rates for public capital assets between 5 to 10 percent (depending on income level): allocations for maintenance seem low.
- Budgeted maintenance funds appear under-utilized. Example for NHC:
  - Routine maintenance in NHC budget/NHC’s capital spending: 2016 = 3.5; 2017 = 5.9.
  - Actual spending versus budget allocation for routine maintenance: 2016 = 78; 2017 = 88 (percentage).
- Condition of infrastructure assets is poor in some sectors. Box 1 highlights:
  - There are 8,066 bridges in the network of which about 1,000 falls within categories 5 to 7; around 12 percent of all bridges are bad, very bad, or in a state of emergency.
  - Slovenska Sprava Ciest manages 3,176 km of class I roads of which 9 percent in 2015 were in a state of disrepair.
  - Railway Company requires 400 Million Euro per year for maintenance of class II tracks but only 130 Million Euro per year is allocated; Class II tracks are all in a poor state.

### Project selection (Strength— Medium; Effectiveness—Low)
- Project selection is decentralized: each ministry, region, city and municipality scrutinize and select their own projects.
- The Public Works Act requires creation of a large public works program updated annually, but in practice the program is a formality and not used for actual investment planning.
- Ministries, regions, cities and municipalities develop projects to meet sector strategies; all entities have their own selection criteria and these criteria are published.
- Major projects funded by government funds are not always reviewed by an independent agency or experts prior to inclusion in the budget; major EU-funded projects are reviewed by independent experts.
- Within the MoT, project selection is based on readiness for implementation and availability of funding for state-funded projects; Strategic Plans guide project selection (up to 2020 and to 2030), and MoT works with Value-for-Money Division on methodology for road project prioritization.
- No standard selection criteria and no integrated national pipeline of projects for the state budget exist.
- The MoF requests information from budget entities about new major projects but does not systematically obtain information about projects for which financing decisions are not required in the budget preparation process.
- The Value-for-Money Division at the MoF is in the process of prioritizing projects for the MoT and can be tasked with preparing a coordinated pipeline of major projects or monitoring implementation of large public works; the division could ensure projects are appraised according to law and meet national policy priorities and provide advisory services.

### Recommendations
Issue: Comprehensive information on public investment projects and changes during the year (carryovers and virements) is not systematically reported to parliament and the public.
- Recommendation 3: To improve transparency, the MoF should publish in the budget documents comprehensive information on:
  - All major capital projects, above a defined threshold. Information should include the total construction costs of the projects, the breakdown of this cost over the duration of the construction period if more than one year, and the source of financing (EU funds, other external sources, the state budget, own resources, etc.).
  - In-year reallocations of spending (virements) and carryovers from one budget year to the next year in respect of both capital spending and recurrent spending, and an analysis of the reasons for these changes.

Issue: Not enough attention to maintenance in the budget process; no clear strategy to improve maintenance spending and budgeting.
- Recommendation 4: Establish a national strategy and norms for routine and capital maintenance budgeting, that will enhance the quality of strategic existing infrastructure and will include:
  - Medium term increments for routine and capital maintenance.
  - The establishment of static weigh stations in strategic locations to eliminate overloading.

Issue: No consolidated project pipeline across sectors, and no comprehensive criteria for selection of budget-funded projects; no central PIM unit.
- Recommendation 5:
  a. Establish a unified pipeline of appraised major projects to compare projects within and across sectors in a transparent and competitive manner, that:
    - Focuses on major projects with a value above a specified threshold and include projects financed from different funding source (the state budget, EU funds, own resources, or PPPs).
    - Incorporates a ranking procedure to select projects for inclusion in the pipeline.
    - Publishes the criteria for project selection for transparency purposes.
    - Is linked with financial envelopes to be established in the MTBF, whatever the source of funding.
  b. Consider introducing a central PIM unit function either in the MoF or another central agency of government.

*Source: 1svkea2019002 - Chapter text (pages 34–41) from the provided IMF content unit.*

### 11.   Procurement (Strength—High; Effectiveness— Medium)

### 11. Procurement (Strength—High; Effectiveness— Medium)

### Legal framework, practice, and recent outcomes
- The Slovak Public Procurement Law (PPL) distinguishes between low-value procurement (in general below EUR 15,000), medium-value procurements and high-value procurements. Thresholds for high-value procurements follow the applicable EU legislation.
- All relevant public procurement documents are published on the website of the Public Procurement Office (PPO).
- In 2017, most high-value procurements in Slovakia were carried out through a competitive process: "91.6 percent by value", a significant increase from "around 81 percent in 2016 and 2015". Open tender was the most frequently used procedure.
- Table 9 (Public Procurement Procedures, 2017) — key reported figures:
  - Open tender2: Million EUR 2 206,800; Precentage 64,6%; Number 728; Percentage 83,2%; Cancelled 434; Total 1 162
  - Restricted tender: 850,802 Million EUR; 24,9%50; 5,7% Number 11; 61
  - Negotiated with a prior call for participation: 69,023 Million EUR; 2,0%13; 1,5% Number 114
  - Negotiated without prior notice: 286,816 Million EUR; 8,4%83; 9,5% Number 29; 112
  - Competitive dialogue: 0,073 Million EUR; 0,0%1; 0,1% Number 1; 2
  - Inovative partnership: 0,000 Million EUR; 0,0%0; 0,0% Number 0; 0
  - Sum3: 413,514 Million EUR; 100,0%; 875 Number; 100,0%; 476 Cancelled; 1 351 Total
  - Procurement below threshold value: 591,284 Million EUR; ‐1 812; ‐1 227; 3 039
  - Total4: 004,798 Million EUR; ‐2 687; ‐1 703; 4 390
  - Specific contracts under Framework contracts: 738,694 Million EUR; ‐2 455; ‐‐2 455
  - Design competition: 0,316 Million EUR; ‐16; ‐1; 17
  - Concessions: 0,000 Million EUR; ‐0; ‐6; 6

### Identified weaknesses and implementation gaps
- Despite progress, weak administrative capacity and anticompetitive practices continue to impact tender procedures; the effectiveness of public procurement has been subject to criticism from the public, businesses and European institutions.
- Reforms and tools introduced:
  - Public procurement legislation modernized; fully electronic procurement procedures introduced in 2018.
  - Several indicators improved in 2017: number of tenders with single bidder, proportion of open tenders, speed of decision-making.
- Remaining problems include:
  - Weak administrative capacity.
  - Too narrow specifications (tailor-made for particular companies).
  - Unclear selection or evaluation criteria.
  - Corruption in general.
  - High proportion of cancelled procurement procedures (overall "38.8 percent in 2017", see Table 9).
- Audit and oversight gaps:
  - The Slovak Supreme Audit Office (SAO) covers procurement in the context of some audits, but has not performed thematic audits focused specifically on public procurement.
  - In 2018 the PPO analyzed a sample of 100 public procurement procedures and found that the majority of procurement procedures organized by SNGs (mostly municipalities) included breaches of law, and/or led to only one or two applications for tenders.
- Sample analysis (Table 10 — Slovakia: Analysis of a Sample of Public Procurement Procedures):
  - Central government: 9 Procedures; 2 Tender applications; 2 Breaches of law; 5 44%?2,63111% (table formatting preserved as in source)
  - SNG: 23 Procedures; 6 Tender applications; 7 Breaches of law; 1057%2,901461%
  - SOEs: 17 Procedures; 3 Tender applications; 2 Breaches of law; 1229%4,42741%
  - Sub‐total general government: 49 Procedures; 11 Tender applications; 11 Breaches of law; 2745%2,962245%
  - Grant beneficiaries: 51 Procedures; 4 Tender applications; 15 Breaches of law; 3237%3,10714%
  - Total: 100 Procedures; 15 Tender applications; 26 Breaches of law; 5941%3,232929%
  - (Table entries reproduced exactly as presented in the source.)

### PPO functions, transparency, and complaint handling
- The PPO maintains a comprehensive procurement database and produces regular reports on public procurement; its national electronic procurement system includes all relevant procurement documents and from 2018 the whole procurement procedure became electronic.
- PPO responsibilities include policy making, supervision of the public procurement system and management of procurement e-tools; the PPO closely monitors procurement procedures and publishes lists of reviews and adopted decisions on its website, plus annual statistics on public procurement.
- Statistical gaps: PPO statistics do not include analysis of openness of medium-value procurements, depth of competition, or results of PPO’s control activities.
- Complaint handling:
  - Complaints can be lodged by tender applicants, participants or other interested parties.
  - Complainants pay a fee between "EUR 2,000 and EUR 50,000", reimbursed if the complaint is successful.
  - The PPO has a deadline of "30 days" to review complaints.
  - First-level decisions by the Office can be appealed to the PPO Council (president, two vice-presidents, six independent members nominated by the government).
  - PPO decisions are legally binding and can be subject to judiciary review.
  - PPO publishes decisions relating to individual complaints; summary statistics and analysis of decisions are not available.

### Recommendations (explicit)
- Issue: Despite some progress, weak administrative capacity and anticompetitive practices continue to impact negatively the public procurement procedures in Slovakia. The SAO has not performed any thematic audits focusing specifically on this area and the reports from the PPO do not cover all areas to support this process.
  - Recommendation 6: The SAO should consider performing thematic public procurement audits for identified weaknesses that are followed up with corrective measures. The PPO can support this process by strengthening reporting to include:
    - Openness (types of procedure) followed in the case of medium-value procurements.
    - Depth of competition (e.g., the average number of bidders, and the number of tenders with only 1 or 2 bidders).
    - Results of the PPO’s control activities (the proportion of procedures with identified breaches of law).
    - Results of the complaints review process (e.g., the proportion of upheld complaints).
- Issue: There is insufficient attention given to portfolio management and oversight.
  - Recommendation 7: Develop an integrated project database, based on the project pipeline that:
    - Can generate a consolidated report on portfolio oversight for all major projects
    - Flags potential risks to major projects to enable corrective action

### Crosscutting IT systems and capacity implications
- Multiple IT systems exist for specific purposes in the PIM cycle; development of IT systems reflects a fragmented organization of government.
- Table 11 (IT Systems Used for PIM) — systems and purposes (summary as in source):
  - Budget preparation and reporting system: Records revenues and expenditures by budget classification with mapping to ESA 2010; includes an investment register that records broad level project information for budgeted projects (project description, cost and annual budgets).
  - Central consolidation system: Consolidates the financial reports of all public sector entities (8000+) to produce the public sector balance sheet; fixed assets (stock) information is included, at aggregate and entity level.
  - ITMS (EU): System that manages all EU projects from inception through to implementation; project monitoring module can track spending, procurement, physical performance against priorities in each operational program.
- If an integrated project pipeline approach is adopted, IT system changes may be required so the central unit managing the pipeline can access all projects eligible for inclusion and undertake ranking and oversight at key decision points.
- Staff capacity: Technical staff levels appear high, but more time should be dedicated to analytical functions, risk management and challenge roles for public investment decisions, particularly if a PIM Unit is established.

*Source: 1svkea2019002 - 11.   Procurement (Strength—High; Effectiveness— Medium)*

### 84.      The legal framework is comprehensive and there are no apparent gaps that hamper

### 1svkea2019002 - 84.      The legal framework is comprehensive and there are no apparent gaps that hamper

### Legal framework for PIM
- The legal framework is comprehensive and there are no apparent gaps that hamper efficient PIM.
- Ministries and other budget institutions have legal departments as part of their structure and a comprehensive list of all laws are centrally stored on a public website.
- When new legal requirements are required to support PIM processes, relevant decrees can be drawn up for approval, as was the case with the publication of cost-benefit analysis appraisals.
- One possible hindrance in the legislative environment is its instability and consequently ensuring that entities comply adequately ensuring with legal requirements.
- Footnote: According to the European Commission Staff Working Document, Country Report Slovakia 2018, SWD (2018) 223 final, “Instability in the legislative environment also harms the business environment. For example, between 2007 and 2016 the Trading Act was amended 54 times and the law on income tax 53 times, while the labor code was amended on average between 2 and 3 times per year. In 2015 the Social Insurance Act was amended 9 times and the Trade Licensing Act 12 times, making it particularly difficult for businesses to comply.”

### Project selection: Example scorecard (Appendix I)
- Criteria and responsible unit: MoFTBD is listed as the responsible unit for the scorecard items.
- Strategic fit (Principle 1)
  - 1.1.1: Does the project fit to any of the priorities — MoFTBD
  - 1.1.2: Does the project fit to any of the strategic objectives in the National Strategic plan — MoFTBD
  - 1.2.1: Does the project fit to any of the sector strategies? — MoFTBD
  - 1.3.1: Does the project fit to the annual policy priorities decision of the Government? — MoFTBD
- Current situation and rationale for investment (Principle 2)
  - 2.1.1: Is there description of the current situation (including problems)? — MoFTBD
  - 2.1.2: Is the rationale for investment provided? Are the project outputs defined? — MoFTBD
- Economic appraisal and fiscal affordability
  - 2.2: Investment options/Cost Benefit Analysis (CBA required for medium and full appraisal)
  - 2.2.1: Were investment options prepared? OR Was CBA prepared? Do the results make sense? (required for medium and full appraisal) — MoFTBD
- Environmental/social/other impacts (required for medium and full appraisal)
  - 2.3.1: Is the environmental impact described? Is assessment by the Ministry of Environment required? Was obtained? — MoFTBD
  - 2.3.2: How will project uplift the community? — MoFTBD
  - 2.3.3: Is any other impact described? — MoFTBD
- Impact on recurrent costs
  - 2.4.1: Are recurrent costs (operational and maintenance) recognized and identified? — MoFTBD
- Maturity / Implementation Assessment (Principle 3)
  - 3.1.1: Are the project risks identified? — MoFTBD
  - 3.1.2: Are the actions to minimize the impact of the risks on the project described? — MoFTBD
  - 3.2.1: Is project manager defined? — MoFTBD
  - 3.2.2: Are project organization arrangements explained? — MoFTBD
  - 3.3.1: Is project implementation plan developed? — MoFTBD
  - 3.3.2: Is pre-feasibility study developed? — MoFTBD
  - 3.3.3: Is feasibility study developed? — MoFTBD
  - 3.3.4: Are any other economic/financial analysis prepared? — MoFTBD
  - 3.5.1: Are start and end dates of project implementation phase set? — MoFTBD
  - 3.5.2: Are investment costs defined? Are the total project costs defined? Are the sources of funds defined? — MoFTBD
- Scores to be determined by authority.
- Illustrative financing categorization in the scorecard: A (Budget), B (EU), HCE (PPP), G (Bilateral loans), DF (SOE), O (Other-Specify).

### Functions and structure of a PIM unit (Appendix II)
- Core functions
  - To prepare an integrated infrastructure pipeline of major projects.
  - To track progress in delivering the projects included in the pipeline.
- Typical organization and staffing
  - The head of the unit would be assisted by four deputies in charge of financial, and technical analysis to support the preparation of the pipeline of projects and a monitoring and evaluation sub unit tasked with tracking progress of project implementation.
  - At least three analysts would be required to support each sub unit.
- Role and coordination
  - PIM units typically feed analytical findings upwards through to the Minister for resource allocations to be considered at a higher top technical/political level indicated by the resource allocation panel.
  - PIM units play a key coordination role within the Ministry of Finance (generally they are in MoF), across planning and line ministries and also play a liaison role with the project implementer such as an SOE.
- Sub-unit functions and coordination roles
  - Financial: Assessment of the affordability and financial viability of projects — Budget, Debt and PPP Departments
  - Economic: Economic and Social assessment — Macro unit
  - Technical: Appraisal of technical issues (designs, land, environment, social) — Line ministries
  - Monitoring and Evaluation: Monitoring of project delivery and evaluation — Budget Department, Line ministries
  - Analysts: Research, analysis, modelling — All
- Example staffing diagram elements: Director; Financial Specialist; Economic Specialist; Technical Specialist; M&E Specialist; Analysts; Minister; Resource Allocation Panel.

### Maintenance of public assets (Appendix III)
- Maintenance should be given high priority and considered alongside proposals for new investments.
- Strategic infrastructure failures can have a significant impact on service delivery and the economy.
- Capital maintenance may provide in general better cost/benefit than new construction.
- Routine road maintenance enhances quality of roads and moderates the need for new investment.
- A rigorous overload strategy for roads, inclusive of permanent weigh bridge facilities at strategic positions, can reduce further road deterioration as well as maintenance costs.
- It is advantageous to investigate ways to increase maintenance spending and its implications for investment in new infrastructure.
- The figures in Table A3 are applicable for South Africa; the authorities might want to develop norms reflecting Slovakia’s geography, geology, climate and topographical characteristics.

- Table A3. Slovakia: Maintenance Requirements for Different Types of Infrastructure (indicative estimates)
  - Roads and storm water
    - Maintenance budget (a): 5-10 percent
    - Key assumptions: Mostly emergency repairs, storm damage and periodic maintenance. (Resurfacing every 7 – 10 years
    - Replacement or major rehabilitation (b): 20 – 30 years
  - Public buildings
    - Maintenance budget (a): 4 – 6 percent
    - Key assumptions: Mostly for emergency repairs, storm damage, and periodic maintenance. (Repainting and cosmetic upgrades every 5 – 10 year)
    - Replacement or major rehabilitation (b): 30 – 50 years
  - Hospitals
    - Maintenance budget (a): 5 – 8 percent
    - Key assumptions: Mostly for emergency repairs, storm damage, and periodic maintenance. (Repainting every 3 to 5 year and upgrades every 5 to 10 year)
    - Replacement or major rehabilitation (b): 30 – 50 years
    - Note: One need to allocate at least 5 percent of the replacement cost of the hospital in the budget for maintenance, for any specific year, if the facility is still in a fairly good condition and 8 percent if the facility is in an under average stage. To calculate the exact number for maintenance, require a condition assessment of the facility before budgeting and even then, the calculation might not be 100 percent accurate as one cannot foresee emergency damage as well as storm damage.
  - Schools
    - Maintenance budget (a): 4 – 6 percent
    - Key assumptions: Mostly for emergency repairs, storm damage, and periodic maintenance. (Repainting every 5 to 7 year)
    - Replacement or major rehabilitation (b): 30 – 50 years
  - Electricity reticulation
    - Maintenance budget (a): 10 – 15 percent
    - Key assumptions: Mostly for emergency repairs, storm damage, safety and security, routine maintenance and periodic maintenance
    - Replacement or major rehabilitation (b): 20 – 30 years
  - Electricity generation
    - Maintenance budget (a): 5 – 8 percent
    - Key assumptions: Mostly for electrical and mechanical equipment and dependent on age and technology of works
    - Replacement or major rehabilitation (b): 20 – 30 years

*Source: 1svkea2019002 - 84. The legal framework is comprehensive and there are no apparent gaps that hamper (PDF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1svkea2019002.pdf_