## IMF Executive Board Concludes 2021 Article IV Consultation with Slovak Republic

_IMF News, June 22, 2021_

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## Bibliographic details
- Published: June 22, 2021

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### 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).*

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## References

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_Source: https://www.imf.org/en/news/articles/2021/06/21/pr21190-slovak-republic-imf-executive-board-concludes-2021-article-iv-consultation_