## 1svkea2024001 - 2023. The mission met with National Bank of Slovakia Governor

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### Context and recent developments
- One million Ukrainians entered Slovakia since end-2021; 100,000 have stayed and been integrated into the labor market or the education system.
- The Slovak economy faced headwinds from the war in Ukraine, soaring commodity prices, and supply chain disruptions.
- High inflation hit households and corporates; measures to cushion higher energy prices carried a high fiscal cost.
- Supply chain disruptions curtailed car production in 2022 but have since dissipated.

### Real economy and inflation
- Growth and composition:
  - Real GDP growth slowed to 1.1 percent in 2023 (from 1.8 percent in 2022).
  - Real GDP in 2023:Q4 exceeded its pre-pandemic level by 4 percent, with recovery concentrated in the public and service sectors while manufacturing activity remained subdued.
  - A large increase in net exports in 2023 matched a drawdown of precautionary inventories.
- Inflation dynamics:
  - Average headline inflation declined modestly to 11 percent in 2023 (from 12.1 percent in 2022).
  - Inflation momentum fell rapidly in 2023:H2 and was 2.8 percent in December on a momentum basis (3m/3m seasonally adjusted and annualized).
  - Core inflation (excluding energy and unprocessed food) increased to 11.4 percent in 2023 (from 10.4 percent in 2022) and is currently 3.7 percent on a momentum basis.
  - Food prices were the main driver of the rise and subsequent decline in inflation.
- Savings and consumption:
  - Drawdown of pandemic-era savings ran its course; negative real wage growth weighed on consumption and consumption weakened in 2023.

### Labor market
- Employment and hours:
  - Employment rose in 2021 with a large increase in female participation, then remained stable since mid-2022 as an influx of foreign workers offset a declining working-age population.
  - Hours worked per worker remain 5 percent below pre-pandemic levels.
  - Labor productivity increased 9 percent since 2019.
- Unemployment and wages:
  - Unemployment is close to the 6 percent equilibrium rate; youth unemployment remains significantly higher than in the euro area.
  - Nominal wage growth reached 8.3 percent in 2023:Q3; real (HICP-deflated) wage growth was -1.3 percent.
  - Real wages have only just recovered to their end-2019 level.
- Participation and composition:
  - Female employment increased by about 83,000 in 2021 (3.2 percent of total employment).
  - Foreign workers increased by 32,000 (1.2 percent of total employment) between December 2021 and December 2023; employed Ukrainians increased from 19,000 to 39,000 in the same period.

### External sector and competitiveness
- Current account and competitiveness:
  - The current account deteriorated to 8.2 percent of GDP in 2022 due to higher imports (stockpiling and gas prices) and curtailed exports from supply disruptions.
  - Slovakia regained market share as supply constraints eased in 2023; the current account deficit is expected to have reached 1.7 percent of GDP in 2023.
  - Unit labor costs rose more than in the euro area but less than in other Central and Eastern Europe (CEE) countries.

### Fiscal developments and measures
- Fiscal outcomes and impulse:
  - The fiscal deficit is projected to have widened from 2 percent in 2022 to 6.5 percent of GDP in 2023.
  - EU-financed public investment increased significantly; government spending financed by EU funds was 2.6 percent of GDP in 2023 (compared to 1.3 percent in 2022).
  - The fiscal impulse to the economy was 5.2 percentage points; debt remained about 58 percent of GDP as negative real interest rates offset the rising deficit.
- Major contributors to the 2023 deficit:
  - Temporary energy support: Net fiscal cost expected to have reached 1.5 percent of GDP after factoring in €500 million of EU funds and EU-wide temporary windfall profit taxes on the energy sector. An additional €450 million of EU funds earmarked for energy support for households in 2023 will be disbursed in early 2024; recording to be determined by Eurostat in April 2024.
  - Permanent social spending increases: Family support package cost about 1 percent of GDP in 2023; measures boosting pensions (including an extra within-year adjustment and an additional pension payment at end-2023) added about 1 percent of GDP; real increase in healthcare workers’ salaries added about 0.3 percent of GDP.
  - Inflation in 2022 had lagged effects on 2023 expenditure due to partial indexation of social benefits, pensions, and some public wages.
  - A 1.5-percentage point increase in public investment added to the fiscal impulse, largely offset by matching EU grants.
- Measurement:
  - Fiscal impulse is measured as the change in the cyclically adjusted primary balance excluding EU grants in percent of potential GDP.
  - Fiscal stance is measured by the structural balance (excluding one-offs) in percent of potential GDP.
  - The additional pension payment at the end of 2023 is considered permanent and followed by an equivalent structural increase (a full 13th monthly payment per year) from 2024 onwards.

### Financial sector, credit, and housing
- Credit and banking:
  - Credit growth declined to 3.5 percent year-on-year in 2023:Q4 from 10.8 percent at end-2022.
  - Retail and corporate lending rates increased with the ECB policy rate; mortgage credit growth fell due to fewer new loans and reduced top-ups on existing loans.
  - Demand for non-financial corporate credit weakened; consumer credit increased.
  - The spread over German government bonds increased slightly more than for the median euro area country.
- Housing market:
  - House prices fell 10 percent from the 2022:Q3 peak.
  - Residential property prices remain high relative to fundamentals and affordability remains close to historical lows, though affordability improved in 2023 as falling house prices more than compensated for rising interest rates.

### Energy security and climate-relevant measures
- Energy security:
  - Agreements with Norway and LNG suppliers reduced reliance on Russian gas to about 40 percent in 2022.
  - Record-high gas storage levels have alleviated the risk of shortages.
  - Slovakia is exempt from the EU-wide embargo on Russian oil until end-2024; diversifying away from Russian oil will take longer owing to the need to reconfigure oil refineries.
  - With three out of four units of the Mochovce nuclear plant commissioned Slovakia is now self-sufficient in electricity and is in the process of diversifying away from Russian nuclear fuel.
- GHE progress and climate policy:
  - Greenhouse gas emissions have fallen by 44 percent since 1990.
  - Slovakia’s commitment: cut emissions by 55 percent by 2030 relative to 1990 levels.
  - Slovakia’s RRP earmarks about €2.5 billion for climate objectives.
  - Suggested fiscal/policy instruments: increase the effective energy tax rate (including an explicit carbon tax in sectors not yet covered by ETS), and phase out the $4.3 billion (3.7 percent of GDP) in implicit fossil fuel subsidies.

### Outlook and risks
- Near-term forces:
  - Pick-up in real wage growth, extension of energy support to households and more generous pensions will increase disposable income and support household demand.
  - Saving rate increases to more normal levels and tight financial conditions weigh on the economy.
  - Normalization of EU funds from record-high levels in 2023 will weigh on public investment growth.
  - Easing of supply chain restrictions expected to support a recovery in exports.
  - Depletion of inventories in 2023 is expected to have run its course.
- Growth and inflation projections:
  - Growth is forecast to increase to 2.1 and 2.6 percent in 2024 and 2025.
  - Average headline inflation is projected to fall to about 3½ percent in 2024 before increasing slightly in 2025 as temporary energy support comes to an end.
  - Inflation is projected to continue to moderate and return to target by end-2026.
  - Medium-term growth is expected to be supported by continued real disposable income growth, robust inflows of EU funds, and a strengthening external environment.
- Structural constraint:
  - Projected medium-term growth of 2.7 percent is significantly lower than the 3.9 percent average between Slovakia’s EU accession and the pandemic.
  - Population aging and a falling working age population is estimated to reduce annual medium-term potential growth by 0.6 percentage points relative to the pre-pandemic average.
- Risks:
  - Growth risks are tilted firmly to the downside; inflation risks are balanced.
  - Near-term downside triggers: global slowdown, resurgent energy prices, intensifying fallout from the war in Ukraine, commodity price shocks, and wage pressures that could keep euro area inflation high and require monetary policy to stay high for longer.
  - Domestic risks: delays in fiscal consolidation and structural reform implementation, a sharp real estate market downturn, and continued strong nominal wage growth or increased profit margins that could keep inflation elevated and undermine competitiveness.
  - Medium-term risks: backtracking on rule of law reforms, geoeconomic fragmentation and protectionism hurting the auto sector, and increased automation.
- Authorities’ view:
  - Authorities broadly agreed that private consumption and exports would lift growth in 2024 and that inflation is likely to keep declining; they saw the main risk as lower growth in Slovakia’s trading partners.

### Fiscal policy assessment, outlook, and consolidation needs
- 2023 fiscal easing likely averted a recession; absent the fiscal stimulus the economy would have contracted by around ½ percentage points.
- Almost ⅔ of the fiscal expansion (nearly 3 percent of GDP) resulted from a permanent increase in spending, complicating consolidation and contributing to a 15-percentage point of GDP increase in public debt by 2029.
- Authorities’ 2024 budget:
  - Targets a 0.5 percentage point reduction in the headline deficit to 6 percent of GDP for 2024.
  - Adopted approximately €800 million (0.6 percent of GDP) in net consolidation measures.
  - Structural deficit (excluding energy support and other one-off policies) projected to widen by 0.9 percentage point to 5.3 percent of GDP in 2024.
  - For 2025–26 the budget targets a 1 percentage point annual reduction in the headline fiscal deficit to bring the deficit to 4 percent of GDP, though measures to achieve this are not specified.
- Staff baseline forecast:
  - Marginal reduction in the headline deficit to 5.6 percent of GDP by 2029 as temporary energy support ends.
  - Structural deficit projected to increase marginally as interest costs rise.
  - Public debt projected to increase to 72.5 percent of GDP by the end of the forecast period.
- Long-term pressures and required adjustment:
  - Estimated 9.2 percent of GDP adjustment in the structural primary balance required to stabilize debt in the long run (among the highest in the EU).
  - The 2022 pension reform reduced the adjustment need by 1.6 percentage points.
  - Absent adjustment, OECD projects government debt may increase to 180 percent of GDP by 2050.
  - Staff’s debt sustainability analysis suggests a permanent 5 percent of GDP increase in net contributions would be needed in a scenario to keep pension system assets positive for the next 30 years.

### Staff recommendations for fiscal consolidation (2024–29)
- Overall goal:
  - Reduce the headline deficit to around 2 percent of GDP by 2028, requiring a cumulative 3.5 percent of GDP in deficit-reducing measures over the next four years (putting debt on a downward trajectory, reaching about 58 percent in 2029).
- Recommended composition (estimated yields, percent of GDP):
  - Revenues:
    - Raise standard VAT rate to the EU average level: 0.8
    - Eliminate reduced VAT rates: 0.5
    - Raise environmental taxes to the EU level: 0.3
    - Raise property taxes by transitioning to a market value-based system: 0.3
    - Ensure excise tax rates are adjusted for inflation (no numeric yield specified)
    - Combined VAT measures and reducing reduced items could deliver up to 0.6 percent in deficit reduction in 2024 and about 1.3 percent of GDP thereafter (textual estimate).
  - Spending:
    - Keep public sector wages constant in 2024.
    - Implement identified Value for Money initiatives and make the 2023 package of family benefits more targeted; each could yield about 0.5 percent of GDP.
    - Remove temporary energy support measures to households at the end of this year (as currently envisaged in the 2024 budget).
    - Reverse the recent increase of the 13th pension and eliminate the parental pension: combined yield 0.7 percent of GDP.
    - Eliminate the recently introduced early retirement option: about 0.4 (long-term).
- Quantified 2024 budget consolidation measures (Estimated yield, Percent of GDP):
  - Bank levy: 0.3
  - Redirection of pension contributions from first to second pillar: 0.3
  - Increase in employers' health care contributions: 0.3
  - Minimum corporate income tax: 0.1
  - Tobacco excise tax: 0.1
  - Other: 0.5
  - Total gross consolidation measures: 1.5
- Total recommended longer-term measures (Estimated full-year or long-term yields, Percent of GDP):
  - Raise standard VAT rate to the EU average level: 0.8
  - Eliminate reduced VAT rates: 0.5
  - Identified Value for Money measures: 0.5
  - Raise environmental taxes to the EU level: 0.3
  - Make family benefits more targeted: 0.5
  - Reverse increase in thirteenth pension: 0.4
  - Eliminate early pensions after 40 years of service (long-term): 0.4
  - Eliminate parental pensions (long-term): 0.3
  - Raise property taxes (long-term): 0.3
  - Total recommended: 3.4

### Fiscal framework and institutional reforms
- Expenditure ceilings:
  - Enshrine the expenditure ceilings framework in the Constitution with details of parameterization in ordinary law to prevent reversal while preserving flexibility.
  - Align processes of preparing expenditure ceilings with the government budget and preserve the capacity and independence of the Council for Budgetary Responsibility.
- Debt brake:
  - Reform the debt brake before it comes into effect in 2026, including lowering thresholds that trigger the debt brake escape clause.
  - Align debt brake sanctions with expenditure ceilings and the EU’s revised fiscal framework.
- Value for Money:
  - Further integrate spending reviews into the budget process and strengthen collaboration between the Value for Money Department and Ministry of Finance budget departments.

### EU funds absorption and public investment
- Slovakia is one of the biggest beneficiaries of EU-financed public investments; government spending financed by EU funds was 2.6 percent of GDP in 2023.
- EU funds absorption during the 2014–20 programming period has been low relative to other EU countries; improvements include a public investment authority within the Ministry of Finance and procurement law amendments.
- Remaining capacity constraints and suggested improvements:
  - Strengthen human resources and digitalization of processes to improve project management.
  - Introduce a system to monitor progress.
  - Strengthen financial oversight of SOEs to improve public investment efficiency.

### Banking sector resilience and macro-financial risks
- Capital, liquidity, and credit quality:
  - Capital ratios broadly stable at 20 percent of risk-weighted assets.
  - Liquidity coverage ratio was about 180 percent in 2023:Q3.
  - NPLs net of provisions significantly below the historical average; NPLs to gross loans: 2023Q2 = 2.0 (historical series: 2014 = 5.2 ... 2022 = 1.9).
- Sector vulnerabilities:
  - Elevated risks in CRE; household and NFC indebtedness has started to decline from high levels.
- Macro-financial stress indicators and projections:
  - Less than 10 percent of mortgages have been reset to the current market rate.
  - NBS estimates only 1 percent of the 40 percent of households whose mortgage rates are being reset between mid-2023 and end-2025 will become at risk of financial distress.
  - NBS stress tests: an unemployment increase of 4.2 percentage points could increase the proportion of mortgage holders at risk of financial distress by 2.8 percentage points compared to the baseline.
  - NBS expects cost pressures and higher interest rates to increase the share of corporate loans at risk from 3 to 9 percent by end-2025 (excluding CRE).
  - CRE stress test: CRE loans at risk could increase from 7 to 25 percent by end-2024 if rental income of lower quality projects falls by about 10 percent and interest rates rise by 400 bps.
- Bank levy and mortgage subsidy:
  - New bank levy set at 30 percent of banks’ profits in 2024, reduced by 5 percentage point per year to 15 percent in 2027, and eliminated in 2028.
  - The levy raises the effective tax rate on banks to 45 percent in 2024.
  - Recommendation to gradually unwind the levy as planned to avoid preventing the build-up of bank capital buffers and stifling credit growth.
- Macroprudential toolkit:
  - Current stance appropriate; increase in the countercyclical capital buffer (CCyB) to 1.5 percent in August 2023 was appropriate.
  - Authorities should stand ready to release the CCyB if downside macro-financial risks materialize.
  - Previously introduced borrower-based measures (BBMs), such as DSTI and LTV limits, have been effective.
  - Age-dependent DTI limit falls from 8 times household income at age 40 to 3 at age 60.
  - Consider targeted macroprudential measures for CRE, such as a systemic sectoral capital risk buffer.

### AML/CFT and supervision
- Progress made: action plan adopted; deficiencies in reporting suspicious transactions addressed; a competent authority to investigate ML cases established.
- Remaining deficiencies:
  - Lack of requirements to manage and mitigate instances of high ML/TF risks.
  - Lack of beneficial ownership information.
  - Lack of procedures to mitigate risks posed by politically exposed persons.
  - Compliance gaps in new technologies and virtual assets.
- Recommendation: continue strengthening AML/CFT framework, including risk-based supervision of banks and gatekeepers.

### Structural policies, diversification, and regional disparities
- Diversification and R&D:
  - Structural reforms needed to broaden the production base; low public R&D spending and limited use of advanced digital technologies hamper diversification.
  - National Strategy on Research, Development and Innovation measures important (increase public R&D spending, improve support to firms/startups via R&D tax credits and grants, strengthen links between universities and firms).
  - Continued implementation of the RRP, scaling up ALMPs (training and reskilling).
- Regional inequality and inclusion:
  - GDP per capita in Bratislava is over 3 times higher than in the East.
  - Recommended measures: boost physical and digital infrastructure, improve transportation links, improve access to education and vocational training, increase housing stock where needed, and target Roma community with specific policies.

### Demographics, labor force, and long-term growth
- Demographic shifts:
  - Working age population expected to fall from 67 to 57 percent of the population by 2050.
  - Dependency ratio set to increase by 50 percent.
  - Staff simulations suggest real GDP per capita could decline by about 9 percent by 2050.
- Policy priorities:
  - Increase fertility and labor force participation of women, the elderly, and the disadvantaged.
  - Relink statutory retirement age to life expectancy (2022 pension reform) to increase elderly labor force participation.
  - Shorten the 3-year maximum maternity leave period while improving child and elderly care and flexible work arrangements to raise female employment.
  - Target Roma community and implement visa/integration programs for foreign workers.
  - Strengthen healthcare modernization as envisaged in the RRP to extend working lives.
- Simulations:
  - Combination of raising female and old-age participation, increasing hours worked, and net inward migration could allow Slovakia to offset aging impacts and approach historical real GDP per capita growth of 2.5 percent over the medium term.

### External sector assessment (Annex I) — key metrics and implications
- Overall assessment: external position in 2022 assessed as moderately weaker than implied by fundamentals.
- Current account and CA-model outputs (2022):
  - CA-Actual: -8.2 percent of GDP
  - Adjusted CA: -3 percent of GDP (after inventory and high gas price adjustment of 4 percent of GDP and other small adjustments)
  - CA norm: -1.8 percent of GDP
  - CA gap: -1.2 percent of GDP
  - Implied REER gap (from CA): about 2 percent
- Foreign assets and liabilities (2022, percent of GDP):
  - NIIP: -61
  - Gross Assets: 92
  - Gross Liab.: 153
  - Total external debt: 103 percent of GDP; short-term share: 52 percent; official short-term debt share: 31 percent
  - Projected NIIP by 2025: -55 percent of GDP
- Real exchange rate:
  - CPI-based REER appreciated by about 1 percent in 2022.
  - REER EBA-lite approach points to a larger overvaluation of 13.6 percent; staff relies on CA-model instead.
- Policy implications:
  - Continue diversifying energy supplies.
  - Implement RRP to increase renewable capacity and accelerate green transition.
  - Use higher EU grants to finance public investment and limit import-driven current account pressures.
  - Leverage FDI and EU funds to support external position improvements.

### Growth-at-Risk (Annex V) — model findings and monitoring
- Purpose and setup:
  - GaR examines downside risks to future GDP growth from macro-financial vulnerabilities; estimation period 2006:Q1 to 2023:Q2.
  - Five partitions: Financial Condition; Macro-Financial vulnerabilities; Macro vulnerabilities; External price; External macro.
- Key empirical findings:
  - Downside risk to 4-quarter ahead GDP growth increased during the second half of 2022.
  - Probability of a real GDP contraction reached 22 percent in 2022:Q4.
  - Tail risk eased significantly in 2023 due to tightening financial conditions, slower credit growth, and cooling residential property market.
- Risks to monitor:
  - Excessive credit expansion, housing price dynamics, rising mortgage debt, distributional effects of inflation and rate changes, and CRE vulnerabilities.
- Policy implications:
  - Continue monitoring macro-financial vulnerabilities, update stress tests, and focus on credit growth dynamics, residential property market, and CRE risks.

### Key figures and projections (selected reported numbers)
- Real GDP growth: 1.1 percent in 2023 (from 1.8 percent in 2022).
- Real GDP 2023:Q4 vs pre-pandemic: +4 percent.
- Headline inflation: 11 percent in 2023 (from 12.1 percent in 2022).
- Momentum inflation (Dec): 2.8 percent (3m/3m SA annualized).
- Core inflation: 11.4 percent in 2023 (from 10.4 percent in 2022); momentum core inflation 3.7 percent.
- Current account: 8.2 percent of GDP in 2022; expected -1.7 percent of GDP in 2023.
- Fiscal deficit: 2 percent of GDP in 2022; projected 6.5 percent of GDP in 2023.
- Fiscal impulse: 5.2 percentage points (2023).
- Government spending financed by EU funds: 2.6 percent of GDP in 2023 (1.3 percent in 2022).
- Debt: about 58 percent of GDP (2023).
- Energy support net fiscal cost: 1.5 percent of GDP (after €500 million EU funds and windfall taxes).
- Family support fiscal cost: about 1 percent of GDP (2023).
- Pension measures cost: about 1 percent of GDP (2023).
- Healthcare worker salary increase: about 0.3 percent of GDP (2023).
- Credit growth: 3.5 percent year-on-year in 2023:Q4 (10.8 percent at end-2022).
- House prices: down 10 percent from 2022:Q3 peak.
- Female employment increase in 2021: about 83,000 (3.2 percent of total employment).
- Foreign workers increase Dec 2021–Dec 2023: 32,000 (1.2 percent of total employment).
- Employed Ukrainians: from 19,000 to 39,000 between Dec 2021 and Dec 2023.
- Hours worked per worker: 5 percent below pre-pandemic levels.
- Labor productivity since 2019: +9 percent.
- Nominal wage growth: 8.3 percent in 2023:Q3.
- Real (HICP-deflated) wage growth: -1.3 percent (2023:Q3).
- Equilibrium unemployment rate reference: 6 percent.
- Macroeconomic projections (Real GDP, year):
  - 2023 = 1.1; 2024 = 2.1; 2025 = 2.6; 2026 = 2.8; 2027 = 2.7; 2028 = 2.7; 2029 = 2.7
- Inflation (HICP, year):
  - 2023 = 11.0 percent; 2024 = 3.6 percent; 2025 = 3.9 percent; 2026 = 2.5 percent; 2027 = 2.0 percent; 2028 = 2.0 percent; 2029 = 2.0 percent
- General government debt (Percent of GDP): 2023 = 57.8; 2024 = 57.9; 2025 = 59.3; 2026 = 60.3; 2027 = 63.5; 2028 = 66.7; 2029 = 69.8
- Nominal GDP (Millions of euros): 2023 = 122,114; 2024 = 130,572; 2025 = 139,175; 2026 = 146,498; 2027 = 153,399; 2028 = 160,613; 2029 = 168,203

*Source: IMF mission report excerpt — 1svkea2024001 - 2023. The mission met with National Bank of Slovakia Governor*

### 2023. The mission met with National Bank of Slovakia Governor

### 1svkea2024001 - 2023. The mission met with National Bank of Slovakia Governor

### CONTEXT AND RECENT DEVELOPMENTS
- The Slovak economy faced significant headwinds from the war in Ukraine, soaring commodity prices, and supply chain disruptions. Of the one million Ukrainians that entered Slovakia since end-2021, 100,000 have stayed and been integrated into the labor market or the education system.
- High inflation hit households and corporates; measures to cushion higher energy prices carried a high fiscal cost.
- Supply chain disruptions curtailed car production in 2022 but have since dissipated.

### REAL ECONOMY AND INFLATION
- Growth and composition:
  - Real GDP growth slowed to 1.1 percent in 2023 (from 1.8 percent in 2022).
  - Real GDP in 2023:Q4 exceeded its pre-pandemic level by 4 percent, with recovery concentrated in the public and service sectors while manufacturing activity remained subdued.
  - A large increase in net exports in 2023 matched a drawdown of precautionary inventories.
- Inflation dynamics:
  - Average headline inflation declined modestly to 11 percent in 2023 (from 12.1 percent in 2022).
  - Inflation momentum fell rapidly in 2023:H2 and was 2.8 percent in December on a momentum basis (3m/3m seasonally adjusted and annualized).
  - Core inflation (excluding energy and unprocessed food) increased to 11.4 percent in 2023 (from 10.4 percent in 2022) and is currently 3.7 percent on a momentum basis.
  - Food prices were the main driver of the rise and subsequent decline in inflation.
- Savings and consumption:
  - Drawdown of pandemic-era savings ran its course, negative real wage growth weighed on consumption; consumption weakened in 2023.

### LABOR MARKET
- Employment and hours:
  - Employment rose in 2021 with a large increase in female participation, then remained stable since mid-2022 as an influx of foreign workers offset a declining working-age population.
  - Hours worked per worker remain 5 percent below pre-pandemic levels.
  - Labor productivity increased 9 percent since 2019.
- Unemployment and wages:
  - Unemployment is close to the 6 percent equilibrium rate; youth unemployment remains significantly higher than in the euro area.
  - Nominal wage growth reached 8.3 percent in 2023:Q3; real (HICP-deflated) wage growth was -1.3 percent.
  - Real wages have only just recovered to their end-2019 level.
- Participation and composition:
  - Female employment increased by about 83,000 in 2021 (3.2 percent of total employment).
  - Foreign workers increased by 32,000 (1.2 percent of total employment) between December 2021 and December 2023; employed Ukrainians increased from 19,000 to 39,000 in the same period.

### EXTERNAL SECTOR AND COMPETITIVENESS
- Current account and competitiveness:
  - The current account deteriorated to 8.2 percent of GDP in 2022 due to higher imports (stockpiling and gas prices) and curtailed exports from supply disruptions.
  - Slovakia regained market share as supply constraints eased in 2023; the current account deficit is expected to have reached 1.7 percent of GDP in 2023.
  - Unit labor costs rose more than in the euro area but less than in other Central and Eastern Europe (CEE) countries.

### FISCAL DEVELOPMENTS AND MEASURES
- Fiscal outcomes and impulse:
  - The fiscal deficit is projected to have widened from 2 percent in 2022 to 6.5 percent of GDP in 2023.
  - EU-financed public investment increased significantly; government spending financed by EU funds was 2.6 percent of GDP in 2023 (compared to 1.3 percent in 2022).
  - The fiscal impulse to the economy was 5.2 percentage points; debt remained about 58 percent of GDP as negative real interest rates offset the rising deficit.
- Major contributors to the 2023 deficit:
  - Temporary energy support: Net fiscal cost expected to have reached 1.5 percent of GDP after factoring in €500 million of EU funds and EU-wide temporary windfall profit taxes on the energy sector. An additional €450 million of EU funds earmarked for energy support for households in 2023 will be disbursed in early 2024; recording to be determined by Eurostat in April 2024.
  - Permanent social spending increases: Family support package cost about 1 percent of GDP in 2023; measures boosting pensions (including an extra within-year adjustment and an additional pension payment at end-2023) added about 1 percent of GDP; real increase in healthcare workers’ salaries added about 0.3 percent of GDP.
  - Inflation in 2022 had lagged effects on 2023 expenditure due to partial indexation of social benefits, pensions, and some public wages.
  - A 1.5-percentage point increase in public investment added to the fiscal impulse, largely offset by matching EU grants.
- Measurement and definitions:
  - Fiscal impulse is measured as the change in the cyclically adjusted primary balance excluding EU grants in percent of potential GDP.
  - Fiscal stance is measured by the structural balance (excluding one-offs) in percent of potential GDP.
  - The additional pension payment at the end of 2023 is considered permanent and followed by an equivalent structural increase (a full 13th monthly payment per year) from 2024 onwards.

### FINANCIAL SECTOR, CREDIT, AND HOUSING
- Credit and banking:
  - Credit growth declined to 3.5 percent year-on-year in 2023:Q4 from 10.8 percent at end-2022.
  - Retail and corporate lending rates increased with the ECB policy rate; mortgage credit growth fell due to fewer new loans and reduced top-ups on existing loans.
  - Demand for non-financial corporate credit weakened; consumer credit increased.
  - The spread over German government bonds increased slightly more than for the median euro area country.
- Housing market:
  - House prices fell 10 percent from the 2022:Q3 peak.
  - Despite the fall, residential property prices remain high relative to fundamentals and affordability remains close to historical lows, though affordability improved in 2023 as falling house prices more than compensated for rising interest rates.

### KEY FIGURES AND INDICATORS (as reported)
- Real GDP growth: 1.1 percent in 2023 (from 1.8 percent in 2022).
- Real GDP 2023:Q4 vs pre-pandemic: +4 percent.
- Headline inflation: 11 percent in 2023 (from 12.1 percent in 2022).
- Momentum inflation (Dec): 2.8 percent (3m/3m SA annualized).
- Core inflation: 11.4 percent in 2023 (from 10.4 percent in 2022); momentum core inflation 3.7 percent.
- Unit labor cost references: changes from 2019 to 2023H1 shown in figures (no additional numeric summarization provided in text).
- Current account: 8.2 percent of GDP in 2022; expected -1.7 percent of GDP in 2023.
- Fiscal deficit: 2 percent of GDP in 2022; projected 6.5 percent of GDP in 2023.
- Fiscal impulse: 5.2 percentage points (2023).
- Government spending financed by EU funds: 2.6 percent of GDP in 2023 (1.3 percent in 2022).
- Debt: about 58 percent of GDP (2023).
- Energy support net fiscal cost: 1.5 percent of GDP (after €500 million EU funds and windfall taxes).
- Family support fiscal cost: about 1 percent of GDP (2023).
- Pension measures cost: about 1 percent of GDP (2023).
- Healthcare worker salary increase: about 0.3 percent of GDP (2023).
- Credit growth: 3.5 percent year-on-year in 2023:Q4 (10.8 percent at end-2022).
- House prices: down 10 percent from 2022:Q3 peak.
- Female employment increase in 2021: about 83,000 (3.2 percent of total employment).
- Foreign workers increase Dec 2021–Dec 2023: 32,000 (1.2 percent of total employment).
- Employed Ukrainians: from 19,000 to 39,000 between Dec 2021 and Dec 2023.
- Hours worked per worker: 5 percent below pre-pandemic levels.
- Labor productivity since 2019: +9 percent.
- Nominal wage growth: 8.3 percent in 2023:Q3.
- Real (HICP-deflated) wage growth: -1.3 percent (2023:Q3).
- Equilibrium unemployment rate reference: 6 percent.

*Source: IMF mission report excerpt — 1svkea2024001 - 2023. The mission met with National Bank of Slovakia Governor*

### 10.      The risk of a disruption to energy supplies has decreased. Agreements with Norway and

### 10.      The risk of a disruption to energy supplies has decreased. Agreements with Norway and

### Energy security
- Agreements with Norway and LNG suppliers reduced reliance on Russian gas to about 40 percent in 2022.
- Record-high gas storage levels have alleviated the risk of shortages.
- Diversifying away from Russian oil will take longer owing to the need to reconfigure oil refineries; Slovakia is exempt from the EU-wide embargo on Russian oil until end-2024.
- With three out of four units of the Mochovce nuclear plant commissioned Slovakia is now self-sufficient in electricity and is in the process of diversifying away from Russian nuclear fuel.
- Figure 6 highlights:
  - Imports of Natural Gas from Russia (Imports share based on quantity and by origin, percent) series for 2015–2022.
  - Gas Storage in Percent of Gas Storage Capacity (Percent) showing 2012–21 range, 2012–21 average, 2022, 2023, 2024.

### Outlook and risks
- Near-term forces:
  - Pick-up in real wage growth, extension of energy support to households and more generous pensions will increase disposable income and support household demand.
  - Saving rate increases to more normal levels and tight financial conditions weigh on the economy.
  - Normalization of EU funds from record-high levels in 2023 will weigh on public investment growth, though some positive fiscal impulse from 2023 will impact the economy with a lag.
  - Easing of supply chain restrictions expected to support a recovery in exports.
  - Depletion of inventories in 2023 is expected to have run its course.
- Growth and inflation projections:
  - Growth is forecast to increase to 2.1 and 2.6 percent in 2024 and 2025.
  - Average headline inflation is projected to fall to about 3½ percent in 2024 before increasing slightly in 2025 as temporary energy support comes to an end.
  - Inflation is projected to continue to moderate and return to target by end-2026.
  - Medium-term growth is expected to be supported by continued real disposable income growth, robust inflows of EU funds, and a strengthening external environment.
- Structural constraint:
  - Projected medium-term growth of 2.7 percent is significantly lower than the 3.9 percent average between Slovakia’s EU accession and the pandemic.
  - Population aging and a falling working age population is estimated to reduce annual medium-term potential growth by 0.6 percentage points relative to the pre-pandemic average.
- Risks:
  - Risks to growth are tilted firmly to the downside; risks to inflation are balanced.
  - Near-term downside triggers include a global slowdown, resurgent energy prices, intensifying fallout from the war in Ukraine, commodity price shocks, and wage pressures that could keep euro area inflation high and require monetary policy to stay high for longer.
  - Domestic risks include delays in fiscal consolidation and structural reform implementation, a sharp real estate market downturn, and continued strong nominal wage growth or increased profit margins that could keep inflation elevated and undermine competitiveness.
  - Medium-term risks include backtracking on reforms to strengthen the rule of law, geoeconomic fragmentation and protectionism hurting the auto sector, and increased automation.
- Authorities’ views:
  - Authorities broadly agreed with staff’s assessment that private consumption and exports would lift growth in 2024 and that inflation is likely to keep declining.
  - Authorities saw the main risk as lower growth in Slovakia’s trading partners.

### Fiscal policy — assessment and outlook
- 2023 fiscal easing helped cushion the economy and likely averted a recession; absent the fiscal stimulus the economy would have contracted by around ½ percentage points.
- Almost ⅔ of the fiscal expansion (nearly 3 percent of GDP) resulted from a permanent increase in spending, complicating consolidation and contributing to a 15-percentage point of GDP increase in public debt by 2029.
- Authorities’ 2024 budget:
  - Targets a 0.5 percentage point reduction in the headline deficit to 6 percent of GDP for 2024.
  - Adopted approximately €800 million (0.6 percent of GDP) in net consolidation measures.
  - Structural deficit (excluding energy support and other one-off policies) projected to widen by 0.9 percentage point to 5.3 percent of GDP in 2024.
  - For 2025–26 the budget targets a 1 percentage point annual reduction in the headline fiscal deficit to bring the deficit to 4 percent of GDP, though measures to achieve this are not specified.
- Staff baseline forecast:
  - Entails a marginal reduction in the headline deficit to 5.6 percent of GDP by 2029 as temporary energy support ends.
  - Structural deficit projected to increase marginally as interest costs rise.
  - Public debt projected to increase to 72.5 percent of GDP by the end of the forecast period.

### Need for consolidation and long-term pressures
- Slovakia requires significant fiscal adjustment to prepare for demographic challenges:
  - Estimated 9.2 percent of GDP adjustment in the structural primary balance required to stabilize debt in the long run is among the highest in the EU.
  - The 2022 pension reform reduced the adjustment need by 1.6 percentage points.
  - Absent adjustment, OECD projects government debt may increase to 180 percent of GDP by 2050.
  - Staff’s debt sustainability analysis suggests a permanent 5 percent of GDP increase in net contributions would be needed in a scenario where pension system assets are kept positive for the next 30 years.

### Staff recommendations for fiscal consolidation (2024–29)
- Overall goal:
  - Reduce the headline deficit to around 2 percent of GDP by 2028, requiring a cumulative 3.5 percent of GDP in deficit-reducing measures over the next four years. This would put debt on a downward trajectory (reaching about 58 percent in 2029).
- Recommended composition of measures (estimated yields in percent of GDP):
  - Revenues:
    - Raise standard VAT rate to the EU average level: 0.8
    - Eliminate reduced VAT rates: 0.5
    - Raise environmental taxes to the EU level: 0.3
    - Raise property taxes by transitioning to a market value-based system: 0.3 (noted elsewhere)
    - Ensure excise tax rates are adjusted for inflation (no numeric yield specified)
    - Combined VAT measures and reducing reduced items could deliver up to 0.6 percent in deficit reduction in 2024 and about 1.3 percent of GDP thereafter (textual estimate).
  - Spending:
    - Keep public sector wages constant in 2024.
    - Implement identified Value for Money initiatives (e.g., reduction in subsidies) and make the 2023 package of family benefits more targeted; each could yield about 0.5 percent of GDP.
    - Remove temporary energy support measures to households at the end of this year (as currently envisaged in the 2024 budget).
    - Reverse the recent increase of the 13th pension and eliminate the parental pension: combined yield 0.7 percent of GDP.
    - Eliminate the recently introduced early retirement option: about 0.4 (long-term).
- Quantified fiscal measures table (Estimated yield, Percent of GDP):
  - 2024 Budget consolidation measures:
    - Bank levy: 0.3
    - Redirection of pension contributions from first to second pillar: 0.3
    - Increase in employers' health care contributions: 0.3
    - Minimum corporate income tax: 0.1
    - Tobacco excise tax: 0.1
    - Other: 0.5
    - Total gross consolidation measures: 1.5
  - Recommended measures (estimated full-year or long-term yields):
    - Raise standard VAT rate to the EU average level: 0.8
    - Eliminate reduced VAT rates: 0.5
    - Identified Value for Money measures: 0.5
    - Raise environmental taxes to the EU level: 0.3
    - Make family benefits more targeted: 0.5
    - Reverse increase in thirteenth pension: 0.4
    - Eliminate early pensions after 40 years of service (long-term): 0.4
    - Eliminate parental pensions (long-term): 0.3
    - Raise property taxes (long-term): 0.3
    - Total recommended: 3.4

### Fiscal framework and institutional reforms
- Recommended reforms to strengthen credibility and transparency:
  - Expenditure ceilings:
    - Enshrine the expenditure ceilings framework in the Constitution with details of parameterization in ordinary law to prevent reversal while preserving flexibility.
    - Align processes of preparing expenditure ceilings with the government budget and preserve the capacity and independence of the Council for Budgetary Responsibility.
  - Debt brake:
    - Reform the debt brake before it comes into effect in 2026, including lowering thresholds that trigger the debt brake escape clause to reduce risk of large procyclical consolidation during downturns.
    - Align debt brake sanctions with expenditure ceilings and the EU’s revised fiscal framework.
  - Value for Money:
    - Further integrate spending reviews into the budget process.
    - Strengthen collaboration between the Value for Money Department and Ministry of Finance budget departments and embed adopted spending review measures in line ministry expenditure ceilings.

*Source: Slovak Republic — IMF Country Report excerpt (chapter 10 and associated sections provided in source content).*

### 22.      Effective absorption of EU funds is crucial for economic growth. Slovakia is one of the

### 22.      Effective absorption of EU funds is crucial for economic growth. Slovakia is one of the

### EU funds absorption and public investment
- Slovakia is one of the biggest beneficiaries of EU-financed public investments; these raise growth directly and boost potential as investments expand the capital stock and reforms lift productivity.
- Absorption performance:
  - EU funds absorption during the 2014–20 programming period has been low relative to other EU countries.
  - Establishment of a public investment authority within the Ministry of Finance and amendments to the procurement law have improved absorption capacity.
- Remaining capacity constraints and suggested improvements:
  - Strengthen human resources and digitalization of processes to improve project management.
  - Introduce a system to monitor progress to strengthen project implementation.
  - Strengthen financial oversight of state-owned enterprises (SOEs) to improve public investment efficiency given the large amount of public investment carried out by SOEs.

### Authorities’ views on fiscal consolidation and EU funds
- Fiscal stance and objectives:
  - Authorities reiterated commitment to sustainable public finances and aim to stabilize the debt-to-GDP ratio by the end of the current government’s term.
  - They intend to gradually reduce the deficit to 3 percent of GDP by 2027.
- Pace and measures:
  - The pace of consolidation is more backloaded than staff recommended.
  - The 2024 budget includes a €2 billion (1.5 percent of GDP) package of gross consolidation measures, described as one of the largest in Slovak history.
  - Offsetting spending increases include pensions, healthcare, and support to homeowners with mortgages.
  - From 2025, the government plans to reduce the fiscal deficit by 1 percent per year, consistent with anticipated requirements under the EU’s excessive deficit procedure.
  - Work on preparing fiscal measures to achieve this consolidation would start in early 2024.
- Fiscal framework:
  - Authorities support staff’s call for a reform to the constitutional debt brake before it comes into effect in 2026.
- RRF implementation:
  - Authorities highlighted success in meeting milestones and targets under the RRF, enabling the European Commission to disburse pre-financing and the first three payments totaling €2.7 billion (42 percent) of the overall value of the plan.
  - Authorities remain committed to addressing coordination, project management, regulatory hurdles (e.g., prolonged environmental assessments), and labor shortages.

### Banking sector resilience and key metrics
- Capital and liquidity:
  - Capital ratios are broadly stable at 20 percent of risk-weighted assets.
  - Liquidity buffers are ample; liquidity coverage ratio was about 180 percent in 2023:Q3.
- Credit quality:
  - Quality of the credit portfolio has remained stable; provisions appear adequate thus far with NPLs net of provisions significantly below the historical average.
- Sector vulnerabilities:
  - Risks are elevated in certain sectors, notably the CRE sector.
  - Household and NFC indebtedness has started to decline, albeit from high levels.

### Macro-financial risks: households, NFCs, and CRE
- Households:
  - Thus far, less than 10 percent of mortgages have been reset to the current market rate.
  - NBS estimates that only 1 percent of the 40 percent of households whose mortgage rates are being reset between mid-2023 and end-2025 will become at risk of financial distress.
  - NBS stress tests suggest that an unemployment increase of 4.2 percentage points could increase the proportion of mortgage holders at risk of financial distress by 2.8 percentage points compared to the baseline.
  - Some low-income households have seen an increase in the risk of financial distress.
- Non-financial corporates (NFCs):
  - More than 10 percent of NFCs saw costs more than double in 2022.
  - Firms with the largest cost increases experienced falling profit margins, declining liquidity buffers, and increasing indebtedness; impact on debt repayment capacity thus far has been limited.
  - NBS expects cost pressures and higher interest rates to increase the share of corporate loans at risk from 3 to 9 percent by end-2025 (excluding the commercial real estate sector).
- Commercial real estate (CRE):
  - CRE is highly leveraged and particularly sensitive to interest rate movements, especially retail and office segments.
  - A rise in interest expenses has accounted for 20–30 percent of rental income for the majority of firms.
  - Weaker occupier demand and higher required yields have depressed property values.
  - An NBS stress test suggests CRE loans at risk could increase from 7 to 25 percent by end-2024 if rental income of lower quality projects falls by about 10 percent and interest rates rise by 400 bps.

### Policy recommendations for financial stability and macroprudential policy
- Monitoring and stress-testing:
  - Continue close monitoring of banks’ credit portfolios with focus on low-income households and NFCs exposed to rising costs and higher interest rates.
  - Continue to update stress tests and ensure banks adequately provision for expected losses and emerging risks, especially in vulnerable segments including CRE.
  - Strengthen resilience to cyber-attacks in line with the EU’s Digital Operational Resilience Act (DORA).
- Bank levy and mortgage subsidy:
  - The new bank levy is set at 30 percent of banks’ profits in 2024, reduced by 5 percentage point per year to 15 percent in 2027, and eliminated in 2028.
  - The levy raises the effective tax rate on banks to 45 percent in 2024.
  - The levy will weigh on banking sector profits and should be gradually unwound as currently planned to avoid preventing the build-up of bank capital buffers, stifling credit growth, and putting upward pressure on mortgage rates.
  - The mortgage subsidy reduces transmission of higher policy rates to mortgage rates, boosting housing purchasing power and contributing to the relative strength of core inflation.
- Macroprudential toolkit:
  - Current stance is appropriate; increase in the countercyclical capital buffer (CCyB) to 1.5 percent in August 2023 was appropriate given some risky loan attributes.
  - Authorities should stand ready to release the CCyB if downside macro-financial risks materialize.
  - Previously introduced borrower-based measures (BBMs), such as DSTI and LTV limits, have been effective.
  - The age-dependent debt-to-income (DTI) limit gradually falls from 8 times household income for borrowers aged 40 to 3 at age 60.
  - Consider adding macroprudential measures targeted at the CRE sector, such as a systemic sectoral capital risk buffer, with careful timing to avoid stifling credit flow and exacerbating the sector’s downturn.

### AML/CFT framework and supervisory issues
- Progress and remaining gaps:
  - Action plan to mitigate ML/TF risks adopted; deficiencies in reporting suspicious transactions to the Financial Intelligence Unit addressed.
  - A competent authority to investigate ML cases has been established.
  - Remaining deficiencies include: (i) lack of requirements to manage and mitigate instances of high ML/TF risks; (ii) lack of beneficial ownership information; and (iii) lack of procedures to mitigate risks posed by politically exposed persons.
  - Compliance gaps exist in the field of new technologies where international requirements for virtual assets have recently been introduced.
- Recommendation:
  - Continue strengthening the AML/CFT framework, including risk-based supervision of banks and gatekeepers, to manage reputational risks related to sanctions evasion.

### Structural policies: diversification, R&D, and regional disparities
- Diversification and innovation:
  - Structural reforms are needed to broaden the production base; Slovakia’s success in the auto sector leaves it vulnerable to shocks and the green transition.
  - Low spending on R&D and limited use of advanced digital technologies hamper diversification.
  - Measures in the National Strategy on Research, Development and Innovation (increase public R&D spending, improve support to firms/startups via R&D tax credits and grants, and strengthen links between universities, firms, and public agencies) are important.
  - Continued implementation of the Recovery and Resilience Plan (RRP) including reforms and grants to boost digitalization, incentivize R&D, and boost innovation is important.
  - Scale up effective Active Labor Market Policies (ALMPs) like training and reskilling.
- Regional inequality:
  - GDP per capita in Bratislava is over 3 times higher than in the East.
  - Transfers help narrow the gap but regional differences in household income remain substantial.
  - Recommended measures to address disparities:
    - Boost investment in physical and digital infrastructure and improve transportation links.
    - Improve access to education and expand vocational training.
    - Increase housing stock in areas with less labor market slack.
    - Targeted measures to improve access to affordable housing, schooling, and vocational education for the Roma community and other disadvantaged groups.

### Demographics, labor force, and long-term growth
- Demographic projections and implications:
  - Slovakia’s working age population is expected to fall from 67 to 57 percent of the population by 2050.
  - The dependency ratio is set to increase by 50 percent.
  - Staff simulations suggest real GDP per capita could decline by about 9 percent by 2050.
- Policy priorities to mitigate aging impact:
  - Increase fertility and labor force participation of women, the elderly, and the disadvantaged.
  - Reforms in the 2023 family support package could help boost fertility but should be better targeted given fiscal constraints.
  - Relinking statutory retirement age to life expectancy (2022 pension reform) will increase elderly labor force participation; tax credits for older workers and restrictions on early retirement could help further.
  - Shorten the 3-year maximum maternity leave period while improving availability of child and elderly care and flexible work arrangements to raise female employment.
  - Provide training to women after maternity leave to facilitate re-entry into labor market.
  - Target Roma community with specific policies to unlock untapped labor supply.
  - Visa programs targeted at foreign workers and integration programs for immigrants to address skill gaps and boost labor supply.
  - Strengthen healthcare (modernize hospital network and improve access to primary care in underserved regions) as envisaged in the RRP to improve health outcomes and extend working lives.
- Simulations and targets:
  - Simulations suggest a combination of labor market policies—raising female and old-age labor force participation, increasing hours worked, and net inward migration—would allow Slovakia to offset the impact of aging and come close to sustaining its historical real GDP per capita growth rate of 2.5 percent over the medium term.

*Source: IMF staff report chapter.*

### 36.      Slovakia has made significant progress in reducing greenhouse gas emissions (GHEs),

### 36. Slovakia has made significant progress in reducing greenhouse gas emissions (GHEs)

### GHE progress and climate policy measures
- Greenhouse gas emissions have fallen by 44 percent since 1990.
- Slovakia’s commitment: cut emissions by 55 percent by 2030 relative to 1990 levels.
- 2023 National Energy and Climate Plan sets out the government’s plan of action to address GHE emissions.
- Planned measures and supports:
  - Replacement of two coal-fired blast furnaces in the steel industry with electric ones (being considered for after 2025).
  - Expansion of the EU’s ETS system to road transport and buildings from 2027; carbon price in the new ETS sectors is expected initially to be lower than in the traditional ETS sectors.
  - Slovakia’s RRP (which includes a RePowerEU chapter) earmarks about €2.5 billion for climate objectives, including building renovations, sustainable transport, and support for renewables.
- Fiscal and policy instruments suggested:
  - Increase the effective energy tax rate, including by introducing an explicit carbon tax in sectors not (yet) covered by the ETS system (road transport, buildings, and agriculture).
  - Phase out the $4.3 billion (3.7 percent of GDP) in implicit fossil fuel subsidies.
  - Support environmental R&D and investment in green technologies to aid climate mitigation and economic diversification.

### Authorities’ views on structural and climate policies
- Authorities broadly agreed with staff’s recommendations on structural policies.
- Agreed on need for concerted efforts to transition to a higher-value-added economy and noted significant efforts underway under the National Strategy on Research, Development, and Innovation.
- Agreed on urgency to tackle demographic challenges; ongoing efforts to increase labor force participation and exploration of policies to increase inflow of foreign workers.
- Expressed confidence Slovakia would achieve its climate commitments.
- Highlighted need to reduce burden of environmental impact assessments, which was hampering the expansion of renewables.

### Staff appraisal — macro outlook and risks
- Recent resilience: Slovak economy remained resilient despite soaring commodity prices, supply chain disruptions and weaker external demand.
- Role of fiscal stimulus: Large fiscal stimulus likely helped avoid a recession in 2023 by preventing a sharper contraction in private consumption amid falling real wages.
- Growth projection: growth is projected to increase to 2.1 percent in 2024 from 1.1 percent in 2023.
- Inflation: remains among the highest in the euro area but is projected to gradually fall.
- Medium-term constraints: adverse demographic trends and lower productivity growth will weigh on the medium-term outlook, resulting in slower income convergence.
- Downside risks: weaker external demand, commodity price shocks, delays in fiscal consolidation, slow implementation of structural reforms, and failure to absorb EU grants effectively.
- External position: Slovakia’s external position in 2022 is assessed to be moderately weaker than fundamentals and desirable policies.

### Fiscal consolidation: findings and recommendations
- Need for consolidation: Fiscal consolidation is needed to safeguard sustainability of public finances.
- Credibility steps:
  - Introducing additional measures to keep the structural deficit in 2024 unchanged relative to the projected 2023 outcome would increase credibility and contain gross financing needs this year.
  - Any revenues above those projected in the budget or lower-than-anticipated expenditures on energy support should be saved.
- Consolidation targets:
  - Targeted 1 percentage point annual reduction in the headline deficit in 2025 and 2026 is appropriately ambitious but requires concrete fiscal measures.
  - Beyond 2026, the structural balance should be reduced by at least 0.5 percentage points per year with the goal to reduce the headline deficit to around 2 percent of GDP by 2028.
- Size and type of measures needed:
  - A cumulative 3.7 percent of GDP in structural fiscal measures will likely be needed over 2024–28 to achieve the recommended consolidation.
  - Revenue options: raising the basic VAT rate to the EU rate; increasing property and environmental taxes.
  - Spending options: implement Value for Money initiatives (e.g., reduction in subsidies); make the 2023 package of family benefits more targeted; do not extend temporary energy support measures to households beyond 2024.
  - Specific reversals recommended: reverse the recently introduced increase of the 13th pension and eliminate the new parental pension and early retirement option.
- Fiscal framework reforms:
  - Expenditure ceiling framework should be enshrined in the constitution and aligned with the government budget preparation process.
  - Reform the debt brake before it comes into effect in 2026 to avoid a large procyclical fiscal consolidation; align debt brake sanctions with expenditure ceilings and the EU’s revised fiscal framework.
  - Strengthen collaboration between the Value for Money Department and other sections in the Ministry of Finance to integrate spending reviews into the budget process.

### Financial sector resilience and supervision
- Banking sector buffers: Slovak banking sector has sizable buffers.
- Supervisory and policy recommendations:
  - Ensure banks continue to adequately provision for expected losses and emerging risks, especially in vulnerable segments including the CRE sector.
  - Be ready to release the CCyB if downside macro-financial risks materialize.
  - Explore targeted macroprudential measures, such as a systemic sectoral capital risk buffer, to build resilience against CRE sector risks.
  - Phase out the new bank levy (used in part to finance a mortgage subsidy scheme) as planned, due to its negative impact on banking sector profits.
  - Address remaining deficiencies in the AML/CFT framework.
  - Strengthen resilience of the financial system to cyber-attacks.

### Structural reforms to support inclusive and climate-friendly growth
- R&D and innovation:
  - Raise very low spending on public R&D.
  - Support firms and startups via R&D tax credits and grants.
  - Strengthen research cooperation between universities and firms.
- Implementation priorities:
  - Implement RRP reforms and effectively execute planned investments to address structural weaknesses.
  - Maintain good governance and a favorable investment climate to attract necessary funding.
- Energy and climate policy alignment:
  - Consider increasing the effective energy tax rate, including by introducing an explicit carbon tax in sectors not (yet) covered by the ETS system (road transport, buildings, and agriculture).
  - Phase out fossil fuel subsidies.

### Labor, demographic, and regional policy priorities
- Labor supply and participation:
  - Effective labor market policies such as child support, flexible work arrangements, and training to increase female labor force participation (age 15 to 64).
  - Use tax credits and restrictions on early retirement to increase old-age labor force participation (age 65+).
  - Implement policies to attract foreign workers to strengthen labor supply in a rapidly aging society.
- Regional inclusion and social policies:
  - Infrastructure investments, education reforms, and measures to foster social inclusion among the Roma community and other disadvantaged groups to reduce regional inequality and ensure inclusive gains from growth.

*Source: IMF country chapter content as provided.*

### 45.      It is recommended that the next Article IV consultation with the Slovak Republic take

### 1svkea2024001 - 45.      It is recommended that the next Article IV consultation with the Slovak Republic take

### Recommendation
- It is recommended that the next Article IV consultation with the Slovak Republic take place on the standard 12-month consultation cycle.

### Real Sector Developments
- Net exports compensated for negative consumption growth and a drawdown of inventories in 2023H1.
- Income convergence has started to slow.
- Consumer confidence has started to improve, albeit from low levels.
- Confidence in the service and retail sectors have declined and remains depressed in manufacturing.
- Import prices have been the main driver of inflation, but rising corporate profits are playing an increasing role.
- Short-term inflation expectations remain elevated, although medium-term expectations seem to be well anchored.
- Projections and key figures (Table 1, Real GDP and contributions):
  - Real GDP: 2023 = 1.1; 2024 = 2.1; 2025 = 2.6; 2026 = 2.8; 2027 = 2.7; 2028 = 2.7; 2029 = 2.7
  - Domestic demand: 2023 = -4.7; 2024 = 5.3; 2025 = 2.2; 2026 = 2.5; 2027 = 2.4; 2028 = 2.4; 2029 = 2.4
  - Contribution to Growth — Net exports (2023) = 5.8 (percentage points)
  - Inflation (HICP, year): 2023 = 11.0 percent; 2024 = 3.6 percent; 2025 = 3.9 percent; 2026 = 2.5 percent; 2027 = 2.0 percent; 2028 = 2.0 percent; 2029 = 2.0 percent
  - Inflation (HICP, end of period): 2023 = 15.0; 2024 = 6.6; 2025 = 3.8; 2026 = 3.4; 2027 = 2.0; 2028 = 2.0; 2029 = 2.0

### Labor Market Developments
- Labor force participation has increased, particularly for women.
- The recovery in hours worked lags employment across nearly all sectors.
- A steeper Beveridge curve points to a reluctance to lay off workers.
- Labor shortages are particularly high in the construction sector.
- Labor market tightness has increased, but remains below that in the EU.
- Unemployment among the young is particularly high in Slovakia.
- Employment and unemployment projections (Table 1):
  - Employment growth: 2023 = 0.3; 2024 = 0.3; 2025 = -0.1; 2026 = -0.4; 2027 = -0.4; 2028 = -0.4; 2029 = -0.4
  - Unemployment rate (Percent): 2023 = 5.9; 2024 = 5.9; 2025 = 5.9; 2026 = 5.9; 2027 = 5.9; 2028 = 5.9; 2029 = 5.9

### External Sector Developments
- Supply chain disruptions and weak exports resulted in an increase in the current account deficit in 2022.
- The trade balance recovered in 2023 as supply chain disruptions started easing, contributing to an increase in car exports.
- Net international investment position has improved but remains negative due to large FDI liabilities.
- An appreciating real exchange rate suggests external competitiveness has weakened; staff assess the external position in 2022 to be somewhat weaker than fundamentals.
- Balance of payments highlights (Table 3):
  - Current Account (Millions of euros): 2023 = -2,132; 2024 = -5,570; 2025 = -4,990; 2026 = -4,479; 2027 = -4,071; 2028 = -3,598; 2029 = -3,181
  - Trade balance (goods, Millions of euros): 2023 = 80; 2024 = -3,168; 2025 = -2,652; 2026 = -2,301; 2027 = -1,994; 2028 = -1,650; 2029 = -1,206
  - Exports, f.o.b. (Millions of euros): 2023 = 100,672; 2024 = 106,310; 2025 = 110,878; 2026 = 115,303; 2027 = 120,535; 2028 = 126,206; 2029 = 132,194
  - Imports, f.o.b. (Millions of euros): 2023 = 100,592; 2024 = 109,478; 2025 = 113,530; 2026 = 117,604; 2027 = 122,530; 2028 = 127,856; 2029 = 133,400
  - Net International Investment Position (Millions of euros): 2023 = -68,085; 2024 = -72,717; 2025 = -76,775; 2026 = -80,403; 2027 = -83,682; 2028 = -86,542; 2029 = -89,054
  - External Debt (Millions of euros): 2023 = 121,546; 2024 = 131,441; 2025 = 140,895; 2026 = 150,089; 2027 = 159,191; 2028 = 168,049; 2029 = 176,772

### Fiscal Sector Developments and Risks
- A reduction in Covid-related spending reduced the deficit significantly in 2022.
- Public debt increased to historical highs during the pandemic but remains below the Stability and Growth Pact’s 60 percent of GDP limit.
- Slovakia’s high long-term funding gap is among the highest in the EU and will put pressure on debt sustainability moving forward.
- The RRP is expected to drive public investment growth in 2023–26.
- Fiscal aggregates (Table 1 and Table 2):
  - Overall balance (Percent of GDP): 2023 = -6.5; 2024 = -6.0; 2025 = -6.1; 2026 = -5.6; 2027 = -5.7; 2028 = -5.7; 2029 = -5.6
  - Primary balance (Percent of GDP): 2023 = -5.6; 2024 = -5.0; 2025 = -4.9; 2026 = -4.2; 2027 = -4.3; 2028 = -4.4; 2029 = -4.2
  - Structural balance (Percent of potential GDP): 2023 = -4.4; 2024 = -5.3; 2025 = -5.6; 2026 = -5.6; 2027 = -5.7; 2028 = -5.7; 2029 = -5.6
  - General government debt (Percent of GDP): 2023 = 57.8; 2024 = 57.9; 2025 = 59.3; 2026 = 60.3; 2027 = 63.5; 2028 = 66.7; 2029 = 69.8
  - Net Lending(+)/Borrowing(-) (Millions of euros): 2023 = -7,880; 2024 = -7,781; 2025 = -8,534; 2026 = -8,187; 2027 = -8,742; 2028 = -9,081; 2029 = -9,395
  - Revenue and Expenditure (Millions of euros, 2023): Revenue = 50,650; Expenditure = 58,529

### Financial Sector Developments
- Tighter financial conditions have led to a widening negative credit gap.
- A fall in real deposits suggests lower household buffers to withstand adverse shocks, but banks’ liquidity buffers remain ample.
- NPLs for both corporates and households are at historical lows.
- Banking profitability has improved as net interest income increased amidst an increase in interest rates, though Slovakia’s banking sector profitability has underperformed relative to other EU countries.
- Financial soundness indicators (Tables and Figures):
  - Domestic Credit to GDP Gap: Slovakia shows a widening negative gap relative to euro area countries.
  - Household Deposits (Million EUR): 2019Q1 to 2023Q3 series show nominal and real (HICP deflated) declines (graphical series).
  - Liquidity coverage ratio, Net Stable Funding Ratio are high; Loan-to-deposit ratio also tracked (graphical series).
  - Nonperforming loans to gross loans: 2014 = 5.2; 2015 = 4.7; 2016 = 4.3; 2017 = 3.6; 2018 = 3.1; 2019 = 3.0; 2020 = 2.6; 2021 = 2.1; 2022 = 1.9; 2023Q2 = 2.0 (Table 4)
  - Return on equity (after tax): 2014 = 7.8; 2015 = 8.4; 2016 = 10.0; 2017 = 7.7; 2018 = 7.8; 2019 = 7.5; 2020 = 5.1; 2021 = 7.6; 2022 = 8.2; 2023Q2 = 10.7 (Table 4)

### Housing Market
- House prices have started to decline, more so than fundamentals.
- Interest payment on a new flat recently exceeded the cost of renting (Bratislava average flat series).
- Completions remain at record levels, alleviating the structural shortage of housing.
- DTI levels have declined since the pandemic, but higher interest rates have led to an increase in mortgages with DSTI ratios above 50 percent.
- Housing and mortgage indicators (figures):
  - Residential Property Price Index (2015=100) and House Price Index (rental price, 2015=100) show declines in 2022–2023 (graphical series).
  - Distribution of Mortgages per DTI Bucket (Percent): 2019, 2021, 2023 (Q1–Q3) (graphical series).
  - Distribution of Mortgages per DSTI Bucket (Percent): 2019, 2021, 2023 (Q1–Q3) (graphical series).

### Structural Developments
- Slovakia spends relatively little on Active Labor Market Policies (ALMP) and has a high share of long-term unemployed.
- The education level of immigrants is low in Slovakia.
- Tertiary students enrolled abroad is high due to the absence of quality education, contributing to brain drain.
- ICT investment is lower than in other EU countries; the economy is among the least digitalized in the EU and R&D expenditure is relatively low.
- Indicators (graphical series):
  - ICT Gross Fixed Capital Formation (Percentage of GDP, average from 2017 to 2021 or latest).
  - The Share of Tertiary Students Enrolled Abroad (Percent, 2021).
  - Share of Employed Immigrants with Tertiary Education (Percent, 2022).
  - Active Labor Market Program Expenditure (share of GDP, 2021).
  - Digital Economy and Society Index, 2022 (Percent).
  - Expenditure in R&D, 2022 (Euros per capita).

### Regional Inequality
- GDP per capita in Bratislava is more than twice the national average, despite some convergence in recent years.
- Higher GDP per capita in the capital region is due to both higher productivity and hours worked.
- Differences in productivity levels are explained by education levels and investment as a percentage of GDP.
- Long-term unemployment is higher in poorer regions.
- Indicators and decomposition (graphical series):
  - Real GDP per Capita by Region Decomposed (percentage deviation from national average).
  - Education levels by region (Primary/Secondary/Tertiary, 2022).
  - Long-term Unemployment by Region (Percent of labor force).
  - Investment by region (Percent of regional GDP).

### Climate Policies and Emissions
- Slovakia's carbon intensity of output has been steadily declining but remains relatively high compared to other OECD countries.
- Industries and transport account for the majority of emissions; coal consumption has declined but renewables have yet to become the major energy supply source.
- Increasing fossil fuel taxes could help expedite the switch to renewables.
- Additional measures are needed to cut emissions by 55 percent relative to 1990 levels by 2030 and to achieve net zero by 2050.
- Indicators and projections:
  - Historical and Projected Total GHG Emissions (Mtn CO₂ Equivalent) with scenarios “With existing measures” and “With additional measures” (graphical series).
  - CO₂ Intensity (CO₂ per GDP - production based (kg/USD, 2015 PPP prices)) — Slovakia vs OECD (graphical series).
  - Greenhouse Gas Emissions Intensity of Output (CO₂ equivalent tonnes per euro of GDP, 2021).
  - Net Effective Carbon Rate, 2021 (EUR per tonne of CO₂-equivalent) — cross-country ranking (graphical series).

### Population, Aging, and Growth
- Slovakia’s population is expected to decline in the next 25 years; fertility rate is well below the replacement rate consistent with a stable population.
- Life expectancy is expected to increase, raising the share of the old in the population.
- With an increasing old-age dependency ratio and decreasing working-age population, living standards are expected to stagnate unless supportive labor market and growth policies are in place.
- Projections and scenarios:
  - Real GDP per Capita: Mitigating the impact of aging (Log real GDP per Capita) — historical trend and baseline projection series.
  - Total Population by age groups and projections (graphical series).
  - Life Expectancy at Birth: increases shown across 2000–2048 (graphical series).
  - Population Growth Rate and Total Fertility Rate projections (graphical series).
  - Working age population ratio and dependency ratio projections (graphical series).

### Key Macroeconomic and Memo Items (Table 1 highlights)
- Nominal GDP (Millions of euros): 2019 = 94,430; 2020 = 93,444; 2021 = 100,256; 2022 = 109,645; 2023 = 122,114; 2024 = 130,572; 2025 = 139,175; 2026 = 146,498; 2027 = 153,399; 2028 = 160,613; 2029 = 168,203
- General government debt (Percent of GDP): 2019 = 48.0; 2020 = 58.9; 2021 = 61.1; 2022 = 57.8; 2023 = 57.9; 2024 = 59.3; 2025 = 60.3; 2026 = 63.5; 2027 = 66.7; 2028 = 69.8; 2029 = 72.5
- Current account (Percent of GDP): 2019 = -3.3; 2020 = 0.6; 2021 = -2.5; 2022 = -8.2; 2023 = -1.7; 2024 = -4.3; 2025 = -3.6; 2026 = -3.1; 2027 = -2.7; 2028 = -2.2; 2029 = -1.9
- Gross national savings (Percent of GDP): 2023 = 15.3; 2024 = 16.3; 2025 = 17.6; 2026 = 18.7; 2027 = 19.3; 2028 = 20.0; 2029 = 20.6
- EU grants (Percent of GDP): 2019 = 1.0; 2020 = 1.2; 2021 = 1.2; 2022 = 1.3; 2023 = 2.6; 2024 = 1.2; 2025 = 1.5; 2026 = 1.3; 2027 = 1.0; 2028 = 1.0; 2029 = 1.0

*Source: National Authorities; and IMF staff estimates and projections.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall assessment
- The external position of the Slovak Republic is assessed to be moderately weaker than the level implied by its medium-term fundamentals and desirable policies in 2022.
- Receding pandemic-related supply chain disruptions (which disproportionately affected the Slovak economy) should help strengthen the external position moving forward.
- Slovakia is a member of the euro zone and does not have independent monetary policy.

### Current account: developments, projections, and assessment
- 2022 drivers:
  - Current account deficit widened substantially in 2022 as imports increased in line with rising gas prices, stockpiling of inventories, increasing domestic consumption, and large public investments.
  - Export growth was curtailed by supply chain disruptions and the war in Ukraine.
- Near-term outlook:
  - Imports are gradually moderating on slowing domestic demand and lower energy imports.
  - A recovery in car exports is offsetting weak demand for non-automobile exports.
  - The current account deficit is expected to return to moderate levels in 2023 and decline gradually over the medium term.
  - The ongoing scaling up of public investment will be financed by higher EU grants.
- EBA-lite model results and adjustments (2022):
  - CA-Actual: -8.2 (percent of GDP)
  - Cyclical contributions (from model): (-)-1.1
  - COVID-19 related adjustment: 0.05 percentage points (reflects continued low tourism due to the pandemic; a 20 percent decline of tourism vs. 2019 levels is assumed)
  - Natural disaster adjustment: -0.06 percentage points
  - Inventory and high gas price adjustment: total adjustment of 4 percent of GDP due to inventory swings and temporarily high gas prices
  - Adjusted CA: -3 percent of GDP
  - CA norm (cyclically adjusted, including multilateral consistency adjustments): -1.8 percent of GDP
  - CA gap: -1.2 percent of GDP (Adjusted CA minus Adjusted CA Norm)
  - Implication: Slovakia’s external position is moderately weaker than fundamentals, implying a REER gap of about 2 percent.

### Foreign assets and liabilities: position and trajectory
- 2022 positions (percent of GDP):
  - NIIP: -61
  - Gross Assets: 92
  - Debt Assets: 65
  - Gross Liab.: 153
  - Debt Liab.: 103
- Background and trends:
  - NIIP stood at -61 percent of GDP at end-2022, reflecting some improvement from the mid-2010s.
  - Both gross assets and gross liabilities fell in 2022 but remain moderately larger than in earlier years.
  - Total external debt stood at 103 percent of GDP in 2022 with a short-term share of 52 percent (while 31 percent of total is official short-term debt).
- Assessment and outlook:
  - The negative NIIP does not necessarily imply notable risks to external sustainability.
  - Robust export and GDP growth and significant inflows of EU funds (under both the RRF and MFF) are expected to improve the NIIP to -55 percent of GDP by 2025.
  - Private short-term debt is 22 percent of GDP while the amortization on the debt amounts to 24 percent of GDP. Both are described as manageable quantities.
  - High share of FDI liabilities and long-term, euro-denominated debt reduce vulnerability to sudden capital outflows.

### Real exchange rate (REER)
- Background:
  - CPI-based REER appreciated by about 1 percent in 2022, underpinned largely by the inflation differential.
  - ULC-based REER appreciated as well, reflecting higher wage growth in the Slovak Republic relative to trading partners.
- Assessment:
  - The REER EBA-lite approach points to a larger overvaluation of 13.6 percent.
  - Given that the estimated overvaluation is mostly driven by large residuals from the REER regression, staff relies on the CA-model to assess the external position.

### Capital and financial accounts; FX intervention and reserves
- Capital and financial account flows:
  - The capital account is expected to continue to display significant inflows in the coming years as Slovakia receives sizable funds under the RRF and MFF.
  - FDI inflows increased substantially in 2022 while portfolio outflows moderated.
  - FDI inflows are expected to remain strong over the medium term with sizable new investments planned in the automotive sector.
  - The importance of FDI in capital inflows mitigates risks from sudden changes in market sentiment.
  - The new SDR allocation and significant inflows of EU funds further help improve Slovakia’s external position.
- FX intervention and reserves:
  - The euro has the status of a global reserve currency.
  - Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating.

### Key metrics and projections (selected)
- NIIP (end-2022): -61 percent of GDP
- Gross Assets (2022): 92 percent of GDP
- Gross Liabilities (2022): 153 percent of GDP
- Total external debt (2022): 103 percent of GDP; short-term share: 52 percent; official short-term debt share: 31 percent
- Projected NIIP (by 2025): -55 percent of GDP
- Private short-term debt: 22 percent of GDP
- Amortization on the debt: 24 percent of GDP
- REER EBA-lite overvaluation: 13.6 percent
- CA-Actual (2022): -8.2 percent of GDP
- Adjusted CA (2022): -3 percent of GDP
- CA Norm (2022): -1.8 percent of GDP
- CA Gap: -1.2 percent of GDP
- Implied REER gap (from CA): about 2 percent

### Summarized policy implications from Annex I
- Continue efforts to diversify energy supplies and sources.
- Implement Slovakia's recovery and resilience plan to increase renewable energy capacity and accelerate the green transition.
- Use higher EU grants to finance the scaling up of public investment to limit import-driven current account pressures.
- Leverage FDI and EU funds to support external position improvements and reduce vulnerability to sudden capital outflows.

*Annex I. External Sector Assessment, Slovak Republic — IMF staff (extracted from the provided content).*

### Annex V. Growth at Risk in Slovakia

### Annex V. Growth at Risk in Slovakia

### GaR model purpose and scope
- Objective: examine downside risks to future GDP growth arising from macro-financial vulnerabilities such as excessive credit expansion, increasing housing prices, and rising mortgage debt.
- Horizon: probability distribution for future GDP growth computed at different horizons, with emphasis on 4-quarter ahead GDP growth (year-on-year).

### Model design and data
- Partitions considered (five):
  1. Financial Condition: Slovakia 1 year government bond yield, sovereign spreads, term spreads, real long-term interest rate, and yearly return of Slovakia SAX index.
  2. Macro-Financial vulnerabilities: Credit-to-GDP gap, household credit growth, corporates credit growth, change in residential property price, and the ratio of non-performing loans to total loans.
  3. Macro vulnerabilities: HICP inflation rate, current account balance to GDP ratio, and government debt to GDP ratio.
  4. External price: change in nominal effective exchange rate, change in Europe brent spot price FOB, change in Netherlands TTF natural gas forward, and VIX Index.
  5. External macro: EU27 real GDP growth rate.
- Transformation and estimation:
  - Year-on-year rate is used for growth and change.
  - Dimension reduction via principal component analysis.
  - Estimation period: 2006:Q1 to 2023:Q2.
  - Independent variables include the current GDP growth rate.
- Reference methodology: Adrian, T., N. Boyarchenko, and D. Giannone (2019), “Vulnerable growth”, American Economic Review, 109(4), 1263–1289.

### Key empirical findings
- Downside risk evolution:
  - Downside risk to 4-quarter ahead GDP growth (year-on-year) increased during the second half of 2022.
  - Probability of a real GDP contraction reached 22 percent in 2022:Q4.
  - Tail risk appears to have eased significantly in 2023.
- Drivers of eased tail risk:
  - Tightening of financial conditions that resulted in a slowdown of credit growth to households and firms.
  - Cooling of the residential property market.
- Distributional outputs highlighted:
  - GaR 5th percentile and GaR 10th percentile are reported for multiple quarters (figures referenced as of 2023:Q2).
  - The distribution is calculated by conditioning the mode to match the staff projection.

### Risks and vulnerabilities to monitor
- Macro-financial vulnerabilities that could heighten downside risk:
  - Excessive expansion of credit by financial institutions.
  - Vulnerabilities in the household sector, including increasing housing prices and mortgage debt.
  - Uneven impact of inflation and interest rates across households and firms.
  - Emerging risks in the commercial real estate sector.

### Policy implications and recommendations
- Continue monitoring macro-financial vulnerabilities even though near-term recession risk eased in 2023.
- Pay particular attention to:
  - Credit growth dynamics for households and firms.
  - Residential property market developments.
  - Distributional effects of inflation and interest rate changes across economic agents.
  - Emerging risks in commercial real estate.

*Source: IMF staff calculations, Annex V. Growth-at-Risk analysis (As of 2023:Q2).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1svkea2024001.pdf_