IMF Executive Board Concludes 2023 Article IV Consultation with Slovak Republic
IMF News, March 13, 2024
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- Published: March 13, 2024
Overview
- Executive Board concluded the Article IV consultation with the Slovak Republic on March 6, 2024.
- 2023 slowdown: drawdown of pandemic-era savings and negative real wage growth weighed on consumption.
- Partial offsets in 2023: strong fiscal stimulus (increased social spending and measures to offset higher energy prices) and record-high EU-funded public investments.
- Inflation: declined from record-highs in early 2023 but remains among the highest in the euro area.
- Risks: tilted firmly to the downside — weaker external demand, commodity price shocks, delays in fiscal consolidation, slow implementation of structural reforms, and failure to absorb EU grants effectively.
- Structural challenge: unfavorable demographics will weigh on medium-term growth.
Outlook and Projections
- Growth forecasts:
- 2024: 2.1 percent
- 2025: 2.6 percent
- Inflation path: projected to continue moderating and return to target by end-2026.
- Growth drivers: rebound in consumption from a pick-up in real wage growth, recovery in exports as supply conditions improve, offsetting deceleration in EU-funded public investment.
Executive Board Assessment — Major Messages
- Directors welcomed the resilience of the Slovak economy and looked forward to envisaged stronger growth in 2024.
- Outlook is broadly favorable but clouded by high inflation and significant downside risks, including a global slowdown, intensifying geopolitical tensions, and longstanding structural and demographic challenges.
- Priority areas: fiscal sustainability and structural reforms to foster economic diversification, inclusive growth, and green transition.
Fiscal Policy and Public Finance — Recommendations
- Sustain commitment to fiscal consolidation to put debt on a downward trajectory, rebuild buffers, and prepare for increases in aging‑related spending.
- Recommendation for more ambitious fiscal consolidation in 2024, with clearly identified revenue and expenditure measures in subsequent years.
- Specific revenue and tax measures encouraged:
- Consider raising the basic VAT rate.
- Consider raising property and environmental taxes.
- Expenditure-side recommendations:
- Better targeted social spending.
- Reduction in subsidies.
- Governance and framework:
- Reform the fiscal framework to strengthen fiscal transparency and credibility and boost the longer‑term outlook for public finances.
Financial Sector and Macroprudential Policy
- Directors welcomed the resilience of the financial sector and considered the current macroprudential stance appropriate.
- Monitoring needs: vulnerable segments of the credit portfolio, including the commercial real estate sector and low‑income households.
- Possible actions:
- Consider adding macroprudential measures targeted at the commercial real estate sector.
- Authorities should stand ready to release the countercyclical capital buffer if downside macro‑financial risks materialize.
- Other priorities: address remaining deficiencies in the AML/CFT framework and strengthen resilience to cyber‑attacks.
Structural Reforms, RRP, and Labor Market
- Urged continued implementation of the national Recovery and Resilience Plan to raise inclusive and climate‑friendly growth.
- Labor market policies needed to raise labor force participation of women and seniors.
- Investment and inclusion measures:
- Increased infrastructure investments and better absorption of EU funds.
- Maintain good governance and a favorable investment climate.
- Educational reforms to lift growth potential, reduce regional inequality, and foster inclusion of minorities.
- Environmental progress: commended significant progress in reducing greenhouse gas emissions and welcomed implementation of the 2023 National Energy and Climate Plan.
Key Economic Indicators (selected, as reported)
- Real GDP (annual percent change):
- 2019: 2.5
- 2020: -3.3
- 2021: 4.8
- 2022: 1.8
- 2023: 1.1
- 2024 (proj.): 2.1
- 2025 (proj.): 2.6
- 2026 (proj.): 2.8
- 2027 (proj.): 2.7
- Domestic demand (annual percent change):
- 2019: 3.8
- 2020: -5.1
- 2021: 5.6
- 2022: 2.9
- 2023: -4.7
- 2024 (proj.): 5.3
- 2025 (proj.): 2.2
- 2026 (proj.): 2.4
- Inflation (HICP, end of period):
- 2023: 15.0
- 2024 (proj.): 6.6
- (Staff projects return to target by end-2026)
- Core inflation (end of period):
- 2023: 13.7
- 2024 (proj.): 6.8
- Public finance (percent of GDP):
- Revenue 2023: 41.5
- Revenue 2024 (proj.): 41.0
- Revenue 2025 (proj.): 40.0
- Expenditure 2023: 47.9
- Expenditure 2024 (proj.): 47.0
- Expenditure 2025 (proj.): 46.2
- Overall balance 2023: -5.6
- Overall balance 2024 (proj.): -5.7
- Primary balance 2023: -4.4
- Structural balance (percent of potential GDP) 2023: -5.3
- General government debt (percent of GDP):
- 2019: 48.0
- 2020: 58.9
- 2021: 61.1
- 2022: 57.8
- 2023: 57.9
- 2024 (proj.): 59.3
- 2025 (proj.): 60.3
- 2026 (proj.): 63.5
- 2027 (proj.): 66.7
- 2028 (proj.): 69.8
- 2029 (proj.): 72.5
- Gross external debt (percent of GDP):
- 2019: 112.3
- 2020: 119.6
- 2021: 134.2
- 2022: 103.1
- 2023: 99.5
- 2024 (proj.): 100.7
- 2025 (proj.): 101.2
- 2026 (proj.): 102.5
- 2027 (proj.): 103.8
- 2028 (proj.): 104.6
- 2029 (proj.): 105.1
- Gross national savings (percent of GDP):
- 2019: 20.5
- 2020: 20.0
- 2021: 19.7
- 2022: 15.2
- 2023: 15.3
- 2024 (proj.): 16.3
- 2025 (proj.): 17.6
- 2026 (proj.): 18.7
- 2027 (proj.): 19.3
- 2028 (proj.): 20.6
- Nominal GDP (Millions of euros):
- 2019: 94,430
- 2020: 93,444
- 2021: 100,256
- 2022: 109,645
- 2023: 122,114
- 2024 (proj.): 130,572
- 2025 (proj.): 139,175
- 2026 (proj.): 146,498
- 2027 (proj.): 153,399
- 2028 (proj.): 160,613
- 2029 (proj.): 168,203
Source: IMF Press Release No. 24/85 — IMF Executive Board Concludes 2023 Article IV Consultation with Slovak Republic (March 13, 2024).