## 1svkea2023002 ## Source details **Canonical URL:** [1svkea2023002](https://www.imf.org/-/media/files/publications/cr/2023/english/1svkea2023002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1svkea2023002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1svkea2023002.pdf.json) --- ### Preface and Executive Summary — mission, scope, and headline metrics - Mission and scope: - Fiscal Transparency Evaluation (FTE) for the Slovak Republic conducted by IMF FAD during January 12-28, 2022; mission carried out remotely. - Evaluation follows a Public Investment Management Assessment (PIMA) undertaken by FAD in 2018. - Mission team and interlocutors: Fazeer Rahim (lead), Richard Allen, Julien Dubertret, Viera Karolova, Kezhou Miao, Yi Wu; meetings with MFSR senior officials, line ministries, NBS, CBR, SOSR, SAO, Debt and Liquidity Management Agency. - Public sector scale and key fiscal statistics (as presented in the Executive Summary): - General government expenditure: around 40 percent of GDP prior to the Covid-19 pandemic. - Public sector institutional units: 8,338 total; general government comprised 910 central government entities, a pension fund, a health fund, and 6,765 local government entities. - Public corporations: 651 (10 financial corporations); public corporation spending added another 10 percent to GDP. - Public sector assets (financial and nonfinancial): 188 percent of GDP (staff estimate). - Public sector liabilities: 168 percent of GDP (staff estimate). - Evaluation snapshot: - Slovakia scored "good" or "advanced practice" on 26 out of 36 Fiscal Transparency Code indicators. - Report compiles a public sector balance sheet (Table 3) and an actionable set of recommendations (summarized in Table 2). ### Strengths highlighted - Broad institutional coverage in fiscal reports (notable exceptions: NBS and nine public corporations). - Very frequent in-year reporting; State budget execution data available daily. - High quality fiscal reports: multiple classification levels, reconciliations across compilation methods, annual revisions. - Well-established budget process via the 2004 Act on Budget Rules and subsequent reforms. - Budget documentation covers nearly all general government entities, including social security and health funds. - Disclosure and regular updating of macroeconomic forecasts with evaluation by independent committees and the CBR. - Reporting of macroeconomic and specific fiscal risks and active risk management (contingencies, limits, oversight). ### High-level areas for improvement (representative recommendations) - Integrate and reconcile Consolidated Financial Statements (CFS) and fiscal statistics more closely; report stocks and flows across subsectors. - Expand high-frequency (monthly) fiscal data coverage to support budget monitoring. - Conduct strategic reviews of tax expenditures every few years. - Align external audit processes with international practice; consider SAO conducting/overseeing audits of government finances. - Accelerate adoption of amendments to the Constitutional Act on Budgetary Responsibility to introduce multiannual expenditure ceilings (commitment under RRP). - Improve institutional setup for medium-term budgeting: better cooperation with line ministries, improved baseline and policy costing, stronger emphasis on program and performance budgeting. - Deepen analysis of macroeconomic and specific risks (including long-term health insurance financing and environmental/climate-related costs) and improve central oversight of public corporations. *Source: Preface and Executive Summary, IMF Fiscal Transparency Evaluation for the Slovak Republic (mission period January 12-28, 2022).* ### Fiscal reports — purpose, standards, and main outputs - Assessment framework: coverage of institutions/stocks/flows; frequency/timeliness; quality; integrity. - Standards and bases: - Fiscal statistics: ESA 2010. - Public sector financial statements: IPSAS-based (adjusted domestically). - Main fiscal reports and attributes (selected): - Daily execution reports: state budget; prepared by State Treasury; cash basis; daily for preceding day. - Monthly fiscal reports: budgetary central government, consolidated central government, SSFs; cash basis; published within one month. - Monthly budget execution: consolidated central government and SSFs; published within two months. - Quarterly budget execution: consolidated general government (cash basis). - Monthly government debt: published by ARDAL. - Annual General Government Closing Accounts: cash-based State budget execution and ESA 2010 general government execution; prepared by MFSR; audited by SAO; include reconciliation between cash and ESA 2010. - Annual Public Sector CFS: cover entire public sector except NBS and nine public corporations; prepared by MFSR; accrual IPSAS-based. - Summary Annual Reports (SARs): fiscal performance, Constitutional Act on Budget Responsibility requirements, public sector net worth; CFS annexed. ### Key finding on fiscal reporting - Slovakia compiles a comprehensive set of fiscal reports, follows international reporting standards, and produces consolidated public sector financial statements—practice seen in relatively few countries. - Recommended enhancement: CFS could be improved by presenting data for subsectors. ### Coverage of institutions and public sector finances (2020 / 2021 data) - Public sector institutional units (2021): 8,338 total. - Central government: 910 units. - Local government: 6,765 units. - Social security funds: 2 entities. - Public nonfinancial corporations: 651. - Public financial corporations: 10. - Table 5 (Public Sector Institutions and Finances, 2020, Percent of GDP unless otherwise stated) — selected figures (preserved as presented): - Public Sector: Number of entities: 8,338; Revenue: 51.2; Expenditure: 54.3; Balance: -3.1; Net expenditure: 54.3; Net expenditure (Percent of total public sector expenditure): 100.0. - General government: Number of entities: 7,677; Revenue: 40.1; Expenditure: 45.6; Balance: -5.5; Net expenditure: 44.5; Net expenditure (Percent of total public sector expenditure): 82.0. - Central government: Number of entities: 910; Revenue: 25.3; Expenditure: 31.3; Balance: -6.1; Intra-PS expenditure: -8.5; Net expenditure: 22.8; Net expenditure (Percent of total public sector expenditure): 42.1. - Social Security Funds: Number of entities: 2; Revenue: 16.5; Expenditure: 16.1; Balance: 0.4; Net expenditure: 16.1; Net expenditure (Percent of total public sector expenditure): 29.7. - Local governments: Number of entities: 6,765; Revenue: 8.0; Expenditure: 7.8; Balance: 0.2; Intra-PS expenditure: -2.3; Net expenditure: 5.5; Net expenditure (Percent of total public sector expenditure): 10.3. - Nonfinancial public corporations: Number of entities: 651; Revenue: 11.7; Expenditure: 9.4; Balance: 2.3; Net expenditure: 9.4; Net expenditure (Percent of total public sector expenditure): 17.3. - Financial public corporations: Number of entities: 10; Revenue: 0.5; Expenditure: 0.4; Balance: 0.1; Net expenditure: 0.4; Net expenditure (Percent of total public sector expenditure): 0.7. - Key summary: - Public sector expenditure: 54.3 percent of GDP in 2020. - General government net expenditure (consolidated): 45.6 percent of GDP. - Public corporations’ expenditure: 9.8 percent of GDP (more than 96 percent by public nonfinancial corporations). ### Consolidated Financial Statements (CFS) coverage details - Annual CFS cover 99.2 percent of total public sector spending; they exclude: - NBS (expenditure: 0.3 percent of GDP). - Nine public corporations held in MH Management for privatization (expenditure: 0.1 percent of GDP). - Institutional coverage determined by SOSR register, guided by MF Instruction (December 19, 2017, MF/017353/2017-352). - Conceptual clarification: public corporations under ESA 2010/GFSM 2014 defined by government control and market-producer test; Slovak public corporation sector: 651 entities (e.g., 107 joint stock companies; 490 limited liability companies). ### Stocks and flows coverage (detailed figures, end-2020 staff estimates) - Consolidated public sector asset holdings: 188.4 percent of GDP. - Consolidated public sector liabilities: 167.8 percent of GDP. - Public sector net worth: 20.6 percent of GDP. - Public sector net financial worth: -95.4 percent of GDP. - Considering accrued-to-date implicit social security pension liabilities, public sector net worth: negative 345 percent of GDP. - Main components (end-2020): - Nonfinancial assets: 116.1 percent of GDP. - Financial assets: 72.4 percent of GDP (NBS: currency and deposits 22.8 percent of GDP; debt securities 30.1 percent of GDP). - Liabilities other than equity: 167.5 percent of GDP (NBS deposits 55.6 percent of GDP; general government debt securities 42.9 percent of GDP; civil servants’ pension liabilities 40.3 percent of GDP). - General government consolidated liabilities (2020): - General government liabilities: 119.5 percent of GDP. - Debt securities and loans: 51.3 percent of GDP. - Public servants’ pension entitlements: 40.3 percent of GDP. - Other accounts payable: 4.6 percent of GDP. - NBS reported positions: - NBS liabilities: 65.4 percent of GDP. - NBS assets: 67.6 percent of GDP. ### Coverage and valuation gaps identified - Natural resources: - Forest stocks: 4.4 percent of GDP reported off-balance sheet by State Forest Company; included in SAR net worth estimate but not in published CFS. - Revenue from natural resources: 0.01 percent of general government revenue in 2020. - Other non-financial assets: - Figures in CFS lower than mission estimates of market value (SOSR ESA Table 26) by 64 percent of GDP in 2020. - Fixed assets reassessed in 2011; no systematic revaluations since. - Impact of consolidating NBS and MH Management companies would increase assets and liabilities by 44.5 percent of GDP and 0.4 percent of GDP respectively. ### Coverage of flows and reconciliations - Flows: fiscal reports cover cash flows, accrued revenue/expenditure, financing, and other economic flows. - Annual State Closing Account: cash data and ESA 2010 accrual data with reconciliations. - CFS: provide accrued revenue and expense and some OEFs but do not present comprehensive change-in-balance-sheet explanations. - SOSR fiscal statistics: include holding gains/losses and other changes aiding integrated balance sheet explanations. ### Tax expenditures — disclosure and management (Good) - Legal requirement: Constitutional Act on Budget Responsibilities (2011) requires regular publication; methodology published 2015 (revenue loss method; static). - Coverage: Personal Income Tax, VAT, excise, Corporate Income Tax, social insurance, health insurance; includes subnational revenue. - Magnitude: - Estimated tax expenditure: 4.2 percent of total revenue and 1.2 percent of GDP in 2020. - Time series (Percent of total tax revenue / Percent of GDP): - 2012: 7.3 / 1.8 - 2013: 4.9 / 1.3 - 2014: 5.4 / 1.5 - 2015: 5.1 / 1.4 - 2016: 6.0 / 1.7 - 2017: 5.0 / 1.4 - 2018: 4.5 / 1.3 - 2019: 4.3 / 1.2 - 2020: 4.2 / 1.2 - Management gaps: no statutory cap, no formal control procedure to review tax expenditures alongside budget spending, no sunset clauses, no periodic comprehensive review (recommendation: every five years). ### Frequency and timeliness of reporting - In-year frequency (Advanced): - Daily State budget execution data. - Monthly cash-based fiscal reports covering central government and SSFs published within one month. - More detailed monthly central government cash execution data published within two months. - Local government execution: quarterly. - Quarterly SOSR accrual accounts: published three months after period. - Timeliness of annual financial statements (Basic): - Consolidated financial statements produced and published within 12 months; audited by private audit company under MFSR management (BDO International since 2021). - Publication dates (CFS prepared): Sept 8, 2015; Sept 8, 2016; Sept 8, 2017; Sept 8, 2018; Sept 8, 2019. - CFS audited: Oct 31, 2015; Oct 31, 2016; Nov 14, 2017; Oct 31, 2018; Oct 31, 2019. ### Quality and classifications (Advanced) - Classifications: - Administrative, functional, economic, program classifications applied uniformly as required by Law on Budgetary Rules (523/2004). - Economic classification aligned with ESA 2010/GFSM 2014; functional classification follows UN COFOG. - Internal consistency: - Fiscal reports include all three reconciliations required by the Fiscal Transparency Code. - Average discrepancy between fiscal balance and financing over the past four years: 0.2 percent of GDP. - Average discrepancy between net financing and change in general government debt stock during 2017–2020: 0.1 percent of GDP. - Historical revisions: - Revisions reported with explanations and bridge tables; revisions twice a year as part of EDP notifications. - Between April 2015 and October 2021, deficit for 2012–2019 revised down by 0.1 percent of GDP on average (EU average 0.02 percent). - Absolute average revisions of annual deficit figures: 0.23 percent of GDP in Slovakia vs. 0.04 percent across the EU. - Revisions to annual debt data averaged 0.4 percent of GDP during 2012–2019 (EU average). ### Integrity of fiscal reports (Advanced) - SOSR compiles fiscal statistics as a professionally independent agency under the Statistics Act and Regulation (EC) No 223/2009; part of European Statistical System; scrutinized by Eurostat via EDP dialogue visits. ### External audit and comparability (Assessments and deficiencies) - External audit assessment: Not Met (for CFS) - SAO audits State Closing Account and reports by individual budget entities, SNGs, public corporations, and public investment projects. - SAO does not audit government CFS; CFS audits carried out by private firm hired and overseen by MFSR (BDO International since 2021). - SAO has no formal role in hiring/overseeing private auditor or receiving/commenting on audit opinion—international outlier and potential conflict of interest. - Private audit quality: qualifies for a “good” rating; private audits confirm true and fair view; qualifications have declined (163 qualifications for 2010 to 36 for 2018). - Comparability of fiscal data: Good for budget vs fiscal statistics, but poor reconciliation with CFS. - Key 2020 discrepancies (fiscal deficit, general government): - CFS: -7.8 percent of GDP. - GFSM report submitted to IMF: -5.5 percent of GDP. - Budget execution report: -8.4 percent of GDP. - Recommendation: present reconciliations between CFS, budget execution data, and fiscal statistics explaining major deviations. ### Recommendations on reporting and audits (selected) - 1.1 Enhance CFS and fiscal statistics coverage and valuation: - Include NBS, other MH Management public corporations, and subsector detail (Indicator 1.1.1). - Include estimates of publicly owned forests and mineral resources (Indicator 1.1.2). - Use market valuation for assets and liabilities (Indicator 1.1.2). - 1.2 Conduct comprehensive review of tax expenditures every five years (Indicator 1.1.4). - 1.3 Enhance comparability by consolidating public sector net worth components and presenting reconciliations between CFS and budget/fiscal statistics (Indicator 1.3.2; 1.4.3). - 1.4 Consider transferring responsibility for organizing/overseeing external audit from MFSR to SAO; amend legal framework (Indicator 1.4.2). ### Fiscal forecasting, budgeting, and medium-term framework (assessments and issues) - Budget unity: Advanced — State budget appropriated gross; Annex I provides wider budget data for most general government entities. - Missing expenditure: 2020 more than EUR1 billion (1 percent of GDP); 2022 EUR0.2 billion (0.2 percent of GDP). - Macroeconomic forecasts: Advanced — DBP presents three-year forecasts and compares with EU forecasts. - Forecast bias (2010-2019): GDP growth overestimated by 1percentage point (25 percent deviation). Bias declined from 1.2 percentage point (2010-2014) to 0.7 percentage point (2015-2019). - Medium-Term Budget Framework (MTBF): Good — 2004 Act requires MTBF for at least three years; practice shows MTBF does not fully frame annual budgets; limited line ministry participation. - Investment projects: Good — Investment Authority (IA) within MFSR Value-for-Money Unit (30 staff); feasibility/CBA rules for projects > EUR 40 million (IT > EUR 10 million); IA mandate extended to projects above EUR 1 million; in 2021 IA evaluated > 250 projects totaling EUR 6.3 billion and identified potential savings > EUR 800 million. - Program budgeting: implemented since 2005-2007 but lacks legal definition and stronger program-management rules. - Public participation: limited; Citizen’s Guide bare minimum; no formal voice for NGOs/citizens in central budget deliberations. - Recommendations (selected): - Extend National Council approval coverage to general government entities under spending ceilings (Indicator 2.1.1). - Issue implementation instructions for expenditure ceilings and integrate MTBF with line ministries (Indicators 2.1.3, 2.3.1). - Publish total commitments on major investment projects and include obligations under multi-annual projects in budget annexes (Indicator 2.1.4). - Use performance information more actively — publish KPI targets in the draft budgetary plan for budget and two outer years (Indicator 2.3.2). - Create greater opportunities for public participation (Indicator 2.3.3). - Establish published rules for managing in-year transfers and mechanisms to review/challenge breakdowns of spending under budget chapters. ### Disclosure of multi-annual investment obligations and procurement reforms - Finding: Government does not regularly disclose total obligations under multi-annual investment projects; line ministries publish awards but not consolidated obligations. - Recommendation: Publish consolidated data (for example in GGB) to inform on medium-term spending commitments. - Public Procurement Act: approved October 2021; expected to speed up/simplify procurement, align with EU directives, extend e-procurement, and improve procurement data collection and analysis. - Public investment levels: - Public investment averaged 3.8 percent of GDP over last ten years. - Two-thirds of public investment financed by EU. - Public capital stock at lower end among European countries. ### Credibility — independent evaluation, supplementary budget, and forecast reconciliation - Independent fiscal council (CBR): established 2011 Constitutional Law; funded by NBS; board of three; staff of 23; mandate includes reviewing fiscal risks and conducting long-term sustainability analysis; limited dialogue with legislature in practice. - Macroeconomic and tax forecasting committees: Director of IFP chairs; committee members prepare independent forecasts and vote on IFP forecasts; 2021 change gave CBR full voting rights. - Supplementary budget and in-year transfers: - Law limits in-year amendments but MFSR allowed significant discretion; virements 2,200–3,100 per year (2018-2021). - Excluding EU co-financing transfers, transfers never below 1,000 per year and reached 1,500 in 2020. - In-year transfers reported to National Council only at year-end. - Contingency reserves (2021): seven reserves totaling EUR 657 million (2.38 percent of State budget expenditure); excluding EU funds reserve and EU payments reserves: EUR 224 million (0.81 percent). - Suggested procedural changes: criteria for transfer acceptance; regular submission to National Council of transfers executed. - Forecast reconciliation: Stability Program and DBP include detailed reconciliations across forecast vintages; Tax Forecasting Committee reconciles revenue forecasts. ### Fiscal risks — macroeconomic, specific, COVID support, and long-term sustainability (key statistics and gaps) - Macroeconomic risks (Good): - DBP presents alternative scenarios but not likelihoods; probabilistic debt analysis used occasionally. - External exposure: goods exports 82 percent of GDP in 2020; 80 percent destined to EU; top two product categories account for 64 percent of exports; GVC participation rose from 55 percent (2000) to 67 percent (2018). - Specific fiscal risks (assessment: Not met for comprehensive summary): - Annual Summary Report and annexes contain contingent liabilities, SOE liabilities, guarantees, implicit pension/health liabilities. - Key figures (2020) — Table 11 (preserved values): - Contingent liabilities: Maximum exposure €19,990 million — 21.7 percent of GDP. - Capital on demand and guarantees/ESM: €6,148 million — 6.7 percent of GDP. - Capital on demand and guarantees/EFSF: €2,372 million — 2.6 percent of GDP. - State-owned companies: €5,216 million — 5.7 percent of GDP. - Guarantees: €646 million — 0.7 percent of GDP. - Implicit liabilities: €363,441 million — 394.7 percent of GDP. - PPP projects: €4,050 million — 4.4 percent of GDP. - Population aging related long-term risks: €360,753 million — 391.8 percent of GDP. - Pension (by 2064): €204,721 million — 222.3 percent of GDP. - Healthcare (by 2064): €80,886 million — 87.8 percent of GDP. - Long-term care: €57,002 million — 61.9 percent of GDP. - Education: €16,656 million — 18.1 percent of GDP. - Total guaranteed deposit: €39,561 million — 43.0 percent of GDP. - As of 2020, contingent risks including government backstopping of public corporations and loan guarantees: 21.7 percent of GDP. - Maximum exposure to depositor guarantee liabilities: 43 percent of GDP. - Implicit liabilities related to ageing revised up to €360.8 billion (391.8 percent of GDP) in 2020 from €106.8 billion (113.4 percent of GDP) in 2019. - COVID-19 related support (off-balance sheet and on-balance): - Eventual take-up of loan guarantees: 1.1 percent of GDP (initially announced 4.0 percent of GDP). - Policy measures (Percent of GDP) — Table 12: - 2020: Above-the-line measures 2.1; Public credit guarantees 0.7; Tax deferrals 0.5; Debt moratoria 0.5. - 2021 (est.): Above-the-line measures 3.6; Public credit guarantees 0.4; Tax deferrals 0.1; Debt moratoria 0.1. - Long-term sustainability (Good section highlights and figures): - CBR assesses long-term sustainability as "high risk." - IMF estimate: net present value of Slovakia’s healthcare spending will rise by 26.5 percent of GDP between 2015 and 2050. - Demographics: old-age dependency ratio projected to increase by 37 percentage points from 2019 to 2070. - Old-age pension spending projected to rise to 14.2 percent of GDP by 2070, from 8.3 percent in 2019. - Pension reforms (2019/2020) increased long-term pension expenditure; 2019 reforms estimated to raise public old-age pension in 2070 by 5.5 percent of GDP. - Authorities committed to restore link between retirement age and life expectancy as RRP milestone for Q4, 2022. - Contingency reserves and budgetary contingencies: - Contingency reserves (2021, Euro million): Reserve of the government: 5; Reserve of the Prime Minister: 2.5; Reserve of EU Funds: 433; Reserve for new legislation: 111; Reserve for emergencies: 11; Reserve of the judiciary: 20; Reserve for public salaries: 74; Reserve for COVID-19 spending: 1,041; Total reserves: 1,698 (3.6% of total budget). Excluding COVID-19 reserve: 1.5% of budget. ### Asset/liability management, guarantees, PPPs, financial sector, natural resources, and environmental risks - Public debt management: - ARDAL publishes debt strategy and monthly debt data including holders; gross public debt increased from 48.1 percent of GDP in 2019 to 59.7 percent of GDP in 2020. - Average maturity of public debt: 8.3 years in 2022. - Ratings: S&P: A+; Moody’s: A2; Fitch: A. - Guarantees: - Information incomplete and not consolidated; COVID-19 guarantees total €1.033 billion (1.1 percent of GDP); €646 million issued in 2020 and €387 million in 2021. - Law states no guarantees by local governments or public corporations. - Government does not analyze likelihood of guarantees being called; no legal maximum on new guarantees. - PPPs (Good): - Liabilities from PPPs reported: €4.05 billion (4.4 percent of GDP) at end-2020. - Regulatory framework and disclosure of concession contracts in Central Register of Contracts. - Currently three PPPs; no new PPPs in pipeline. - Financial sector (Advanced): - NBS financial stability reports bi-annually; banking sector resilient in COVID-19. - Total covered deposits: EUR 39.56 billion at end-2020 (41 percent of GDP). - Deposit Protection Fund assets: EUR 268.7 million (0.7 percent of total guaranteed deposits). - Natural resources and environmental risks (Basic): - No comprehensive estimate of natural resource value; forests valuation included off-balance since 2017; mineral deposits documented but not valued. - Natural resource fiscal revenue negligible: 0.01 percent of general government revenue in 2020. - Government identifies natural disaster risks qualitatively; floods most frequent; no comprehensive fiscal quantification. ### Subnational governments and SOEs - Subnational governments: - Local governments include 2,890 municipalities and 8 higher territorial units. - Share of local governments in GDP: 7.6 percent in 2020. - Local governments’ own resources: 23 percent of funding; central transfers dominant. - Local governments ran a small aggregate surplus in 2020. - Strict rules on local borrowing; no central government guarantee of local liabilities. - Public corporations / SOEs: - State equity in selected major SOEs: 24.1 percent of GDP at end-2020. - SOE debt: 4.7 percent of GDP at end-2019. - Around 50 percent of SOEs loss-making in 2020. - MFSR oversight unit collects/consolidates information but limited monitoring capacity. - Recommendation: support MFSR special unit with resources, manuals, and publish annual SOE performance reporting including quasi-fiscal costs (Indicator 3.3.2). ### Key recommendations on fiscal risks and long-term projections (selected) - Deepen macroeconomic risk analysis with probabilistic fan-charts and retrospective reviews (Recommendation 3.1 / Indicator 3.1.1). - Prepare and publish an annual consolidated fiscal risk statement summarizing size, probability, and potential impact of fiscal risks (Recommendation 3.2 / Indicator 3.1.2). - Regularly publish long-term projections for the health insurance fund and health-related expenditures (Recommendation 3.3 / Indicator 3.1.3). - Publish comprehensive information on government guarantees; consider legally binding ceilings on new guarantees or on total stock (Recommendation 3.4 / Indicator 3.2.3). - Strengthen SOE oversight: provide resources to MFSR unit and publish annual SOE financial performance and quasi-fiscal cost estimates (Recommendation 3.5 / Indicator 3.3.2). *Source: IMF | Technical Report, content unit 1svkea2023002.* ### Preface _________________________________________________________________________ 8 ### Preface ### Mission and scope - The Fiscal Affairs Department (FAD) of the IMF conducted a Fiscal Transparency Evaluation (FTE) for the Slovak Republic during the period January 12-28, 2022. - The mission was carried out remotely owing to travel restrictions. - The evaluation follows a Public Investment Management Assessment (PIMA) undertaken by FAD in 2018. ### Mission team and interlocutors - Mission team: Fazeer Rahim (lead), Richard Allen, Julien Dubertret, Viera Karolova, Kezhou Miao, and Yi Wu. - Meetings at the Ministry of Finance of the Slovak Republic (MFSR) included: State Secretary Mr. Marcel Klimek; General Director of the Budget Policy Section Mr. Alexander Cirak; Director of the Value-for-Money Unit Mr. Štefan Kišš; Director of the Institute of Fiscal Policy Mr. Juraj Valachy; Director of the State Reporting Department Mr. Peter Ivanek; technical staff from their sections and units; and staff from the Tax and Customs, European Funds, and International Sections. - Other meetings: Ministries of Economy, Education, Environment and Interior; the National Bank of Slovakia (NBS); the Slovak Council for Budget Responsibility (CBR); the Statistical Office of the Slovak Republic (SOSR); the Supreme Audit Office (SAO); and the Debt and Liquidity Management Agency. - Special acknowledgements: Ms. Monika Sykorova, Ms. Dominika Hornakova, and Mr. Peter Harvan. ### Basis of the evaluation and use of data - The evaluation is based on information made available at the time of the virtual mission in January 2022. - Findings and recommendations represent the views and advice of the IMF mission team and do not necessarily reflect those of the authorities. - Unless otherwise specified, the data presented in text, figures and tables in the report are estimates made by the IMF mission team and not official estimates of the government of the Slovak Republic. ### Public sector scale and key fiscal statistics (as presented in the Executive Summary) - General government expenditure represented around 40 percent of gross domestic product (GDP) prior to the Covid-19 pandemic. - General government comprised 910 central government entities, a pension fund, a health fund, and 6,765 local government entities. - There are 651 public corporations, of which 10 are financial corporations; spending by public corporations added another 10 percent to GDP. - Public sector assets (financial and nonfinancial) were estimated at 188 percent of GDP. - Public sector liabilities were estimated at 168 percent of GDP. ### Strengths highlighted by the evaluation - Broad coverage of institutions in fiscal reports across the public sector (notable exception: the National Bank and nine public corporations), making Slovakia a leader in public sector balance sheet reporting. - Very frequent in-year reporting, with State budget execution data available daily. - High quality of fiscal reports: multiple classification levels, reconciliations across compilation methods, and annual revisions to ensure reliability and consistency. - Well-established budget process via the 2004 Act on Budget Rules and subsequent reforms—orderly timetable and timely approval by the National Council. - Budget documentation covering nearly all general government entities, including social security and health funds. - Disclosure and regular updating of macroeconomic forecasts underpinning the budget, with evaluation by independent committees and the CBR. - Reporting of macroeconomic and specific fiscal risks and active risk management via budgetary contingencies, limits and brakes on debt accumulation, and local government oversight. ### Areas for improvement and gaps identified - Integrate and reconcile the Consolidated Financial Statements (CFS) and fiscal statistics more closely; report stocks and flows across subsectors. - Expand high-frequency (monthly) fiscal data coverage to support budget monitoring. - Conduct strategic reviews of tax expenditures every few years to assess efficiency and policy justification. - Align external audit processes with accepted international practices; consider having the SAO conduct or oversee audits of government finances. - Accelerate adoption of amendments to the Constitutional Act on Budgetary Responsibility to introduce multiannual expenditure ceilings (commitment under Slovakia’s Recovery and Resilience Plan). - Improve institutional setup for medium-term budgeting: better cooperation with line ministries, improved baseline and policy costing, stronger emphasis on program and performance budgeting, and integration with spending reviews and Value-for-Money initiatives. - Formalize authorization of in-year virements and strengthen relationships among the National Council, SAO, and CBR on audit and fiscal risk management. - Deepen analysis of macroeconomic risks and specific risks (including long-term health insurance financing and environmental/climate-related costs) and improve central oversight of public corporations. ### Evaluation summary metrics and output - Slovakia scored "good" or "advanced practice" on 26 out of 36 Fiscal Transparency Code indicators. - The report compiles a public sector balance sheet for Slovakia (Table 3) using publicly available information and information supplied by the authorities and compares it with peer countries. - The report includes an actionable set of recommendations (summarized in Table 2) prioritized according to the importance of key issues facing Slovakia. ### Representative recommendations (as summarized in the Executive Summary and Table 2) - Enhance coverage and valuation in the CFS and fiscal statistics by: (i) including data on the NBS, other public corporations under MH Management, and subsectors of the public sector; (ii) including estimates of the value of the stock of natural resources; and (iii) using a market valuation for assets and liabilities. - Conduct a comprehensive review of tax expenditures every five years to: (i) determine macroeconomic and distributional impacts; (ii) scale back expenditures that do not generate commensurate benefits; and (iii) assess justification versus alternative instruments. - Enhance comparability of fiscal reports by consolidating data on components of public sector net worth and presenting reconciliations between CFS, budget execution data, and fiscal statistics explaining major deviations. - Consider transferring responsibility for organizing, overseeing and supervising the external audit function from the MFSR to the SAO. - Extend the National Council’s approval coverage to general government entities under spending ceilings as part of the draft Constitutional Act on expenditure ceilings. - Issue implementation instructions for expenditure ceilings, publish total commitments on major investment projects, and adopt the Constitutional Amendment on expenditure ceilings. - Use performance information more actively by publishing KPI targets in the draft budgetary plan for the budget and two outer years. - Create greater opportunities for public participation in the budget via the Citizen’s Guide to the Budget and formalized citizen/NGO input mechanisms. - Establish published rules for managing in-year transfers and a mechanism to review and challenge breakdowns of spending under budget chapters to minimize transfers. - Deepen macroeconomic risk analysis with probabilistic fan-charts and retrospective reviews; prepare and publish an annual consolidated fiscal risk statement. - Regularly publish long-term projections for the health insurance fund and health-related expenditures; publish comprehensive information on government guarantees. - Support the MFSR special unit overseeing SOEs by providing resources, operational manuals, guidelines, and improved access to company information. _Source: Preface and Executive Summary, IMF Fiscal Transparency Evaluation for the Slovak Republic (mission period January 12-28, 2022)._ ### 1. Fiscal reports should provide a comprehensive, relevant, timely and reliable overview ### 1. Fiscal reports should provide a comprehensive, relevant, timely and reliable overview ### Purpose and assessment framework - The chapter assesses the quality of fiscal reporting in Slovakia against the principles set out in the FTC, focusing on four dimensions: - The coverage of institutions, stocks, and flows; - The frequency and timeliness of fiscal reports; - The quality of fiscal reporting; and - The integrity of fiscal reports. - Fiscal reports assessed include: the budget, in-year budget execution reports, financial plans of state-owned enterprises (SOEs) and other public entities, fiscal statistics, and annual financial statements. - Fiscal reports should: - Cover all institutional units in the public sector classified according to international standards. - Record all transactions and stocks of assets, liabilities, transactions in revenue, expenditure, and financing, and other economic flows (OEFs). - Be published in a frequent and timely manner. - Reconcile the different balances calculated and have comparable data across reports. - Be prepared by an independent agency, in the case of statistics, and be scrutinized by an independent external audit authority in the case of financial statements. ### Standards and basis of fiscal reporting - Fiscal statistics for the general government sector follow the European System of Accounts 2010 (ESA 2010). - Public sector financial statements are largely based on the International Public Sector Accounting Standards (IPSASs), adjusted for country specific issues. ### Main fiscal reports and characteristics - Daily execution reports: - Cover: state budget. - Prepared by: State Treasury; published by the MFSR. - Basis: cash. - Frequency/timeliness: Daily; published for the preceding day. - Monthly fiscal reports: - Cover: budgetary central government, consolidated central government, and the social security funds (SSFs). - Prepared by: MFSR. - Basis: cash. - Frequency/timeliness: Monthly; published within one month of the end of each month. - Comply with European Council Directive 2011/85 on Budgetary Frameworks. - Monthly budget execution reports: - Cover: consolidated central government and SSFs. - Provide: more detailed breakdown of revenue and expenditure. - Frequency/timeliness: Published within two months after the reporting period. - Quarterly budget execution reports: - Cover: consolidated general government sector on a cash basis. - Monthly reports on government debt: - Published by: Agency for Debt and Liquidity Management (ARDAL). - Annual General Government Closing Accounts: - Cover: execution of the State budget on a cash basis and the execution of the general government and its subsectors on the ESA 2010 basis. - Prepared by: MFSR; audited by: SAO. - Include: detailed reconciliation of the cash-based budget outturn with accrual-based data per ESA 2010. - Annual Public Sector Consolidated Financial Statements (CFS): - Cover: entire public sector except the National Bank of Slovakia (NBS) and nine public corporations. - Prepared by: MFSR. - Basis: accrual IPSAS-based financial statements (balance sheet, statement of financial performance, explanatory notes). - Institutional coverage follows the statistical register of institutional units maintained by the SOSR. - Summary Annual Reports (SARs) prepared by the MFSR comprise three sections: - (i) Fiscal performance of the general government based on ESA methodology (including revenue, expenditure, fiscal balance and debt by subsectors and by individual entities; explanations of revisions). - (ii) Information required by the 2011 Constitutional Act on Budget Responsibility (including structural balance, cyclical components, one-off effects, and evaluation of debt management strategy). - (iii) Information on public sector net worth, including explicit and implicit contingent liabilities, net debt, and public corporations. - The CFS are annexed to the SARs. - Reports on contingent liabilities and other fiscal indicators (compiled by the SOSR) include: - Annual data on liabilities of public corporations and non-profit institutions outside the general government, one-off and standardized guarantees, non-performing loans (NPLs) held by government, and government ownership of capital in public corporations. - Data on implicit accrued-to-date pension liabilities in social insurance are published once every three years as required by Eurostat. - Quarterly and annual General Government National Accounts (SOSR) follow ESA 2010 and present accrued revenue and expenditure, transactions in financial assets and liabilities, a financial balance sheet, and Maastricht debt data. - Excessive Deficit Procedure (EDP) tables: - Compiled biannually by the SOSR; present annual data on general government deficit and debt in line with EC requirements and reconciliations between budget execution and ESA 2010 balances, and between ESA 2010 fiscal balance and change in Maastricht debt. ### Coverage of institutions (key facts and statistics) - In 2021, Slovakia’s public sector comprised 8,338 institutional units broken down as: - Central government: 910 units (including 679 budgetary and 131 “semi-budgetary organizations”), 3 state special purpose funds, 61 health care entities, Slovak Consolidation and Slovak Restructuring agencies, commercially oriented enterprises and companies operating as non-market producers, universities and other public non-profit entities; public service pension scheme for armed forces integrated with central budgetary organizations. - Local government: 6,765 units (including 2,926 municipalities that are part of eight territorial units or regions, 3,304 budgetary and semi-budgetary organizations, 26 non-market enterprises, 19 hospitals, and various non-profit entities). - Social security funds: Social Insurance Fund and Health Insurance Fund (covers health insurance related activities managed by two private insurance companies; these companies are classified in the private sector but related public health insurance activities are rerouted to government accounts). - Public nonfinancial corporations: 651 corporations (125 state-controlled enterprises and 525 companies controlled by municipalities), mainly in transport, energy, water supply, sewerage, and waste management. - Public financial corporations: 10 entities (including NBS and Slovak Guarantee and Development Bank (SZRB) and eight other entities). - Table 5: Public Sector Institutions and Finances, 2020 (Percent of GDP, unless otherwise stated) - Public Sector: - Number of entities: 8,338 - Revenue: 51.2 - Expenditure: 54.3 - Balance: -3.1 - Net expenditure: 54.3 - Net expenditure (Percent of total public sector expenditure): 100.0 - General government: - Number of entities: 7,677 - Revenue: 40.1 - Expenditure: 45.6 - Balance: -5.5 - Intra-PS expenditure: -1.0 - Net expenditure: 44.5 - Net expenditure (Percent of total public sector expenditure): 82.0 - Central government: - Number of entities: 910 - Revenue: 25.3 - Expenditure: 31.3 - Balance: -6.1 - Intra-PS expenditure: -8.5 - Net expenditure: 22.8 - Net expenditure (Percent of total public sector expenditure): 42.1 - Social Security Funds: - Number of entities: 2 - Revenue: 16.5 - Expenditure: 16.1 - Balance: 0.4 - Intra-PS expenditure: 0.0 - Net expenditure: 16.1 - Net expenditure (Percent of total public sector expenditure): 29.7 - Local governments: - Number of entities: 6,765 - Revenue: 8.0 - Expenditure: 7.8 - Balance: 0.2 - Intra-PS expenditure: -2.3 - Net expenditure: 5.5 - Net expenditure (Percent of total public sector expenditure): 10.3 - Nonfinancial public corporations: - Number of entities: 651 - Revenue: 11.7 - Expenditure: 9.4 - Balance: 2.3 - Intra-PS expenditure: 0.0 - Net expenditure: 9.4 - Net expenditure (Percent of total public sector expenditure): 17.3 - Financial public corporations: - Number of entities: 10 - Revenue: 0.5 - Expenditure: 0.4 - Balance: 0.1 - Intra-PS expenditure: 0.0 - Net expenditure: 0.4 - Net expenditure (Percent of total public sector expenditure): 0.7 - Source: SOSR, financial statements of public corporations, and staff estimates. - Note: “Balance” refers to the GFSM 2014/ESA 2010 based net lending (+)/net borrowing (-). Numbers for “Revenue” and “Expenditure” do not add up due to consolidation of inter-sectoral transactions. - Key coverage summary: - Slovakia’s public sector expenditure is estimated at 54.3 percent of GDP in 2020. - General government net expenditure: 45.6 percent of GDP on a consolidated basis. - Public corporations’ expenditure: 9.8 percent of GDP (more than 96 percent spent by public nonfinancial corporations). ### Consolidated Financial Statements (CFS) and coverage detail - The annual CFS cover 99.2 percent of total public sector spending. - The CFS exclude: - National Bank of Slovakia (NBS) (expenditure accounts for 0.3 percent of GDP). - Nine public corporations held in the portfolio of MH Management for privatization (expenditure accounts for 0.1 percent of GDP). - Comparisons of coverage: - Annual and quarterly fiscal statistics exclude the public corporation sector. - Monthly fiscal statistics exclude the local government sector; monthly data cover only the central government and SSFs. - Institutional coverage of the CFS: - Determined by SOSR decisions in accordance with ESA 2010 sectorization rules. - Guided by an Instruction of the Ministry of Finance of December 19, 2017 (MF/017353/2017-352) on content, methods, and deadlines for submitting accounting data to evaluate budget performance. - The SOSR maintains and regularly updates a statistical register of institutional units to include new public entities and reassess market/non-market sectorization to classify entities into general government or public corporation subsectors. - The SOSR register is used by the MFSR to ensure complete public sector coverage in the financial statements. ### Conceptual clarification: Public corporations (Box 1) - Under ESA 2010/GFSM 2014, public corporations are entities directly or indirectly controlled by government that operate on a market basis. - Market producer test: operating income covers at least 50 percent of operating costs; includes qualitative criteria (e.g., operates in the market or provides goods/services only to government). - Public corporations are technically broader than “state-owned enterprises” (SOEs). - The public corporation sector in Slovakia comprises 651 entities with legal forms including: - Joint stock companies (107 total; 58 controlled by central government). - State enterprises (12 units controlled by central government). - Limited liability companies (490; 457 controlled by subnational governments). - Non-profit/public services (42; 34 controlled by subnational governments). - Some entities established as companies operate on a non-market basis and are therefore classified within the general government sector (examples include the Railway Company, the National Road Company, Eximbank, the Nuclear and Decommissioning Company, local transport). ### Findings and recommended improvement - Slovakia compiles a comprehensive set of fiscal reports, follows international reporting standards (ESA 2010 and IPSAS-based frameworks), and produces consolidated public sector financial statements—a practice observed in relatively few countries. - Recommended enhancement: - To follow best practice, the CFS could be further improved by presenting data for subsectors. *Source: IMF technical assessment chapter on Slovakia’s fiscal reporting (1svkea2023002).* ### 10. Fiscal statistics in Slovakia consolidate all general government entities and report on each ### 10. Fiscal statistics in Slovakia consolidate all general government entities and report on each subsector according to international statistical guidelines. ### Coverage of stocks (Good) - The SOSR compiles quarterly and annual nonfinancial and financial accounts, and a financial balance sheet of the general government and its subsectors in accordance with the ESA 2010 framework. - The Annual Consolidated Financial Statements (CFS) produced by the MFSR include an IPSAS-based balance sheet of the public sector consolidating the general government sector with public corporations directly or indirectly controlled by the government, and cover liabilities of public service pension schemes including the armed forces. - SOSR publishes quarterly and annual ESA 2010 balance sheets and a report on non-financial assets valued at replacement cost (ESA 2010, Table 26) with a two-year delay as authorized by the ESA 2010 Transmission Program. - Gaps in coverage and valuation identified: - Natural resources: stocks of forests accounting for 4.4 percent of GDP reported off-balance sheet by the State Forest Company; covered in Annual Summary Report public net worth estimates but not included in published CFS. Revenue from natural resources accounted for only 0.01 percent of general government revenue in 2020. - Other non-financial assets: figures for non-financial assets reported in CFS are lower than mission estimates of market value (based on SOSR ESA Table 26) by 64 percent of GDP in 2020. Fixed assets and other non-financial assets were reassessed in 2011 but no systematic revaluations have taken place since. - Assets and liabilities of the NBS and companies owned by MH Management: consolidation would increase the value of assets and liabilities in 2020 by 44.5 percent of GDP and 0.4 percent of GDP, respectively. - Consolidated public sector totals at end-2020 (staff estimates): - Consolidated public sector asset holdings: 188.4 percent of GDP. - Consolidated public sector liabilities: 167.8 percent of GDP. - Public sector net worth: 20.6 percent of GDP. - Public sector net financial worth: -95.4 percent of GDP. - Considering accrued-to-date implicit social security pension liabilities, public sector net worth: negative 345 percent of GDP. - Main components (end-2020): - Nonfinancial assets: 116.1 percent of GDP (primarily fixed assets). - Financial assets: 72.4 percent of GDP (mainly assets held by the NBS: currency and deposits 22.8 percent of GDP and debt securities 30.1 percent of GDP). - Liabilities other than equity: 167.5 percent of GDP (primarily consolidated NBS deposits 55.6 percent of GDP; general government debt securities 42.9 percent of GDP; civil servants’ pension liabilities 40.3 percent of GDP; other payables of general government and non-financial corporations 8.3 and 4.6 percent of GDP, respectively). - General government consolidated liabilities in 2020: - General government liabilities: 119.5 percent of GDP. - Debt securities and loans: 51.3 percent of GDP. - Public servants’ pension entitlements: 40.3 percent of GDP. - Other accounts payable: 4.6 percent of GDP. - NBS liabilities and assets (impact neutralized on net worth): - NBS liabilities: 65.4 percent of GDP (includes liabilities to non-euro area residents 30.3 percent of GDP; banknotes in circulation 6.4 percent of GDP; liabilities to euro area residents; other liabilities such as SDR and intra-euro system liabilities 12.8 percent of GDP). - NBS assets: 67.6 percent of GDP (mostly financial assets). - Public sector non-financial assets are estimated at 116.1 percent of GDP in 2020, of which more than 80 percent are held by the general government. ### Coverage of flows (Advanced) - Fiscal reports cover cash flows, accrued revenue, expenditure, financing, and other economic flows. - Annual State Closing Account provides cash data and accrual data based on ESA 2010 for the general government, with reconciliation between cash and accrual revenue/expenditure and the fiscal balance. - CFS provide accrued revenue and expense and some information on other economic flows' impact on net worth but do not present comprehensive information explaining changes in assets and liabilities. - SOSR fiscal statistics include accrual-based revenue, expenditure, financing data, and information on holding gains/losses and other changes in volume by financial asset/liability categories, aiding explanations of changes in the integrated balance sheet. ### Coverage of tax expenditures (Good) - The Constitutional Act of Budget Responsibilities (2011) requires regular publication of tax expenditures; data are published annually in budget documents. - Published analysis covers individual taxes (Personal Income Tax, Value Added Tax, excise duties, Corporate Income Tax, social insurance, health insurance) and policy areas (support for the labor market, social mobility, families, research & development, healthcare). - Methodology: published in 2015, based on the revenue loss method; the analysis is static and does not account for behavioral or dynamic effects; coverage includes social security and health insurance contributions and revenue collected by subnational governments (SNGs). - Tax expenditure magnitude and disclosure/management concerns: - Estimated tax expenditure: 4.2 percent of total revenue and 1.2 percent of GDP in 2020. - No statutory cap on total tax expenditure or new tax expenditures authorized each year. - No formal control procedure to review tax expenditure alongside regular budget spending during negotiations. - No use of sunset clauses; no periodic review (e.g., every five years) to reassess justification relative to other policy goals/instruments. - Table: Slovakia tax expenditure, 2012–2020 (MFSR) - Percent of total tax revenue: 2012 7.3, 2013 4.9, 2014 5.4, 2015 5.1, 2016 6.0, 2017 5.0, 2018 4.5, 2019 4.3, 2020 4.2 - Percent of GDP: 2012 1.8, 2013 1.3, 2014 1.5, 2015 1.4, 2016 1.7, 2017 1.4, 2018 1.3, 2019 1.2, 2020 1.2 ### Frequency and timeliness of fiscal reporting - In-year frequency (Advanced): - Slovakia publishes daily data on execution of the State budget. - Monthly cash-based fiscal reports covering revenue, expenditure, and financing for central government and social security funds published within one month after the reporting period. - More detailed monthly central government cash budget execution data published within two months. - Local government budget execution reports published quarterly. - SOSR publishes quarterly, three months after the reporting period, non-financial and financial accrual-based accounts (ESA 2010), a financial balance sheet, and debt data for the general government and subsectors. - Timeliness of annual financial statements (Basic): - Over the past five years, consolidated financial statements have been produced and published within 12 months of the end of each fiscal year. - Audit of CFS is carried out by a private audit company (managed by MFSR), currently BDO International (formerly Deloitte) under a 3-year contract; audit committee chaired by MFSR General Secretary oversees the process. - The government could consider measures to streamline CFS preparation and expedite publication. - Table of publication dates for CFS (2014–2018): - CFS prepared: Sept 8, 2015; Sept 8, 2016; Sept 8, 2017; Sept 8, 2018; Sept 8, 2019. - CFS audited: Oct 31, 2015; Oct 31, 2016; Nov 14, 2017; Oct 31, 2018; Oct 31, 2019. ### Quality of fiscal reports - Classification (Advanced): - Budget and budget execution reports use administrative, functional, economic, and program classifications, uniformly applied by all general government units as required by the Law on Budgetary Rules (523/2004). - Economic classification aligned with ESA 2010 and GFSM 2014; functional classification follows UN COFOG. - Spending also presented by program and subprogram; authorities considering improving and simplifying program classification. - Internal consistency (Advanced): - Fiscal reports include all three reconciliations required by the Fiscal Transparency Code. - State Closing Accounts include annexes reconciling fiscal balance with financing and financing with change in debt stock by subsectors and for State budget, individual state funds, non-market public enterprises, semi-budgetary organizations, hospitals, and other entities. - SOSR prepares regular reconciliation of fiscal balance and financing; average discrepancy between fiscal balance and financing over the past four years was 0.2 percent of GDP. - SOSR publishes reconciliation of annual net financing with change in general government debt stock twice a year (EDP T3); average discrepancy between above and below the line transactions cumulated during 2017–2020: 0.1 percent of GDP. - Around 50 percent of Slovakia’s government debt is held by financial corporations and the remaining part by the rest of the world (based on MFSR publication of holders of general government debt by ESA 2010 sectors). - Historical revisions (Advanced): - Revisions to historical fiscal statistics reported with explanations and bridge tables; SOSR follows a revision policy aligned with EU countries and makes historical revisions twice a year as part of EDP notifications; explanations of each revision published on its website. - Between EDP notifications in April 2015 and October 2021, the deficit for 2012–2019 was revised down by 0.1 percent of GDP on average (EU average 0.02 percent of GDP). - In absolute terms, average revisions of annual deficit figures: 0.23 percent of GDP in Slovakia vs. 0.04 percent across the EU. - Revisions to annual debt data averaged 0.4 percent of GDP during 2012–2019, equal to the EU average. - Quarterly ESA 2010 accrual estimates revisions have been substantial; authorities improved quarterly corporate income tax accrued revenue estimation but capacity constraints in SOSR and MFSR limit further improvements. ### Integrity of fiscal reports (Advanced) - Fiscal statistics compiled by professionally independent SOSR using ESA 2010; SOSR is a separate budgetary organization. - Professional independence governed by the Statistics Act, reflecting EU regulations and prescribing statistical principles and quality criteria; Statistics Act stipulates SOSR professional independence in line with Regulation (EC) No 223/2009. - SOSR is part of the European Statistical System and follows the European Statistics Code of Practice. - Compliance with ESA 2010 methodology is scrutinized by Eurostat through regular EDP dialogue visits reviewing institutional responsibilities, data sources, delineation of general government sector, recording of specific government transactions, and application of accrual principles. *IMF | Technical Report, section 10.* ### 27. Slovakia has met the Special Data Dissemination Standards (SDDS) since 1999. Since then, ### 1svkea2023002 - 27. Slovakia has met the Special Data Dissemination Standards (SDDS) since 1999. Since then, ### SDDS Compliance and Data Publication - Slovakia has met the Special Data Dissemination Standards (SDDS) since 1999. - The MFSR, SOSR, and NBS regularly publish data that comply with the quality and scope required by the standards. - The National Summary Data Page of Slovakia presents data on central and general government operations and debt according to the SDDS requirements. - These data are published simultaneously on the website of the MFSR, the SOSR, and the NBS. ### External Audit (Assessment: Not Met) Findings: - The external audit process satisfies many requirements of good international practice. - The Slovak SAO meets accepted levels of independence as defined by INTOSAI regarding: - the appointment of its President, - its legal framework, - the determination of the SAO’s budget, - the hiring and remuneration of its staff, - the independence of its planning and operations. - The SAO’s mandate is limited to auditing: - the government’s report on the execution of the State budget, - reports prepared by individual budget entities, SNGs, public corporations, - reports on public investment projects. - The SAO does not audit the government’s CFS, which is a fundamental requirement of the FTC. - The Code requires that “annual financial statements be subject to a published audit by an independent supreme audit institution (SAI), which validates their reliability”. - Audits of the CFS are carried out by a private firm (BDO International since 2021, previously Deloitte) under the management and oversight of the MFSR. - The SAO has no formal role in: - hiring the audit firm, - overseeing its work, - receiving and commenting on the audit opinion. - It is highly unusual by international standards for an auditee of an SAI (the MFSR) to be responsible for hiring and overseeing the work of the auditor—thereby compromising the independence of the audit process. Quality of private audits: - The work conducted by the private auditor would itself qualify for a “good” rating. - Private audit reports have confirmed that the final accounts present a true and fair view of the government’s financial position in line with international audit standards without disclaimer or adverse audit opinion. - Recent CFS audits by Deloitte indicate: - accounts have historically received many qualified opinions but only very occasional disclaimers and no adverse opinions. - number of qualifications declined from 163 qualifications for the 2010 accounts to 36 qualifications for the 2018 accounts. ### Comparability of Fiscal Data (Assessment: Good) Findings: - The State Closing Account (annual budget execution report): - presents outturn data comparable to the original budget, - is reconciled with the fiscal statistics but not reconciled with the CFS. - shows results of State budget implementation on a cash basis (including revenue, expenditure, financing, and debt). - includes results based on the ESA 2010 methodology for the general government and its subsectors. - includes detailed tables reconciling the nationally cash-based budget outturn with the ESA 2010 accrual-based results. - reconciliation tables are presented by subsectors and separately for State budget, individual state funds, semi-budgetary organizations, individual non-market public enterprises classified in the general government sector, hospitals, and other general government entities. - includes tables reconciling fiscal balance with the government’s financing operations and the change in gross debt. - The CFS is not reconciled with the cash budget outturn data and with the fiscal statistics, resulting in large discrepancies for key fiscal indicators. Example discrepancies for 2020: - fiscal deficit for the general government based on CFS: -7.8 percent of GDP - fiscal deficit for the general government based on GFSM report submitted to the IMF: -5.5 percent of GDP - fiscal deficit for the general government based on the budget execution report: -8.4 percent of GDP - Reconciliation of results based on financial statements has been carried out occasionally by the SOSR for internal quality assurance, but not on a systematic basis. ### Recommendations (Section 5) Recommendation 1.1. Enhance the coverage and valuation in the CFS and fiscal statistics by: - Including data on the NBS, other public corporations under the MH Management, and subsectors of the public sector (distinguishing general government subsectors and public corporations and showing intra-sectoral flows and crossholdings of assets and liabilities among subsectors) (Indicator 1.1.1). - Including estimates of the value of the stock of publicly owned forests and mineral resources (Indicator 1.1.2); and - Using a market valuation for assets and liabilities (Indicator 1.1.2). Recommendation 1.2. Conduct a comprehensive review of tax expenditures every five years to: - Determine their macroeconomic and distributional impact. - Scale back tax expenditures that are not generating benefits commensurate to their cost; and - Assess whether there continues to be a good justification for each tax expenditure compared to other policy goals and instruments, including general government expenditure (Indicator 1.1.4). Recommendation 1.3. Enhance the comparability of fiscal reports by: - Consolidating existing data on the components of public sector net worth and presenting data on the stock of nonfinancial and financial assets and liabilities (Indicator 1.3.2). - Presenting a reconciliation of the results reported in the CFS and the budget execution data and fiscal statistics, explaining all major deviations (Indicator 1.4.3). Recommendation 1.4. Consider transferring responsibility for organizing, overseeing, and supervising external audit function from the MFSR to the SAO, underpinning this change with amendments to the legal framework for accounting and the SAO (Indicator 1.4.2). ### Summary Evaluation: Key Table Points (selected entries, preserving numeric values) - 1.1.1 Coverage of Institutions: Good. CFS cover all public sector institutional units except the NBS, but do not separate subsectors. Medium importance. Note: public corporations account for 72 percent of public financial assets but only 40 percent of public debt. - 1.1.2 Coverage of Stocks: Good. CFS cover non-financial and financial assets and liabilities, but deficiencies in coverage of natural resources and valuation. High importance. Figure for non-financial assets reported in CFS differ from IMF estimate of market value of public sector non-financial assets (using on SOSR data) by 64 percent. - 1.1.4 Coverage of Tax Expenditures: Good. Methodology complies with EU standards, but no estimates of dynamic effects. Low importance. The volume of tax expenditures has declined to only 1.2 percent of GDP in 2020. - 1.2.1 Frequency of In-Year Reporting: Advanced. Summary State budget execution data published daily. Monthly fiscal statistics on central government published within a month. Low importance. - 1.2.2 Timeliness of Annual Financial Statements: Basic. Audited CFS are published within 12 months of the end of the fiscal year. Low importance. - 1.4.2 External Audit: Not Met. Audit of CFS carried out by a private firm, without SAO oversight. National Council has a weak working relationship with the SAO. High importance. Governance of audit process is an international outlier; it creates potential conflicts of interest for the MFSR and SAO. - 1.4.3 Comparability of Fiscal Data: Good. Budgets outturns are comparable with the budget estimates and reconciled with the fiscal statistics, but not with the financial statements. High importance. Fiscal deficits reported for general government were -7.8 percent of GDP in 2020 (based on CFS), -5.5 percent of GDP (GFS), and -8.4 percent of GDP (budget execution). ### Fiscal Forecasting and Budgeting — Comprehensiveness and Quality of Forecasts - Objectives of assessment: comprehensiveness of the budget and associated documentation; orderliness and timeliness of the budget process; policy orientation of budget documentation; credibility of economic and fiscal forecasts and budget proposals. Budget Unity (Assessment: Advanced) - Budget documents provide detailed information on budgeted expenditure, revenue, and financing for most of the public sector. - The State budget is appropriated on a gross basis by the National Council. - Annex I to the General Government Budget covers a wider set of budget data for most general government entities, equally on a gross basis, and is presented to the National Council for information only. Entities included: Social Security Funds, municipalities and higher territorial units (HTUs), universities, healthcare providers, and some public companies (railways, motorways, etc.). - In the 2020 budget, more than EUR1 billion (1 percent of GDP) of public expenditure was missing, notably on green energies subsidies. - In the 2022 budget, the missing amount had decreased to EUR0.2 billion (0.2 percent of GDP), half of which related to spending financed by foreign grants. Macroeconomic Forecasts (Assessment: Advanced) - Budget documents contain extensive information on macroeconomic forecasts and underlying assumptions for the three-year budget. - The Draft Budgetary Plan (DBP) presents key macroeconomic variables and discusses impacts on fiscal forecasts; it compares with EU forecasts. Forecast bias: - Over the 2010-2019 period, the GDP growth rate used in preparing the budget was overestimated by 1percentage point, a 25 percent deviation from the outturn. - This bias declined from 1.2 percentage point in the 2010-2014 period (35 percent deviation from the outturn) to 0.7 percentage point (15 percent deviation from the outturn) in the 2015-2019 period. - These discrepancies place Slovakia’s forecasting errors for real GDP growth in an intermediate place among European countries. Medium-Term Budget Framework (MTBF) (Assessment: Good) - The 2004 Budgetary Rules Act requires budget documents include an MTBF for at least three financial years; first year binding ceilings, two outer years indicative. - The DBP presents the MTBF in a no policy change section with: - main categories of tax and non-tax revenue as a percentage of GDP; - expenditure by economic category as a percentage of GDP. - In practice, documentation includes outturns of two preceding years and three-year projections by economic category and main public policy areas, but not by ministry or program. - The MTBF is affected by an optimism bias: years two and three of the multiannual trajectory recurrently biased regarding the fiscal balance. - CBR observations (August 2020 Report on Compliance with the Fiscal Responsibility and Fiscal Transparency Rules for 2019): - the three-year budget does not cover all measures necessary to meet objectives set; - approved budgets repeatedly contain risks of revenue shortfalls that materialize. - The mandate of the Tax Revenue Forecasting Committee was recently extended to cover all tax revenue and some critical non-tax revenue. - Currently MTBF does not appear to frame preparation of the annual budget; systematic deviation shows outer years have little influence on next annual budget. Limited participation of line ministries in MTBF preparation; MTBF largely drafted by the MFSR. - Authorities are developing methodology to introduce binding spending ceilings in the medium term and for all budget agencies to cost their no policy change (NPC) baseline spending. Investment Projects (Assessment: Good) - Progress since the 2019 PIMA, but new procedures do not fully meet FTC requirements. - A new Investment Authority (IA) established within the MFSR’s Value-for-Money Unit with 30 staff to increase quality of investment projects and streamline project preparation. - Methodologies for feasibility studies and cost-benefit analysis published and required by law for: - all projects above EUR 40 million, - IT projects above EUR 10 million. - In November 2020, the IA mandate extended to review all projects above EUR 1 million. - The MFSR publishes IA evaluation of projects 30 days after the feasibility study is published by the line ministry. - During 2021, the IA evaluated more than 250 projects with a total cost of EUR 6.3 billion and identified potential savings of over EUR 800 million on these projects. *Source: IMF Technical Report (excerpts provided in content unit 1svkea2023002).* ### 44. An important deficiency of current procedures is that the government does not regularly ### 1svkea2023002 - 44. An important deficiency of current procedures is that the government does not regularly ### Disclosure of multi-annual investment obligations - Finding: The government does not regularly disclose the value of its total obligations under multi-annual investment projects. - Current practice: Information on the award of contracts and the total value of projects is published by line ministries but is not consolidated for the general government or published by the MFSR. - Recommendation: Publish consolidated data (for example in the General Government Budget (GGB)) to enable the public to understand medium-term spending commitments and enhance budget transparency. ### Public procurement legal framework and expected improvements - Development: A new Public Procurement Act was approved by the National Assembly in October 2021. - Expected effects of full implementation: - Speed up and simplify procurement processes. - Align Slovakia’s procurement regulations with EU directives. - Ensure the rights of interested contractors and suppliers. - Improve controls by automating evaluation and award of contracts and extending e-procurement. - Ensure efficient collection and analysis of procurement data. - Context from 2019 PIMA report: “most large procurements in Slovakia follow open and transparent procedures [but] ... weak administrative capacity and anticompetitive practices continue to impact negatively the tender procedures.” ### Public investment levels and financing - Finding: Public investment in Slovakia averaged 3.8 percent of GDP over the last ten years. - Comparative position: This is a similar rate to other European countries, but the public capital stock is at the lower end of the range of European countries. - Financing: Two-thirds of public investment is financed by the EU. - Data sources cited: Eurostat (figures updated from the 2019 PIMA report). ### Fiscal legislation, program budgeting, and budgetary timetable - Budget calendar and content requirements: - The 2004 Act on Budgetary Rules sets the budget calendar and key content requirements (paragraphs 6–14 referenced). - Paragraph 14 defines the timetable for preparation and tabling of the executive’s budget proposal. - Paragraph 11 sets an emergency procedure in case of late approval of the budget. - Program budgeting framework: - Slovakia has implemented program budgeting since 2005-2007. - The framework for program budgeting is not fully described in the 2004 Act or other laws; instead, rules stem from an MFSR manual. - Gaps: no legal definition of "programs" and no legal definition of rules governing management of appropriations under a program-based budget. - Legislative amendment powers: - The legislature’s power to amend the executive’s budget proposal is not specifically limited; paragraph 14’s fourth sub-paragraph prevents approval of proposals that increase the share of the general government deficit to GDP, but does not constrain increases in spending if matched by increased revenue. - This lack of limits on amendments is noted as unusual among advanced countries and potentially problematic during fiscal consolidation. - Timeliness of budget documentation: - Legal requirement: draft State Budget Act to be tabled in the National Council by October 15th (Paragraph 14 of the 2004 Act). - Practice over the past five years: draft tabled before October 15th and adopted in the first half of December. - Table 9 key dates (Draft finalized / Approved by Legislature): - 2018 Budget: 11 October 2017 / 13 December 2017 - 2019 Budget: 10 October 2018 / 5 December 2018 - 2020 Budget: 14 October 2019 / 3 December 2019 - 2021 Budget: 14 October 2020 / 9 December 2020 - 2022 Budget: 14 October 2021 / 14 December 2021 - Emergency mechanism: “provisional twelfths” (paragraph 11) if approval is delayed after the beginning of the year. ### Fiscal policy objectives and institutional framework - Constitutional and statutory rules: - The 2011 Constitutional Act on Fiscal Responsibility established a fiscal policy objective that general government debt not exceed 50 percent of GDP (the “debt brake rule”). - The Act created the Council for Budget Responsibility (CBR), an independent body to monitor and evaluate fiscal policy performance and compliance. - EU and TSCG rules: - Slovakia also follows the Treaty on Stability, Coordination and Governance (TSCG) medium-term balance objective and the Stability and Growth Pact expenditure rule (spending should not grow faster in real terms than average potential growth). - The TSCG rules were suspended during the COVID crisis. - CBR findings (August 2020 Report on Compliance with the Fiscal Responsibility and Fiscal Transparency Rules for 2019): - Repeated postponement of the target of a balanced budget and attainment of medium-term structural deficit target of less than 0.5 percent of GDP. - Adoption of measures with negative effects on the deficit even when debt remained within sanction brackets. - Overoptimistic revenue and expenditure assumptions. - Reduction of the debt/GDP ratio mostly driven by once-off measures rather than structural changes. - Observation: Slow reduction of gross public debt (Eurostat definition) and deficit despite favorable real GDP growth (2011–2020 trend noted). ### Proposed move to multi-year expenditure ceilings (Box 2) - Purpose: Introduce multiyear expenditure ceilings as the core operational instrument to achieve long-term fiscal sustainability; foreseen as a milestone in the Recovery and Resilience Plan (RRP). - Key features: - Expenditure limits based on planned structural balances linked to long-term sustainability. - Exclusions from the limits: i) expenditure driven by economic cycles and one-off expenditure; ii) general government debt service; iii) local government expenditure; iv) EU-related expenditure. - Limits evaluated incorporating policies’ impact on long-term fiscal sustainability (e.g., pension policy changes). - Enforcement: - Ceilings set for the four-year parliamentary term, initially covering 2023 and 2024 for the current government. - Once approved by the National Council as law, any increases in expenditure need compensatory measures presented to the National Council. - Flexibility: - National Council can authorize adjustments to specific limits within the overall limit. - Unspent limits (especially capital expenditure) could allow the government to exceed the limit in subsequent years. - Additional envisaged reforms: - Debt rule: shift from gross to net debt. - Sanctions and escape clauses: more gradual sanctions; modified escape clauses to reduce policy procyclicality. - Assessment of compliance: CBR responsible for reviewing compliance and proposing triggers for extraordinary circumstance escape clause; CBR independence to be strengthened from initial appointments. - Implementation note: In March 2022, the National Council amended the 2004 Budgetary Rules (Slovakia’s Organic Budget law) and introduced multi-annual public expenditure limits (PEL). The PEL have been implemented for 2023-2025. - Source for Box 2: MFSR and IMF staff. ### Performance information, spending reviews, and use in budgeting - Budget documentation (DBP) includes: - Breakdown of budget expenditures by category for the budget year, the next two years, and the three preceding years. - Presentation of broad objectives of each public policy. - Presentation of results of key performance indicators (KPIs) for the four years preceding the current year; most KPIs defined at output or outcome levels. - Limitations: - Performance information does not fully satisfy the Code’s requirements. - Targets for KPIs are rarely presented, suggesting limited use of performance information in preparing the three-year budget and in negotiations between MFSR and line ministries. - Spending reviews (Value-for-Money initiative since 2016, Box 3): - Aim: Improve efficiency of public expenditure and restore fiscal sustainability via rolling spending reviews covering all government spending over four years. - Institutional setup: Implementation Unit created (Deputy Prime Minister’s Office, later Prime Minister’s Office); analytical teams in line ministries strengthened. - Review coverage: health, transport, IT, environment, education, social benefits, agriculture, public wages, marginalized group support, defense, police, culture. - Outcomes: Reviews and proposed policy measures published; contributed to analytical capacity, cross-ministry cooperation, benchmarking, and political buy-in; led to 2019 Budget Law reform institutionalizing 4-year cycle of rolling spending reviews. - Challenges: - Low ownership by some line ministries due to capacity constraints. - Reviews followed a different process than the budget, complicating implementation; absence of credible medium-term budget further complicates matters. - Reviews lacked robust baseline estimates of future spending, preventing clear top-down savings targets. - Some targets were too ambitious; realized savings were not always reinvested as identified by reviews. - Recommendation: Better integrate spending reviews with the annual budget process; establish clear KPIs for three years of the multiannual budget and specify responsible entities/managers for each indicator to strengthen program and performance budgeting. ### Public participation in budgeting - Current practice: The government publishes only a bare minimum of information on the budget for citizens; the Citizen’s Guide to the Budget provides basic information but not the budget’s impact on typical citizens or demographic groups. - Public access and consultation: - NGOs and individual citizens have no formal voice in deliberations on central government spending proposals or execution of major investment projects (some role exists at municipal level). - Since 2000, public must be invited by the Ministry of Justice to comment on draft laws, but this does not apply to the budget law. - The CBR provides comments on the DBP, but this does not extend to the general public or NGOs. - Good practice examples and international guidance (Box 4): - South Korea: participatory meetings with citizens and NGOs during budget preparation for 12 sectors; e-consultations during execution; televised public meetings; National Assembly public hearings where any member of the public or NGOs may testify. - United Kingdom: invites public comments on draft budget plans and publishes summaries of responses. - Useful sources noted: IMF Fiscal Transparency Handbook (2018), Global Initiative on Fiscal Transparency Guide to Public Participation (March 2016), International Budget Partnership Guide on Citizens Budget (2013). *Source: MFSR and IMF staff; Eurostat (as cited in the provided content).* ### 4. Credibility ### 4. Credibility ### Independent Evaluation (Advanced) - Slovakia has an independent fiscal council, the CBR, established by the Constitutional Law on Budgetary Responsibility of 2011. - The CBR is funded by the NBS, has a board of three members and a staff of 23 analysts. - CBR mandate: reviewing and commenting on fiscal developments and fiscal risks; monitoring budget execution; policy costing; conducting long-term fiscal sustainability analysis. - The CBR’s legal mandate includes assessing budget proposals prepared by the National Council, but in practice the CBR has only a very limited dialog with the legislature and has no formal reporting relationship with it. - Macroeconomic and fiscal forecast preparation is largely independent of government: - The 2011 Law on Budgetary Responsibility established a Macroeconomic Forecasting Committee and a Tax Forecasting Committee. - The Director of the IFP chairs both committees, which include members from inside and outside government, including the CBR. - Committee members are required to prepare their own forecasts which are compared with those prepared by the IFP; members (other than the IFP) must vote on the IFP’s forecasts. - Committees must agree on forecasts through an absolute majority before the IFP submits them to the National Council with the budget proposals. - Statutes protect committee independence and require publication of minutes, typically three times a year; minutes disclose disagreements between the IFP and other committee members and how disagreements were resolved. - A 2021 change in the Macroeconomic Forecasting Committee’s Statutes gave the CBR full voting rights (formerly an observer). - Note: The Macroeconomic Forecasting Committee comprises ten members representing the IFP (chair), the NBS, the Slovak Academy of Sciences, the Institute of Informatics and Statistics (INFOSAT), the CBR (since 2021), and five commercial banks. ### Supplementary Budget (Basic) - The 2004 Act on Budget Rules sets limits on in-year amendments to the State budget but provides considerable room for the MFSR to make adjustments. - Only the National Council is allowed to increase spending above the approved State budget. - Paragraph 16 prevents transfers that would change a “binding indicator” of a chapter set by the MFSR (e.g., amount of wages and salaries, number of employees, capital expenditure, co-financing). - The MFSR is allowed to modify binding indicators (paragraph 17) and authorize in-year virements accordingly. - In practice, virements have been consistently numerous, varying between 2,200 and 3,100 per year over the 2018-2021 period. - Excluding transfers linked to EU co-financing, the number of transfers has never fallen below 1,000 a year over the same period and reached 1,500 in 2020. - In-year transfers are reported to the National Council only at the end of the financial year. - Risks and implications: - High volume of in-year adjustments creates risk of significant changes to budget composition without legislative approval. - The MFSR has not developed a policy to address this gap in fiscal legislation. - This legal lacuna contributes to persistence of numerous requests by line ministries for changes in budget appropriations and likely to insufficient efforts toward precise initial spending forecasts. - Contingency reserves: - In 2021, excluding an exceptional reserve for managing the negative impact of the COVID-19 crisis, seven other reserve funds amounted to EUR 657 million (2.38 percent of State budget expenditure). - Excluding the reserve for EU funds and payments to the European Union, these reserves amounted to EUR 224 million (0.81 percent of the State budget). - Suggested modest procedural changes to improve the indicator rating: - MFSR could set specific criteria for acceptance/rejection of transfer requests by line ministries to encourage better initial estimates and reduce requests. - MFSR could submit to the National Council, perhaps quarterly, data on the number and amount of executed transfers. ### Forecast Reconciliation (Advanced) - Budget documentation includes a complete reconciliation between different vintages of forecasts: - The Stability Program presents a detailed reconciliation for the preceding year, quantifying contributions of various factors and identifying impacts of macroeconomic factors, new policy decisions, and other variables; it makes a similar, slightly less detailed reconciliation for the current year. - The DBP includes an updated reconciliation for the current year following the same structure as the Stability Program. - The Tax Forecasting Committee, in each revenue forecast, makes a reconciliation with the previous forecast identifying impacts of macroeconomic factors and changes of legislation. ### Recommendations (selected from Section 5) - Recommendation 2.1: Extend coverage of the National Council’s approval to budget of general government entities falling under the spending ceilings as part of the draft Constitutional Act on expenditure ceilings (Indicator 2.1.1). - Recommendation 2.2: Issue instructions for the MFSR and line ministries to facilitate implementation of expenditure ceilings through: - Closer collaboration between Budget Policy Section, MFSR and line ministries on preparation of NPC scenarios and costing of new policies; - Developing manuals for line ministries to prepare NPC scenarios and cost new policies; - Requiring line ministries to separate their NPC scenarios and new policies when presenting medium-term budget requests; - Integrating spending review cycles with the fixed four-year MTBF cycle for better integration of savings and policy proposals (Indicators 2.1.3 and 2.3.1). - Recommendation 2.3: Publish data on government’s total commitments on major investment projects by: - Including total obligations under multi-annual investment projects with a value of EUR 40/10 million and above in a budget annex; - Developing MFSR directives to guide evaluation of investment projects with a value more than EUR 1 million; - Implementing other outstanding recommendations of the PIMA report, 2019 (Indicator 2.1.4). - Recommendation 2.4: Adopt Constitutional Amendment on expenditure ceilings (Indicator 2.3.1). - Recommendation 2.5: Use performance information more actively by completing the draft budgetary plan with targets for KPIs for the budget and two outer years (Indicator 2.3.2). - Recommendation 2.6: Create greater opportunities for public participation by: - Including in the Citizen’s Guide information on budget impact on typical citizens and different demographic groups; - Providing citizens and NGOs a formal voice in the budget process via public hearings on draft budget proposals; National Assembly hearings on the budget; and hearings on audited financial statements (Indicator 2.3.3). - Recommendation 2.7: Establish published rules for better managing in-year transfers, and a mechanism to review and challenge breakdown of spending under budget chapters. ### Summary Evaluation: Fiscal Forecasting and Budgeting (selected entries from Table 10) - 2.1.1 Budget Unity: Advanced — Information on most major general government entities, including social security funds, is provided to the National Council. Importance: Medium. Note: National Council only approves 40 percent of public expenditure; insufficient with upcoming binding expenditure ceilings. - 2.1.2 Macroeconomic Forecasts: Advanced — 2022 DBP includes a multiyear forecast of economic variables, with discussion of main drivers. Importance: Low. Note: Some optimism bias in macroeconomic forecasts but declining over time. - 2.1.3 Medium-term Budget Framework: Good — 2004 Act sets requirements; DBP and Stability Program contain estimates for 3 years. Importance: High. Note: In absence of binding ceilings, MTBF does not frame annual budget as historical analysis shows. - 2.2.1 Fiscal Legislation: Good — 2004 Act sets content, structure, and timetable of budget. Importance: Medium. - 2.4.2 Supplementary Budget: Basic — Law requires National Council approval for increases above approved State budget, but loopholes allow extensive in-year movements by MFSR without approval. Importance: High. Note: Number of in-year transfers exceeds 2000. - 2.4.3 Forecast Reconciliation: Advanced — Regular reconciliations in Stability Program and DBP distinguish impacts of macro changes, new policies, and other variables. Importance: Low. ### Fiscal Risks — Disclosure and Analysis - 3.1.1 Macroeconomic Risks (Good): - The DBP presents a few macroeconomic scenarios around the baseline, specifically high risk scenarios, but does not present their likelihoods. - Alternative scenario approach used extensively in 2021 and 2022 budgets with policy measures for prolonged COVID lockdowns and lower drawdowns of EU funds. - The 2021 Stability Program compares government macroeconomic forecasts with those from other public institutions and contains a macroeconomic forecast under a risk scenario plus explanations of divergences between forecasts and outturns. - The IFP conducts evaluations of past tax forecasts (example: 2019 tax revenue forecast evaluated in February 2021 after corporate tax data were finalized). - Probabilistic analysis has been used occasionally in the debt forecast but is not regular practice. - External exposure and volatility: - Goods exports amounted to 82 percent of GDP in 2020. - 80 percent of total exports were destined to the EU. - Top two product categories — Electrical and machinery, and transport equipment — accounted for 64 percent of total exports. - Global value chain (GVC) participation (sum of backward and forward) rose from 55 percent in 2000 to 67 percent in 2018. - Slovakia fares worse than the median in peers on macroeconomic volatility as measured by standard deviations of growth in nominal GDP and general government revenue growth. - 3.1.2 Specific Fiscal Risks (Not met): - Most specific fiscal risks are reported in published documents, but there is no summary report of main specific fiscal risks. - The Annual Summary Report contains information on contingent liabilities, liabilities of major SOEs and PPPs, loan guarantees, and long-term pension and healthcare pressures. - Contingent and implicit liabilities are reported in annexes to the general government budget. - Guarantees under the bank loan warranty program during COVID-19 are reported in budget documents and the Stability Program. - An ageing report by the EU AWG contains detailed discussion of long-term pension liabilities under different scenarios. - Bank deposits guaranteed under the government’s insurance scheme are reported in the Deposit Protection Fund’s annual report. - Key figures on specific fiscal risks (2020) — Table 11: - Contingent liabilities: Maximum exposure €19,990 million — 21.7 percent of GDP. - Capital on demand and guarantees/ESM: €6,148 million — 6.7 percent of GDP. - Capital on demand and guarantees/EFSF: €2,372 million — 2.6 percent of GDP. - State-owned companies: €5,216 million — 5.7 percent of GDP. - Guarantees: €646 million — 0.7 percent of GDP. - Implicit liabilities: €363,441 million — 394.7 percent of GDP. - PPP projects: €4,050 million — 4.4 percent of GDP. - Population aging related long-term risks: €360,753 million — 391.8 percent of GDP. - Pension (by 2064): €204,721 million — 222.3 percent of GDP. - Healthcare (by 2064): €80,886 million — 87.8 percent of GDP. - Long-term care: €57,002 million — 61.9 percent of GDP. - Education: €16,656 million — 18.1 percent of GDP. - Total guaranteed deposit: €39,561 million — 43.0 percent of GDP. - Contingent events: Natural disasters N/A — N/A. - As reported in the Annual Summary Report, contingent risks including government backstopping of public corporations and loan guarantees amounted to 21.7 percent of GDP as of 2020. - Maximum exposure to depositor guarantee liabilities stands at 43 percent of GDP. - Implicit liabilities related to population ageing were revised up from Euro 106.8bn in 2019 (113.4 percent of GDP) to Euro 360.8bn in 2020 (391.8 percent of GDP), reflecting mainly a reduction in the discount rate in the AWG 2021 projection and to a lesser extent pension legislation adopted in 2020. - COVID-19 related off-balance sheet support (moderate): - Government provided below-the-line support: loan guarantee programs, tax deferrals and social contribution deferrals, and debt moratoria for bank loans. - Eventual take-up of loan guarantees totaled 1.1 percent of GDP (smaller than initially announced 4.0 percent of GDP). - Corporate and financial sectors weathered COVID-19 with little increase in bankruptcies or NPLs. - Tax deferrals have cash flow implications but do not affect fiscal balance on an accrual basis. - Table 12 — Policy Measures in Response to COVID-19 (Percent of GDP): - 2020: Above-the-line measures 2.1; Public credit guarantees 0.7; Tax deferrals 0.5; Debt moratoria 0.5. - 2021 (est.): Above-the-line measures 3.6; Public credit guarantees 0.4; Tax deferrals 0.1; Debt moratoria 0.1. ### Long-term Sustainability of Public Finances (Good) - The chapter transitions to assessment of long-term sustainability and fiscal risks across public sector entities and specific risk sources (section headings and evaluation to follow in subsequent sections). *Source: IMF Technical Report (chapter 4: Credibility).* ### 73. Various publicly available documents assess the long-term sustainability of public ### 73. Various publicly available documents assess the long-term sustainability of public ### Long-term fiscal sustainability: assessments and projections - Budget documents and the Stability Program discuss long-term fiscal sustainability and report medium- and long-term sustainability indicators, including a comparison with earlier estimates. - The budget includes a long-term debt projection (over 20 years) and discusses the long-term trend in pension expenditure (up to 2070). - Slovakia’s contribution (country fiche) to the AWG ageing report includes detailed long-term pension liability analysis; most recent cited: "2021 pension projections" including various economic and demographic scenarios. - The CBR undertakes and publishes its own analysis of fiscal sustainability and in its most recent report assesses the long-term sustainability of public finances as "high risk." - Authorities have announced consolidation efforts in the 2023 budget; specific consolidation measures are still to be laid out. - IMF estimate: the net present value of Slovakia’s healthcare spending will rise by 26.5 percent of GDP between 2015 and 2050. ### Demographic pressures and pension spending projections - Slovakia’s old-age dependency ratio is projected to increase by 37 percentage points from 2019 to 2070. - Old-age pension spending projected to rise to 14.2 percent of GDP by 2070, from 8.3 percent in 2019. - Pension reforms in 2019 and 2020 have significantly raised long-term pension expenditure. - The 2021 Ageing Report (red line) includes 2020 reforms (13th pension etc.). ### Box 5 — Pension Reforms in Slovakia (findings) - 2004 reform: established a universal three-pillar system replacing earlier Pay-As-You-Go reliance. - 2012 reform: unified the retirement age and indexed it to life expectancy; moved pension indexation to inflation-only; raised the assessment base for contributions. - 2019 reforms that increased long-term pension expenditure: - Statutory retirement age, previously indexed to life expectancy, was capped at 64 years. - Women’s retirement age convergence to men’s by 2024 was reduced for mothers by six months for every child (up to three children). - These and other changes estimated to raise the public old-age pension in 2070 by 5.5 percent of GDP. - 2020 policy changes that further raise long-term pension spending moderately: - Introduced a thirteenth pension to replace the Christmas bonus with higher benefits. - Retroactively lowered the retirement age of mothers, only partially offset by a freeze of the minimum pension. - Ongoing reforms (constitutional amendment December 2020) set principles expected to overall improve sustainability: i) abolishment of the retirement age ceiling of 64; ii) introduction of a parental pillar, allowing working children to transfer part of their social security contribution directly to their parents; iii) allowing retirement once a certain number of years of working has been reached; iv) ensuring that having children should not negatively affect one’s pension benefits. - Authorities committed to restore the link between retirement age and life expectancy in its Recovery and Resilience Plan as a milestone set for Q4, 2022. - Note: These reforms are yet to be implemented through an amendment to the social insurance law. ### 2. Fiscal Risk Management — Budgetary contingencies (Basic) - Slovakia includes eight separate contingency reserves in the budget without clear access criteria or in-year reporting on utilization. - Total size of the reserves: 1.5 percent of the budget excluding the COVID-19 reserve, 3.6 percent including this reserve. - Apart from the COVID-19 reserve, main reserves cover: co-payments on EU-financed projects, new legislation, public service salaries. - Spending against reserves is published only in the government’s mid-year and end-year reports on budget execution; no more regular in-year reporting. - Table of Contingency Reserves in 2021 (Euro million): - Reserve of the government: 5 - Reserve of the Prime Minister: 2.5 - Reserve of EU Funds: 433 - Reserve for new legislation: 111 - Reserve for emergencies (floods, etc.): 11 - Reserve of the judiciary: 20 - Reserve for public salaries: 74 - Reserve for COVID-19 spending.: 1,041 - Total reserves: 1,698 (3.6% of total budget) - Law gives the MFSR almost complete discretion to allocate contingency reserves when requests are submitted; usual criteria (urgency, unforeseeability, unavoidability, inability to absorb within existing appropriations) are not strictly applied. - Fragmentation into several reserves was designed to limit MFSR discretion but also limits potential cost to the government. ### 3.2.2. Management of assets and liabilities (Basic) - Well-established legal framework regulates public debt; risks around government‘s debt are analyzed and disclosed. - A balance sheet presenting assets and liabilities for the whole public sector is published annually on the MFSR‘s website. - Annual Summary Report of the state contains more detailed information on financial assets (tangible assets largest component), government shares in joint stock companies and other public corporations, and cash deposits; no risk analysis of these assets is undertaken. - Fiscal rules in the Constitutional Act on Budgetary Responsibility (2011) include multiple debt ceilings with corresponding penalties. - Changes to the 2004 Law on Budgetary Rules made in March 2022 introduced multi-year expenditure limits. - ARDAL publishes the government’s debt management strategy; most recent published strategy is for 2015−18 and an update is being prepared. - Monthly publication of public debt data includes ownership of assets and liabilities; ARDAL announces borrowing plans and publishes monthly activity reports and overviews of government securities; auction results are published timely. - Slovakia’s gross public debt increased from 48.1 percent of GDP in 2019 to 59.7 percent of GDP in 2020. - A 48-month escape clause was triggered with the installation of a new government in April 2020. - Ratings: S&P: A+, Moody’s: A2, Fitch: A. - With Euro denominated government debt, exchange rate risk is minimal. - Average maturity of public debt: 8.3 years in 2022; effective interest rate remains low. ### 3.2.3. Guarantees (Not Met) - Information on loan guarantees and other indemnities is incomplete and not consolidated. - Government guarantees recorded by Eurostat for 2019: 0.01 percent of GDP. - Eurostat figures exclude COVID-19 guarantees and other indemnities (e.g., ESM, deposit insurance). - Law states no guarantees can be issued by local governments or public corporations. - Deposit Protection Fund total covered deposits: Euro 39.56 billion at end-2020. - Calls on guarantees to meet non-performing loans were very small in 2020 and 2021 (less than Euro 0.5 million) but are expected to increase. - No maximum value of new guarantees is authorized by law. - MFSR does not undertake analysis of the likelihood of guarantees being called. - COVID-19 related guarantees: total amount Euro 1.033 billion (1.1 percent of GDP); €646 million issued in 2020 and €387 million in 2021. - COVID-related guarantees issued for loans provided by SZRB and Eximbank and qualified commercial banks, with some programs targeting SMEs. ### 3.2.4. Public-Private Partnerships (Good) - Limited use of PPPs. Liabilities related to PPP projects are reported in the annex to the budget and the SAR; expected annual receipts and payments disclosed. - 2020 SAR: liabilities arising from PPP projects amounted to €4.05 billion (4.4 percent of GDP) at end-2020. - Currently three PPPs: two road projects and one prison facility; government commitments extend to: - R1 expressway projects and new prison facility: run until 2041. - D4/R7 project: run until 2050. - Regulatory and methodological framework for PPP preparation, selection, and management is sound; no dedicated PPP law but a PPP strategy published. - MFSR plays a gatekeeper role (non-binding) in PPP preparation and approval. - Signed PPP concession contracts are published in the Central Register of Contracts. - No legal limits on PPP obligations; initiative started to standardize PPP appraisal and contracting processes including regular reporting to MFSR. - Currently no new PPP projects in the pipeline. ### 3.2.5. Financial Sector (Advanced) - NBS produces bi-annual financial stability reports assessing financial sector risks, including stress scenarios. - Financial sector dominated by banks: 9 banks, 15 foreign bank branches, and 3 building societies; banks account for 73 percent of financial market (excluding central bank) assets. - State’s direct exposure to financial sector is limited: - Total bank holding of government bonds: EUR8.7 billion as of November 2021. - Banks have outstanding loans amounting to EUR1.6 billion to central and local governments. - SZRB (state-owned, established 1991) liabilities: 0.6 percent of GDP at end-2020. - Eximbanka liabilities: 0.5 percent of GDP at end-2020; classified as part of general government. - Government underwrites the Deposit Protection Fund; domestic deposit guarantee: up to EUR 100,000 per depositor. - Total covered deposits: EUR 39.56 billion at end-2020 (41 percent of GDP). - Fund’s financial assets: EUR 268.7 million (0.7 percent of total guaranteed deposits), lower than the scheme’s target of 0.8 percent under EU rules. - Slovak banks are well capitalized and stable during COVID-19; banks hold capital buffers in excess of required minimum. - NBS November, 2021 Financial Stability Report: banks resilient during the pandemic; short-term risks gradually fading. ### 3.2.6. Natural Resources (Basic) - No comprehensive estimate of the value of natural resources; forestry and mineral deposits assets disclosed in various publications. - Since 2017, value of forests included in notes to financial statements of the state enterprise managing state-owned land; updated by National Forestry Center expert; included in off-balance sheet assets and SAR net worth estimate. - Slovak Minerals Yearbook provides information on total mineral deposits and output but does not value outputs. - Fiscal revenue from mineral resources: 0.01 percent of general government revenue in 2020. - Exports of mineral resources: EUR2.1 billion in 2020 (2.3 percent of GDP). - Slovakia imports almost all its oil and gas needs. ### 3.2.7. Environmental Risks (Basic) - Government identifies and discloses main fiscal risks from natural disasters in qualitative terms but does not quantify these risks. - Reports by the Slovak Hydrometeorological Institute include some forward-looking hydrological/meteorological/climate assessments. - Floods have been the most frequent source of natural disasters over the past 20 years; relief for major natural disasters can lead to significant fiscal costs. - Some information exists on costs of disaster relief (e.g., compensation to farmers after floods, rescue activities after landslides) but no comprehensive estimates of overall fiscal impact of past natural disasters. - Budget includes a reserve for emergencies such as floods. *Source: IMF Technical Report (excerpts from content unit 1svkea2023002).* ### 92. Slovakia is not particularly vulnerable to natural disasters (Error! Reference ### 92. Slovakia is not particularly vulnerable to natural disasters ### Natural disaster occurrence and fiscal implications - The occurrence of natural disasters over the past twenty years has been relatively low among European countries, though less so when scaled by countries’ land sizes. - Floods have been the most frequent source of natural disasters over the past 20 years. - Relief for major natural disasters can lead to significant fiscal costs. - The government identifies and discloses the main fiscal risks from natural disasters in qualitative terms but does not quantify these risks. - There are no comprehensive estimates of the overall fiscal impact of past natural disasters, although there is some information on the costs of disaster relief (e.g., compensation to farmers after floods and expenditure associated with rescue activities following landslides). - The budget includes a reserve for emergencies such as floods (see Principle 3.2.1 and Table 12). ### Key statistics on natural resources and related fiscal exposure - Total natural resources revenue accounted for only 0.01 percent of general government revenue in 2020. - Exports of mineral resources amounted to EUR2.1 billion in 2020 (2.3 percent of GDP). - Slovak imports almost all its oil and gas needs. - Total local government debt amounted to 2.36 percent of GDP in 2020. - Total state equity in selected major SOEs amounted to 24.1 percent of GDP as at the end of 2020. - Slovakia’s SOE debt stood at 4.7 percent of GDP as at end of 2019. - About half of the SOEs suffered losses in 2020 according to the latest SAR. - Total assets and liabilities of the public sector are 188 and 168 percent of GDP, respectively. - Present value of future expenditure on PPPs amount to only 4.4 percent of GDP. - Reserves comprise only 1.5% of budget, excluding COVID-19 reserve. - NPV of social security pension and health (including long-term care) liabilities are 222 and 150 percent of GDP respectively. - Government’s total exposure to guarantees was moderate, except for Covid-19, that was at least 1 percent of GDP. ### Subnational governments (Fiscal coordination) - Local governments include 2890 municipalities and 8 higher territorial units (regions). - The share of local governments in GDP was 7.6 percent in 2020. - Local governments rely heavily on central government transfers, with own resources amounting to only 23 percent of their funding. - Local governments ran a small aggregate surplus in 2020. - Information on the performance of local governments’ revenue and spending is published annually. - The MFSR monitors financial performance of subnational governments, but this is done in aggregate. - Coordination between central and local authorities is strong for EU-funded projects, but local governments’ overall capital spending plans are not discussed with the central government. - Safeguards against moral hazard and excessive borrowing include strict rules on local government borrowing and debt; the central government does not guarantee liabilities incurred by local governments. - Constitutional Act on Fiscal Responsibility (2011): if total debt of a municipality or a self-governing region reaches or exceeds 60 percent of its current revenue in the previous year, the entity shall pay a penalty equal to 5 percent of the difference. - Budgetary rules require that local governments’ borrowing can only be used for capital expenditure and that the amount of annual debt payments must not exceed 25 percent of actual revenue in the preceding fiscal year. ### Public corporations (SOEs) - All transfers between the government and SOEs are disclosed in the budget document and the SAR discusses the financial performance of SOEs. - Investments, subsidies and capital transfers to SOEs that belong to the general government, as well as their dividend payments to government, are reported in the budget. - An annex to the budget reports on the state’s ownership share, the value of equity, and the profit/loss of selected major SOEs; the SAR provides an overview of profit, dividend, and changes in equity of main SOEs that account for 84 percent of the total equity of all SOEs. - Total state equity in these companies amounted to 24.1 percent of GDP as at the end of 2020. - SOEs play an important role in public investment, supported by transfers from the central government. - All SOEs are required to produce annual financial statements subject to external audit, but only a minority of central government SOEs follow International Financial Reporting Standards (IFRS). - There is an oversight unit for SOEs at the MFSR, housed within the State Reporting Section, focused on collecting and consolidating information rather than monitoring companies’ performance. - Authorities are preparing legislation to empower the MFSR to exercise the state’s ownership rights and monitor the economic and financial performance of SOEs. - A provision in the Constitutional Act on Budgetary Responsibility (2011) requires the government to publish information on the fiscal risks associated with SOEs, but this has not yet been implemented. - Around 50 percent of SOEs were loss making in 2020. ### Natural resources and asset disclosure - Since 2017, the value of forests is included in the notes to the financial statements of the state enterprise that manages state-owned land; this information is regularly updated by an expert of the National Forestry Center and is part of the off-balance sheet assets of the general government and included in the estimate of Slovakia’s net worth reported in the SAR. - The Slovak Minerals Yearbook provides information on the total amount of mineral deposits and output but does not value the outputs. ### Environmental risks assessment - Various reports by the Slovak Hydrometeorological Institute include some assessments for the future from hydrological/meteorological/climate points of view but do not focus on imminent environmental threats. - The government identifies and discusses the main risks from natural disasters in qualitative terms, but largely without quantification of potential fiscal impacts. - Natural disaster occurrences have historically been low, but global warming may increase these risks. ### Recommendations (selected from Chapter 4) - Recommendation 3.1: Deepen existing macroeconomic risk analysis by including probablistic fan-charts and retrospective comments on the realization of previously published risk scenarios (Indicator 3.1.1). - Recommendation 3.2: Prepare and publish an annual consolidated fiscal risk statement that summarizes the size, probability, and potential impact of fiscal risks to the public finances, covering the risks included in Pillar 3 of the FTC (Indicator 3.1.2). - Recommendation 3.3: Regularly publish long-term projections of the health insurance fund and the long-term sustainability of health-related expenditures, similar to the projections of pensions sustainability (Indicator 3.1.3). - Recommendation 3.4: Publish comprehensive information on government guarantees to include: - Extending Annex 4 of the budget documents (on contingent liabilities) to provide basic data on guarantees (both COVID-related and others) and to discuss and analyze recent trends in the issuance and call on guarantees. - Also consider introducing a legally binding ceiling on the amount in Euros of new guarantees issued each year, and/or on the total stock of guarantees (Indicator 3.2.3). - Recommendation 3.5: Support the special unit in the MFSR responsible for overseeing SOEs by providing resources, operational manuals and guidelines for conducting their activities, and obtaining required information from the companies: - Prepare and publish an annual report on the financial performance of SOEs, to include the cost of their quasi-fiscal activities (Indicator 3.3.2). *Source: IMF | Technical Report.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1svkea2023002.pdf_