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Slovak economy makes strides in growth, reforms, income convergence

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 2005
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The Slovak Republic’s economy has recorded strong productivity growth in recent years as well as declining fiscal and external deficits, the IMF said in its annual economic assessment. Key structural reforms in the areas of taxation, welfare, pensions, health care, and the labor market have increased the economy’s flexibility. Large foreign direct investments and an improved business climate have expanded production capacity and boosted investor confidence. The IMF’s Executive Board commended the authorities but noted that challenges remained in further reducing the fiscal deficit and inflation, curbing unemployment, and achieving convergence with western European income levels.

Inflation, though falling, is well above the euro-area average, and strong growth poses upside risks to the central bank’s inflation target. In 2004, the central bank substantially cut interest rates in response to weak demand and intervened extensively in the foreign exchange market to absorb exchange rate appreciation pressures. The Board advocated a more flexible approach to the exchange rate and welcomed the central bank’s adoption of a monetary policy framework that will give disinflation priority.

Slovak Republic2001200220032004

Estimates
2005

Projections
(percent change)
Real GDP3.84.64.55.54.9
Consumer prices (annual avg.)7.33.38.57.53.7
(percent)
Unemployment rate19.318.617.518.117.1
(percent of GDP)
General government balance-6.0-5.7-3.4-3.3-3.8
Data: IMF staff report, January 2005; and Slovak Statistical Office.
Data: IMF staff report, January 2005; and Slovak Statistical Office.

Data released after the IMF report showed that in 2004, the fiscal deficit narrowed slightly in relation to GDP, reflecting lower spending on wages, benefits, and interest. In an environment where substantial capital inflows could continue, the Board encouraged the authorities to further tighten fiscal policy to help reduce appreciation pressures and support monetary policy in lowering inflation. It also advised strengthening the medium-term budgetary framework to help ensure meeting the Maastricht criteria in a sustainable way. The Board noted that the authorities’ timetable for adopting the euro in 2009 will require continued structural reform and highlighted the importance of improving education, public infrastructure, and the housing market for low- and middle-income households.

For more information, refer to Public Information Notices No. 05/17 (Italy), No. 05/23 (Moldova), No. 05/24 (Slovak Republic), and No. 05/28 (Libyan Arab Jamahiriya) on the IMF’s website (www.imf.org).

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