IMF Executive Board Concludes 2021 Article IV Consultation with Slovak Republic
IMF News, June 22, 2021
Source details
- Canonical URL
- IMF Executive Board Concludes 2021 Article IV Consultation with Slovak Republic
Other formats
Bibliographic details
- Published: June 22, 2021
Overview
- Executive Board concluded the Article IV consultation on June 18, 2021.
- Slovak Republic entered the COVID-19 pandemic with: unemployment at record lows, a banking system with strong capital and liquidity buffers, and some fiscal space.
- Output contraction in 2020: 4.8 percent.
- Registered unemployment increased by about 3 percentage points during the pandemic.
- Fiscal deficit in 2020: 6.1 percent of GDP; debt-to-GDP ratio rose above 60 percent.
Economic impact and outlook
- 2020 outcome:
- Real GDP: -4.8 (annual percent change, constant prices).
- Domestic demand: -5.6.
- Gross fixed capital formation: -12.0.
- Exports of goods and services: -7.6.
- Imports of goods and services: 10.1.
- 2021–22 projections:
- Real GDP: 4.7 in 2021; 4.9 in 2022.
- Domestic demand: 3.0 in 2021; 6.8 in 2022.
- Gross fixed capital formation: 11.9 in 2021.
- Exports of goods and services: 11.5 in 2021; 4.2 in 2022.
- Imports of goods and services: 10.1 in 2021; 6.1 in 2022.
- Medium term:
- Growth expected to be boosted by sizable EU-funded investments; some scarring implied with medium-term output remaining below the pre-crisis trend.
- Risks are dominated by virus dynamics and the success of the vaccination campaign.
Fiscal and public finance
- 2019–22 headline fiscal indicators (Percent of GDP):
- Revenue: 41.3 (2019), 41.6 (2020), 41.8 (2021 projection).
- Expenditure: 42.7 (2019), 47.8 (2020), 50.6 (2021), 46.5 (2022).
- Overall balance: -1.3 (2019), -6.1 (2020), -8.8 (2021), -4.9 (2022).
- Primary balance: -5.1 (2019), -7.9 (2020), -4.0 (2021).
- Structural balance (Percent of potential GDP): -1.8 (2019), -4.2 (2020).
- General government debt: 48.2 (2019), 60.3 (2020), 63.0 (2021), 65.0 (2022).
- Executive Directors’ views:
- Fiscal support budgeted for 2021 will help secure recovery and provide insurance against downside risks.
- Policy support should gradually shift to facilitating reallocation of labor and capital and minimizing scarring.
- Need to begin planning a credible medium-term consolidation plan.
- Importance of well-designed fiscal rules and pension reform; welcomed envisaged introduction of expenditure ceilings and relinking retirement age to life expectancy as in Slovakia’s Recovery and Resilience Plan.
- Welcomed planned reforms in taxation, public finance administration and the fiscal framework to strengthen tax collection, improve spending efficiency and increase buffers.
Monetary, financial sector, and external position
- Banking sector:
- Entered crisis with strong capital and liquidity buffers; resilience commended.
- Directors encouraged maintaining flow of credit while safeguarding financial stability.
- Corporate vulnerabilities and housing market risks require continued vigilance.
- Current macroprudential stance assessed as broadly adequate.
- Suggested strengthening restructuring mechanisms and the insolvency framework.
- Encouraged efforts to continue to upgrade the AML/CFT framework.
- Balance of payments and external indicators:
- Trade balance (goods): -1.0 (2019), -2.7 (2020).
- Current account balance: -0.4 (2020), -0.6 (2021 projection).
- Gross external debt: 112.4 (2019), 121.2 (2020), 118.1 (2021), 115.0 (2022).
- Gross national savings: 20.7 (2019), 18.0 (2020), 17.7 (2021), 19.3 (2022).
- Gross capital formation: 23.4 (2019), 18.3 (2020), 21.0 (2021).
- Nominal GDP (Millions of euros): 93,900 (2019), 91,555 (2020), 97,037 (2021), 104,080 (2022).
Structural reforms, EU funds, and labor market
- Recovery and Resilience Plan:
- Directors praised ambitious investments and reforms embedded in the Plan.
- Encouraged prompt and efficient use of EU funds, including from the Next Generation EU.
- Reform agenda focus: accelerating digital and green transformation; strengthening human and physical capital; boosting productivity via greater investments in education and healthcare, research and innovation; more efficient public services; improved governance.
- Labor market:
- Relative strength of the Slovak labor market noted.
- Recommendation for more targeted measures to assist workers disproportionately affected by the crisis and prepare them for future demands.
Policy recommendations and priorities
- Short-term:
- Maintain necessary fiscal support in 2021 to secure recovery and insurance against downside risks.
- Maintain flow of credit and safeguard financial stability.
- Medium-term:
- Gradually shift policy support toward facilitating reallocation of labor and capital and minimizing scarring.
- Begin planning for a credible medium-term consolidation plan.
- Strengthen tax collection, public spending efficiency, fiscal framework, and buffers.
- Implement well-designed fiscal rules and pension reform (including expenditure ceilings and relinking retirement age to life expectancy).
- Strengthen restructuring mechanisms and insolvency framework; continue AML/CFT upgrades.
- Prompt and efficient absorption and use of EU funds to support digital/green transformation, human capital, and productivity-enhancing reforms.
- Structural implementation:
- Timely and effective execution of investments and implementation of reforms essential to sustain robust and inclusive growth.
Key statistics (selected figures preserved exactly as in source)
- Real GDP: 2.5 (2019), -4.8 (2020), 4.7 (2021), 4.9 (2022).
- Domestic demand: 3.7 (2019), -5.6 (2020), 3.0 (2021), 6.8 (2022).
- Inflation (HICP): 2.8 (2019), 2.0 (2020), 1.3 (2021), 1.9 (2022).
- Unemployment rate (Percent): 5.8 (2019), 6.7 (2020), 7.3 (2021).
- Nominal wages growth: 7.8 (2019), 4.8 (2020).
- Output gap: 1.0 (2019), -4.6 (2020), -3.1 (2021), -1.5 (2022).
IMF Executive Board Concludes 2021 Article IV Consultation with Slovak Republic — Press Release No. 21/190 (June 22, 2021).
