Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with the Slovak Republic
IMF News, July 17, 2012
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- Published: July 17, 2012
Background and recent economic performance
- Real GDP grew 3.3 percent in 2011; post-crisis performance among the strongest in the euro area, with real GDP surpassing its pre-crisis peak in the last quarter of 2011.
- Growth drivers:
- Strong exports and expanding auto production supported growth into Q1 2012.
- Robust performance of net exports offset contraction in domestic demand amid fiscal consolidation and volatile consumer confidence.
- Labor market:
- Unemployment surged during the crisis by 5 percentage points to over 14 percent, declining only slightly to 13¾ percent in April 2012.
- Unemployment particularly high in less developed regions, contributing to large regional income disparity.
- Inflation:
- Inflation surged to 4.7 percent in 2011 due to increases in tax and administered prices and global energy prices.
- Inflation eased to 3.4 percent in May 2012 but remains among the highest in the EU.
- Financial sector:
- Banks’ profitability increased; capital adequacy ratios rose to 15 percent of risk-weighted assets throughout 2011.
- Reliance on domestic deposits shielded banks from euro area developments and supported a modest credit expansion.
- Fiscal developments:
- Frontloaded fiscal consolidation reduced the 2011 headline deficit by 3 percentage points to 4¾ percent of GDP.
- Underlying fiscal deficit, excluding one-off payments, declined to 4.4 percent of GDP.
- Public sector debt rose by 3 percentage points to 44 percent of GDP at end-2011.
- Fiscal Responsibility Law adopted December 2011: sets limits on public debt—60 percent of GDP until 2017 and gradually declining to 50 percent of GDP by 2027.
Outlook and risks
- Growth projections and inflation:
- Real GDP expected to slow to 2.6 percent in 2012, before picking up to 3¼ percent in 2013 as external environment strengthens.
- Inflation expected to ease to below 3 percent by end-2012 as one-off factors fade and absent further supply shocks.
- Key external risk:
- Continued euro zone stress; renewed severe strains in Europe could precipitate a global downturn and reduce demand for Slovak exports with significant adverse implications for growth.
Executive Board assessment — findings and policy recommendations
- Commendations and concerns:
- Directors commended prudent macroeconomic policies and sound fundamentals underpinning the strong recovery.
- Directors considered external risks, high fiscal deficits, and the double-digit unemployment rate as significant policy challenges.
- Fiscal policy:
- Supported authorities’ consolidation strategy to achieve fiscal sustainability; planned measures appear to balance fiscal solvency and support for economic activity.
- Encouraged development of a robust medium-term fiscal framework, building on the Fiscal Responsibility Law.
- Welcomed government plans to reform public administration, strengthen tax administration, and increase efficiency of public spending, including on healthcare.
- Stressed importance of safeguarding pension system solvency by grounding prospective changes on actuarial analysis.
- Financial sector supervision:
- Noted banking system appears sound but emphasized need for continued supervisory vigilance.
- Welcomed steps to strengthen banks’ capital and liquidity buffers; stressed enhanced cooperation with home supervisors to curb cross-border risks.
- Recommended subjecting all types of housing loans to the same prudential norms to help prevent excessive risk-taking.
- Recommended removing tax obstacles that could delay resolution of non-performing loans.
- Structural reforms and labor market:
- Underscored importance of deeper structural reforms to boost employment and address regional disparities.
- Noted effective implementation of the reformed labor code could help reduce unemployment.
- Welcomed plans to foster development of disadvantaged regions.
- Recommended improving vocational education and incentives to work to address labor market rigidities.
- Welcomed authorities’ intention to further strengthen the business climate to attract investment.
Slovak Republic — Selected economic indicators and projections (2008–13)
- Population (in millions): 5.4
- Per capita income ($): 16,830
- Quota (current; millions SDR/% of total): 427.5 / 0.18
- Literacy / poverty rate 1/: 99 / 20.6
- Main products and exports: Transport equipment, machinery and electric equipment
- Key export markets: Germany, Czech Republic
Projections (Annual percentage change, constant prices, unless noted otherwise)
- Real GDP: 2008: 5.8; 2009: -4.9; 2010: 4.2; 2011: 3.3; 2012: 2.6; 2013: 3¼
- Domestic demand: 2008: 5.7; 2009: -7.4; 2010: 4.5; 2011: -1.5; 2012: 0.7; 2013: 2.0
- Public consumption: 2008: 6.1; 2009: 1.1; 2010: -3.5; 2011: 1.3; 2012: 1.4
- Private consumption: 2008: 0.2; 2009: -0.7; 2010: -0.4; 2011: 1.2
- Gross capital formation: 2008: 4.7; 2009: -30.2; 2010: 22.1; 2011: -2.7; 2012: (not listed)
- Exports of goods and services: 2008: 3.1; 2009: -15.9; 2010: 16.5; 2011: 10.8; 2012: 4.4; 2013: 7.0
- Imports of goods and services: 2008: -18.1; 2009: 16.3; 2010: 6.0; 2011: (not listed)
- Output Gap: 2008: 2.8; 2009: -3.4; 2010: -1.0; 2011: -0.6; 2012: -1.2; 2013: -1.1
- Potential Growth: 2008: 6.2; 2009: 1.6; 2010: 2.9; 2011: 3.2
Prices
- Inflation (HICP): 2008: 3.9; 2009: 0.9; 2010: 4.1; 2011: 4.0; 2012: 2.3
- Inflation (HICP, end of period): 2008: 3.5; 2009: 0.1; 2010: 2.1; 2011: (not listed)
Employment and wages
- Employment: 2008: -2.8; 2009: -2.0; 2010: 1.5; 2011: -0.2; 2012: 0.8
- Nominal wages: 2008: 7.6; 2009: 5.1; 2010: 3.7; 2011: (not listed)
- Unemployment rate (percent): 2008: 9.6; 2009: 12.1; 2010: 14.4; 2011: 13.5; 2012: 13.8; 2013: 13.6
Public finance, general government (Percent of GDP)
- Revenue: 2008: 33.0; 2009: 33.7; 2010: 32.4; 2011: 32.6; 2012: 34.1
- Expenditure: 2008: 35.0; 2009: 41.7; 2010: 40.0; 2011: 37.4; 2012: 37.0; 2013: 36.9
- Overall balance: 2008: -2.1; 2009: -8.0; 2010: -7.7; 2011: -4.8; 2012: -4.4; 2013: -2.9
- Primary balance: 2008: -0.8; 2009: -6.6; 2010: -6.3; 2011: -3.2
- Structural balance (percent of potential GDP): 2008: -3.1; 2009: -7.1; 2010: -4.2; 2011: -4.1; 2012: -2.5
- General government debt: 2008: 27.9; 2009: 35.6; 2010: 41.1; 2011: 43.9; 2012: 46.5; 2013: 47.2
Monetary and financial indicators
- Bank credit to private sector (growth rate): 2008: 15.6; 2009: 1.0; 2010: 4.3; 2011: 8.6
- Lending rates 2/: 2008: 6.8; 2009: 5.9
- Deposit rates 3/: 2008: 0.3
- Government 10-year bond yield: (not listed)
Balance of payments
- Trade balance (goods): 2008: 3.8
- Current account balance: 2008: -2.6; 2009: -0.3
- Gross external debt: 2008: 56.5; 2009: 72.2; 2010: 74.9; 2011: 75.4; 2012: 70.5; 2013: 65.5
Notes:
- 1/ Percent of population aged 15 and over who can read and write. At-risk-of-poverty rate in percent of total population, 2010. At risk-of-poverty are persons with an equivalised disposable income below the risk-of-poverty threshold, which is set at 60 % of the national median equivalised disposable income (after social transfers).
- 2/ Loans of up to one year, non-housing new loans to households.
- 3/ Average of interest rates on new overnight deposits from households and nonfinancial corporations.
Public Information Notice (PIN) No. 12/78 — Executive Board concluded the Article IV consultation with the Slovak Republic on July 11, 2012 and endorsed the staff appraisal.