{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with the Slovak Republic",
  "publication": "IMF News, July 12, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/07/11/pr19272-slovak-republic-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "Real GDP growth:",
  "publishDate": "2019-07-12",
  "sections": [
    {
      "heading": "Macroeconomic outlook and growth",
      "content": "- Real GDP growth:\n  - 2018: 4.1 percent\n  - 2019 (projection): 3.5 percent\n  - 2020 (projection): 3.1 percent\n  - Medium-term: gradual convergence to potential\n- Drivers and composition:\n  - Strong domestic demand fueled by double-digit household credit growth, robust job creation, and rising wages.\n  - Capacity expansions in the automotive industry boosted growth; one-off effects are tapering off.\n  - Private consumption expected to remain the main propeller of economic activity supported by continued credit and wage growth.\n  - Exports on the back of automotive capacity expansions expected to contribute to growth and narrow the current account deficit toward a balanced position in the medium term.\n- Risks and uncertainties:\n  - Continued international trade tensions and a hard Brexit pose major downside risks to Slovakia’s export-led economy.\n  - Heavy dependence on exports and a concentrated export structure increase sensitivity to global shocks.\n  - Rising automation challenges comparative advantages from low-cost skilled workers."
    },
    {
      "heading": "Labor market, wages, and demographics",
      "content": "- Labor market indicators:\n  - Unemployment rate: 2016: 9.7 percent; 2017: 8.1 percent; 2018: 6.6 percent; 2019 (est.): 6.0 percent; 2020 (proj.): 5.8 percent; 2021 (proj.): 5.7 percent.\n  - Employment growth: 2016: 0.5 percent (other years listed in table).\n- Wages and productivity:\n  - Rapid wage growth has been outpacing productivity.\n  - Nominal wages: 2018: 6.4 percent; 2019 (est.): 5.1 percent.\n- Demographic challenge:\n  - Population set to experience fast ageing; policies to ensure optimal use of the domestic labor force are appropriate.\n- Inclusion and participation:\n  - Insufficiently inclusive education and lack of affordable early childcare contribute to a still-high gender gap and regional disparities in labor market participation.\n  - Legislative proposal to make schooling mandatory starting at age 5, reintegration efforts for the long-term unemployed, and increasing availability of affordable childcare are welcomed."
    },
    {
      "heading": "Structural reforms and competitiveness",
      "content": "- Education and innovation:\n  - Recent policy efforts: ensure adequate supply of qualified teachers; strengthen dual-track vocational training.\n  - Recommended complements: improve quality of tertiary education; align higher education with technical skills needs; improve coordination of public research; strengthen linkages between businesses and universities; ensure full use of EU funds for R&D.\n- Business environment and public institutions:\n  - Reforms needed: more predictable and enabling business environment; competitive and transparent public procurement system; independent judiciary; well-developed infrastructure and logistics networks.\n- Public investment and EU funds:\n  - Need for a more robust public investment framework to improve efficiency of public investment and absorption of EU funds, including better project selection and prioritization at the national level."
    },
    {
      "heading": "Fiscal policy and public finances",
      "content": "- Recent performance:\n  - Fiscal deficit lowered to below 1 percent of GDP in 2018.\n  - Public debt below the lowest limit prescribed by the national Fiscal Responsibility Act.\n- Fiscal projections and indicators (selected):\n  - Revenue (percent of GDP): 2016: 39.2; 2017: 39.4; 2018: 39.9; 2019 (proj.): 39.1; 2020 (proj.): 38.1.\n  - Expenditure (percent of GDP): 2016: 41.5; 2017: 40.2; 2018: 40.6; 2019 (proj.): 39.7; 2020 (proj.): 39.5.\n  - Overall balance (percent of GDP): 2016: -2.2; 2017: -0.8; 2018: -0.7; 2019 (proj.): -0.3; 2020 (proj.): -0.4.\n  - General government debt (percent of GDP): 2016: 51.8; 2017: 50.9; 2018: 48.9; 2019 (proj.): 47.3; 2020 (proj.): 45.8; 2021 (proj.): 44.3; 2022 (proj.): 42.9; 2023 (proj.): 41.7; 2024 (proj.): 40.4.\n- Policy guidance:\n  - With above-potential growth, a balanced budget target for 2019 and 2020 is appropriate but will require additional efforts.\n  - Proposal to introduce multi-year expenditure ceilings to anchor budget planning and execution is recommended.\n  - Overly strict escape clauses in the national FRA may need to be revisited to avoid pro-cyclical fiscal tightening.\n  - Higher revenue and spending efficiency needed to create resources for growth-enhancing social and infrastructure investment.\n  - Planned measures to improve tax compliance through online electronic cashiers and electronic taxpayer services should be sustained and complemented by strengthening audit capacity in all core tax areas.\n  - Strengthen mandate of the implementation unit and incorporate actionable measures in the medium-term budget to actualize savings."
    },
    {
      "heading": "Financial sector and household indebtedness",
      "content": "- Banking system:\n  - Banking sector remains stable and well-capitalized, although profitability is under pressure.\n  - Prolonged low interest rates, benign credit risk assessments, regulatory cap on mortgage refinancing fees, and strong market intermediation role of mortgage brokers have compressed lending margins.\n- Credit and household vulnerabilities:\n  - A decade of strong credit growth has significantly raised household indebtedness.\n  - Credit to private sector (growth rate): 2016: 9.2; 2017: 8.9; 2018: 8.3; 2019 (proj.): 6.5; 2020 (proj.): 6.1.\n  - Household debt nearly doubled relative to disposable income (qualitative statement in text).\n  - Rapidly rising flat prices in urban areas and appreciating house price-to-income ratio indicate growing vulnerabilities, especially for smaller banks with less capital buffers.\n- Macroprudential and policy recommendations:\n  - Incremental use of CCyB and supervisory capital requirements appropriate to ensure adequate capital buffers.\n  - Strong vigilance of smaller banks, including through reduction of NPLs; further increase in capital buffers may be needed.\n  - Allowing the bank levy to expire as scheduled in 2021 should help smaller banks build more capital buffers.\n  - Consider imposing add-on risk weights on mortgage loans to better internalize credit risks.\n  - Consider reducing preferential tax treatments for housing investment and removing obstacles to develop the rental housing market."
    },
    {
      "heading": "Balance of payments and external position",
      "content": "- Current account and external debt:\n  - Current account balance: 2016: -2.0 (percent of GDP); 2017: -2.5; 2018: -1.7; 2019 (proj.): -1.0.\n  - Gross external debt (percent of GDP): 2016: 92.2; 2017: 111.0; 2018: 113.3; 2019 (proj.): 113.7; 2020 (proj.): 114.3; 2021 (proj.): 114.9; 2022 (proj.): 115.3; 2023 (proj.): 114.8.\n  - Gross national savings (percent of GDP): 2016: 20.8; 2017: 20.6; 2018: 21.1; 2019 (proj.): 21.9; 2020 (proj.): 22.8; 2021 (proj.): 23.7; 2022 (proj.): 25.0; 2023 (proj.): 25.9; 2024 (proj.): 26.6.\n- Trade and investment:\n  - Exports of goods and services (growth): 2016: 5.5; 2017: 5.9; 2018: 4.8; 2019 (proj.): 5.4; 2020 (proj.): 5.2; 2021 (proj.): 4.5; 2022 (proj.): 4.4.\n  - Imports of goods and services (growth): 2016: 5.3; 2017: 4.7; 2018: 3.6."
    },
    {
      "heading": "Executive Board assessment and recommendations (summary)",
      "content": "- Growth outlook:\n  - Growth is projected to decelerate with one-off automotive investments tapering off and to gradually converge to potential.\n- Vulnerabilities:\n  - High credit growth makes households and banks vulnerable to labor and property market downturns.\n- Structural agenda to sustain export-led growth:\n  - Capture higher-value activities through education, R&D, business-university linkages, and full use of EU funds for R&D.\n  - Improve business environment, public procurement, judiciary independence, and infrastructure.\n- Fiscal policy:\n  - Maintain balanced budget target for 2019 and 2020; introduce multi-year expenditure ceilings; revisit overly strict escape clauses; improve revenue and spending efficiency.\n- Financial stability:\n  - Continue macro- and micro-prudential measures, increase capital buffers for vulnerable banks, allow bank levy to expire in 2021, consider mortgage risk-weight add-ons, and reform housing tax/treatment to develop rental market.\n\nSource: IMF Executive Board press release, July 12, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Slovak Republic and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/07/11/pr19272-slovak-republic-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: July 12, 2019",
    "Real GDP growth:",
    "Drivers and composition:",
    "Risks and uncertainties:",
    "Labor market indicators:",
    "Wages and productivity:",
    "Demographic challenge:",
    "Inclusion and participation:",
    "Education and innovation:",
    "Business environment and public institutions:",
    "Public investment and EU funds:",
    "Recent performance:",
    "Fiscal projections and indicators (selected):",
    "Policy guidance:",
    "Banking system:",
    "Credit and household vulnerabilities:",
    "Macroprudential and policy recommendations:",
    "Current account and external debt:",
    "Trade and investment:",
    "Growth outlook:",
    "Vulnerabilities:",
    "Structural agenda to sustain export-led growth:",
    "Fiscal policy:",
    "Financial stability:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Slovak Republic and the IMF](http://www.imf.org/external/country/SVK/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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