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### Macroeconomic context and recent developments
- Real GDP growth: 2.0 percent in 2024 (up from 1.4 percent in 2023).
- Inflation developments:
  - Inflation (HICP) declined from record-highs in 2023 to 2.5 percent in 2024Q2.
  - Headline inflation: 3.5 percent year-on-year in 2024Q4; 4.2 percent year-on-year in January 2025.
  - Core inflation: 4.1 percent in 2024Q4.
- Labor market:
  - Unemployment rate: 5.3 percent in 2024Q4 (record low).
  - Nominal wage growth: 6.4 percent in 2024Q3.
  - Hours worked per worker remain 5 percent below pre-pandemic levels; labor productivity rose 12 percent since end-2019.
- Balance of risks: structural headwinds include geoeconomic fragmentation, high energy costs, demographic change, and a polarized political environment complicating policymaking.

### Outlook and growth projections
- Staff real GDP projections:
  - 2024 = 2.0 percent; 2025 = 1.8 percent; 2026 = 2.1 percent; 2027 = 2.5 percent; 2028 = 2.5 percent; 2029 = 2.1 percent; 2030 = 2.0 percent.
- Inflation (HICP, annual): 2024 = 3.2; 2025 = 4.1; 2026 = 3.1; 2027–2030 = 2.0 (each year).
- Unemployment rate (Percent): 2024 = 5.4; 2025 = 5.5; 2026 = 5.6; 2027 = 5.5; 2028–2030 = 4.5 (each year).
- Nominal wages (annual percent change): 2024 = 6.9; 2025 = 5.8; 2026 = 4.5; 2027 = 4.1; 2028–2030 = 4.0 (each year).
- Growth drivers: private consumption, investment, and a recovery in exports.
- Fiscal consolidation effects on growth (relative to a pre-budget baseline):
  - Subtracts 0.5 percentage points from growth in 2025.
  - Subtracts 0.2 percentage points from growth in 2026.
  - Adds 0.3 percentage points to growth in 2028.

### Fiscal outlook, consolidation path, and quantified needs
- Fund staff’s macro forecasts imply an overall deficit of 5.0 percent of GDP in 2025.
- Authorities’ medium-term structural plan target: bring the fiscal deficit close to 2 percent of GDP by 2028 (authorities’ target in another table: 2.2 percent of GDP by 2028).
- Staff baseline (no further consolidation beyond 2025) implies public debt rising to 74 percent of GDP by 2030 compared to 56 percent of GDP at end-2023.
- Staff estimates additional fiscal savings needed: 3.1 percent of GDP over the next three years (about 1 percent of GDP per year).
- 2025 contingency guidance: if revenues in 2025 fall short, authorities should limit the resulting increase in the deficit by saving as much as possible of the contingency buffer.
- 2025 budget headline deficit target (authorities): 4.7 percent of GDP (from a projected 5.8 percent of GDP in 2024).
- Staff view: authorities’ targets are appropriately ambitious if fully implemented; risks include lower-than-expected yield from measures and worse economic outlook.

### Fiscal consolidation: recommended measures and quantified yields
- Measures in 2025 budget (percent of GDP):
  - Financial transaction tax (first payment April 1): 0.4
  - CIT reform: 0.3
  - Other revenue measures: 0.1
  - Better targeting of child tax credit: 0.1
  - Reform of parental pension: 0.3
  - Dampening of public sector wages: 0.1
  - Total gross consolidation measures: 1.8
- Recommended additional measures — estimated full-year yields (percent of GDP):
  - Cancellation of reduced VAT rates: 1.3
  - Raise property taxes (estimated long-term yield): 0.3
  - Reverse increase in 13th pension: 0.4
  - Eliminate early retirement pension: 0.2
  - Identified Value for Money measures: 0.5
  - Reduce VAT compliance gap to the EU average: 0.5
  - Further scope to target social spending: 0.8
  - Total recommended: 4.0
- Other fiscal notes:
  - The 13th pension in 2024 estimated cost: 0.6 percent of GDP.
  - Temporary energy support measures to households projected to cost 0.2 percent of GDP in 2025 and should not be extended beyond 2025.
  - Replace the FTT with alternative revenue sources and phase out the bank levy as planned.
- VAT compliance gap:
  - VAT compliance gap in 2022: 14.6 percent (above the EU median of 6.0 percent).
  - Preliminary RA-VAT estimates: gap declined to 10.3 percent of GDP in 2023 from 13.3 percent of GDP in 2022.

### Fiscal framework and institutional recommendations
- Safeguard Slovakia’s strong fiscal framework to preserve credibility of consolidation.
- Align national expenditure ceiling framework with the new EU fiscal rules to avoid inconsistencies and streamline budget process.
- Continued focus on long-term fiscal outlook beyond the EU fiscal framework horizon given medium-term challenges.
- Institutional recommendations:
  - The Council for Budgetary Responsibility should monitor the impact of government policies on long-term sustainability.
  - Reform the debt brake before it comes into effect in 2026 to avoid risk of disruptive fiscal consolidation (including lowering thresholds that trigger the debt brake escape clause).

### Public debt trajectory and baseline scenario (selected figures)
- General government debt (percent of GDP): 2023 = 56.0; 2024 = 58.0; 2025 = 59.5; 2026 = 62.9; 2027 = 65.9; 2028 = 68.7; 2029 = 71.5; 2030 = 74.3; 2031 = 77.3; 2032 = 80.2; 2033 = 83.1.
- Change in public debt (percent of GDP): 2023 = -1.6; 2024 = 2.0; 2025 = 1.5; 2026 = 3.4; 2027 = 3.0; 2028 = 2.8; 2029 = 2.8; 2030 = 2.8.
- Primary deficit (percent of GDP): 2023 = 4.5; 2024 = 4.9; 2025 = 3.9; 2026 = 3.5; 2027 = 3.3; 2028 = 3.7; 2029 = 3.8; 2030 = 3.8.
- Gross financing needs (percent of GDP): 2023 = 9.1; 2024 = 9.2; 2025 = 11.1; 2026 = 9.9; 2027 = 10.2; 2028 = 11.0; 2029 = 11.5; 2030 = 13.7.

### Financial sector resilience, vulnerabilities, and macroprudential policy
- Overall assessment: financial sector appears resilient to stress; banks have healthy buffers and profitability.
- Stress test findings:
  - Solvency and liquidity stress tests indicate banks have sufficient capital to withstand severe macro-financial shocks.
  - Liquidity coverage ratio above 200 percent.
  - Regulatory capital to risk-weighted assets: 2024Q3 = 20.5.
  - Nonperforming loans to gross loans: 2024Q3 = 2.0 (percent).
  - Return on equity (after tax): 2024Q3 = 9.3 (percent).
- Key vulnerabilities:
  - Residential real estate market: many mortgages are fixed-rate but most will reprice in the next 3 years; repricing combined with tighter financial conditions could pressure repayment capacity.
  - Commercial real estate (CRE) — office segment: elevated vacancy rates; NPL ratio for CRE loans around 0.6 percent.
  - Non-financial corporates: banks with large exposures to NFCs exposed to geopolitical risks could face credit losses.
- Bank levy schedule:
  - 30 percent of banks’ profits in 2024.
  - Reduced by 5 percentage points per year to 15 percent in 2027.
  - Reaches the standard rate of 4.356 percent in 2028.
- Macroprudential stance and recommendations:
  - Current stance broadly appropriate.
  - Medium-term improvements: adopt a positive neutral countercyclical capital buffer (CCyB); close leakages and refine borrower-based measures (including adjusting speed limits); bolster supervision of LSIs; strengthen crisis management framework; enhance systemic risk assessment framework and central bank supervisory powers.

### Financial Transactions Tax (FTT) and financial stability
- Direct impact of the FTT appears limited; indirect risks via client behavior warrant monitoring (e.g., increased cash use, corporates shifting accounts).
- Authorities should implement contingency measures if indirect channels materialize.
- Replace the FTT with alternative revenue sources is recommended as part of consolidation.

### Structural reform priorities and productivity trends (Box 1)
- Objectives: diversify the economy, sustain productivity growth, increase the labor force, and further reduce carbon emissions.
- Labor productivity trends:
  - Productivity growth slowed from an average of 3.9 percent per year in the 2000s to 1.8 percent between 2016-19.
  - Since end-2019: labor productivity per hour worked increased by 12.4 percent; per employee increased by 7.5 percent (averages of 2.4 percent and 1.5 percent per year, respectively).
  - Productivity gains primarily from within-sector improvements; most pronounced in parts of services with low initial productivity and in manufacturing.
- Structural reform recommendations:
  - Intensify efforts to promote innovation and technology adoption; stimulate business R&D, including in small firms and startups.
  - Enhance Active Labor Market Policies (ALMPs) and vocational education and training.
  - Improve child and elderly care, streamline certification recognition for migrants, and scale up language training to integrate and retain migrants.
  - Deepen the European single market and advance the capital market union to facilitate cross-border capital flows and venture capital.
  - Address automotive-sector risks by encouraging innovation across the EV supply chain and diversifying the economy.
  - Phase in ETS II for road transport and buildings and consider gradually raising environmental levies until ETS II is operational in 2027.
  - Strengthen governance, reduce corruption vulnerabilities, and enhance judicial independence.

### External sector assessment and risks
- External position: assessed as moderately weaker than implied by fundamentals in 2024.
- Current account and trade:
  - Current account balance in 2024: -1.6 percent of GDP (nominal: -1,942 million euros).
  - Trade balance (goods) in 2024: 1.3 percent of GDP (1,587 million euros).
  - Exports, f.o.b.: 2024 = 99,402 (million euros); 2025 projection = 103,265 (million euros).
- NIIP and external debt (end-2024):
  - NIIP: -53.5 percent of GDP.
  - Gross assets: 90.5 percent of GDP.
  - Gross liabilities: 144 percent of GDP.
  - Total external debt: 99.5 percent of GDP in 2024.
  - Short-term share of external debt: 44 percent; official short-term debt share: 24 percent of total.
- REER and CA model:
  - CPI-based REER depreciated by about 0.1 percent in 2024; ULC-based REER appreciated by 2 percent.
  - EBA-lite CA model cyclically adjusted norm: -0.8 percent of GDP for 2024; cyclically adjusted CA balance: -2.7 percent of GDP; CA gap: -1.9 percent of GDP.
- Risk Assessment Matrix: notable risks include regional conflicts, commodity price volatility, trade policy and investment shocks, sovereign debt distress, deepening geoeconomic fragmentation, cyberthreats, and delays in reform/fiscal consolidation; many risks have Medium or High likelihood and High expected impact.
- Policy responses: diversify energy supplies, accelerate structural reforms, adhere to medium-term fiscal consolidation plan, extend debt maturities, and accelerate absorption of EU funds.

### Climate, energy, and environmental policy
- GHG emissions fell by 50 percent since 1990.
- Targets: cut emissions by 55 percent by 2030 relative to 1990 levels; achieve net-zero by 2050.
- Policy recommendations:
  - Implement the 2023 National Energy and Climate Plan: increase renewable and nuclear shares, promote energy efficiency, and invest in green technologies.
  - Increase average effective carbon tax rate by raising taxes in sectors with relatively low taxes on emissions.
  - Implement EU’s ETS II into national law for road transport and buildings and consider gradually raising environmental levies until operational in 2027 while limiting impacts on vulnerable populations.
  - Phase out $4.6 billion (4 percent of GDP) in implicit and explicit fossil fuel subsidies.
  - Explore replacement of two coal-fired blast furnaces in the steel industry (responsible for 10 percent of Slovakia’s GHG emissions).

### Data adequacy and institutional notes
- Overall data adequacy assessment: data provided to the Fund are adequate for surveillance.
- Slovakia adheres to SDDS Plus since September 2019 and publishes data on its National Summary Data Page.
- Net errors and omissions in balance of payments statistics: large in 2023 (1.5 percent of GDP).
- No macro-critical data gaps identified.
- Fund relations metadata and other procedural notes provided; Article IV consultation cycle is standard 12-month.

*Source: IMF staff report for the 2025 Article IV Consultation (content as provided in 1svkea2025001-print-pdf).*

### 2024. Fund staff’s more conservative macroeconomic forecasts imply an overall deficit of 5.0

### 2024. Fund staff’s more conservative macroeconomic forecasts imply an overall deficit of 5.0 percent of GDP in 2025

### Macroeconomic context and recent developments
- Real GDP growth: 2.0 percent in 2024 (up from 1.4 percent in 2023).
- Inflation developments:
  - Inflation (HICP) declined from record-highs in 2023 to 2.5 percent in 2024Q2.
  - Headline inflation rose to 3.5 percent year-on-year in 2024Q4.
  - Inflation increased further to 4.2 percent year-on-year in January 2025.
  - Core inflation was 4.1 percent in 2024Q4.
- Labor market:
  - Unemployment rate: 5.3 percent in 2024Q4 (record low).
  - Nominal wage growth: 6.4 percent in 2024Q3.
  - Hours worked per worker remain 5 percent below pre-pandemic levels; labor productivity rose 12 percent over the same period.
- Balance of risks: structural headwinds include geoeconomic fragmentation, high energy costs, demographic change, and a polarized political environment complicating policymaking.

### Fiscal outlook and consolidation path
- Fund staff’s macro forecasts imply an overall deficit of 5.0 percent of GDP in 2025.
- Authorities’ medium-term fiscal structural plan aims to bring the fiscal deficit close to 2 percent of GDP by 2028.
- Staff projections: if consolidation targets are met, the increase in the deficit over the past two years would be reversed and public debt would be put on a downward path by the end of the projection period.
- Additional fiscal effort needed:
  - Staff estimates an additional 3.1 percent of GDP in fiscal savings will be needed over the next three years to achieve targeted consolidation beyond 2025.
- 2025 contingency guidance:
  - If revenues in 2025 fall short of targets, authorities should limit the resulting increase in the deficit by saving as much as possible of the contingency buffer.
- Specific fiscal recommendations:
  - Prioritize expenditure-based measures to balance consolidation given previous reliance on revenue measures.
  - Implement already-identified Value for Money initiatives (e.g., a reduction in subsidies).
  - Improve targeting of social spending.
  - Consider trimming departmental budgets and reducing public sector wage growth cautiously to avoid unintended cuts in service delivery.
  - On revenues: counter tax evasion and increase tax compliance; raise property taxes; reduce the number of items subject to reduced VAT rates.
  - Temporary energy support measures to households should not be extended beyond 2025.
  - Replace the FTT with alternative revenue sources.
  - Phase out the bank levy as planned.

### Fiscal framework and institutions
- Safeguarding Slovakia’s strong fiscal framework is essential for credibility of the consolidation effort.
- Align Slovakia's national expenditure ceiling framework with the new EU fiscal rules to avoid inconsistencies and streamline the budget process.
- Continued focus on the long-term fiscal outlook (beyond the EU fiscal framework horizon) is recommended given medium-term fiscal challenges.
- Institutional recommendations:
  - The Council for Budgetary Responsibility should monitor the impact of government policies on long-term sustainability.
  - The debt brake should be reformed before it comes into effect in 2026 to avoid the risk of disruptive fiscal consolidation.

### Financial sector resilience and macroprudential policy
- Overall assessment: the financial sector appears resilient to stress, reflecting a healthy level of buffers and profitability, though some risks remain.
- Key vulnerabilities: the residential real estate market and the office segment of the commercial real estate (CRE) market.
- Stress test findings: solvency and liquidity stress tests indicate banks have sufficient capital to withstand severe macro-financial shocks; the banking system is resilient to funding and market liquidity shocks.
- Macroprudential stance and recommendations:
  - Current stance is broadly appropriate.
  - Medium-term improvements: adopt a positive neutral countercyclical capital buffer (CCyB); close leakages and refine borrower-based measures (including adjusting speed limits).
  - Bolster supervision of LSIs and strengthen the crisis management framework.
  - Enhance the systemic risk assessment framework, augment central bank supervisory powers and operational independence, and strengthen the financial safety net.

### Structural reform priorities
- Objectives: diversify the economy, sustain productivity growth, increase the labor force, and further reduce carbon emissions.
- Policy recommendations:
  - Intensify efforts to promote innovation and technology adoption.
  - Enhance Active Labor Market Policies (ALMPs) to facilitate worker movement across sectors.
  - Deepen the European single market to allow innovative firms to leverage economies of scale and facilitate cross-border capital flows, including venture capital critical for startups.
  - Address demographic challenges and increase labor supply via:
    - More vocational education and training.
    - Improved child and elderly care.
    - Further efforts to integrate and retain migrants.
  - Climate and environmental policy:
    - Move expeditiously to fully implement the ETS II scheme for road transport and buildings.
    - Consider gradually raising environmental levies in these sectors until the scheme becomes operational in 2027.
  - Governance and institutional reforms:
    - Strengthen governance, reduce vulnerabilities to corruption, and enhance judicial independence to lift resilience and growth potential.

### Key fiscal and macro indicators (selected figures from tables and text)
- Overall balance (percent of GDP): -5.0 in 2025 (staff forecast).
- Structural balance (Percent of potential GDP): -3.9 in 2025 (staff projection).
- General government debt: 59.5 percent of GDP in 2025 (table entry).
- Inflation datapoints: 2.5 percent in 2024Q2; 3.5 percent in 2024Q4; 4.2 percent in January 2025.
- Core inflation: 4.1 percent in 2024Q4.
- Nominal wages: 6.4 percent growth in 2024Q3.
- Unemployment rate: 5.3 percent in 2024Q4.
- Estimated additional fiscal savings needed: 3.1 percent of GDP over the next three years.
- Target fiscal deficit: close to 2 percent of GDP by 2028.

*Source: IMF staff report for the 2025 Article IV Consultation (March 3, 2025).*

### Box 1.  Labor Productivity Trends in Slovakia

### Box 1.  Labor Productivity Trends in Slovakia

### Recent productivity performance
- Labor productivity growth slowed from an average of 3.9 percent per year in the 2000s to 1.8 percent between 2016-19.
- Since end-2019:
  - Labor productivity per hour worked has increased by 12.4 percent.
  - Labor productivity per employee has increased by 7.   5 percent.
  - These gains correspond to averages of 2.4 percent and 1.5 percent per year, respectively.
- Slovakia’s productivity gains since 2019 have outpaced the EU average and other CESEE-EU countries.

### Drivers and decomposition of productivity gains
- Productivity gains stem primarily from improvements within sectors rather than from reallocation of labor across sectors.
- The improvement is broad-based, most pronounced in:
  - Parts of the services sector with low initial productivity levels.
  - Manufacturing.
- Within-industry productivity gains reflect both frontier and laggard firms in manufacturing and services becoming more productive.

### Role of labor hoarding and demand dynamics
- Strong productivity growth in recent years reflects relatively fast GDP growth, implying less labor hoarding.
- While labor hoarding in the EU is estimated to have increased, it has been declining in Slovakia due to a less pronounced drop in domestic demand.
- A lack of labor hoarding suggests Slovakia is already utilizing its labor efficiently.
  - Short-term: positive for the economy.
  - Medium-term: may imply less scope than other EU countries to increase output when global demand picks up.

*Source: Box 1. Labor Productivity Trends in Slovakia (content from 1svkea2025001-print-pdf).*

### 2.0 percent, as projected by staff, is  expected to be significantly lower than the 3.9 percent average

### 1svkea2025001-print-pdf - 2.0 percent, as projected by staff, is expected to be significantly lower than the 3.9 percent average

### Outlook and growth
- Real GDP growth projected by staff: 2.0 percent.
- Comparison benchmarks:
  - 3.9 percent average growth between Slovakia’s EU accession in 2004 and the pandemic.
  - Below IMF forecasts of medium-term growth in other Central, Eastern, and Southeastern Europe (CESEE) countries with comparable income levels.
- Fiscal consolidation impact (relative to a pre-budget baseline):
  - Subtracts 0.5 percentage points from growth in 2025.
  - Subtracts 0.2 percentage points from growth in 2026.
  - Adds 0.3 percentage points to growth in 2028.
- Short- to medium-term growth drivers:
  - Private consumption, investment, and a recovery in exports.
- Inflation outlook:
  - Inflation is projected to increase temporarily before reaching the 2 percent target by early-2027.

### Risks to the outlook
- Directional assessment:
  - Risks to growth are tilted to the downside.
  - Risks to inflation are broadly balanced.
- Near-term external risks:
  - Increasing trade policy uncertainty weighing on investment and growth and exerting downward pressure on inflation.
  - Higher commodity prices, including from a disruption to energy supply, would push up inflation and weaken the external balance.
- Domestic risks:
  - Fiscal consolidation slippages would support growth but could increase sovereign spreads and tighten financial conditions.
  - Lack of political consensus on structural reforms and concerns about governance and institutional quality could deter private investment and slow disbursement of EU funds.
  - Correction in real estate prices combined with an economic downturn could trigger losses for financial institutions.
  - Second-round effects from higher wage growth could keep inflation elevated and undermine competitiveness.
- Medium-term structural risks:
  - Geoeconomic fragmentation and increased competition from China could hurt the competitiveness of Slovakia’s automotive sector.

### Fiscal policy: current stance, targets, and gaps
- 2025 budget headline deficit target: 4.7 percent of GDP (from a projected 5.8 percent of GDP in 2024).
- Staff macroeconomic and revenue forecasts imply an overall deficit of 5.0 percent of GDP for 2025 (despite a projected reduction in the structural deficit of 1.0 percentage points of GDP).
- Authorities’ medium-term fiscal structural plan target: deficit reduced to 2.2 percent of GDP by 2028 (measures not specified).
- Staff baseline (no further consolidation beyond 2025) implies public debt rising to 74 percent of GDP by 2030 compared to 56 percent of GDP at end-2023.
- Staff view on authorities’ targets: appropriately ambitious and commensurate with the scale of Slovakia’s fiscal challenges if fully implemented.
- Risks to achieving targets: lower-than-expected yield from consolidation measures, worse economic outlook, additional discretionary spending.
- Policy recommendation in case of slippages: limit the resulting increase in the deficit, including by saving as much as possible of this year’s contingency buffer.

### Fiscal consolidation: required additional measures and quantified yields
- Staff estimates additional fiscal savings needed over the next three years: 3.1 percent of GDP (about 1 percent of GDP per year).
- Recommended areas of consolidation (listed in source):
  - Reduce the number of items subject to reduced VAT rates.
  - Raise property taxes by transitioning to a market value-based system.
  - Further target social spending.
  - Reverse the recent increase in the 13th pension.
  - Eliminate the early retirement pension.
  - Reduce the VAT compliance gap (e.g., through e-invoicing).
  - Implement already-identified Value for Money initiatives, including through a reduction in subsidies.
  - Replace the Financial Transactions Tax (FTT) with alternative revenue sources and remove remaining energy support measures (projected to cost 0.2 percent of GDP in 2025).
  - Phase out the bank levy as planned.
- Aging-related fiscal challenge:
  - EU projects aging-related costs in Slovakia will increase by 5.6 percent of GDP between 2022 and 2050.
  - OECD projects that aging-related costs may push public debt above 200 percent of GDP by 2050 in the absence of adjustment.
- Safeguarding fiscal framework:
  - Harmonize the national expenditure ceiling with the new EU fiscal rules.
  - Maintain the independent Council for Budgetary Responsibility to monitor long-term fiscal sustainability.
  - Reform the debt brake before it comes into effect in 2026, including by lowering thresholds that trigger the debt brake escape clause.

### Quantified measures and yields (Text Table 1 data)
- Measures in 2025 budget (percent of GDP):
  - Financial transaction tax (first payment April 1): 0.4
  - CIT reform: 0.3
  - Other revenue measures: 0.1
  - Better targeting of child tax credit: 0.1
  - Reform of parental pension: 0.3
  - Dampening of public sector wages: 0.1
  - Total gross consolidation measures: 1.8
- Recommended measures — estimated full-year yields (percent of GDP):
  - Cancellation of reduced VAT rates: 1.3
  - Raise property taxes (estimated long-term yield): 0.3
  - Reverse increase in 13th pension: 0.4
  - Eliminate early retirement pension: 0.2
  - Identified Value for Money measures: 0.5
  - Reduce VAT compliance gap to the EU average: 0.5
  - Further scope to target social spending: 0.8
  - Total recommended: 4.0
- VAT compliance and gaps:
  - VAT compliance gap in 2022: 14.6 percent (above the EU median of 6.0 percent).
  - Preliminary RA-VAT estimates: gap declined to 10.3 percent of GDP in 2023 from 13.3 percent of GDP in 2022.
- The 13th pension:
  - In 2024, estimated to cost 0.6 percent of GDP.

### Financial sector: resilience, vulnerabilities, and macroprudential stance
- Banking sector resilience:
  - Capital adequacy ratios have continued to increase and remain well above regulatory minima.
  - Liquidity buffers are ample, with a liquidity coverage ratio above 200 percent.
  - Net interest income has more than offset the impact of the bank levy introduced in 2024.
- Bank levy schedule:
  - 30 percent of banks’ profits in 2024.
  - Reduced by 5 percentage points per year to 15 percent in 2027.
  - Reaches the standard rate of 4.356 percent in 2028.
- Potential vulnerabilities:
  - Residential real estate and household mortgages:
    - High share of fixed-rate mortgages has insulated households to date, but most mortgages will reprice in the next 3 years.
    - Repricing combined with tighter financial conditions and an economic slowdown could pressure repayment capacity.
  - Non-financial corporates:
    - Overall resilient per FSAP stress tests, but banks with large exposures to NFCs exposed to geopolitical risks could be more susceptible to credit losses.
  - Commercial real estate (CRE):
    - Elevated risks in the office segment where vacancy rates remain elevated.
    - NPL ratio for CRE loans relatively low at around 0.6 percent.
    - Increased vacancy rates and tighter financing could reduce rental income, lower property values, and raise borrowing costs.
- FSAP findings:
  - 2024 FSAP assessed the financial sector to be resilient against severe shocks.
  - Solvency stress tests: all banks meet minimum capital requirements in an adverse scenario.
  - Liquidity stress tests: banking system resilient due to ample buffers, stable funding, and a small share of securities in bank assets.
- Macroprudential policy recommendations:
  - Current stance broadly appropriate; countercyclical capital buffer (CCyB) level remains appropriate.
  - Borrower-based measures (BBMs) have helped contain household credit risk and should remain on hold.
  - Authorities should be ready to activate the systemic risk buffer on banks’ CRE exposures before sectoral risks become systemic.
  - Strengthen framework by adopting a positive neutral countercyclical capital buffer (pnCCyB) to safeguard releasable capital and provide time to collect evidence of vulnerability build-up.
  - Close leakages in BBMs (e.g., co-financing a mortgage with a consumer loan) and differentiate BBM speed limits across borrower categories (first- and second-time home buyers, investors, mortgage top-ups).

### Other policy notes
- Effective absorption of EU funds is crucial for growth:
  - Absorption of EU structural funds during the 2014-20 programming period was slower than in the past and low relative to other EU countries.
  - Pace of absorption of Recovery and Resilience Plan (RRP) funds has increased and is in line with other EU countries.
  - Need to strengthen project management capacity, especially at the municipal level, and prepare a national investment plan to guide timely selection of investment projects.
- Authorities’ views:
  - Authorities broadly agreed with staff’s assessment of the outlook and risks, and agreed fiscal consolidation and weak external demand will lower growth in 2025 and that inflation is likely to increase in the near-term.
  - Authorities emphasized commitment to reduce the fiscal deficit and stabilize public debt, noted work to prepare fiscal measures for 2026, and argued that fees on cash withdrawals and initiatives to combat tax evasion would prevent informality associated with the FTT.
  - Authorities are committed to improving absorption of EU funds and have submitted the fifth payment request under the RFF.

*Source: Slovak Republic — IMF staff report (content as provided in the supplied PDF excerpt).*

### 29.      The impact of the new financial transactions tax (FTT) on financial stability should be

### 29.      The impact of the new financial transactions tax (FTT) on financial stability should be 

### Financial stability and the FTT
- Direct impact of the FTT appears to be limited.
- Indirect risks through changes in client behavior warrant close monitoring:
  - Potential increase in the use of cash.
  - Corporates shifting accounts to other jurisdictions.
- Contingency measures should be implemented if these indirect channels materialize.
- Empirical note: IMF Country Report No. 19/358 notes that the introduction of a FTT in Hungary in 2013 coincided with increased cash usage, and econometric tests suggest a structural break in currency in circulation during this period.

### Financial resilience, systemic risk assessment, and supervision
- Strengthen systemic risk assessment framework by:
  - (i) strengthening stress tests to assess resilience of the banking sector to adverse macro-financial shocks and expanding sensitivity analysis;
  - (ii) improving monitoring of emerging risks and expected losses;
  - (iii) integrating cash-flow analyses in the liquidity stress testing framework.
- Enhance supervision of Less Significant Institutions (LSIs):
  - Strengthen NBS supervisory powers and operational independence by limiting banks’ ability to appeal only to supervisory decisions and corrective measures that are finalized, and enhancing legal protection of supervisors.
  - Streamline off-site supervision to align with LSI risk profiles and increase on-site inspections to bolster LSI supervision effectiveness.
- Crisis management and financial safety net:
  - Ensure the national resolution authority (NRA) has adequate resources.
  - Amend the Resolution Act to:
    - (i) restrict the judiciary’s powers to suspend or reverse NRA resolutions;
    - (ii) ensure NRA resolutions are enforceable from the moment they are taken;
    - (iii) ensure enforceability of legal protections for staff involved in resolution.
  - Remove active bankers from the board of the deposit guarantee fund to avoid conflicts of interest, expand the fund’s mandate, and strengthen its financial position.

### Macroprudential policy stance and indicators
- The NBS’s estimate of the financial cycle has been easing but appears to be bottoming out.
- The current level of the countercyclical capital buffer is appropriate given residual risks in real estate markets.
- Note: The additional time a pnCCyB affords policymakers is particularly valuable given that buffer decisions are subject to a 12-month phase-in period.

### AML/CFT framework
- Continue efforts to strengthen AML/CFT framework:
  - A third update of the national risk assessment is expected to be finalized by February 2025.
  - NBS has introduced a risk-based approach to guide off-site and on-site inspections.
  - Authorities should:
    - Review criteria for application of ML/TF sanctions;
    - Strengthen coordination between NBS and Financial Intelligence Unit (FIU);
    - Introduce mechanisms to verify beneficial ownership information and sanction submission of inaccurate information.

### Authorities’ views on financial sector recommendations
- Authorities agreed with FSAP’s positive assessment of financial sector resilience and the macroprudential stance.
- Authorities noted risks have receded slightly and expected further moderation as interest rates decline, real wages increase, and corporate revenues rise.
- Authorities concurred that vulnerabilities in residential and CRE sectors warrant continuation of current prudent macroprudential stance.
- On CCyB and pnCCyB: authorities view current CCyB framework as having served Slovakia well and want time to assess transitioning to a pnCCyB.
- On BBMs: authorities acknowledged potential leakages but did not view them as material; open to differentiating between first- and second-time home buyers when reliable data are available.
- Authorities welcomed recommendations on strengthening LSI supervision, crisis management framework, and AML/CFT measures.

### Structural policies, innovation, and labor market
- Need for structural reforms to diversify the economy and sustain productivity growth.
- Slovakia’s productivity growth driven primarily by capital deepening in manufacturing, especially automotive; dependence on automotive sector increases exposure to global shocks (green transition, automation).
- Key exposure and risks:
  - About 36 percent of all jobs are at high risk of automation.
  - About 24 percent of workers are estimated to be at risk of displacement from artificial intelligence (AI).
- Policy priorities:
  - Support further innovation and technology adoption.
  - Stimulate business R&D, including in small firms and startups not yet profitable; increase in direct R&D spending in the 2025 budget is welcome.
  - Continue implementation of the Recovery and Resilience Plan (RRP).
  - Deepen the European single market and advance the capital market union to facilitate cross-border capital flows, equity financing, and venture capital.
- Automotive-sector specific risks and recommendations:
  - A 15 percentage point increase in China’s share of the EU EV market could reduce GDP in Slovakia by more than 1 percent in the long run and trigger relocation of as much as 2.6 percent of the workforce.
  - Tariffs could limit Chinese EV penetration but would be more than offset by higher input costs and consumer prices.
  - Authorities should encourage innovation across the domestic EV supply chain, diversify the economy, and scale up Active Labor Market Policies (ALMPs) to facilitate worker mobility across sectors.
- Labor force and demographic policy recommendations:
  - Increase labor force via migration and improve integration/retention of migrants (scale up language training, streamline certification recognition).
  - Shorten the 3-year maximum parental leave while improving child and elderly care and increasing flexible work options to boost women’s employment.
  - Raise labor force participation of the elderly via tax credits and limit early retirement options; eliminate early retirement pension to aid fiscal consolidation and increase participation.
  - Increase spending on ALMPs including vocational training, education, and job placement services to reduce high youth unemployment.

### Governance, anti-corruption, and rule of law
- Governance indicators and perceptions of judicial independence lag peers; perceived effectiveness of anti-corruption policies has declined.
- Anti-corruption actions:
  - New national anti-corruption strategy expected mid-year; authorities should ensure the replacement institutional framework does not weaken capacity to investigate/prosecute high-level corruption.
  - Improve asset declaration and conflict of interest framework for high-risk public officials by broadening scope, centralizing/digitizing submission and publication, and implementing robust risk-based verification and proportionate sanctions.
  - Strengthen safeguards limiting the Prosecutor General’s authority to annul decisions by lower-level prosecutors.
- Rule of law enhancements:
  - Safeguards to ensure members of the Judicial Council can only be recalled on specific and reasonable grounds to enhance judicial independence.
  - Address risks from the crime of “abuse of law” to avoid intimidating judges; consider additional safeguards to balance judicial accountability and independence.

### Climate, energy, and emissions
- GHG emissions have fallen by 50 percent since 1990, driven by closures of polluting firms, expansion of nuclear power, and energy efficiency improvements.
- Targets and policy needs:
  - Slovakia committed to cut emissions by 55 percent by 2030 relative to 1990 levels and to achieve net-zero by 2050.
  - Implement the 2023 National Energy and Climate Plan: increase renewable and nuclear shares, promote energy efficiency, and increase investments in green technologies.
  - Increase average effective carbon tax rate by raising taxes in sectors with relatively low taxes on emissions.
  - Implement EU’s expanded ETS II scheme for road transport and buildings into national law; consider gradually raising environmental levies in ETS II sectors until the scheme is operational in 2027 while limiting impacts on vulnerable populations.
  - Explore replacement of two coal-fired blast furnaces in the steel industry (responsible for 10 percent of Slovakia’s GHG emissions).
  - Phase out $4.6 billion (4 percent of GDP) in implicit and explicit fossil fuel subsidies.
  - Support environmental R&D and investment in green technologies (e.g., heat pumps and EV batteries).
  - Promote a more integrated EU energy market to encourage renewables investment, enhance energy security, and reduce energy prices.

### Authorities’ views on structural and climate policies
- Authorities agree with staff on need to boost innovation and productivity; increased direct R&D spending and National Strategy on Research, Development, and Innovation underway.
- Authorities recognize limits to providing incentives to loss-making firms given fiscal consolidation.
- Ongoing reforms in higher education to emphasize vocational training.
- Authorities acknowledge further efforts needed to meet climate targets but note limited domestic options beyond replacing two coal-fired furnaces in steel sector.
- Authorities concerned ETS II could increase already-high energy prices and emphasized tradeoffs between energy transition pace, competitiveness, and national security.
- Authorities commit to strengthening anti-corruption enforcement (e.g., increased fines in revised Criminal Code) and adopting a Code of Conduct in public service.

### Staff appraisal and macroeconomic outlook
- Recent growth and outlook:
  - Growth accelerated to 2.0 percent in 2024, outpacing the euro area.
  - Growth projected to moderate to 1.8 percent in 2025, before rising to 2.1 percent in 2026.
- Risks and vulnerabilities:
  - Adverse demographic trends and lower productivity growth weigh on medium-term outlook.
  - Risks tilted to the downside: intensifying trade policy uncertainty and slowdown of EU funds disbursements due to governance concerns.
  - Slovakia’s external position assessed as moderately weaker than fundamentals.
- Fiscal consolidation:
  - Government targets an ambitious fiscal consolidation for 2025-28 implying a cumulative reduction in the deficit of about 3.5 percentage points of GDP.
  - 2025 budget targets reduction in the headline deficit to 4.7 percent of GDP, from a projected 5.8 percent of GDP in 2024.
  - Fund staff’s more conservative forecasts imply an overall deficit of 5.0 percent of GDP in 2025.
  - If 2025 revenues fall short, authorities should limit deficit increases by saving as much as possible of the contingency buffer.
  - Medium-term fiscal structural plan aims to bring the fiscal deficit close to 2 percent of GDP by 2028.
  - Staff projections suggest achieving these targets would reverse the deficit increase of recent years and put public debt on a downward path by the end of the projection period.

*Source: IMF Country Report excerpt.*

### 42.      Further deficit-reducing measures will have to be enacted to achieve the targeted

### Further deficit-reducing measures will have to be enacted to achieve the targeted consolidation beyond 2025

### Fiscal consolidation needs and recommended measures
- Staff estimates suggest an additional 3.1   percent of GDP in fiscal savings will be needed over the next three years.
- Prioritize expenditure-based measures to achieve a more balanced fiscal consolidation given the reliance on revenue-based measures so far.
- Specific expenditure-side options:
  - Implement already-identified Value for Money initiatives (e.g., a reduction in subsidies).
  - Improve the targeting of social spending.
  - Trim departmental budgets and reduce public sector wage growth cautiously to avoid unintended cuts in service delivery.
- Specific revenue-side options:
  - Counter tax evasions and increase tax compliance.
  - Raise property taxes.
  - Reduce the number of items subject to reduced VAT rates.
  - Do not extend temporary energy support measures to households beyond 2025.
  - Replace the FTT with alternative revenue sources.
  - Phase out the bank levy as planned.

### Fiscal framework and institutions
- Safeguarding Slovakia’s strong fiscal framework is essential for the credibility of the consolidation effort.
- Aligning Slovakia's national expenditure ceiling framework with the new EU fiscal rules avoids inconsistencies and streamlines the budget process.
- Continued focus on the long-term fiscal outlook (beyond the horizon used for the EU fiscal framework) remains useful given Slovakia’s medium-term fiscal challenges.
- The strong and independent Council for Budgetary Responsibility can help by monitoring the impact of government policies on the long-term sustainability of public finances.
- The debt brake should be reformed before it comes into effect in 2026 to avoid the risk of a disruptive fiscal consolidation.

### Financial sector resilience and risks
- The 2024 FSAP assessed the financial sector to be resilient to stress, reflecting a healthy level of buffers and profitability, though some risks remain.
- Potential sources of vulnerability:
  - The residential real estate market.
  - The office segment of the commercial real estate (CRE) market.
- Stress-test findings:
  - Solvency and liquidity stress tests indicate that banks have sufficient capital to withstand severe macro-financial shocks.
  - The banking system is resilient to funding and market liquidity shocks.
- Macroprudential stance and further actions:
  - The current macroprudential stance is broadly appropriate.
  - Medium-term enhancements suggested:
    - Adopt a positive neutral countercyclical capital buffer ( CCyB).
    - Close leakages and refine borrower-based measures.
    - Strengthen supervision of LSIs.
    - Bolster the crisis management framework.

*Source: IMF country report content unit.*

### 45.      Slovakia needs structural reforms to diversify its economy, sustain productivity

### 45.      Slovakia needs structural reforms to diversify its economy, sustain productivity 

### Major findings
- Slovakia needs structural reforms to diversify its economy, sustain productivity growth, increase the labor force, and further reduce carbon emissions.
- Growth in recent years has been supported by EU-funded public investments and a recovery of consumption.
- Income convergence has started to slow.
- Consumer confidence has declined; business confidence remains broadly stable.
- The decline in inflation has been broad-based. Medium-term inflation expectations seem to be well anchored.
- A reduction in net exports resulted in a increase of the current account deficit in 2024; the trade balance turned negative in 2024Q4.
- Public debt continues to increase but is below the Stability and Growth Pact’s limit of 60 percent of GDP.
- Slovakia’s increase in the costs of aging between 2022 to 2050 is the highest in the EU, which will put pressure on debt sustainability moving forward.
- Tight financial conditions have led to a widening negative credit gap.
- House prices have started to decline but remain somewhat overvalued; housing costs still account for close to 20 percent of disposable household income.
- Slovakia spends relatively little on ALMP and has a high share of long-term unemployed.
- Slovakia is less economically complex than peers and among the least digitalized in the EU; a large share of jobs are at risk of automation.
- Slovakia's carbon intensity of output has been steadily declining but is close to the median among European countries; industries and transport account for the majority of emissions.

### Labor market developments and demographic challenges
- Labor force participation has increased; recent labor market support was driven by an increase in female employment.
- Low unemployment with higher vacancies suggests difficulty filling positions, possibly due to skill mismatches.
- Youth unemployment remains particularly high in Slovakia relative to the euro area.
- Growth in hours worked lags employment across nearly all sectors; employment vs. hours worked (Total Economy): Employment (-0.4), Hours (-5.1) (Percent difference, 2024Q3 relative to 2019Q4).
- The unadjusted gender pay gap has declined but remains high relative to other EU countries.
- An aging population requires policies to increase the size and quality of the labor force, including:
  - more vocational education and training;
  - improved child and elderly care;
  - further efforts to integrate and retain migrants.

### External sector and competitiveness
- Exports have been lackluster, in particular from the automotive sector.
- The net international investment position has improved but remains negative due to large FDI liabilities.
- The real effective exchange rate has appreciated; staff assess the external position in 2024 to be moderately weaker than fundamentals.
- Current account and trade figures (selected, percent of GDP):
  - Current account balance in 2024: -1.6 (Table 3: Current Account 2024 = -1,942 million euros; percent of GDP 2024 = -1.6).
  - Trade balance (goods) in 2024: 1.3 percent of GDP (Trade balance (goods) 2024 = 1,587 million euros; percent of GDP 2024 = 1.3).
- Exports, f.o.b. (selected): 2024 = 99,402 (million euros); 2025 projection = 103,265 (million euros).

### Fiscal sector and public finances
- Public debt trajectory (selected):
  - General government debt: 2023 = 56.0 (percent of GDP); 2024 = 58.0; 2025 = 59.5; 2026 = 62.9; 2027 = 65.9; 2028 = 68.7; 2029 = 71.5; 2030 = 74.3.
  - Public debt remains below the Stability and Growth Pact limit of 60 percent of GDP in 2024 but is increasing.
- Fiscal balances (percent of GDP, selected):
  - Overall balance: 2024 = -5.8; 2025 = -5.0; 2026 = -4.8; 2027 = -4.7; 2028 = -5.3; 2029 = -5.5; 2030 = -5.5.
  - Primary balance: 2024 = -4.9; 2025 = -3.9; 2026 = -3.5; 2027 = -3.3; 2028 = -3.7; 2029 = -3.8; 2030 = -3.8.
- Table 2 (Statement of Operations) highlights:
  - Revenue (millions of euros): 2024 = 53,505; 2025 = 59,415; 2026 = 61,311.
  - Expenditure (millions of euros): 2024 = 61,089; 2025 = 66,349; 2026 = 68,275.
  - Net Lending(+)/Borrowing(-) (millions of euros): 2024 = -7,584; 2025 = -6,934; 2026 = -6,963.
- RRP investments are expected to drive public investment growth in 2023-26.
- The VAT compliance gap is above the EU average.

### Financial sector and banking system soundness
- NPLs remain relatively low and provisions appear adequate; NPLs for corporates, households, and CRE loans remain close to historically low levels.
- Bank profitability remains high notwithstanding a slight decline in 2024 due to the impact of the bank levy, but has underperformed other EU countries.
- Domestic Credit to GDP Gap: Slovakia underperformed euro area average in recent periods; tight financial conditions and a widening negative credit gap noted.
- Key financial soundness indicators (Table 4, selected):
  - Regulatory capital to risk-weighted assets: 2024Q3 = 20.5.
  - Nonperforming loans to gross loans: 2024Q3 = 2.0 (percent).
  - Return on equity (after tax): 2024Q3 = 9.3 (percent).
  - Customer deposits to total (noninterbank) loans: 2024Q3 = 90.2 (percent).
  - Households debt (percent of GDP): 2024 = 45.3; Households debt (percent of disposable income): 2024 = 74.6.

### Real estate market
- House prices have started to decline but remain somewhat overvalued.
- Housing affordability: housing costs still account for close to 20 percent of disposable household income; Housing Affordability indicator shows Slovakia among countries with significant share (SVK value positioned in chart comparing 2013 vs 2023).
- Construction of new dwellings has helped alleviate a shortage of housing but appears to be slowing (Started and Completed series through 2024Q3).
- The rise in interest rates has increased DSTI ratios of new mortgages and lower house prices drove up LTV ratios.
- Bank credit exposure to real estate (Percent of Tier 1 Capital, 2024Q2): Residential and commercial real estate exposures included in comparative chart; Slovakia shows notable exposure relative to many peers.

### Structural, digitalization, and innovation gaps
- Slovakia spends relatively little on Active Labor Market Policies (ALMP) and has a high share of long-term unemployed.
  - Active Labor Market Program Expenditure (share of GDP, 2022): Slovakia positioned below many EU peers.
  - Long-term unemployment as share of total unemployment (2023): Slovakia is relatively high (chart indicates).
- Slovakia is less economically complex than peers (Harvard Economic Complexity ranking shows SVK below CESEE-EU median over time).
- Tertiary students enrolled abroad is high (Share of national tertiary students enrolled abroad, 2022: SVK shown among high-share countries).
- ICT Gross Fixed Capital Formation (Percentage of GDP, average from 2017 to 2022) is lower than many EU countries.
- Slovakia’s economy is among the least digitalized in the EU (Digital Economy and Society Index, 2022 shows low integration of digital technology and digital public services).
- A large share of jobs are at high risk of automation (Jobs have a High Risk of Automation: SVK among higher-risk countries).

### Climate and energy transition
- Slovakia's carbon intensity of output has been steadily declining but remains close to the median among European countries.
- Greenhouse Gas Emissions by sector (Million Tonne CO₂ equivalent): transport and manufacturing/construction are major contributors.
- Total Energy Supply (TES) by Source trends: coal consumption has declined and nuclear is the main source of energy.
- Net Effective Carbon Rate, 2023 (EUR per tonne of CO₂-equivalent): Slovakia’s composition shows lower effective carbon rates relative to many peers; charts indicate scope to increase fossil fuel taxes.
- Additional measures are needed to cut emissions by 55 percent relative to 1990 levels by 2030 and to achieve net zero by 2050.
- Recommendation on ETS II: move expeditiously to fully implement the ETS II scheme for road transport and buildings and consider gradually raising environmental levies in these sectors until the scheme becomes operational in 2027.

### Policy recommendations (selected)
- Intensify efforts to promote innovation and enhance ALMPs to facilitate the movement of workers across sectors.
- Deepen the European single market to allow innovative firms to leverage economies of scale and facilitate cross-border flows of capital including venture capital critical for startups.
- Adopt policies to increase the size and quality of the labor force: more vocational education and training, improved child and elderly care, and further efforts to integrate and retain migrants.
- Move expeditiously to fully implement the ETS II scheme for road transport and buildings; consider gradually raising environmental levies in these sectors until the scheme becomes operational in 2027.
- Sustain efforts to strengthen governance, reduce vulnerabilities to corruption, and enhance judicial independence to lift the economy’s resilience and growth potential.

### Projections and key numbers (selected from tables and figures)
- Real GDP projections (annual percent change): 2024 = 2.0; 2025 = 1.8; 2026 = 2.1; 2027 = 2.5; 2028 = 2.5; 2029 = 2.1; 2030 = 2.0 (Table 1).
- Inflation (HICP, annual): 2024 = 3.2; 2025 = 4.1; 2026 = 3.1; 2027 = 2.0; 2028 = 2.0; 2029 = 2.0; 2030 = 2.0 (Table 1).
- Unemployment rate (Percent): 2024 = 5.4; 2025 = 5.5; 2026 = 5.6; 2027 = 5.5; 2028 = 4.5; 2029 = 4.5; 2030 = 4.5 (Table 1).
- Nominal wages (annual percent change): 2024 = 6.9; 2025 = 5.8; 2026 = 4.5; 2027 = 4.1; 2028 = 4.0; 2029 = 4.0; 2030 = 4.0 (Table 1).
- Nominal GDP (Millions of euros): 2024 = 129,962; 2025 = 137,447; 2026 = 144,766; 2027 = 151,818; 2028 = 158,984; 2029 = 165,628; 2030 = 172,319 (Table 1).
- Current account (Millions of euros): 2024 = -1,942; 2025 = -3,516; 2026 = -2,244; 2027 = -1,612; 2028 = -1,525; 2029 = -1,542; 2030 = -1,596 (Table 3).
- Net International Investment Position (Millions of euros): 2024Q3 = -67,518; projected 2030 = -72,486 (Table 3).

*Source: Slovak Republic—IMF country report chapter (content unit: 1svkea2025001-print-pdf).*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall assessment
- The external position of Slovakia in 2024 was moderately weaker than the level implied by fundamentals and desirable policies.
- Slovakia ran a current account deficit (CAD) of 1.6 percent of GDP in 2023; the CAD increased to 2.7 percent in 2024.
- Both imports and exports of goods and services increased in 2024 in real terms, with the trade balance surplus in goods and services declining from 1.8 percent of GDP in 2023 to 0.4 percent in 2024.
- Slovakia is a member of the euro zone and does not have independent monetary policy.
- The CAD is anticipated to recover in 2025 (to around 1.6 percent of GDP) and improve further in the years thereafter on account of fiscal consolidation (as currently envisaged in the Stability Program) and stabilize to around 1.1 percent of GDP.

### Foreign assets and liabilities: position and trajectory
Background and levels (end-2024):
- NIIP: -53.5 percent of GDP.
- Gross assets: 90.5 percent of GDP.
- Gross liabilities: 144 percent of GDP.
- Total external debt: 99.5 percent of GDP in 2024, down from a peak of 132 percent of GDP in 2021.
- Short-term share of external debt: 44 percent.
- Official short-term debt share of total: 24 percent of total.
- Debt assets (2023): 57 (percent of GDP as reported).
- Debt liabilities (2023): 96 (percent of GDP as reported).

Assessment:
- The negative NIIP does not necessarily imply notable risks to external sustainability.
- The NIIP improved by 10 pp between 2022 and 2024 and is expected to improve further.
- Private short-term debt is 17 percent of GDP while the amortization share is about 24 percent of GDP, and both are manageable quantities.
- The high share of FDI liabilities and long-term, euro-denominated debt reduce vulnerability to sudden capital outflows.

### Current account
Background and projections:
- Slovakia’s CAD declined further from 1.6 percent in 2023 to 2.7 percent in 2024.
- In nominal terms both imports and exports of goods and services were roughly constant in 2024 but shrank substantially as a fraction of GDP due to nominal GDP growth of about 6 percent.
- Against a background of fiscal consolidation and more substantial EU grants for 2025 and 2026 which will support the external position, the medium-term CAD is expected to improve to about 1.0 percent of GDP.

Assessment and model results:
- The EBA-lite CA model suggests a cyclically adjusted norm of -0.8 percent of GDP for 2024.
- The cyclically adjusted CA balance is at -2.7 percent of GDP, implying a CA gap of about -1.9 percent of GDP.
- Conclusion: Slovakia’s external position is moderately weaker than suggested by fundamentals and desirable policies.

Selected model table entries (as reported):
- CA-Actual: -2.7
- Cyclical contributions (from model): (-)-0.1
- Natural disasters and conflicts (-): 0.1
- Adjusted CA: -2.7
- CA Norm (from model): -0.8
- Adjustments to the norm (+): 0.0
- Adjusted CA Norm: -0.8
- CA Gap: -1.9-13.1
  - o/w Relative policy gap: 0.5
  - Elasticity: -0.6
- REER Gap (in percent): 3.0 20.1
- 1/ Based on the EBA-lite 3.0 methodology
- 2/ Cyclically adjusted, including multilateral consistency adjustments.

### Real exchange rate
Background:
- The CPI-based real effective exchange rate (REER) depreciated by about 0.1 percent in 2024.
- The ULC-based REER appreciated by 2 percent reflecting higher wage growth in Slovakia relative to trading partners.

Assessment:
- The REER EBA-lite approach points to an overvaluation of 20.1 percent.
- Given that the estimated overvaluation in this approach is mostly driven by large residuals from the REER regression, staff relies on the CA approach for assessment of the external position.

### Capital and financial accounts: flows and policy measures
Background and flows:
- The capital account is expected to continue to display significant inflows in the coming years as Slovakia receives sizable funds under the NGEU and MFF.
- Gross FDI inflows were 2.4 percent of GDP in 2024 and are expected to remain substantial in the coming years.
- Portfolio investments, mostly in the form of debt securities, declined in 2024 from their high 2023 levels.

Assessment:
- 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.
- Significant inflows of EU funds also help improve Slovakia’s external position.

### FX intervention and reserves level
Background and assessment:
- 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.

### Risk Assessment Matrix: selected risks, likelihood, impact, and policy responses
- Regional conflicts
  - Relative likelihood: Medium
  - Expected impact: High
  - Key points: Slovakia is highly vulnerable to an intensification of regional conflicts given its geographical proximity and dependence on Russian fossil fuels, and high integration in global value chains.
  - Policy responses:
    - Continue efforts to diversify energy supplies and sources.
    - Implement Slovakia's RRP to diversify the economy, increase renewable energy capacity and accelerate the green transition.
    - Continued focus on accommodating the inflow of refugees and integrating immigrants in the labor market.

- Commodity price volatility
  - Relative likelihood: Medium
  - Expected impact: High
  - Policy responses:
    - Provide targeted and strictly temporary transfers to vulnerable households and viable firms to cushion the impact of commodity price spikes.
    - Reduce vulnerability to commodity price shocks by improving energy security and efficiency of the domestic food industry.

- Trade policy and investment shocks
  - Relative likelihood: Medium
  - Expected impact: High
  - Policy responses:
    - Accelerate structural reforms, including by leveraging EU funds, to boost productivity and competitiveness, move up value chains, and diversify export products and destinations.
    - Accelerate policies to facilitate the reallocation of workers across sectors, while providing an adequate social safety net.

- Sovereign debt distress
  - Relative likelihood: Medium
  - Expected impact: Medium
  - Policy responses:
    - Adhere to the existing medium-term fiscal consolidation plan in order to put public debt on a sustainable path.
    - Continue to extend debt maturities to reduce rollover needs.
    - Accelerate absorption of available EU funds to finance public spending.

- Social discontent
  - Relative likelihood: Medium
  - Expected impact: Medium
  - Policy responses:
    - Maintain targeted support programs to protect the most vulnerable from the impact of high inflation and real income loss.
    - Build political consensus around the need for steadfast policy implementation.
    - Continue to strengthen the governance framework to enhance policy predictability and improve the business environment.

- Deepening geoeconomic fragmentation
  - Relative likelihood: High
  - Expected impact: High
  - Policy responses:
    - Accelerate structural reforms, including by leveraging EU funds, to boost productivity and competitiveness, move up value chains, and diversify export products and destinations.
    - Accelerate policies to facilitate the reallocation of workers across sectors, while providing an adequate social safety net.

- Cyberthreats
  - Relative likelihood: High
  - Expected impact: Medium
  - Policy responses:
    - Accelerate efforts to improve resilience to cyber-attacks.
    - Increase the monitoring of cyber risk and the exchange of information with partners.

- Delays in implementation of structural reforms and fiscal consolidation (domestic)
  - Relative likelihood: High/Medium
  - Expected impact: High
  - Policy responses:
    - Adhere to the existing medium-term fiscal consolidation plan in order to put public debt on a sustainable path.
    - Implement comprehensive fiscal and structural reforms to mobilize revenue, increase expenditure efficiency, and lift potential growth.
    - Accelerate the absorption of available EU funds to finance public spending.

- Tight labor market and skill mismatches
  - Relative likelihood: Medium
  - Expected impact: High
  - Policy responses:
    - Deploy active labor market policies and attract skilled foreign workers.
    - Use EU funds to invest in education and upskilling strategies to accommodate changing skill demands.
    - Encourage responsible wage settlements that account for international competitiveness.

- Real estate market downturn
  - Relative likelihood: Medium
  - Expected impact: High
  - Policy responses:
    - Continue to closely monitor and supervise banks credit portfolios.
    - Recalibrate macro-prudential policies as needed.

- Automotive sector adjustment risks
  - Relative likelihood: Medium
  - Expected impact: High
  - Policy responses:
    - Boost spending on R&D and encourage investments to move up value chains.
    - Use EU funds to invest in education and upskilling strategies to accommodate changing skill demands.

### Public debt sustainability and fiscal outlook (Annex III highlights)
- Overall risk of sovereign stress: Moderate (near term: Medium; medium term: Moderate; long term: High).
- Under the baseline, debt is expected to rise from 58 percent in 2024 to 71.5 percent in 2029 as interest costs continue to grow and the primary deficit stabilizes at around 3.8 percent in 2029.
- Commentary summary:
  - Slovakia is at a medium overall risk of sovereign stress.
  - The quality of institutions is good, debt is primarily issued in domestic currency (EUR) and reserves are assessed to be high.
  - The medium-term risk is moderate since, absent additional fiscal consolidation, debt is projected to gradually rise over the next ten years.
  - The long-term risk of sovereign stress is assessed to be high and the increase in fiscal costs related to aging is expected to be among the highest in Europe.
  - Fiscal consolidation through efforts on both the expenditure and revenue side is needed to put debt on a sustainable path and reduce the risk of sovereign stress.
- Long-term fiscal challenge:
  - The permanent adjustment needed in the pension system to keep pension assets positive is 4.8 percent of GDP over the next 30 years and 6.7 percent over the next 50 years.

Debt structure and disclosures (selected points):
- Around 60 percent of government debt is held in intra-government debt holdings. Data is as of end-2023 and in EUR billion.
- Commentary: Public debt is issued in euros and residual maturity is around 8 years.
- Residual maturity: 8.3 years.

*Source: IMF staff.*

### Annex III.  Figure 4.  Slovak Republic: Baseline Scenario

### Annex III. Figure 4. Slovak Republic: Baseline Scenario

### Baseline debt outlook
- Public debt (percent of GDP) by year:
  - 2023: 56.0
  - 2024: 58.0
  - 2025: 59.5
  - 2026: 62.9
  - 2027: 65.9
  - 2028: 68.7
  - 2029: 71.5
  - 2030: 74.3
  - 2031: 77.3
  - 2032: 80.2
  - 2033: 83.1
- Commentary: "Public debt will continue to rise in the medium term due to a sustained primary deficit."

### Contribution to change in public debt (percent of GDP)
- Change in public debt:
  - 2023: -1.6
  - 2024: 2.0
  - 2025: 1.5
  - 2026: 3.4
  - 2027: 3.0
  - 2028: 2.8
  - 2029: 2.8
  - 2030: 2.8
  - 2031: 2.9
  - 2032: 2.9
  - 2033: 2.9
- Contribution of identified flows (matches Change in public debt):
  - 2023: -1.8
  - 2024: 1.7
  - 2025: 1.5
  - 2026: 3.4
  - 2027: 3.0
  - 2028: 2.8
  - 2029: 2.8
  - 2030: 2.8
  - 2031: 2.9
  - 2032: 2.9
  - 2033: 2.9

- Components (percent of GDP):
  - Primary deficit:
    - 2023: 4.5
    - 2024: 4.9
    - 2025: 3.9
    - 2026: 3.5
    - 2027: 3.3
    - 2028: 3.7
    - 2029: 3.8
    - 2030: 3.8
    - 2031: 3.8
    - 2032: 3.8
    - 2033: 3.8
  - Noninterest revenues:
    - 2023: 42.2
    - 2024: 40.6
    - 2025: 42.8
    - 2026: 42.0
    - 2027: 41.3
    - 2028: 40.8
    - 2029: 40.7
    - 2030: 40.7
    - 2031: 40.7
    - 2032: 40.7
    - 2033: 40.7
  - Noninterest expenditures:
    - 2023: 46.7
    - 2024: 45.6
    - 2025: 46.7
    - 2026: 45.5
    - 2027: 44.6
    - 2028: 44.5
    - 2029: 44.5
    - 2030: 44.5
    - 2031: 44.5
    - 2032: 44.5
    - 2033: 44.5

- Automatic debt dynamics:
  - 2023: -5.0
  - 2024: -2.0
  - 2025: -1.7
  - 2026: -1.4
  - 2027: -1.2
  - 2028: -1.1
  - 2029: -0.7
  - 2030: -0.6
  - 2031: -0.5
  - 2032: -0.5
  - 2033: -0.5

- Real interest rate and relative inflation (combined line shown; values listed as presented):
  - 2023: -4.1
  - 2024: -0.8
  - 2025: -0.7
  - 2026: -0.2
  - 2027: 0.3
  - 2028: 0.5
  - 2029: 0.7
  - 2030: 0.8
  - 2031: 0.9
  - 2032: 1.0
  - 2033: 1.0

- Real interest rate (duplicate line in table):
  - 2023: -4.2
  - 2024: -0.9
  - 2025: -0.7
  - 2026: -0.2
  - 2027: 0.3
  - 2028: 0.5
  - 2029: 0.7
  - 2030: 0.8
  - 2031: 0.9
  - 2032: 1.0
  - 2033: 1.0

- Relative inflation:
  - 2023–2033: 0.0 (for each year listed)

- Real growth rate (r-g / growth contribution):
  - 2023: -0.8
  - 2024: -1.1
  - 2025: -1.1
  - 2026: -1.2
  - 2027: -1.5
  - 2028: -1.6
  - 2029: -1.4
  - 2030: -1.4
  - 2031: -1.5
  - 2032: -1.5
  - 2033: -1.6

- Real exchange rate:
  - 2023: 0.0 (subsequent years shown as dots in source)

- Other identified flows:
  - 2023: -1.4
  - 2024: -1.3
  - 2025: -0.7
  - 2026: 1.3
  - 2027: 1.0
  - 2028: 0.1
  - 2029: -0.3
  - 2030: -0.3
  - 2031: -0.3
  - 2032: -0.3
  - 2033: -0.3

- Contingent liabilities:
  - 2023–2033: 0.0 (for each year listed)

- (minus) Interest Revenues:
  - 2023: -0.5
  - 2024: -0.5
  - 2025: -0.4
  - 2026: -0.4
  - 2027: -0.3
  - 2028: -0.3
  - 2029: -0.3
  - 2030: -0.3
  - 2031: -0.3
  - 2032: -0.3
  - 2033: -0.3

- Other transactions:
  - 2023: -0.8
  - 2024: -0.7
  - 2025: -0.2
  - 2026: 1.6
  - 2027: 1.3
  - 2028: 0.4
  - 2029: 0.0
  - 2030: 0.0
  - 2031: 0.0
  - 2032: 0.0
  - 2033: 0.0

- Contribution of residual:
  - 2023: 0.2
  - 2024: 0.3
  - 2025–2033: 0.0 (each year)

### Gross financing needs and debt service (percent of GDP)
- Gross financing needs:
  - 2023: 9.1
  - 2024: 9.2
  - 2025: 11.1
  - 2026: 9.9
  - 2027: 10.2
  - 2028: 11.0
  - 2029: 11.5
  - 2030: 13.7
  - 2031: 14.7
  - 2032: 15.2
  - 2033: 15.6
- Of which: debt service:
  - 2023: 5.1
  - 2024: 4.8
  - 2025: 7.7
  - 2026: 6.7
  - 2027: 7.3
  - 2028: 7.6
  - 2029: 8.0
  - 2030: 10.2
  - 2031: 11.3
  - 2032: 11.8
  - 2033: 12.2
- Debt service by currency:
  - Local currency:
    - 2023: 5.0
    - 2024: 4.7
    - 2025: 7.6
    - 2026: 6.5
    - 2027: 7.3
    - 2028: 7.3
    - 2029: 8.0
    - 2030: 10.2
    - 2031: 11.3
    - 2032: 11.8
    - 2033: 12.2
  - Foreign currency:
    - 2023: 0.1
    - 2024: 0.1
    - 2025: 0.0
    - 2026: 0.2
    - 2027: 0.0
    - 2028: 0.2
    - 2029: 0.0
    - 2030: 0.0
    - 2031: 0.0
    - 2032: 0.0
    - 2033: 0.0

### Memo indicators (annual rates, percent)
- Real GDP growth (percent):
  - 2023: 1.4
  - 2024: 2.0
  - 2025: 1.8
  - 2026: 2.1
  - 2027: 2.5
  - 2028: 2.5
  - 2029: 2.1
  - 2030: 2.0
  - 2031: 2.0
  - 2032: 2.0
  - 2033: 2.0
- Inflation (GDP deflator; percent):
  - 2023: 10.1
  - 2024: 3.6
  - 2025: 3.8
  - 2026: 3.2
  - 2027: 2.3
  - 2028: 2.2
  - 2029: 2.0
  - 2030: 2.0
  - 2031: 2.0
  - 2032: 2.0
  - 2033: 2.0
- Nominal GDP growth (percent):
  - 2023: 11.7
  - 2024: 5.7
  - 2025: 5.8
  - 2026: 5.3
  - 2027: 4.9
  - 2028: 4.7
  - 2029: 4.2
  - 2030: 4.1
  - 2031: 4.0
  - 2032: 4.0
  - 2033: 4.0
- Effective interest rate (percent):
  - 2023: 2.0
  - 2024: 2.0
  - 2025: 2.6
  - 2026: 2.8
  - 2027: 2.9
  - 2028: 3.0
  - 2029: 3.1
  - 2030: 3.1
  - 2031: 3.3
  - 2032: 3.3
  - 2033: 3.3

### Projection framing and visualization notes
- The figure presents "Medium-term projection" and "Extended projection" contributions to change in public debt (Percent of GDP).
- The chart components explicitly separate primary deficit, real interest rate and relative inflation, real GDP growth, and exchange rate depreciation as contribution lines.
- Cumulative contributions over the projection period are shown in the figure (visual).

*Source: IMF staff estimates and projections.*

### Annex VI.  Data Issues

### Annex VI. Data Issues

### Overview
- The data provided to the Fund are adequate for surveillance.
- Slovak Republic adheres to the Special Data Dissemination Standard (SDDS) Plus since September 2019 and publishes the data on its National Summary Data Page. The latest SDDS Plus Annual Observance Report is available on the Dissemination Standards Bulletin Board (https://dsbb.imf.org/).
- As of February 14, 2025, the Table of Common Indicators Required for Surveillance is presented.

### Data adequacy assessment and staff rationale
- Overall data adequacy assessment: The data provided to the Fund are adequate for surveillance.
- Rationale for staff assessment:
  - The authorities regularly publish a full range of economic and financial data.
  - Slovakia is subject to the statistical requirements of Eurostat and the European Central Bank, including timeliness and reporting standards, and has adopted the European System of Accounts 2010.
  - Net errors and omissions in the balance of payments statistics are large in 2023: 1.5 percent of GDP.
- Use of data and/or estimates in Article IV consultations:
  - Staff does not use any data and/or estimates in the staff report in lieu of official statistics.
- Other data gaps:
  - No macro-critical data gaps identified.
  - The central bank's capacity to target borrower-based macroprudential measures (BBMs) could be improved by differentiating between first- and second-time home buyers, once reliable data becomes available.
- Changes since the last Article IV consultation:
  - No changes.
- Corrective actions and capacity development priorities:
  - Not applicable.

### Sectoral data quality characteristics and questionnaire-based assessments
- Heatmap-style ratings and questionnaire indicators (as presented in source):
  - National Accounts: AAAAAAA
  - Prices: CoverageAAAAA
  - Government Finance Statistics: AAAA
  - External Sector Statistics: AA
  - Monetary and Financial Statistics: ConsistencyAB A
  - Inter-sectoral Consistency: Frequency and Timeliness AAAAA A B C D
  - Data Quality Characteristics / Granularity 3/ / Data Adequacy Assessment Rating 1/: A
  - Questionnaire Results 2/ / Assessment: Detailed Questionnaire Results
- Notes provided in source regarding assessments:
  - 1/ The overall data adequacy assessment is based on staff's assessment of the adequacy of the country’s data for conducting analysis and formulating policy advice, and takes into consideration country-specific characteristics.
  - 2/ The overall questionnaire assessment and the assessments for individual sectors reported in the heatmap are based on a standardized questionnaire and scoring system (see IMF Review of the Framework for Data Adequacy Assessment for Surveillance, January 2024, Appendix I).
  - 3/ The top cell for "Granularity" of Government Finance Statistics shows staff's assessment of the granularity of the reported government operations data, while the bottom cell shows that of public debt statistics. The top cell for "Granularity" of Monetary and Financial Statistics shows staff's assessment of the granularity of the reported Monetary and Financial Statistics data, while the bottom cell shows that of the Financial Soundness indicators.

### Table of Common Indicators Required for Surveillance (selected metadata)
- As of February 14, 2025.
- Data items referenced in the source table include:
  - Exchange Rates
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities 1/ (includes reserve assets pledged or otherwise encumbered, as well as net derivative positions)
  - Reserve/Base Money
  - Broad Money
  - Central Bank Balance Sheet (including currency and maturity composition) 5
  - Consolidated Balance Sheet of the Banking System
  - Interest Rates 2 (both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds)
  - Consumer Price Index
  - Revenue, Expenditure, Balance and Composition of Financing 3 ‒ General Government 4
  - Revenue, Expenditure, Balance and Composition of Financing 3 ‒ Central Government
  - International Investment Position
  - Stocks of Central Government and Central Government-Guaranteed Debt 5
  - External Current Account Balance
  - Exports and Imports of Goods and Services
  - GDP/GNP
  - Gross External Debt
- Frequency/timeliness codes used in the source:
  - “D” daily; “W” weekly or with a lag of no more than one week after the reference date; “M” monthly or with lag of no more than one month after the reference date; “Q” quarterly or with lag of no more than one quarter after the reference date; “A” annual; "SA" semiannual; "I" irregular; "NA" not available or not applicable; and "NLT" not later than.
- Footnotes and clarifications included in the source table:
  - 6 Frequency and timeliness: definitions as above.
  - 7 Encouraged frequency of data and timeliness of reporting under the e-GDDS and required frequency of data and timeliness of reporting under the SDDS and SDDS Plus. Any flexibility options or transition plans used under the SDDS or SDDS Plus are not reflected. For those countries that do not participate in the IMF Data Standards Initiatives, the required frequency and timeliness under the SDDS are shown for New Zealand, and the encouraged frequency and timeliness under the e-GDDS are shown for Eritrea, Nauru, South Sudan, and Turkmenistan.
  - 8 Based on the information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board (https://dsbb.imf.org/). For those countries that do not participate in the Data Standards Initiatives, as well as those that do have a National Data Summary Page, the entries are shown as "..."

### Selected institutional and procedural notes from the informational annex
- The staff report and informational annex prepared by the European Department (March 3, 2025).
- Fund relations metadata (as of January 31, 2025):
  - Membership Status: Joined January 1,1993; accepted Article VIII
  - General Resources Account: Quota 1,001.00 SDR Million 100.00 percent of Quota
  - Fund holdings of currency 750.88 SDR Million 75.01 percent of Quota
  - Reserve position 250.16 SDR Million 24.99 percent of Quota
  - SDR Department: Net cumulative allocation 1,299.89 SDR Million 100.00 percent of Allocation; Holdings 1,326.36 SDR Million 102.04 percent of Allocation
  - Outstanding Purchases and Loans: None
  - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): Charges/Interest 0.01 in each of 2025, 2026, 2027, 2028, 2029; Total 0.01 in each of 2025–2029
- Exchange rate arrangement:
  - The currency of the Slovak Republic is the euro. The exchange rate arrangement of the euro area is free floating. The Slovak Republic participates in a currency union (EMU) with 19 other members of the EU and has no separate legal tender.
  - The Slovak Republic accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the IMF’s Articles of Agreement.
- Article IV consultation cycle:
  - Standard 12-month consultation cycle. The previous consultation concluded on March 6, 2024 (IMF Country Report No. 24/75).
- FSAP and ROSC notes:
  - Two FSAP missions took place in 2024; the Aide Memoire was presented to the authorities. FSAP findings summarized in accompanying Financial System Stability Assessment (FSSA).
  - Fiscal ROSC issued August 2002; updates August 2003 and March 2005. Data ROSC issued May 2005.
- Technical assistance summary:
  - Table of Technical Assistance, 2015–2024, listing FAD and related activities (selected entries include workshops and reviews on expenditure review, VAT gap analysis, corporate income tax gap, Public Investment Management Assessment, fiscal rules and budget reforms, TADAT, expenditure review support, fiscal transparency evaluation, subsidies review, Program Based Budgeting, transport infrastructure modelling, education spending review, and related missions through April 2025).

*Source: Annex VI. Data Issues, 1svkea2025001-print-pdf — Slovak Republic: Staff Report for the 2025 Article IV Consultation — Informational Annex*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1svkea2025001-print-pdf.pdf_