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Slovakia in a time
of economic crisis: Challenges and
actions taken
Tomáš Meravý
Former advisor of Slovak
finance minister Ivan Mikloš
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Content
1. Macroeconomic performance before, during and after the crisis
2. Measures taken in economic
policy and public finance
3. Lessons learned
4. Recommendations for future
competitiveness and growth
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1. Macroeconomic performance before, during and after crisis
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f)
Czech Republic 2,1 3,8 4,7 6,8 7,0 5,7 3,1 -4,5 2,5 1,8 -1,0 -0,9 2,5 2,7 2,7
Croatia 4,9 5,4 4,1 4,3 4,9 5,1 2,1 -6,9 -2,3 -0,2 -2,2 -0,9 -0,7 0,2 1,1
Hungary 4,5 3,9 4,8 4,0 3,9 0,1 0,9 -6,8 1,1 1,6 -1,7 1,1 3,2 2,5 2,0
Poland 1,4 3,9 5,3 3,6 6,2 6,8 5,1 1,6 3,9 4,5 2,0 1,6 3,0 2,8 3,3
Slovenia 3,8 2,9 4,4 4,0 5,8 7,0 3,4 -7,9 1,3 0,7 -2,5 -1,1 2,4 1,7 2,5
Slovakia 4,6 4,8 5,1 6,7 8,3 10,5 5,8 -4,9 4,4 3,0 1,8 0,9 2,4 2,5 3,3
-10,0
-5,0
0,0
5,0
10,0
15,0
Real GDP growth (%)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic 74 77 78 79 80 83 81 82 81 81 81 80
Croatia 54 57 58 59 60 62 65 63 60 60 61 61
Hungary 61 63 63 63 63 61 64 65 66 67 67 67
Poland 48 49 51 51 52 54 56 60 63 65 67 68
Slovenia 83 84 87 87 88 88 91 86 84 84 84 83
Slovakia 54 56 57 60 63 68 72 73 74 75 76 76
40
50
60
70
80
90
100
GDP per capita in PPS (% of EU average)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic -5,3 -6 -5,1 -1 -2 -4,3 -2,1 -2,4 -3,9 -2,7 -1,3 -1,4
Croatia -7,3 -6,1 -4,1 -5,2 -6,6 -7,1 -8,7 -4,9 -0,8 -0,8 0,1 1,2
Hungary -7 -8 -8,7 -7,5 -7,4 -7,3 -7,3 -0,2 0,2 0,4 0,8 3
Poland -2,8 -2,5 -5,3 -2,4 -3,8 -6,2 -6,6 -3,9 -5,1 -5 -3,7 -1,3
Slovenia 1 -0,8 -2,6 -1,7 -1,8 -4,2 -5,4 -0,5 -0,1 0,4 3,3 6,3
Slovakia -7,9 -5,9 -7,8 -8,5 -7,8 -5,3 -6,2 -2,6 -3,7 -3,8 2,2 2,1
-10
-8
-6
-4
-2
0
2
4
6
8
Current account balance (% of GDP)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic -2,8 -2,6 -0,5 1,5 1,8 1,3 0,7 2,3 1,4 2,4 3,9 4,9
Croatia -21,1 -23,1 -20,4 -20,9 -21,1 -21,8 -22,8 -16,6 -13,5 -14,4 -13,8 -14,4
Hungary -3,1 -3,9 -3,8 -2,9 -2,7 -0,7 -1,1 2,6 2,5 3,2 3,6 4,4
Poland -3,7 -2,6 -2,4 -1 -2,1 -4,4 -5,8 -1,7 -2,5 -2,7 -1,4 0,6
Slovenia -1,1 -2,1 -3,7 -3,6 -3 -4,2 -5,8 -1,2 -2,3 -2,6 -0,3 1,8
Slovakia -8,7 -1,9 -3,7 -5 -4,7 -1,2 -1,2 1,5 1,2 1,5 5 5,9
-25
-20
-15
-10
-5
0
5
10
Balance of trade in goods (% of GDP)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic 0,8 0,5 0,6 1,2 1,5 1,6 1,9 2 2 1,5 1,6 1,4
Croatia 11,8 16,5 14,6 15 14,7 14,8 15,1 13,4 13,7 14,6 14,8 15,7
Hungary 0,8 0,1 0,6 1,3 1,6 1,3 1,4 2,2 3 3,2 3,5 3,6
Poland 0,4 0,1 0 0,2 0,2 1,1 1 1,1 0,7 1,1 1,2 1,3
Slovenia 2,5 2,1 2,5 3,2 3,2 3 3,8 3,3 3,6 4,1 5,1 5,7
Slovakia 1,9 0,7 0,6 0,7 1,4 0,7 -0,8 -1,6 -1,1 -0,5 0,4 0,2
-4
-2
0
2
4
6
8
10
12
14
16
18
Balance of trade in services (% of GDP)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic 7,3 7,8 8,3 7,9 7,1 5,3 4,4 6,7 7,3 6,7 7 7
Croatia 15,1 14,2 13,9 13 11,6 10 8,9 9,6 12,3 13,9 16,1 17,3
Hungary 5,6 5,8 6,1 7,2 7,5 7,4 7,8 10 11,2 10,9 10,9 10,2
Poland 20 19,8 19,1 17,9 13,9 9,6 7,1 8,1 9,7 9,7 10,1 10,3
Slovenia 6,3 6,7 6,3 6,5 6 4,9 4,4 5,9 7,3 8,2 8,9 10,1
Slovakia 18,8 17,7 18,4 16,4 13,5 11,2 9,6 12,1 14,5 13,7 14 14,2
0
5
10
15
20
25
Unemployment rate (%)
Source: Eurostat
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic 71,6 70,7 70,1 70,7 71,2 72 72,4 70,9 70,4 70,9 71,5 72,5
Croatia 58,4 58,3 59,6 60 60,6 62,3 62,9 61,7 58,7 57 55,4 57,2
Hungary 61,4 62,4 62,1 62,2 62,6 62,6 61,9 60,5 60,4 60,7 62,1 63,2
Poland 57,4 57,1 57,3 58,3 60,1 62,7 65 64,9 64,3 64,5 64,7 64,9
Slovenia 69 68,1 70,4 71,1 71,5 72,4 73 71,9 70,3 68,4 68,3 67,2
Slovakia 63,6 64,8 63,7 64,5 66 67,2 68,8 66,4 64,6 65 65,1 65
50
55
60
65
70
75
Employment rate (%)
Source: Eurostat
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-32%
-24%
-18%
-5%
0% 0%
Poland Hungary Czech Republic Croatia Slovenia Slovakia
Currency depreciation vs. euro (09/2008 - 03/2009)
Source: ECB
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Czech Republic 67,6 71,1 72,9 73,0 73,9 76,2 73,9 75,8 74,2 74,5 73,8 71,9
Croatia 72,2 72,5 73,5 74,5 73,5 77,1 78,2 76,1 75,0 77,1 80,3 80,1
Hungary 64,7 65,9 67,0 67,6 67,7 66,5 70,5 72,3 71,6 72,5 71,2 70,6
Poland 58,9 60,3 61,8 61,7 61,1 62,1 62,3 65,4 70,0 71,9 73,6 74,3
Slovenia 77,4 78,8 81,5 83,1 83,2 83,0 83,6 80,0 79,4 81,0 80,8 81,1
Slovakia 62,8 63,6 65,7 68,7 71,6 76,3 79,6 79,9 82,2 81,5 82,0 82,6
50
55
60
65
70
75
80
85
90
Labour productivity per person employed
(% of EU average)
Source: Eurostat
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2. Measures taken in economic policy and public finance
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2.1 Consolidation of public finance
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-8,1
-2,7
-2,3
-2,9
-3,6
-1,9
-2,4
-7,9
-7,5
-4,1 -4,2
-2,6 -2,93
-2,29
-1,02
-0,44
-9
-8
-7
-6
-5
-4
-3
-2
-1
02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2017 (f)
Public finance deficit in Slovakia (% of GDP)
Source: Eurostat, MFSR
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2011 2012 2013 2014 2015 2016 2017
Structural deficit -4,4 -4 -1,8 -3 -2,1 -0,5
Discretionary fiscal effort 2,9 0,5 2,3 -1,5 0,8
-5
-4
-3
-2
-1
0
1
2
3
4
Structural deficit and discretionary fiscal effort of Slovakia
(% of GDP)
Source: Fiscal Council, MFSR
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Structure of consolidation packages
Reduced
expenditure
86%
Higher
revenue
14%
Radičová 2011
Reduced
expenditure
17%
Higher
revenue
83%
Fico 2013
Source: MFSR
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Social contributions 14,5 13,7 13,0 12,5 11,7 11,6 11,8 12,5 12,3 12,3 12,5 13,5
Direct taxes 6,9 7,0 6,4 6,3 6,4 6,4 6,8 5,9 5,7 5,8 5,9 6,4
Indirect taxes 11,2 11,7 11,9 12,2 11,1 11,0 10,3 10,3 10,0 10,4 9,9 10,4
0
5
10
15
20
25
30
35
Public finance revenue by source (% of GDP)
Source: Eurostat
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Main pillars of consolidation (Fico 2013)
Raising CIT from 19% to 23%
Introducing 25% PIT rate for high earnings
Higher social contributions for self-employed
and part-time workers
Raising govt. administrative fees
Reducing contribution to mandatory private pension pillar from 9% to 4% of gross wage
Private pension pillar not mandatory for new workers
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2017 (f)
Revenue 36,7 36,9 35,2 36,4 34,9 34,1 34,0 35,9 34,5 36,4 36,0 38,4 38,4 37,8 36,5 36,1
Expenditure 44,8 39,6 37,5 39,3 38,5 36,1 36,4 43,8 42,0 40,6 40,2 41,0 41,3 39,8 37,5 36,5
30
32
34
36
38
40
42
44
46
Public finance revenue and expenditure (% of GDP)
Source: Eurostat, MFSR
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42,8 41,5
40,6
33,8
30,7 29,8
28,2
36,0
41,1
43,5
52,1 54,6 54,1
54,4 52,3 51,0
0
10
20
30
40
50
60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2017 (f)
Public gross debt of Slovakia (% of GDP)
Source: Eurostat, MFSR
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2.2 Fiscal reforms: Introduction of constitutional debt ceiling
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How does the debt ceiling work? Passed in 12/2011, in effect since 03/2012
Sets maximum debt level of 60% of GDP until 2017
Debt ceiling will further be reduced to 50% in 2027
Sets up the Fiscal Council as independent watchdog
Government action required at different debt levels: >50%: Finance minister must explain the reasons to parliament
>53%: Ministers’ pay frozen, government must propose debt-reducing measures
>57%: Government must propose a balanced budget
>60%: Government must face confidence vote in parliament
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Loopholes and weaknesses of the debt ceiling
Constitutional debt ceiling increases political costs of fiscal
non-discipline, but is no guarantee of effective fiscal
discipline, let alone of pro-growth economic policies
May motivate government to increase tax burden
Confidence vote is no real threat if the government has a
stable majority
Government may propose a balanced budget, but
parliamentary committee amendments may increase the
deficit before budget is passed by parliament
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3. Lessons learned
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Main lessons for Slovakia 2008-2014
Economic growth is not certain
High growth does not automatically lead to job creation
Constitutional rules are no substitute for good government
Do not become complacent, you will not shine forever
You have to keep moving if you don’t want to fall behind
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You have to keep moving, otherwise you will fall behind!
Standing in the WEF Global Competitiveness Index
Source: World Economic Forum
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Do not become complacant, you will not shine forever!
7,5
5,5 5,5 4,6
3,8 3,0
Slovakia Czech Republic Croatia Hungary Poland Slovenia
Average yearly FDI inflows 2002-2008 (% of GDP)
4,2
2,7 2,3
2,0 1,9
0,0
Hungary Czech Republic Croatia Poland Slovakia Slovenia
Average yearly FDI inflows 2009-2013 (% of GDP)
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4. Recommendations for future competitiveness and growth
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1. For Croatia, boosting exports is key
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Export of goods per capita (USD)
Other
Rubber, plastics
Chemistry, pharmaceuticals
Transport equipment
Machinery, electrical
Metals
Stone, glass
Wood products
Footwear
Textiles
Leather products
Mineral products
Foodstuffs
Vegetable products
Animal products
Source: Harvard Atlas of Economic Complexity
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2. For Slovakia, growth opportunities are in services
Total Empl. Manufacturing IT Prof. services Admin. services Public admin. Education Healthcare
Denmark 2 688 600 333 800 107 900 136 000 86 300 154 500 245 100 497 300
Finland 2 483 200 356 700 101 200 161 100 100 500 112 800 175 300 408 700
Norway 2 585 400 239 100 103 700 144 400 94 000 157 400 214 100 545 400
Slovakia 2 329 000 570 300 61 100 72 000 61 500 184 800 157 400 161 300
Total employment by industry sector in 2012
Source: ILO
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Thank you!