Slovakia has not fully exploited the good times of economic growth for structural reforms and deficit and debt reduction, and is lagging behind in key areas for future growth, wrote the European Commission (EC) in its regular evaluation report on Slovakia 2020.
With its economic performance, Slovakia is gradually ceasing to approach the European average and remains at around 75 percent of the EU's average gross national income (GNI). "We had the fastest pace of catching up in 2003-2008, but we've been practically stagnating since 2012," said Lívia Vašáková, head of the economic analysis team of the EC representation in Slovakia. The so-called medium-income trap is a major risk for Slovakia, as the economy is no longer capable of growth without changes in policies. "It seems that a model based on low salaries and attracting foreign direct investments may no longer work," said Vašáková.
The EC also notes the high proportion of labour taxes, which make up 53.4 percent of all tax revenues, while the EU average is 49.9 percent. By contrast, Slovakia has substantially lower capital, property and environmental taxes than the EU average. Despite a slight improvement, the gap of 23 percent in the collection of value-added tax (VAT) is still significantly higher than the EU average of 10.9 percent.
Maintaining productivity growth, the backbone of Slovakia's economic convergence, will thus, according to the EC, require sustained structural reforms and targeted investment into infrastructure and research and innovation. Improving the quality and inclusiveness of the education and training system, reducing regional disparities and improving the quality of public institutions can help Slovakia to safeguard its competitiveness, move up the value chain and become more sustainable. A smart and low-carbon transport and energy system can contribute to making the economy greener.
Slovakia's strategies and reforms are relatively clear and effective on paper, but their implementation often remains poor, concludes the report.
