The economy has weathered the recent crises relatively well, but growth has slowed amid high inflation, weak foreign demand and tight financial conditions. The pandemic and the energy crisis have deteriorated public finances and steady fiscal consolidation is now needed to rebuild fiscal buffers and improve long-term fiscal sustainability. A tax reform can make the tax system more growth and environmentally friendly, while further reforms to the pension system and to increase the employment of mothers with young children can mitigate the impact of rapid population ageing. Improving the absorption of EU funds and enhancing the efficiency of public investment can spur growth, reduce socio-economic gaps and accelerate the green transition. Sustaining economic convergence and facilitating inclusive structural change requires improving skill provision at all stages of the learning cycle, fostering the domestic innovation capacity and improving the business environment. A more consistent pricing of carbon across the economy and stronger incentives for green investment and innovation would make growth more sustainable.
OECD Economic Surveys: Slovak Republic 2024
Abstract
The Slovak economy has been relatively resilient following Russia’s war of aggression against Ukraine and the ensuing energy crisis, but the recovery from the COVID-19 pandemic has slowed significantly (Figure 1.1). Government measures to cushion the energy price shock and diversification of energy supply away from Russian sources have helped avoid a downturn, but GDP growth in 2022 and 2023 slowed markedly below pre-pandemic trends. Inflation has slowed from its peak in early 2023 but remains elevated, and energy and food price rises have fed through to other goods and services prices. Growth is set to pick-up in 2024 and 2025 but risks to the near-term economic outlook are high.
Note: Panel B, harmonised CPI inflation for the Slovak Republic and euro area.
Source: OECD National Accounts database; and OECD Price Statistics database.
Improving fiscal sustainability is a key challenge. Expansionary fiscal policy during the pandemic and the energy crisis have led to a marked deterioration of public finances. While most crisis measures are temporary, they have often not been well targeted, and substantial permanent expenditure increases, especially for cash transfers to families with children, have led to a deterioration of the structural fiscal deficit. Moreover, Slovakia’s population is ageing rapidly, with one of the fastest future declines in the working-age population in the European Union, aggravating fiscal challenges. Pension reforms in 2022 have improved the sustainability of the public pension system overall, but further efforts are needed to moderate future pension expenditures.
The economic convergence process, which had already slowed after the global financial crisis, has stalled since the pandemic (Figure 1.2). The manufacturing sector, especially cars and electronics, has been a key driver of productivity growth but faces diminishing benefits from the integration into global value chains. Integration has largely been based on downstream activities of value chains with limited domestic value added. Moreover, Slovakia faces important challenges from the digital and green transitions, due to the large share of low-to medium skill routine jobs. The share of jobs at risk of automation (e.g. via robots or AI) (Lassébie and Quintini, 2022[1]) and in polluting industries is high, implying a substantial need to upskill and reskill workers and facilitate job transitions. Fostering productivity growth and reviving economic convergence, will require broadening the drivers of growth, improving educational outcomes and the adaptability of education and skills provision, fostering the innovation capacity and a business environment that facilitates structural change.
Income inequality and poverty are low overall but high inflation has hit low-income groups particularly hard. Low-income households have especially suffered from high food price inflation, and the risk of poverty and social exclusion has increased (NBS, 2023[2]). Moreover, socioeconomic gaps remain significant in a number of areas. Education results are weak and highly dependent on socio-economic background. Mothers have long career breaks after birth contributing to a gender wage gap above the OECD average. Housing affordability has deteriorated, and overcrowding rates are high. The Roma, about 8% of the population, often live in poor living conditions and poverty, with very low educational outcomes, employment rates and life expectancy.
GDP per capita gaps to the OECD average, % difference
Note: Real GDP, constant 2015 PPPs.
Source: OECD National Accounts database; OECD Economic Outlook: Statistics and Projections database; and OECD calculations.
Accelerating the green transition holds great potential to strengthen energy security. The economic transformation in the 1990s has significantly reduced greenhouse gas (GHG) emissions, but progress has slowed since then, and the energy-intensity of the economy remains above OECD and EU averages. The often poor-quality of the housing stock contributes to energy poverty, high pollution, and high emissions. Decarbonising the economy will require more investment and more ambitious policies.
Against this background, the main messages of the Survey are:
Steady fiscal consolidation is needed to rebuild fiscal buffers, support the disinflation process and improve long-term fiscal sustainability in the face of rapid population ageing. Improving the absorption of EU funds and enhancing the efficiency of public investment spending can spur growth, reduce socio-economic gaps and accelerate the green transition.
Sustaining economic convergence and facilitating inclusive structural change requires improving skill provision at all stages of the learning cycle, fostering the domestic innovation capacity and improving the business environment, especially by continuing the fight against corruption. A more consistent pricing of carbon across the economy and stronger incentives for green investment and innovation would make growth more sustainable.
Improving housing affordability requires reforms to strengthen the supply response to changing demand developments and targeted support to low-income households, for example by expanding social housing. Developing the private rental market can spur residential and labour mobility. Strengthening incentives to accelerate housing renovation can help achieve environmental goals and reduce energy poverty.
In November 2023, the newly elected government adopted a programme statement delineating the key policy priorities:
Enhancing energy and food security, by diversifying energy sources, including by creating the conditions for the integration of renewable energy sources; and compensating households and “other vulnerable customers” for increases in prices. In case of “disproportionate” basic food price increases, the government intends to take corrective action.
Ensuring sustainability of public finances, by boosting spending efficiency and raising revenues. On the expenditure side, the government aims to evaluate and optimise the current structure and activities of the public administration. On the revenue side, the programme includes new taxation measures, including a levy on banks’ “excess” profits, higher taxation of multiple residential properties and selected products and activities, such as tobacco, alcohol and gambling. Additionally, the new government intends to enhance the progressivity of the income tax. The programme also includes the simplification of tax payments, more efforts against tax evasion, and the implementation of more effective audit and control measures.
Strengthening the long-term sustainability of the pension system and maximising benefits for pensioners, by reassessing the effectiveness of all three pillars of the pension system. The 13th pension will be increased to the level of the average pension for all pensioners and extended to the armed forces pensioners. The retirement age will take into account people's health condition and ability to work.
Creating a more favourable business environment, including by stabilising the legislative framework, reducing bureaucratic and administrative complexity in the establishment of business, improving access to credit and streamlining public procurement procedures.
Improving affordability and quality of housing, by supporting the expansion of the social rental housing stock and the introduction of mortgage support for homeowners. Additionally, the programme foresees simplifying the building permits procedure to facilitate constructions. Improving the energy efficiency of housing will be achieved through enhanced data collection on the energy efficiency of the housing stock and the acceleration of buildings renovations.
Increasing living standards, by raising the minimum wage and broadening eligibility to social benefits, such as benefits in material need, the parental allowance, allowances for disabled people, as well as minimum pensions. Housing allowances, originally part of the material-need benefit, will also be introduced as a benefit.
Reducing regional inequalities and social exclusion, by aligning funding and responsibilities to lower levels of governments, supporting mechanisms of inter-municipal cooperation and promoting the inclusion of minorities in the education system and labour markets.
Improving education outcomes and skills, by expanding the supply of early childhood education, increasing the quality of higher education institutions, and raising funding for higher education institutions. The government plans to strengthen cooperation with universities to attract new talents to the teaching profession. Additionally, the government aims to support the continuous development of skills through lifelong learning activities.
Increasing the efficiency of innovation support, including by evaluating existing tax-based support measures and supporting public-private partnership for financing innovative projects.
Russia’s war against Ukraine has slowed economic growth. After a strong economic rebound from the COVID-19 pandemic in 2021, growth slowed markedly in 2022 and 2023 due to weakening global demand, surging prices, tightening financial conditions and high uncertainty (Figure 1.3). With high inflation weighing on disposable income and the savings built-up during the pandemic depleted in 2022, households reduced consumption in 2023. Business and consumer confidence have improved but remain low. Production and exports in the automotive industry strengthened in the first three quarter of 2023 as supply chain bottlenecks eased and firms are working through order backlogs. However, the cooling of foreign demand also affected the automotive industry at the end of 2023 and exports remained subdued in other industries. Tighter financial conditions slowed bank lending to households and firms, and led to a cooling of the real estate market, with residential investment declining sharply. A substantial pickup in the absorption of EU structural funds in 2023 supported public investment.
Slovakia is diversifying its energy sources and strengthening energy security. Before the war in Ukraine, Slovakia imported over 80% of natural gas, and virtually all of its crude oil and nuclear fuel from Russia. Imported natural gas, oil and nuclear fuel accounted for around two-thirds of total energy supply. Russian gas imports of fallen by around 65%, thanks in part to a new pipeline to Poland finalised in November 2022, which gives the country access to LNG imports via terminals in the Baltic Sea and Norwegian gas. Before the war, crude oil was exclusively imported through the Druzhba pipeline from Russia, which has been exempted from the EU’s oil embargo. Slovakia has made progress in changing the processing technology in the refinery to allow for different types of oil, and in diversifying oil imports via the Adria pipeline to Croatia. Finally, the electricity supplier has recently signed a contract to replace Russian nuclear fuel. The new REPowerEU chapter of the Resilience and Recovery plan, allocates about EUR 400 million to foster renewable energy and electricity grid capacity, energy efficiency and sustainable transport to further reduce import dependency.
Inflation has slowed but underlying price pressures remain elevated. Harmonised consumer price inflation peaked at 15.4% in February 2023 and has slowed to 4.4% in January 2024. The initial surge in inflation in 2022 was driven by food prices and to a lesser extent energy prices, that added to pre-existing price pressures from supply chain disruptions, but inflation has since become broad-based (Figure 1.4). As in other central and eastern European countries, the larger weight of (processed) food and energy in the consumption basket, and higher energy intensity of the economy make consumer prices inflation more sensitive to commodity price shocks. Food prices surged on the back of higher input costs, but evidence also points to increased mark-ups in the food and retail industry in the first half of 2022 (Casalis, 2023[3]). The higher inflation in 2023 was partly due to the delayed pass-through of global energy prices to regulated energy prices for households in Slovakia. Regulated heat, gas and electricity price increases were capped for households in 2023, but still added to inflation in year-on-year terms, whereas the contribution turned negative in many OECD and euro area countries (Panel C). Inflation slowed in the course of 2023 and early 2024 as food price inflation and supply chain bottlenecks eased, and industrial producer price inflation markedly abated, mainly thanks to lower imported input prices. The caps on regulated heat, gas and electricity prices for households have been extended to 2024, contributing to the further slowdown in inflation in January 2024. The reduction in services price inflation has been more moderate (Panel D).
The labour market has been resilient. It benefitted from the integration of a significant number of foreign workers in 2022 and 2023. Around 20,000 Ukrainian refugees found employment by the end of 2023 (about 0.7% of the labour force). Moreover, there has also been a significant increase in the number of workers from Serbia, Georgia and India. Most of these foreign workers have filled low-skilled jobs with labour shortages. The unemployment rate continued to fall in 2023 and is around pre-pandemic levels (Figure 1.5). Employment continued to increase in 2023, with employment gains concentrated in the construction and services sectors. Nominal wage growth has accelerated close to 10% year-on-year, and real wage growth has turned positive in recent months (Panel B).
Note: Panel C, values of the confidence indicators range from -100 (responses of all respondents are totally pessimistic) to 100 (responses of all respondents are totally optimistic). Panel D, data refer to the Economic Sentiment Indicator, confidence in industry, quarterly questions, factors limiting the production: equipment shortages.
Source: OECD Economic Outlook: Statistics and Projections database; Eurostat; Statistical Office of the Slovak Republic; and OECD calculations.
Note: Harmonised CPI inflation for the Slovak Republic and euro area.
Source: OECD Price Statistics database; and Statistical Office of the Slovak Republic.
Note: Panel A, data refer to the average number of job vacancies divided by registered unemployment. Panel B, average wages refer to the national-accounts based total wage bill divided by the number of hours worked (by employees) in the total economy. Real average wages are deflated by a price deflator for private final consumption expenditures in 2022 prices.
Source: OECD Labour Force Statistics database; Statistical Office of the Slovak Republic; OECD National Accounts database; and OECD calculations.
GDP growth is projected to pick up to 2.1% in 2024 and 2.6% in 2025 (Table 1.1). Lower inflation will lead to an increase in real wages, which will drive a recovery in private consumption and some rebuilding of households’ savings. The gradual easing of financial conditions and usage of EU Recovery and Resilience funds will support investment in 2024 and 2025. The expected recovery in foreign demand will strengthen exports. Headline inflation is projected to continue to slow thanks to reductions in global energy and food prices, while core inflation will decline more slowly due to the lagged pass-through of commodity prices to other goods and services prices and the effects of nominal wage increases.
The uncertainty surrounding the outlook is high. Due to its relatively large and highly internationally integrated manufacturing sector, Slovakia is strongly exposed to global shocks. A prolonged war in Ukraine or an escalation of the conflict in the Middle-East could lead to the resurgence of global energy prices and to lower foreign demand. Renewed supply chain disruptions in the automotive sector or a slow recovery of demand in Europe (especially Germany) would particularly weigh on growth. High input costs, including for energy, and high interest rates could stretch firms’ financial buffers and lead to more insolvencies. Households are facing increasing debt-servicing costs that may become difficult to meet. The assumed phasing out of energy support measures in 2025 could lead to higher inflation and lower consumption. Lower absorption of EU funds would negatively affect investment. Strong wage increases could hamper the competitiveness of Slovakia’s export-oriented business sector. On the upside, a faster decline in inflation could spur household consumption.
1. OECD estimates.
2. Contribution to changes in real GDP.
3. Index of consumer prices excluding food, energy, alcohol and tobacco.
4. EU Recovery and Resilience funds are treated as positive one-offs.
Source: OECD EO 114 database, with updates.
The banking sector appears resilient overall. The Slovak banking sector is highly concentrated, with the five largest banks holding 79% of total banking sector assets. Foreign-owned banks account for around 87% of total banking sector assets. Banking sector profits increased in 2022 and the first nine months of 2023, driven mainly by higher net interest income as monetary policy tightened in the euro area, and profitability exceeds pre-pandemic levels (Figure 1.6). Capital and liquidity ratios exceed regulatory minima and non-performing loan ratios are low (NBS, 2023[4]). Stress tests show that banks’ capital buffers are strong enough to sustain a significant adverse shock while complying with regulatory limits (NBS, 2023[5]). To further increase the resilience of the banking sector, the countercyclical capital buffer was hiked by 50 basis points to 1.5% in August 2023.
Note: 2023Q2 data for the OECD average is calculated on the basis of latest available quarter for the OECD countries, ranging from 2022Q2 to 2023Q2.
Source: IMF Financial Soundness Indicators database.
The property market is cooling. House prices grew strongly from 2015 until the onset of the pandemic and growth further accelerated in 2021 and early 2022. Strong demand for housing driven by robust household income growth, low unemployment and low interest rates was not matched by a sufficient supply response. As discussed in detail in Chapter 2 this reflects inefficiencies in the housing market inter alia related to building permits, low property taxation and tax biases in favour of homeownership. House prices started to fall in the second half of 2022 as monetary tightening in the euro area led to a sharp increase in mortgage rates (Figure 1.7). In the third quarter of 2023, average prices were about 12% below their peak in July 2022. Given the estimated overvaluation of house prices in 2022 (EC, 2023[6]), the price corrections reflect to some extent a return of prices towards levels that are more aligned with fundamentals. However, a sharper decline in house prices could raise financial stability risks.
Financial vulnerabilities related to high interest rates need to be closely monitored. Household debt has increased rapidly in the last decade on the back of strong mortgage credit growth. Household debt, at around 50% of GDP, is now higher than that of regional peers. At the same time, the banking sector has become more exposed to mortgage credit, with mortgages accounting for over 50% of the banks’ loan portfolio. To mitigate the risks to the banking sector, the National Bank of Slovakia (NBS) has introduced a number of borrower-based macroprudential measures since 2018, including loan-to-value, debt-to-income (DTI) and debt-service-to-income (DSTI) limits. In 2023, the NBS adjusted DTI limits for clients older than 40 years, to address the issue of loan maturities exceeding the retirement age. Nevertheless, credit risks have increased recently. The share of mortgages with a DSTI ratio close to the regulatory limit has risen sharply (NBS, 2023[4]). In addition, many mortgage holders will have to face significantly higher interest rates in the near-term. The share of variable-rate mortgage loans in total loans is below 5%. The typical mortgage rate fixation period is 3-5 years and about 20% of total loans will be refixed in 2024 and 2025. Around half of these loans have rates previously fixed at less than 1% (Figure 1.7). However, the additional mortgage payments due to refixation are moderate, not exceeding 5% of income on average. This is because many mortgages have already been largely paid off. For about 1% of mortgages, the increase in repayments will exceed 20% of income, mainly for young borrowers who bought expensive real estate (e.g. in Bratislava) (NBS, 2023[7]).
Note: Panel A: average interest rate of new loans with interest rate fixation of 1-5 years. Panel B: the numbers in brackets indicate the interest rate range of the existing mortgages.
Source: National Bank of Slovakia (NBS).
On the corporate side, the commercial real estate sector is most vulnerable to high interest rates. Over two-thirds of corporate loans are variable rate loans. Higher interest rates have contributed to the decline in profitability of firms, but the effect is relatively limited for most firms compared to the effect of the increase in input costs as the ratio of interest expenses to revenues is small (less than 2% on average). However, for the commercial real estate sector interest expenses are a more significant part of overall costs, and the sector faces other headwinds such as the cooling property market and a structural shift towards remote work (NBS, 2023[5]). Exposure of banks to this sector has increased in recent years, with the sector accounting for around a quarter of the corporate loan portfolio. The authorities should therefore closely monitor developments in these retail and corporate market segments and adjust macro-prudential measures if necessary.
The authorities should strengthen financial resilience by boosting financial education and inclusion. The COVID-19 pandemic and the energy crisis have highlighted the need for households and individuals to prepare their finances and enhance their resilience against shocks. Moreover, the ability to manage private pension savings will become more important in Slovakia’s rapidly ageing society (see below), while digitalisation will require skills to navigate new digital financial technologies. Consecutive PISA tests have confirmed that the level of financial literacy in Slovakia is significantly below the OECD average, while the share of pupils without even a basic level of financial literacy is significantly above the OECD average (OECD, 2020[8]). To strengthen financial literacy and inclusion, the authorities should continue to measure the level of financial literacy and update the national strategy on financial education. The update could build on OECD and G20 work in the area such as the G20/OECD INFE Policy Guidance on Digitalisation and Financial Literacy (OECD, 2018[9]) and OECD Recommendations on Financial Literacy (OECD, 2020[10]). The OECD recommendations stress for example the need to base strategies for financial literacy on relevant evidence and analysis, develop and periodically revise a tailored roadmap for the implementation of the national strategy and take into account the needs of specific target groups such as older and vulnerable groups. The strategy should also consider the use of digital technologies that can potentially facilitate the effective provision of financial education and extend its reach, as pointed out in the OECD/INFE Guidance on digital delivery of financial education (OECD, 2022[11]).
The fiscal position has considerably weakened since 2019. The response to the COVID-19 pandemic, along with permanent expansions of pension and family benefits, led to large fiscal deficits of over 5% of GDP in 2020 and 2021. The deficit temporarily narrowed to 2% of GDP in 2022, thanks to the phasing out of pandemic support measures and buoyant tax revenues. However, in 2023 the fiscal stance has become highly expansionary again partly in response to the energy crisis, which affected households and firms mainly in 2023 due to the delayed pass-through of global energy prices to regulated electricity, gas and heating prices. The authorities earmarked EUR 3.8 billion (3.3% of GDP) to mitigate the impacts of the energy crisis on households and firms, although actual spending is estimated to have been lower, at around 2.4% of GDP in 2023. Measures included for example capped energy prices for households as well as partial reimbursements of the energy bills of firms (Table 1.3). These measures were partly re-financed by redirecting around EUR 1 billion of unused EU structural funds of the 2014-2020 programming period to finance energy measures, and by temporary revenues from the EU Excess Profits Regulation. Moreover, the budget for 2023 also included permanent increases in expenditure not directly linked to the energy crisis such as higher family benefits (1.1% of GDP), including increased child allowances and tax credits, as well as VAT reductions in the gastronomy and sports sector (0.2% of GDP). These VAT reductions are neither targeted nor efficient and should be reversed (see below). As a result of the expansionary fiscal policy in recent years, the public debt-to-GDP ratio has surged by more than 10 percentage points to 57.8% of GDP in 2022. While the public debt level remains below the EU reference value of 60% of GDP, it is unprecedented in Slovak history (Figure 1.8).
Medium- to long-term fiscal spending pressures are large and threaten fiscal sustainability. Defence spending will increase closer to the NATO target of 2% of GDP in the medium-term (MOF, 2023[13]). The indexation of various social benefits to past inflation will also add to spending pressures in the next years. More importantly, both the European Commission and the domestic fiscal council assess Slovakia’s long-term sustainability situation as high risk. This is mainly due to Slovakia’s rapidly ageing population, with the ratio of people aged 65 and over to the working-age population almost doubling in the next 30 years and surpassing the EU average by 2050. Official projections suggest that ageing-related spending, notably on pensions, health care and long-term care, could increase by almost 7 percentage points of GDP by 2070, one of the largest increases in the EU. Without measures to contain ageing-related costs, debt would rise to over 200% of GDP by 2050 (Figure 1.9, baseline scenario). In contrast, ambitious fiscal consolidation of about 5.5% of GDP over the next 5 years combined with structural reforms as recommended in this Survey (Box 1.2) would bring debt on a downward trajectory towards the debt target of 40% (Figure 1.9, reform and 5.5% consolidation scenario). Slightly more moderate consolidation of 4.5% of GDP over the next 5 years would lead to a stabilisation of debt at the current level.
Fiscal consolidation should start in 2024 to rebuild fiscal buffers and support the disinflationary process while allowing for targeted support to those not sufficiently covered by the social safety net despite the increase in benefit levels. Some untargeted energy support measures such as electricity, gas and heating price caps for households were extended to 2024, costing around 1% of GDP. With energy and commodity prices below their peaks of 2022, broad and untargeted policy support should be phased out and unspent resources allocated for energy support measures should be used to reduce public debt. Recent increases in minimum wages and welfare benefits, either through discretionary compensation for past inflation (e.g. minimum wage) or automatic indexation to it (e.g. pensions), will provide necessary support to many vulnerable households, with the advantage of not lowering marginal energy prices or weakening incentives to reduce energy use. However, providing support only to existing welfare recipients may be insufficient. Other sources of vulnerability may be related to the energy efficiency of the dwellings or high energy needs due to age, illness or geographical factors.
1. Does not include military equipment donations.
Source: Based on (MoF, 2023[12]), Tables 9 and 10.
Improving the public data infrastructure and further digitalising the government can help better target social benefits. There is a need to enhance data collection and link existing databases across the government. For example, as personal income taxes are levied at the individual level, information on household income is generally lacking. Households have to apply for means-tested welfare benefits targeted at the household level as eligibility is not automatically assessed. Moreover, while information on the energy efficiency of buildings exists, such information is not available for individual apartments within buildings, and cannot be linked to income data. The sharing and linking of existing databases across ministries and levels of government is hampered by data protection and IT concerns. Strengthening coordination across government agencies, improving database interoperability and IT infrastructure, and overcoming legal and regulatory obstacles (while adequately protecting privacy) would facilitate targeting policy programmes and raise the quality of public spending. The availability and combination of different datasets is key to better targeting (Hemmerlé et al., 2023[14]).
The planned fiscal consolidation is insufficient to stabilise debt at current levels. In December 2023, parliament approved a budget for the year 2024 which targets a reduction of the general government budget deficit from 6.5% of GDP in 2023 to 6% of GDP in 2024. The budget includes consolidation measures summing to around 1.5% of GDP but also introduces additional expenditures. The consolidation measures are largely focused on the revenue side and include higher taxation of tobacco and alcohol, higher social security contributions for health insurance, higher taxation of banking profits, extension of the taxation of excess profits to the oil industry. At the same time, the budget also includes extra spending for the increase of the 13th pension, tax benefits for mortgage payments and the extension of untargeted energy support measures. The government targets a reduction of the budget deficit to 5% and 4% of GDP in 2025 and 2026, respectively, but consolidation measures to achieve these targets have not been specified. Under this budget deficit path, the public debt-to-GDP ratio will continue to increase above 60% of GDP. To stabilise debt below 60% of GDP in the near-term, a more ambitious consolidation path with an annual improvement of the primary structural balance of closer to 1% of GDP per year is needed.
Note: Panel A, 2023 data refer to projections.
Source: OECD Economic Outlook: Statistics and Projections database.
The fiscal consolidation strategy should focus on reducing expenditures given Slovakia’s tax burden, while avoiding harming growth and equity. The consolidation strategy should draw on recent and future spending reviews, which identify spending efficiency potential without harming outcomes. Over a dozen spending reviews have been completed since 2016, but savings measures have not been systematically implemented in the budget. A recent spending review on subsidies identified annual savings potential of around 0.3% of GDP, mainly by abolishing environmentally harmful fossil fuel subsidies (MoF, 2023[15]). Potential savings have also been identified in health care, amounting to around 0.4% of GDP, in particular in the area of pharmaceuticals (e.g. strengthening cost-effectiveness evaluations of pharmaceuticals that are fully reimbursed, promoting generics) (MoF, 2022[16]). Furthermore, family benefits have increased substantially in recent years and should be carefully evaluated, especially to avoid disincentives for mothers to take up work. Moreover, an assessment of the latest family package in place since 2023 shows that the increase in benefits is not well targeted to households most in need, with less than 10% of the total expenditures going to households at risk of poverty (MoF, 2023[17]). Addressing the pressures from ageing is paramount. For instance, further measures are needed to improve the sustainability of the pay-as-you-go public pension system. The Ministry of Finance presented a menu of consolidation measures in October 2023, consisting of close to 100 measures in the amount of 7% of GDP (MoF, 2023[18]). Substantial inflows from the EU Resilience and Recovery Facility as well as EU structural funds from the new programming period, provide an opportunity to pursue ambitious consolidation without harming crucial investments for education and health as well as to accelerate the digital and green transitions. On the revenue side, priority should be given to broadening tax bases, reducing tax expenditures and improving collection.
General government debt, as a percentage of GDP
Note: The “Baseline scenario” is based on the OECD Economic Outlook 114 database with updates until 2025 and the OECD Long-Term Economic Model thereafter. Increases in ageing-related costs are not offset and are based on the EU Ageing Report 2021 and Ministry of Finance. The “Reform and 5.5% (4.5%) consolidation scenarios” are based on the OECD Long-Term growth Model and reform scenario outlined in Box 1.1, which implies a 0.5 p.p. higher real GDP growth rate on average over the projection period compared to the baseline scenario. In addition, the scenario assumes an improvement of the primary balance by 1.1 p.p. (0.9 p.p.) of GDP per year between 2023 and 2028.
Source: OECD Long-term Economic Model; EU Ageing Report 2021; Ministry of Finance.
The adoption of multi-annual expenditure ceilings in 2022, as recommended in the previous Survey (OECD, 2022[19]), will enhance the credibility of the fiscal consolidation strategy (Box 1.3). The adoption of multi-annual expenditure ceilings strengthens incentives to incorporate expenditure reviews into the budgetary planning process. The rules are designed in a way that supports countercyclical fiscal policy. Nominal level ceilings constrain spending in boom times when revenues are high, while excluding expenditures driven by the economic cycle, such as unemployment benefits, allows automatic stabilisers to operate during downturns. Moreover, by excluding EU-related co-financing of investment, the rules also safeguard a significant part of public investment. The ceilings will become binding in 2024. They will be set to imply an annual structural consolidation of around 0.5% of GDP per year relative to a no-policy-change scenario, given Slovakia’s high long-term debt sustainability risk (Box 1.3).
Reforms of the national debt rule are still pending parliamentary approval. Under the current debt rule, the gross debt ceiling is 45% of GDP in 2023 and is set to gradually fall to 40% of GDP by 2028. As the debt level significantly exceeds the national target, the rule in principle requires the government to present a balanced budget for 2024. However, since a new government was formed in October 2023, this requirement to present a balanced budget is waived for two years. Under the proposed modified debt rule this requirement would be waived by one year. As detailed in the previous Survey, other proposals to reform the debt rule include a switch from gross to net debt targets by adjusting for financial assets to facilitate public debt and liquidity management. The net debt target would be set at 44% of GDP in 2023 and gradually fall to 35% in 2035. Moreover, the reforms would include stricter sanctions if net debt exceeds the target but also modify the escape clause of the rule to provide greater flexibility in times of crisis or severe downturns. It will be important to ensure that the reformed debt rule and the expenditure rule are aligned, by linking the two rules and establishing consistent and transparent escape clauses.
Table 1.4 presents estimates of the fiscal impact of selected recommendations. The results are indicative and do not allow for behavioural responses. Moreover, revenue gains from the recommended reform package via higher employment are not included. The employment rate increases by 1.8 percentage points by 2034 relative to the baseline.
Table 1.5 quantifies the GDP impact of the main recommendations based on the OECD Economics Department long-term model.
Relative to baseline
Note: The total impact of reforms is not equal to the sum of the separate reforms because of interactions between reforms. Reforms to improve the rule of law include measures to strengthen the anti-corruption framework. Enhancing the quality of public investment spending includes measures to increase the benefit-cost ratios of investment spending.
Source: OECD Economics Department Long-Term Model.
Debt rule
The national debt rule has been in place since 2012 and is part of the constitutional law on budgetary responsibility. The ceiling was initially set at 50% of GDP and has been decreasing over time.
Ceiling: In 2024, the gross debt (Maastricht definition) ceiling will be set at 44% of GDP. The ceiling is set to gradually fall by 1 percentage point per year to 40% of GDP in 2028.
Sanction bands: If debt exceeds the ceiling, sanctions apply according to five sanction bands (as of 2024): 1) 44-47% of GDP: the Ministry of Finance must propose measures to reduce debt; 2) 47-49% of GDP: salaries of government members are frozen at the previous year level; 3) 49-51% of GDP: expenditures (excluding some such as debt service and EU funded expenditures) have to be cut by 3% in the current year and expenditures are frozen at this level in the following year; 4) 51-54% of GDP: the following year’s general government budget has to be balanced or in surplus; 5) above 54% of GDP: a vote of confidence in the parliament is triggered.
Escape clause: sanctions will not apply in case of war. In addition, the strictest sanctions (bands 3-5) do not apply a) for 2 years after the Manifesto of the new government is approved by the Parliament; b) for 3 years if year-on-year GDP growth falls by 12 percentage points, c) for 3 years if the response to a banking crisis, a natural disaster or international treaties require additional expenditures of more than 3% of GDP.
Expenditure rule
In March 2022, the Slovak parliament approved amendments to the budgetary law that introduce expenditure ceilings. In December 2022, the Ministry of Finance and the independent fiscal council agreed on a methodology to compute the ceilings. The computation of the ceilings is under the responsibility of the fiscal council. The fiscal council will update the ceilings after the approval of the new government’s manifesto. The ceilings will become binding from 2024.
The expenditure ceilings are set for the four-year parliamentary term. They are based on the fiscal council’s long-term fiscal sustainability indicators. If long-term sustainability risks are considered medium/high, as is currently the case, expenditure ceilings are set in line with an annual improvement of the structural budget balance of 0.5% of GDP compared to a no-policy-change scenario, given tax revenue forecasts. If long-term sustainability risks are considered low, the required annual improvement of the structural budget balance is 0.25% of GDP. A larger structural consolidation and hence lower spending ceilings may be required if public debt deviates significantly from the national debt rule, in line with the sanction bands of the debt rule.
The expenditure ceilings cover about 80% of total government spending. They exclude: i) debt service spending, ii) local government expenditures, iii) EU-related expenditure including investment co-financing, iv) expenditures driven by the economic cycle, such as part of unemployment benefits, and one-offs.
The spending ceilings are updated annually to reflect new government measures, non-compliance with the rule in the previous year or significant deviations of tax revenues from forecasts. If the government violates the expenditure rule by more than 1% of GDP for two consecutive years, a vote of confidence in the parliament is triggered.
The tax mix puts a high burden on labour. The overall tax burden increased over the past decade, and the tax revenue to GDP ratio, at 35.4% of GDP in 2021, is slightly above the OECD average (34.2% of GDP). Slovakia relies significantly more on social security contributions and much less on property taxation than other OECD countries (Figure 1.10, Panel A). As a result of the high social security contributions, the average tax wedge – the gap between the net take-home pay of workers and their costs to employers – is high in international comparison. In 2023, the government increased the child tax credit and child allowances, lowering the tax wedge for families and further increasing the already substantial fiscal preference for families with children compared to other OECD countries (OECD, 2023[20]). However, the tax wedge remains high for single households and low-income earners (Figure 1.10, Panel B), with likely negative effects on the employment of low-skilled workers. The new government plans to increase health insurance contributions, further increasing the tax wedge.
Note: The OECD and OECD Europe aggregates are an unweighted average of the countries in the group. In Panel B, the tax wedge is the sum of personal income tax and employee plus employer social security contributions together with any payroll tax less cash transfers, expressed as a percentage of labour costs for a single person (without children) on average earnings.
Source: OECD Global Revenue Statistics database; OECD Environmental policy database; and OECD Taxing wages database.
A tax reform with the aim of shifting the burden from labour to property, environmentally harmful activities and unhealthy products has the potential to reduce distortions to economic growth (Arnold et al., 2011[21]). Such a shift would make the tax system also more resilient to the effects of ageing. As discussed in detail in Chapter 2 the government should increase revenues from recurrent taxes on immovable property and change the tax base to market values. The tax design can make higher property taxes more politically acceptable, for example by introducing tax deferrals for liquidity-constrained households or some progressivity through tax exemptions or credits (see Chapter 2 for details). Higher revenues from property taxation together with reducing the tax benefits for owner-occupied housing and higher environmental taxation would help to create room to lower the tax burden on labour. As discussed below, environmental taxes should increase and be adjusted to ensure a more consistent pricing of carbon and other pollutants across fuels and uses to ensure cost-efficient emission reductions. The landfill tax should also increase to reduce the share of waste in landfill, which remains significantly above the OECD average (OECD, 2022[22]). Moreover, environmental taxes should be regularly adjusted with inflation, and energy tax exemptions should be phased out while protecting the most vulnerable through targeted income support measures. Finally, preventable mortality is high reflecting inter alia behavioural risk factors (OECD, 2022[19]). For example, smoking prevalence and alcohol consumption remain above the OECD average, and the share of overweight and obese people has increased significantly in recent years (OECD, 2023[23]). This calls for higher taxation of unhealthy products such as alcohol, tobacco or sweetened beverages.
There is room to further improve VAT collection, notably by improving compliance and reversing exemptions and reductions granted in recent years. According to the VAT Revenue Ratio indicator (OECD, 2022[24]), in 2020 Slovakia lost a slightly higher proportion (49%) of its potential VAT revenues than OECD countries on average (44%) due to VAT exemptions, reduced rates, weak enforcement or VAT non-compliance. A reduced VAT rate of 10% and exemptions exist for a number of goods and services, such as certain food items and accommodation services. In 2023, reduced VAT rates were extended to catering, sports venues, ski lifts, indoor and outdoor sports and fitness facilities, with a budgetary cost of 0.2% of GDP. Evidence suggests that firms have not passed on the VAT cut to final consumers (NBS, 2023[25]). More generally, VAT exemptions or reduced rates should be reversed as they are poorly targeted and inefficient, benefitting all households, including the affluent. Furthermore, differential VAT rates provide opportunities for tax evasion by re-classifying goods to benefit from lower rates.
Given the significant consolidation needs, an increase of the standard VAT rate may be needed. The VAT rate is 20%, which is around the OECD average but lower than in neighbouring Czechia (21%), Hungary (27%) and Poland (23%). A VAT rate hike is easy to implement, and the revenue gains could be substantial. For example, an increase by 2 percentage points could increase revenues by around EUR 1 billion (0.9% of GDP) (MoF, 2023[18]). However, a higher VAT rate would increase incentives to evade the VAT tax. Moreover, raising VAT revenues through base broadening instead of rate increases tends to be more growth-friendly (Acosta-Ormaechea and Morozumi, 2021[26]).
Progress in tackling tax evasion and improving tax compliance continues. The VAT compliance gap continues its downward trend (from over 30% in 2013 to 13.9% in 2020) but remains above the EU average of 9.1%. Despite some simplifications to the tax registration system for new companies, the digitalisation of the tax administration is progressing only slowly (EC, 2023[27]). The introduction of electronic invoicing, originally scheduled for 2022, has been postponed. Efforts should also continue to reduce compliance costs (e.g. via electronic pre-filling of income tax returns or education programmes for SMEs). Facilitating compliance could create scope to reduce the VAT registration and collection threshold, which is comparatively high in Slovakia (OECD, 2022[24]). A number of OECD countries combine a low VAT registration and collection threshold with simplified procedures to calculate the VAT liability for SMEs, such as presumptive tax schemes.
Slovakia’s population is ageing rapidly. The share of the working-age population is expected to shrink by about a fifth between 2022 and 2050 while the share of the population aged 65 and above will almost double (Figure 1.11, Panel A). Projections suggest that pension expenditures will increase by around 3.6% of GDP by 2060. As discussed in detail in the previous Survey, one of the main levers to mitigate spending pressures is to extend working lives. The effective retirement age is among the lowest in the OECD (Figure 1.12), reflecting a currently relatively low statutory retirement age together with the possibility to retire early and other pathways into early retirement such as disability pensions.
Note: Panel B, public pension expenditures include armed forces schemes.
Source: European Commission 2024 Ageing Report, Underlying Assumptions and Projection Methodologies; and the Ministry of Finance of the Slovak Republic.
Recent pension reforms have had an overall positive impact on the sustainability of the public pay-as-you-go system but a large funding gap remains. In 2022, the statutory retirement age was re-linked to life expectancy as recommended in the previous Survey. This will be effective from 2030. Until 2030 the statutory retirement age will gradually increase from currently 63 years to 64 years. Moreover, the growth of future pension benefits has been slowed, by reducing the growth of the pension point value (95% of average wage instead of 100%). However, the positive impact of these reforms on pension sustainability has been partly offset by the introduction of an additional early retirement option after 40 years of contributions as well as the introduction of the so-called parental bonus. The parental bonus is a pension supplement to parents in the amount of 1.5% of each child’s social security base. As discussed in the previous Survey, the parental bonus raises efficiency and equity issues, as the bonus favours parents of more affluent children, and is fiscally costly (0.3% of GDP per year). The authorities should therefore consider cancelling the parental bonus to improve pension sustainability, although such a change would require a constitutional majority in the parliament. Overall, the recent pension reforms are estimated to have improved the sustainability of the public pensions system by around 2% of GDP by 2070, or around a third of the funding gap (MOF, 2023[13]). Nevertheless, a significant pension sustainability gap remains (Figure 1.11, Panel B).
Pathways to early retirement should be tightened. The new scheme of retirement after 40 years of contributions adds another pathway to early retirement to the already existing scheme that allows retirement two years before the statutory retirement age. The penalties for retiring early differ between the two schemes. The penalty amounts to 3.9% per year before reaching the statutory retirement age in the new scheme and around 6.5% per year in the previous scheme. The penalties for the two early retirement options should be equalised and aligned with what is implied by actuarial neutrality. The actuarial neutrality should also be regularly re-assessed. Moreover, the minimum contribution requirement should increase in the future in line with increases of the statutory retirement age to avoid negative effects on growth and people leaving the labour market with low pension entitlements. For instance, Belgium and France have recently increased the minimum contribution requirement reflecting gains in life expectancy. Finally, the early retirement option for mothers should be phased out. Currently, women are allowed to retire 6 months earlier for each child (up to three children), without penalties. This harms the sustainability of the pension system and lowers pension incomes for women. To ensure that older workers remain in employment it is important to strengthen incentives for them to participate in adult learning and facilitate access to part-time work and flexible work arrangements (OECD, 2022[19]). Finland, for example, has implemented flexible working hour schemes for older workers. In Sweden, job rotation schemes have been developed to tailor tasks to the personal situation of older workers.
Effective labour market exit ages by sex, 2022
Source: OECD Pension at a Glance database.
Access to disability pensions needs to be reformed. Nearly 10% of older workers withdraw full disability benefits (Fodor, Roehn and Hwang, 2022[28]). The share of people withdrawing disability benefits is relatively high compared to peer countries with similar health outcomes such as Poland, Hungary, and the Czech Republic. This reflects less stringent assessment criteria, which have not been updated since 2004. A recent reform expands the list of diagnoses and criteria, further easing access to disability benefits. Instead, the government should shift the focus from evaluating incapacity to work towards assessing the remaining work capacity as done in an increasing number of OECD countries. In addition, work rehabilitation should be further developed and made mandatory for receiving disability pensions as in Luxembourg, Switzerland, New Zealand, Norway and Sweden.
Pension contribution rates and the labour tax wedge are relatively high, suggesting limited room to increase pension contributions. Nevertheless, the authorities should raise the pension contribution base of the self-employed to better harmonise contributions and entitlements between employees and the self-employed workers with similar earning (OECD, 2022[19]). At the same time, the authorities could consider financing some of the redistributive elements of the pension system via the general taxation. The pay-as-you-go pension system is highly redistributive, weakening the link between pension contributions and entitlements (OECD, 2022[19]). Financing some of the redistributive elements via general taxation could help improve the finances of the pension system and allow to lower social security contributions.
On the benefit side, gross replacement rates are around the OECD average. Net replacement rates are somewhat above the OECD average, mainly reflecting a generous tax treatment of pensions - pension contributions are tax deductible and benefits are fully exempt from taxes and social security contributions. This is an uncommon tax treatment in OECD countries. Relative poverty rates of people aged 65 and above are low in international comparison (OECD, 2023[29]). The authorities could consider taxing pension benefits under the personal income tax (PIT) schedule although such a change would face political economy challenges. The progressivity of the PIT would ensure that low pensions remain tax exempt. In addition, automatic adjustments to pension benefits could be introduced. This could help ensure financial sustainability, reduce the need for recurrent discretionary adjustments and improve the predictability of future pension entitlements. For example, Finland links pension entitlements to life expectancy. In Germany, which also has a point-based pay-as-you-go system, the pension point value is linked to the ratio of contributors to pensioners. Finally, the authorities could cancel the 13th pension for high-income earners. However, the new government increased the 13th pension for all pensioners.
Reforms to the private, fully-funded, defined-contribution pension system in 2022 (“Pillar II”) will improve pension yields in the future and are in line with recommendations in the previous Survey. As detailed in the previous Survey, the private pension suffers from low yields, making it inefficient in providing additional pension income. Recent reforms include most importantly a change towards automatic enrolment into the system for employees under the age of 40 (with the possibility to opt out), and the introduction of default life-cycle investment strategies. According to the default life-cycle based investment strategies, the pension funds will allocate a higher share of the individual pension savings into global equities. This, together with a change in pension fund fee regulations, should improve the very low returns of the private pension funds (OECD, 2022[19]). However, at the end of 2023, the parliament adopted legislation to reduce pension contributions to the private system, reducing future pension income from this second Pillar.
The employment rate of mothers with young children is low in Slovakia (Figure 1.13). While the employment rate of women is overall high, it falls markedly for several years after childbirth. Long absences from the labour market during childbearing age impact women’s subsequent careers, and the gender wage gap is sizeable. Shorter careers and the labour income gap contribute to lower pension income. Family benefits need to be reviewed, in particular the balance between cash benefits (e.g. parental leave allowances) and in-kind benefits (e.g. early childhood education and care), with a view to reducing disincentives for mothers with young children to work outside the home. Increasing employment rates of mothers would help mitigate the impact of a shrinking work force with likely positive effects on tax revenues. Recent research also points to a more significant impact of the provision of affordable childcare on fertility compared to parental leave policies (Doepke et al., 2022[30]).
Employment rates for women with children aged 0-2, by maternity/parental leave status, %, 2021 or latest available year
Source: OECD Family database, https://www.oecd.org/els/family/database.htm.
Further improving access to high-quality early childhood education and care (ECEC) should remain a key priority. The participation rate of children in pre-school education has increased but remains substantially below EU and OECD averages especially for children under the age of 3 (Figure 1.14). Enrolment in ECEC is also highly heterogeneous. The enrolment rate of 3-5-year-olds in households that receive “assistance in material need” and households from the marginalized Roma community are substantially lower (OECD, 2022[19]). Besides facilitating mothers’ participation in the labour market, access to high-quality ECEC has a strong positive impact on the development of children from vulnerable groups, provides a crucial foundation for future learning, and raises equality of opportunity (e.g. (OECD, 2021[31]), (Drange and Havnes, 2019[32])). This is especially crucial for Slovakia, where the impact of socio-economic background on student performance is the strongest in the OECD (OECD, 2019[33]). Pre-primary education has become mandatory for 5-year-olds from the 2021/22 school year, and the legal entitlement will be expanded to 4- and 3-year-olds from school years 2024/25 and 2025/26, respectively.
Increasing participation in ECEC will require improving affordability and expanding the supply of high-quality childcare places. Reducing the childcare fee for low-income earners or increasing the childcare allowance (i.e. a subsidy for the childcare fee) would significantly improve affordability of ECEC while increasing work incentives for mothers (OECD, 2022[19]). Besides affordability, insufficient supply of places, in particular in municipalities with a high share of Roma population, contributes to low enrolment rates ( (MoF, 2020[34]); (OECD, 2019[35]), (OECD, 2020[36])). Further investment in pre-school facilities, as planned in the Recovery and Resilience plan, is crucial to ensure high-quality pre-school education in light of the planned expansion of the legal entitlement to 3- and 4-year-olds. Raising awareness of the positive long-term effects of pre-primary education and building trust through relationships with parents, especially in Roma communities, is key to ensure participation of disadvantaged groups. Designated contact persons, who are trained and equipped with necessary language skills, could help with administrative requirements for enrolment (OECD, 2020[37]).
Enrolment rates of children in early childhood education and care, %, 2021 or latest available year
Source: OECD Education database.
Very long parental leave discourages women from returning to work. Parental leave, which follows maternity leave, is 130 weeks (i.e., 2.5 years) in Slovakia, more than four times longer than the OECD average (Figure 1.15). While both parents can take parental leave, over 97% of parental leave beneficiaries were women on average during the period 2020-22 according to data from the Ministry of Labour. Moreover, while mothers can decide when to return to work during the duration of parental leave, about half of them took the maximum duration of parental leave in 2019. Very long leave periods for women reduce chances of re-entering the labour market and lead to severe negative consequences for career progression as well as earnings mobility over the life course (e.g. (Thévenon and Solaz, 2013[38])). Paid parental leave should therefore be gradually shortened and part of the parental leave should be made conditional on the second parent’s participation in households with two parents. While mothers can in principle combine work and the parental allowance, few do so in practice. As analysed in detail in the previous Survey (OECD, 2022[19]), this is mainly due to high childcare fees (especially for nurseries), resulting in a high participation tax especially for low income earners. It is therefore important that reforms of parental leave are accompanied by a significant increase in high-quality affordable ECEC facilities. Alternatively, the childcare allowance, which is a subsidy of childcare fees and only available to working parents, could be made more financially attractive relative to the parental leave allowance.
Increasing the flexibility of working arrangements can help mothers (re-) enter the labour market. The part-time employment rate is one of the lowest in the OECD at 2.9%, compared to the OECD average of 16.1% in 2022. Working time arrangements are also relatively inflexible – daily start and finish times are fixed for more than two thirds of surveyed employees in Slovakia, the fourth highest share in the EU (EC, 2020). The use of voluntary part-time work or flexible work schedules for women with young children should be promoted. In Sweden, for instance, mothers can split the parental leave period of 18 months in a number of shorter spells and use them to shorten working hours until their children reach the age of eight.
Improving the labour market integration of Roma women requires more holistic policy approaches as discussed in detail in previous Surveys (OECD, 2019[35]). The employment rate of Roma women is less than half of that of non-Roma women, and most Roma live at risk of poverty and social exclusion. Tackling the labour market challenges of Roma women requires approaches that cut through several policy areas. This includes addressing language barriers, expanding pre-school facilities, improving skills by enhancing the inclusiveness of the education system (e.g. by increasing the number of Roma-speaking teaching assistants and reducing the number of Roma in special needs schools), and strengthening second-chance education programmes. Moreover, better access to health care services, accelerating the formalisation of property rights in Roma settlements to enhance access to basic infrastructures (see Chapter 2) as well as adequate transport infrastructure to connect Roma settlements to job markets is needed to foster integration.
Number of weeks, 2022
Source: OECD Family database.
Public investment lags that of regional peers. Slovakia spent around 3.5% of GDP on public investment over the past two decades, above the EU average but less than regional peers (Figure 1.16). Slovakia appears to be underinvesting in particular in the areas of education, health, and research and development. Estimates of the public capital stock suggest a significant gap to other EU countries and regional peers in these areas while the transport capital stock is now comparable to other EU countries (MoF, forthcoming). Given significant gaps of Slovakia’s educational and health outcomes and innovation capacity compared to other OECD countries as pointed out in previous Surveys (e.g. (OECD, 2022[19])) more investment in these areas seems warranted.
Moreover, the efficiency of public investment spending needs to be improved. About 53% of companies consider the infrastructure in Slovakia to be inadequate, compared to 38% in the EU on average. (Eurobarometer, 2022[39]). Estimates in (Dutu and Sicari, 2016[40]) suggest that spending efficiency in the areas of education, health and public administration is among the lowest in the OECD. More recent data envelope analysis (DEA) relating inputs (public investment) in Slovakia to outputs such as the road network length, connections to wastewater treatment, number of hospital beds, and energy production capacity also suggests significant room to increase investment spending efficiency (MoF, forthcoming). Furthermore, benefits of investment projects evaluated by the Ministry of Finance only slightly exceeded their costs, with a benefit-cost ratio (BCR) averaging 1.5. Only around 30% of investment projects reach a BCR of 2, which is considered a minimum standard for most types of public investment projects in the United Kingdom.
Government gross fixed capital formation as % of GDP
Note: Visegrad 3 refers to the average of the data for the Czech Republic, Hungary and Poland.
Source: OECD National Accounts database; and OECD calculations.
Improving the absorption of EU funds can help boost investment spending in lagging areas. Significant inflows of EU structural and cohesion funds have been an important driver of public investment. Over the period 2024-2027, Slovakia is eligible for EU funds worth over 14% of 2023 GDP, including structural funds from 2021-2027 programming period and the Recovery and Resilience facility. However, the drawing of EU funds has historically been slow. For example, by the end of 2022 only about 65% of the allocated EU structural funds from the 2014-2020 programming period were spent, one of the lowest shares in the EU (Figure 1.17). In the past, the absorption rate jumped to close to 100% of the allocations in the last possible year of drawings. However, this raises concerns over the efficiency of spending. For example, large investment spending in a single year may push up construction prices and reduce competition in tenders (OECD, 2016[41]). Moreover, because of a lack of significantly prepared projects, about EUR 1 billion EU structural funds from the 2014-2020 programming period were re-allocated to finance measures to mitigate the energy crisis in 2023. Difficulties in implementing capital expenditures are not confined to EU funded projects but extend to nationally-funded projects (MoF, 2023[42]).
Significant progress has been made to improve project planning, preparation, and prioritisation. Since 2016, all investment projects above EUR 40 million (EUR 10 millions for IT projects) require a feasibility study that the Ministry of Finance centrally evaluates. A general cost-benefit methodology and sectoral methodologies were adopted to provide better guidance for investors in preparing feasibility studies. In 2020, an investment authority (IA) was established within the Ministry of Finance to streamline project preparation and improve the quality of investments. The mandate of the IA was extended to assess all public investment projects above EUR 1 million. Projects above EUR 1 million but below EUR 40 million are assessed only once before public procurement. Large projects (above 40 mil. EUR and 10 mil. EUR in IT sector) are assessed three times - at the stage of feasibility study, before public procurement and before the agreement with the contractor is signed. Since 2021, all ministries with annual public investment expenditures above EUR 20 million have to publish investment prioritisation methodologies and investment plans for at least 5 years based on a standardised methodology. In addition, only well-prepared investment projects with a positive social return that conform to the prioritised investment plan should be included in the budget (zero-based budgeting) from 2021. Prioritising well-prepared projects with higher benefit-cost ratios should help implement investment spending and improve spending efficiency.
Absorption of the 2014-20 programme of EU structural funds, %
Note: EU structural funds include here the Cohesion Fund, European Regional Development Fund, European Social Fund and Youth Employment Initiative. Absorption rate is the percentage of funds spent relative to the total planned amount (EU funding and national co-financing).
Source: Open Data Platform for the European Structural and Investment Funds.
The central appraisal of investment projects at an early stage of project preparation should be expanded. In 2022, 246 projects with a total cost of EUR 10.3 billion were centrally evaluated by the Ministry of Finance and savings of EUR 657 million identified (median saving of 6% per project) (MoF, 2023[42]). The largest savings potential is generally identified at an early stage of project preparation, when feasibility studies are centrally appraised. In contrast, central appraisal only at a late stage of project preparation before procurement, only leads to small savings (MoF, 2023[42]). This is because cost-saving changes to the technical specifications at a late stage of project preparation are more difficult to implement. The authorities should therefore consider lowering the threshold for projects that are centrally appraised at an early stage (generally projects above EUR 40 million). In contrast, the threshold for projects appraised only once at a late stage of project preparation (projects with costs of EUR 1 to 40 million) could be increased. This would free limited resources for early-stage appraisals with larger savings potential. A recent legislative change went in the opposite direction. In 2023, parliament approved a law that would no longer require a central evaluation of the feasibility study for highway projects. This significantly reduces the potential for the Ministry of Finance to identify savings by proposing different technical solutions. The savings potential from early-stage evaluations of transport projects is large. For example, the average suggested savings of the 24 transport projects assessed by the Ministry of Finance was around a quarter of the initial project cost. Skipping the early-stage assessment only yields marginal time savings, as the Ministry of Finance by law only has 30 days to assess investment projects. Large transport investment projects should therefore continue to be evaluated at an early stage to ensure high benefit-cost ratios.
Further progress can be made to improve project preparation, planning and implementation. Investment plans and priority methodologies are only prepared at the central government level but not at the regional level, which accounts for around 30% of public investment (OECD, 2021[43]). Furthermore, the establishment of a specialised unit to strengthen financial oversight of major SOEs, including their annual budgets and investment plans, could help improve public investment efficiency as SOEs carry out half of public investment in Slovakia (IMF, 2019[44]). Moreover, published investment methodologies and plans by line ministries currently have different formats and some of them do not meet quality criteria, for example in terms of identifying the most important projects or insufficiently covering all relevant types of capital expenditures (MOF, 2023[13]). This points to the need to assess staff needs and further strengthen human capacity at line ministries and lower levels of government via targeted training. Further improvements are also necessary in later stages of the investment cycle. The implementation of projects is often delayed because of poor project management and a system for monitoring the progress of projects does not exist. Ex-post assessments of investment projects are not done systematically, and their results are not used to improve current processes.
In October 2023, the previous caretaker government approved a strategic document (A guide for a successful Slovakia) that includes recommendations to better use European funds. The document recommends for example to prepare a long-term development strategy until 2050, including strategic investment priorities, and a national fund to support high-quality project preparation. Moreover, a binding schedule for the announcement of tender calls would increase the transparency for project applicants. The document also calls for further digitalisation of processes and improving the quality of the preparation phase of public procurement via capacity building and sufficient time to implement procurement.
Public procurement plays an important role in the efficient provision of public services. Public procurement accounted for 12 % of GDP and 27% of general government expenditures in Slovakia in 2021 (OECD, 2023[45]). The public procurement act was amended in 2021 to speed up and simplify procurement processes, align domestic regulations with EU directives, and improve procurement controls by automating contract evaluation and award. A greater use of e-procurement and efficient collection and analysis of data is also foreseen. Nevertheless, the European Commission’s Single Market Scoreboard suggests deficiencies in particular in the areas of competition, efficiency and quality of public procurement (Figure 1.18). For example, about 95% of contracts in Slovakia were awarded based only on the lowest price in 2021. This is well above the EU average of 64% and might reflect limited competition based on quality.
Using a wider set of award criteria in public procurement can enhance value for money. Under EU regulations, contracting authorities can award a public contract based on the lowest price or the most economically advantageous tender (MEAT) criterion, which means applying criteria in addition to or other than the price. These criteria can relate to the quality of the product or service, innovative or green solutions or life-cycle costs. The use of MEAT criteria in public procurement procedures is relatively limited in Slovakia, accounting for only 14% of the total procurement volume on average during the period 2016-20 (OECD, 2023[46]). A lack of guidelines and tools, an unclear legal framework and the perception that MEAT criteria are riskier are among the main challenges (OECD, 2021[47]). To alleviate these bottlenecks, the OECD is working with the Slovak Public Procurement Office to develop guidelines and templates related to (i) using MEAT criteria, (ii) market consultations to define MEAT criteria, and (iii) combining the use of MEAT criteria with broader policy objectives (OECD, 2023[46]). In addition, targeted capacity building activities should be developed including a training action plan on the use of MEAT (OECD, 2021[47]).
Encouraging more joint public procurement can increase efficiency and speed up the digitalisation of the public sector. Procurement combining several public buyers is relatively rare (Figure 1.18, Panel B). The centralisation or joint procurement of products and services can strengthen public sector negotiating power, exploit synergies and enable savings. The benefits are potentially large in the area of ICT, given that Slovakia lags behind in the digitalisation of the public sector. Joint and central procurement can promote the adoption of interoperable IT solutions across the central and local level. While a high share of ICT is purchased at the central level, there does not currently exist an ICT specific Centralised Purchasing Body (CPB) (OECD, 2022[48]). Germany created the Central Office for IT Procurement within the Federal Procurement Office of the Federal Ministry of the Interior (Zentralstelle für IT Beschaffung) in 2017. In addition, very little joint ICT procurement takes place. National, regional and local public administrations can reduce costs, increase efficiency and foster interoperability by jointly developing, reusing or sharing IT solutions that meet common requirements (OECD, 2022[48]). The planned new central platform for IT procurement, as part of the Recovery and Resilience plan, is a step in the right direction.
Source: European Commission Single Market Scoreboard, https://single-market-scoreboard.ec.europa.eu/business-framework-conditions/public-procurement_en.
Productivity growth has slowed since the global financial crisis, but remains high by international standards. As a result, productivity convergence to the OECD average has continued, albeit at a slower pace (Figure 1.19). The slowdown partly reflects diminishing benefits from Slovakia’s integration into global value chains and has been accompanied by a marked downturn in FDI inflows. Foreign direct investment has focused mainly on downstream activities, which, have generated high productivity growth in the past but have low value added. Strong productivity growth has been mainly driven by the manufacturing sector, especially large multinational firms, while productivity gains in services have been more moderate (OECD, 2022[19]) (OECD, 2019[35]). The manufacturing sector, which also employs a much larger share of the workforce in Slovakia (22%) than in other OECD countries (13%), is highly exposed to global shocks and global trends such as automation and the green transition. To sustain productivity growth, Slovakia needs to strengthen its adaptability to these trends, broaden the drivers of growth and develop its capacity to innovate and adopt new technologies.
Productivity gap to the OECD average, %
Note: Productivity is calculated as GDP (USD, constant prices, 2015 PPPs) per hour worked.
Source: OECD Productivity database; and OECD calculations.
Technological progress as well as the green and digital transitions will shift the demand for skills, highlighting the need for an adaptable education system that provides opportunities to re- and upskill workers throughout their career. Around 35% of jobs in Slovakia face a high risk of automation, one of the highest shares in the OECD (Lassébie and Quintini, 2022[1]). Reskilling needs depend on the type of automation (e.g. robots, AI) and workers’ skill level, with low-skilled jobs twice as exposed to robots than high-skilled occupations for example (OECD, 2022[19]). Furthermore, the decarbonisation of industry, phase out of coal or shift to electric vehicle production will imply adjustments to occupations and required skills (see below).
Sustaining productivity growth will require improving the quality of the education system, reducing skill shortages and better matching of skills to jobs. Among 25-34-year-olds, fewer Slovaks score high in problem-solving in technology-rich environments compared with other OECD countries on average according to the Survey of Adult Skills (PIAAC) data, and shortages exist for example in advanced digital skills (OECD, 2022[49]). Moreover, assessments of the skill set of the labour force and labour market needs in Slovakia suggest high skill mismatches (EC, 2022[50]). Field-of-study mismatch, meaning that workers educated in a particular field work in a different field, is high and a large share of tertiary educated workers are overqualified compared to other OECD countries (OECD, 2021[51]). Skill mismatches are also high among employed Ukrainian refugees. Although one in three refugees working in the country is tertiary educated, only 4% work in an occupation requiring this level of qualification (Hábel and Veselková, 2022[52]). Skill imbalances come at a cost: they reduce the productivity and salaries of Slovak workers by an estimated 6%, a high level by international standards (Giorno, 2019[53]). As part of the Recovery and Resilience plan, progress has been made to attract foreign high-skilled workers, by introducing a new type of visa for high-skilled workers from third countries and simplifying the recognition of foreign qualifications. One-stop shops to help foreigners and returning Slovaks to settle in Slovakia are planned.
Strengthening data collection, analysis and dissemination on labour market skill needs can help align student choices with labour market needs. Several skills assessment and anticipation tools exist, and a graduate tracking system for secondary and tertiary graduates has been established in 2018. The tracking system provides relevant information such as on employment status of all graduates and wages for tertiary graduates. However, wage information for graduates of vocational programmes is currently missing. The capacity to analyse the data and identify data gaps (e.g. on skill use, tasks, job satisfaction of graduates) could also be strengthened and access to data for researchers and experts in key ministries facilitated (Cedefop, 2020[54]). A one-stop-shop portal that allows students and their families to access information on labour market and skill needs as well as study opportunities, as in Denmark and Poland, could be established.
Work-based vocational education can be further enhanced to provide students with labour market relevant skills. The authorities have introduced a number of welcome reforms to make the vocational training system more responsive to labour market needs. In 2015, the government introduced a dual VET model to increase opportunities for work-based learning. However, uptake of the dual model and more broadly of work-based learning remains low (Figure 1.20). In 2021, the amendment to the Vocational Education and Training Act introduced supra-company training centres, which are companies offering practical training to students who signed an apprenticeship contract with a different company in the same sector (often SME), to provide more practical training opportunities and facilitate the participation of SMEs in the dual VET model. The uptake, especially among SMEs, should be monitored. Alternatively, Slovakia could introduce training associations. Evidence from Austria and Switzerland suggests that such training associations can improve the quality of training and foster participation of firms in work-based learning, as costs are shared between firms (OECD, 2020[37]).
The quality of tertiary education needs to be improved to foster skills, and retain and attract the most skilled students and teachers. Tertiary attainment levels have increased strongly, especially among women, over the last two decades. While tertiary attainment rates of women are now close to the OECD average, they continue to lag behind for men. Slovak higher education institutions are poorly ranked in international comparison and the research quality is low. The low perceived quality of Slovak higher education institutions is reflected in the very high share of high-school graduates that study abroad (Figure 1.21). The students who leave are the most successful students according to examination results and few of them intend to return home after their studies (Martinák and Varsik, 2020[55]). This implies that Slovakia is losing some of its most-skilled workers, aggravating skill shortages.
To address these issues the authorities have embarked on a number of reforms. For example, an independent accreditation agency for higher education was established in 2018 to ensure quality standards in line with European standards. In 2022, a periodic scientific evaluation system was introduced to identify excellence clusters at higher education institutions and evaluations are ongoing. The internal governance of universities has been reformed to strengthen the competencies of rectors and the board of trustees. Finally, performance contracts are to be signed with most higher education institutions by the end of 2023. The performance contracts condition funding on meeting performance and quality criteria to support specialisation of higher education institutions. However, planned mergers of higher education institutions have been delayed.
Share of VET students enrolled in combined school- and work-based programmes, 2021
Note: VET students in upper-secondary education.
Source: OECD Education Statistics database.
Share of national tertiary students enrolled abroad, %, 2021
Source: OECD (2023), Education at a Glance 2023: OECD Indicators, OECD Publishing, Paris, https://doi.org/10.1787/e13bef63-en.
Financial incentives to stimulate teaching and research excellence could be further strengthened. Public expenditure per tertiary student has increased but remains lower than in other OECD countries. An increase in the overall budgetary envelope for tertiary expenditure could be conditioned on the successful implementation of ongoing reforms. Funding allocations to higher education institutions are mainly based on a funding formula, which has recently been adjusted to give greater weight to research quality and graduate placements. The funding formula could be further refined to take into account the quality of employment via graduate earnings for example. Moreover, targeted funding, often used in other OECD countries to achieve policy objectives in higher education, is limited in Slovakia (OECD, 2021[51]). The new performance contracts provide an opportunity to strengthen targeted funding to enhance teaching and research quality. For example, targeted funding could be used to promote professionally oriented programmes such as professional bachelor’s degrees and short cycle tertiary programmes, which are underdeveloped in Slovakia. Moreover, funds could be used to strengthen collaboration of higher education institutions, for example through centres of research and excellence initiatives to pool resources as in France. Furthermore, targeted funds could be used to enhance salaries of high performing academic and non-academic staff. Finally, targeted funding could be used to attract academics from abroad (OECD, 2021[51]).
Incentives to participate in life-long learning need to be strengthened to address skill shortages and mismatches. Few Slovak adults participate in training although the share has increased more recently. The government adopted a Lifelong Learning and Counselling Strategy in 2021 and an Action for the years 2022-24, taking into account recommendations of the OECD Skills Strategy (OECD, 2020[37]). The Action Plan includes measures to map and strengthen basic skills for low-skilled adults, including digital skills, an evaluation of the national qualification’s framework, and the introduction of micro-credentials to enhance the flexibility of acquiring qualifications. The plan to change the Alliance of Sectoral Councils, which include social partners and representative from ministries, from an advisory body of the Ministry of Labour to an independent legal entity and strengthen its role in the design of education and re-training strategies is welcome. Individual learning accounts will also be piloted. It is important that the individual learning accounts are accompanied by a strong system to guide participants to acquire labour-market relevant qualification, such as digital or green skills, and robust quality control of the training providers. Greater support should be given to groups most in need such as low-skilled groups. Besides financial support to participate in training, consideration should also be given to help overcome time constraints, which are one of the barriers to employees wishing to engage in training. For example, France has been using such accounts, enabling employees to use training hours to acquire recognised qualifications or basic skills.
Training of adults out of work should be increased. The share of unemployed adults participating in formal and non-formal job-related learning is particularly low in Slovakia (OECD, 2020[37]). Active labour market policies can provide the jobless with opportunities to re- and upskill. However, spending on active labour market policies is low (Figure 1.22), relies heavily on EU funding and therefore lacks sustainable funding from the national budget, and is not sufficiently allocated to training. A new allowance that covers the costs of training for jobseekers was introduced in 2023. This is welcome but should be accompanied by strengthening the counselling and guidance capacity of the public employment service and effective profiling of jobseekers to identify their needs and the most relevant training paths. Moreover, the network of labour offices needs to be expanded in underserved regions or municipalities to expand access to training opportunities for hard-to-reach unemployed adults (OECD, 2020[37]).
Note: ALMP refers to active labour market programmes.
Source: OECD Labour Market Programmes database.
Slovakia’s research and innovation intensity continues to lag markedly behind other OECD countries. Patent applications, the share of innovative firms and expenditure on research and development (R&D), especially business R&D, are internationally low (Figure 1.23). The new National Strategy for Research, Development and Innovation targets an increase of public R&D expenditure from the national budget to 0.67% of GDP by 2030 and private R&D expenditure to reach 1.2% of GDP, which is welcome. Some progress has been made to reduce the fragmentation of the research governance system (OECD, 2022[19]) and to improve coordination among ministries and agencies by strengthening the role of the Government Council for Science, Technology and Innovation and by standardising evaluation processes. In addition, reforms to the Slovak Academy of Sciences aim to facilitate public-private research cooperation.
Expenditure on R&D in the business sector, as % of GDP
Source: OECD Main Science and Technology Indicators database.
Financial market imperfections can hinder investment in intangible assets (R&D, databases, software) especially for small and young firms. The main reason is that intangible capital is more difficult to use as collateral than physical capital. Government support to R&D can help overcome these market failures and spur firms’ investment in intangible capital as well as boost digital adoption (Berlingieri et al., 2020[56]). However, government support for business R&D investment is low in Slovakia and largely based on R&D tax incentives (Figure 1.24).
Direct government funding and government tax support for business R&D, as percentage of GDP, 2020
Note: BERD refers to business enterprise R&D expenditure.
Source: OECD R&D Tax Incentive Indicators database.
Government support for business R&D spending should be increased and its effectiveness enhanced. Recent evaluations of the R&D tax allowance suggest that it mainly benefits large, incumbent and multinational firms (MoF, 2023[15]). To make R&D tax benefits more beneficial for small and young firms, it is important that they include carry-forward provisions or cash refunds. The R&D tax allowance in Slovakia can be carried forward up to five years. This is welcome, but cash refunds may be more beneficial for young firms, who may not have sufficient tax liability for several years and need financial support early in the innovation process. Australia, Canada, Colombia and the United States are examples of countries that offer refundable R&D tax credits targeted at SMEs and start-ups (OECD, 2023[57]). Since 2018, Slovakia also operates a patent box, which reduces taxes on patent income. Evaluations of the scheme suggest that only about 10 firms benefited from the scheme in 2021 (MoF, 2023[15]). Moreover, IP boxes and similar income-based provisions mainly benefit large MNEs, as they hold most of the intellectual property (Appelt et al., 2016[58]). Expenditure-based R&D support measures are generally preferable, as they are independent of the success of the investment, directly support the financing of R&D and help overcome difficulties in obtaining external funds especially for small and young firms. The authorities should therefore consider cancelling the patent box. Instead, the authorities could give greater priority to direct R&D support schemes, such as competitive grants. OECD research (OECD, 2020[59]) highlights the complementarity between tax incentives and direct funding for innovation support. R&D tax incentives tend to encourage experimental development more strongly, while direct funding tends to encourage basic and applied research. Slovakia operates several competitive grant schemes that have generally been found to be effective support tools (MoF, 2023[15]) and that could be scaled up.
Firms lag in the adoption of many digital tools and technologies. ICT investment is much lower than in other OECD countries and firms lag in the adoption of advanced digital tools, such as cloud computing, artificial intelligence or big data by companies (Figure 1.25). The digital intensity of SMEs is particularly low (EC, 2023[27]). The authorities have taken a number of steps to improve the digitalisation of the economy. Slovakia’s Recovery and Resilience Plan allocates around 20% of total grants to the digital transformation. As part of these measures, Slovakia rolled out a new scheme to support research and application of advanced digital technologies by companies, including SMEs, research institutions and other entities. Moreover, a network of five European Digital Innovation Hubs (EDIH) have been established, which will provide companies with services to support the introduction of new technologies and innovations. The authorities also adopted strategies and action plans including the Digital Transformation Strategy of Slovakia 2030 in 2019, the Strategy and Action Plan to Improve Slovakia's Position in the DESI Index by 2025 in 2021, a Digital Skills Strategy and Action Plan in 2022, the Action Plan for Digital Transformation of Slovakia 2023-2026 in 2022.
The digital infrastructure has improved but further progress is needed. The coverage of fixed very high-capacity networks (VHCN) has increased strongly and is close to the EU average, and Fibre connections (FTTP) are above the EU average (EC, 2022[60]). 5G coverage has also expanded quickly but remains below the EU average. Despite relatively low prices and increasing availability, take-up of high-speed broadband by households and firms is significantly lagging behind European peers (Figure 1.26). Moreover, coverage in rural areas remains at a much lower level (EC, 2022[60]). The National Broadband Plan aims to provide ultra-fast internet access (speeds of at least 100Mbit/s, expandable to 1Gbit/s) to all households by 2030. To encourage deployment of ultra-fast networks in underserved areas, the authorities could consider a competitive tender process for subsidies that operators can receive as in Israel for example.
Note: In Panel B, the OECD aggregate is an unweighted average across all OECD countries for which data are available, taking the latest available year (ranging from 2014 to 2022, depending on the country and on the technology). For the Slovak Republic, data refer to 2021, with the exception of Big data analysis (2019).
Source: OECD National Accounts database; OECD ICT Access and Usage by Businesses database; and OECD calculations.
Share or firms with broadband download speed at least 100 Mbit/s, %, 2022 or latest available year
Source: OECD ICT Access and Usage by Businesses database.
Efficient insolvency frameworks can foster business dynamism, resource reallocation and productivity. Declared bankruptcies have increased over the period 2021-2023, likely due to the pandemic and energy price shock. Moreover, as a small open economy, Slovakia is particularly exposed to global shocks, and the green and digital transitions increase the need to facilitate economic renewal. According to the updated OECD insolvency framework indicator (André and Demmou, 2022[61]), Slovakia has made significant progress in improving its insolvency regime (Figure 1.27). In particular, Slovakia transposed the EU Directive on preventive restructuring frameworks in 2022, strengthened early warning mechanisms and streamlined insolvency processes via further digitalisation. Nevertheless, further progress can be made. For example, the number of stages in which the court is involved in the liquidation and restructuring process also remains higher than in other OECD countries, suggesting room to further promote out-of-court proceedings that can speed up and lower the costs of restructurings and liquidations (André and Demmou, 2022[61]).
Reforms to improve the efficiency of the judicial system are ongoing. Parliament approved the reform of the judicial map in 2022, a key reform of the Recovery and Resilience plan. Goals of the reform include the specialisation of judges and the reduction of the number of district courts from 54 to 36. New IT systems for court management and the business register are also being prepared. Challenges remain concerning the efficiency of processing administrative cases, with the lengths of processing such cases further deteriorating recently and relatively low clearance rates (EC, 2023[62]). Important reforms in this area are ongoing. The Supreme Administrative Court and a new system of administrative courts has become operational in 2021 and 2023, respectively (administrative cases of first instance were previously handled by administrative chambers within regional courts). Staffing of the administrative courts is almost complete but remains a challenge in Bratislava. Stronger promotion of the use of alternative dispute resolution methods outside the court system (e.g. mediation, conciliation, or arbitration) could further improve efficiency (Palumbo et al., 2013[63]).
OECD insolvency indicator main sub-components, 2022
Note: The scores for the three main sub-categories are scaled from zero to one, with lower scores indicating more favourable frameworks.
Source: André, C. and L. Demmou (2022), "Enhancing insolvency frameworks to support economic renewal", OECD Economics Department Working Papers, No. 1738, OECD Publishing, Paris, https://doi.org/10.1787/8ef45b50-en.
High levels of perceived corruption remain an important impediment to business in Slovakia (Figure 1.28). In 2022, 84% of businesses perceived corruption to be a widespread problem compared to 63% on average in the EU, and 50% of businesses considered corruption a problem when doing business (EU average 34%) (Eurobarometer, 2022[39]).
Progress in strengthening the anti-corruption framework continued but deficiencies remain. The new Whistleblower Protection Office became operational in 2021. An update of the 2019 National Anti-Corruption Programme is still pending. The draft programme contains measures based on GRECO evaluations (e.g. (GRECO, 2021[64])), including on the integrity and conflicts of interest of top executive positions in the central government (e.g. a code of ethics, establishment of an ethics commission, a public registry of gifts and meetings with third parties). The OECD (OECD, 2022[65]) identified a number of areas to improve the public integrity framework. These include: i) improving the identification of key corruption risk areas and strengthening the monitoring and evaluation framework of corruption risks; ii) expanding training and guidance on integrity standards for civil servants; and iii) strengthening standards on pre- and post-public employment. These recommendations are taken into consideration in the planned new Anti-Corruption Strategy for the years 2024-2028.
One important shortcoming of the anti-corruption framework is the lack of a specific framework for regulating lobbying. As a result, there are still no legal definitions of lobbyists, lobbying activities, nor effective sanctions for undue lobbying. The authorities should introduce regulations on lobbying and strengthen the legislation on conflicts of interest and asset declarations (EC, 2023[66]). Moreover, the use of the Prosecutor General’s discretion to close several high-level corruption cases recently has raised concerns. It is important to improve coordination among the different law enforcement entities and to advance the legislative amendments to restrict the power of the Prosecutor-General to annul prosecutorial decisions (EC, 2023[66]).
Judicial independence is crucial to tackling corruption effectively and a strong rule of law. The level of perceived judicial independence in Slovakia continues to be low. The main reason is the perception of interference or pressure from the government and politicians, and from economic or other special interests. Following the 2020 constitutional amendments, the judicial council has taken up its new tasks, including the competence to review asset declarations of judges and the selection of the members (first judges) of the newly established Supreme Administrative Court. However, concerns remain over the regime under which members of the judicial council may be dismissed. The authorities should ensure that the members of the judicial council are subject to sufficient guarantees of independence as regards their dismissal (EC, 2023[66]). Moreover, the constitutional amendments also changed the provisions on immunity of judges and introduced a new criminal offence of ‘abuse of law’ to enhance the integrity regime for judges. The authorities should ensure that sufficient safeguards are in place and duly observed when subjecting judges to criminal liability for the crime of “abuse of law” as regards their judicial decisions (EC, 2023[66]).
Note: Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project. Panel E summarises the overall assessment on the exchange of information in practice from peer reviews by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Peer reviews assess member jurisdictions' ability to ensure the transparency of their legal entities and arrangements and to co-operate with other tax administrations in accordance with the internationally agreed standard. The figure shows results from the ongoing second round when available, otherwise first round results are displayed. Panel F shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project, V-Dem Dataset v12; OECD Secretariat’s own calculation based on the materials from the Global Forum on Transparency and Exchange of Information for Tax Purposes; and OECD, Financial Action Task Force (FATF).
Slovakia has significantly reduced greenhouse gas (GHG) emissions over the past three decades, but progress has slowed in recent years (Figure 1.29). GHG emissions fell by more than 30% in the 1990s thanks to changes in the structure of the economy which led to substantial declines in the emission and energy intensity of the economy (Panel B and C). This included the closure of highly polluting firms, improved energy efficiency, and expanding the share of nuclear power in electricity generation. Emission reductions slowed in the 2000s and have largely stalled since 2015, mainly on account of increasing emissions from transport. In 2021, gross GHG emissions were around 45% below the level in 1990. The emission and energy intensity remains above the EU average, mainly due to Slovakia’s higher share of manufacturing in GDP. Further reducing the energy and emission intensity of the economy is not only crucial to meet global climate goals but also to reduce Slovakia’s high dependency on imported fossil fuels and to enhance energy security.
A draft climate bill introduced by the Ministry of Environment in early 2023 would align national climate goals with the Fit for 55 targets of the European Union (Figure 1.30). The draft bill targets greenhouse gas emission reductions of 55% in 2030 compared to 1990, with emission reductions under the EU-ETS of 62% and outside the EU-ETS of 23%, in line with the revised effort sharing regulations (ESR). Slovakia has also endorsed the EU goal of climate neutrality by 2050. Estimates of marginal abatement costs for Slovakia suggest that reaching the 55% reduction target by 2030 would require relatively low net societal costs (including investment and operational costs) of around EUR 2.7 billion (UHP, IEP and BCG, 2022[67]). These estimates are based on the most cost-effective abatement levers and do not take into account other environmental goals, including sectoral or renewable energy targets. Decarbonization beyond this point would require significant additional investments, for instance in the electrification of the steel sector, which is ongoing, and for carbon capture and storage technologies (UHP, IEP and BCG, 2022[67]).
Accelerated policy action is needed to reach climate targets. The updated OECD Environmental Policy Stringency (EPS) indicator (Kruse et al., 2022[68]) suggests significant scope to step-up environmental policies compared to other OECD countries, in particular in the areas of market-based policies (e.g. carbon taxes) and technology support (e.g. for R&D) (Figure 1.31). The updated Slovak Recovery and Resilience plan, which includes a REPowerEU chapter, allocates around 40% of the total grants or EUR 2.5 billion to environmental measures and measures to reduce dependency on Russian fossil fuels. The plan includes measures for residential renovations, sustainable transport, decarbonisation of industry, the energy infrastructure, renewable energy and green skills.
Climate risks at the municipal level have been identified and can help prioritise investment in climate change adaptation. Slovakia approved an updated Strategy of Climate Change Adaptation in 2018 and an Action Plan in 2021. In cooperation with the OECD, Slovakia identified municipalities most vulnerable to climate hazards. Extreme temperatures and droughts will mainly affect the southern part of Slovakia, including Bratislava. About 16% of the population live in municipalities with the highest risk level of heatwaves. While the share of population under threat from extreme precipitations is relatively low, northern regions are heavily exposed. Climate change adaption is further discussed in the forthcoming OECD Environmental Performance Review of the Slovak Republic.
Note: LULUCF refers to land use/land use change and forestry sector.
Source: OECD Environment database; OECD Green Growth database; and International Energy Agency (IEA) database.
Greenhouse gas emissions, million tonnes of CO₂ equivalent
Note: LULUCF stands for land use/land use change and forestry sector. The category "Other" includes emissions from waste, agriculture and fugitive emissions from fuels.
Source: OECD Environment database.
OECD Environmental Policy Stringency Index, from 0 (not stringent) to 6 (highest degree of stringency)
Source: OECD Environmental Policy Stringency Index database.
Pricing emissions encourages households, firms and the government to realise the most cost-efficient opportunities to reduce emissions. Due to high uncertainty and information asymmetry about abatement costs across the economy, more directive approaches, such as regulations and standards, raise total abatement costs compared to emission pricing by missing opportunities for low-cost emission reductions. Emission pricing is also technology-neutral and a transparent policy that simplifies the decisions for the government and reduces the scope for lobbying influences, as the only information required is the measurement of emissions. Nonetheless, regulations and standards are also needed to overcome market failures and coordination problems, and can help improve the public acceptability of climate change mitigation policies.
Carbon prices are too low to reach environmental targets and vary widely across sectors. Around half of GHG emissions are covered by the EU-ETS, a somewhat higher share than on average in the OECD, due to the larger share of manufacturing in GDP. The EU-ETS price together with fuel excise taxes imply an average effective carbon price of EUR 55 per tonne of CO2e in 2021, which is relatively low compared to other OECD countries and especially EU countries (Figure 1.32, (OECD, 2022[69])). Moreover, the carbon price is not uniform across the economy. Around 80% of GHG emissions were subject to a positive net effective carbon rate (ECR) in 2021. However, only around 20% of GHG emissions had a net effective carbon rate above EUR 60 per tonne of CO2e, a mid-range estimate of current carbon costs (Figure 1.33, Panel A). This is low in international comparison. In addition, effective carbon prices vary widely by sectors. For example, the effective carbon price amounted to EUR 160 per tonne of CO2e in road transport, while it was only EUR 6 per tonne of CO2e for residential buildings (Figure 1.33, Panel B). The large differences in tax rates across sectors and activities mean that marginal abatement costs are not equalised, increasing the cost of emission reductions.
Environmentally harmful fossil fuel subsidies weaken and distort price signals and should be phased out. In 2021, government support to fossil fuels amounted to around EUR 212 million (OECD, 2023[70]), a relatively low amount in international comparison. A significant part is due to feed-in tariff support for domestic lignite. In November 2018, the government decided to end public support for the mining and production of electricity from lignite by the end of 2023. In addition, coal and natural gas are exempt from excise tax for a number of purposes such as consumption by households, processing of minerals and in combined heat-and-power plants. While subsidies for household consumption of natural gas may improve affordability, the measure is not well targeted, and support should be shifted to align with climate objectives (see below).
Average Net Effective Carbon Rates, EUR per tonne of CO₂ equivalent, 2021
Note: Excluding biofuels CO₂. Unweighted averages for OECD and OECD-EU (including 22 OECD EU countries plus Cyprus).
Source: OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/e9778969-en.
Note: Panel A, excluding biofuels CO₂. Unweighted average for OECD-EU (including 22 OECD EU countries plus Cyprus).
Source: OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/e9778969-en.
Introducing an explicit carbon tax in sectors not covered by the EU-ETS would send more consistent price signals and make abatement more cost-efficient. Several EU countries have introduced explicit carbon prices outside EU-ETS sectors. For example, Germany implemented a national trading system for emissions in the non-ETS sectors in 2021 with a fixed price of EUR 30 per tonne in 2023, that will rise to EUR 45 in 2025. From 2026, allowances will be auctioned within a price corridor of EUR 55 to EUR 65. As part of the Fit for 55 package, the EU plans to introduce a separate trading system for the sectors under the Effort Sharing Regulation (road transport and residential heating) from 2027. The carbon price in the new system is expected to be lower than in the traditional ETS sector, at least initially. Until the EU system starts operating, Slovakia could set up a national trading system in sectors not covered by the ETS with an emissions cap according to its national targets, similar to the German system. Alternatively, an explicit carbon price outside the EU-ETS could be introduced and an increasing carbon price trajectory announced.
Decarbonising energy-intensive industries will require significant investments and innovation. The (non-energy) industrial sector is the largest emitter of greenhouse gases, accounting for around 40% of total emissions (from fuel use and industrial processes). The basic metals sector alone accounts for around 20% of total GHG emissions, with the majority of emissions stemming from one steel firm. Manufacture of non-metallic mineral products (e.g. cement), petroleum refining and the chemicals sectors are other large emitters, accounting together for around 10% of total GHG emissions. Decarbonising-energy intensive industries could entail large investments and technologies that are currently at the demonstration or prototype phase (e.g. green hydrogen, carbon capture and storage technologies). The ongoing partial electrification of steel production in Slovakia, by replacing coal-fired furnaces with electric-arc furnaces, has a large abatement potential (about 10% total GHG emissions in 2019) at relatively low estimated marginal abatement costs (32.5 EUR per tonne CO2e) (UHP, IEP and BCG, 2022[67]).
The government should strengthen incentives to boost green investment and innovation. Uncertainty about the future path of carbon prices is an important impediment to private investment in abatement technologies. Credible carbon price trajectories are therefore important to stimulate private investment. In addition, well-designed abatement subsidies can strengthen incentives for green investment as long as carbon prices are not high enough while safeguarding international competitiveness. To support decarbonisation efforts in industry and reduce fossil fuel dependence, the authorities have launched competitive tenders for subsidies amounting to EUR 1.1 billion financed from the EU Resilience and Recovery facility and the EU modernisation fund. Grants under the scheme will be allocated to firms in EU-ETS sectors based on the lowest abatement costs and highest contribution to the overall abatement goal of around 5 million tonnes of CO2. In 2023, first tenders of around EUR 600 million were awarded to the steel producer to electrify production, as well as to cement and brick producers.
In addition, the authorities could consider introducing Carbon Contract for Difference (CCfD) schemes. CCfD schemes are an efficient way to shield investors against carbon price uncertainty, as a direct link between the level of subsidies and the carbon price is established (Richstein, 2017[71]). Based on a strike price for emissions reductions resulting from an auction, a CCfD guarantees investors a fixed revenue per tonne of non-emitted CO2. The government reimburses the difference if carbon prices are below the strike price. Conversely, investors return the difference if carbon prices exceed the strike price to avoid windfall profits. The auction design encourages competition and minimises the fiscal cost of reaching policy objectives, as the most cost-effective projects are selected. In the United Kingdom, CCfDs have successfully mobilised the private sector to invest in renewables.
Support to R&D and green public procurement can spur innovation in low-emission technologies. Public support to green R&D can improve the overall cost-effectiveness of the policy mix by reducing future costs of low carbon technologies. Without government support, the level of research is likely to be inefficiently low because of positive knowledge externalities. Environmental inventions are very low in Slovakia. This may partly reflect low public spending on R&D (Figure 1.34). The government should target an increase in green R&D investment, complemented by improved cooperation with other countries, especially in the EU. Moreover, given the importance of public procurement (12% of GDP in Slovakia), green public procurement (GPP) can be an important driver for innovation, providing industry with incentives to develop environmentally-friendly products and services. GPP became mandatory for four product groups in 2020 and the share of GPP increased but remained significantly below the target of 50% of the volume of publicly procured contracts in these product groups by 2020 (OECD, 2022[22]). The authorities should consider gradually extending the mandatory use of GPP criteria as award criteria and apply GPP to additional product groups.
Public energy research, development, and demonstration (RD&D) budgets, per thousand unit of GDP, 2022 or latest available year
Source: IEA Energy Technology R&D database.
Reaching net-zero in the energy-intensive industry will likely require substantial investment in carbon capture and storage. Carbon capture costs vary widely across industries and carbon transport and storage are an important part of the total costs. No large carbon storage options exist in Slovakia, implying that carbon captured will need to be transported abroad, for example to saline aquifers in Poland. The costs of establishing a carbon transport storage infrastructure (i.e. pipelines) are high, estimated at close to EUR 5 billion (UHP, IEP and BCG, 2022[67]). Moreover, as it would be inefficient to establish such an infrastructure for each individual emitter, the government will have to play a role in the establishment, domestic and international coordination, and financing of the infrastructure.
Emissions in the transport sector continue to increase and the sector is now the second largest source of GHG emissions in Slovakia, contributing around 20% to total emissions. Vehicle ownership is still below the EU average but likely to increase in the future as incomes converge. Hence, decarbonising the transport sector will require increasing the share of low- or zero emission vehicles and shifting transport off the road. GHG emissions from the residential sector account for around 13% of total emissions. Policies to decarbonise the residential sector are discussed in detail in Chapter 2.
The car fleet is older and more polluting than in other EU countries. The average age of the passenger car fleet is about two years above the EU average (14.3 compared to 12 years, (ACEA, 2023[72])). The share of alternative-fuelled cars (e.g. battery electric vehicles, plug-in hybrids) in the total passenger car fleet was 2.2% in 2022, less than half of the EU average (EC, 2023[73]). The share of zero-emission vehicles in newly registered passenger cars in Slovakia has increased from a low base but remains low at 1.8% in 2022 (compared to EU average of 10%) (EC, 2023[73]) and the carbon emissions of new cars are among the highest in the EU (Figure 1.35).
Average CO₂ emissions from new passenger cars, grams per km, 2022
Note: Based on WLTP (Worldwide harmonized Light vehicle Test Procedure).
Source: European Environment Agency (EEA).
Incentives to shift to less polluting cars should be strengthened. Electric vehicles are on average 10% more expensive to buy than a combustion engine car in Slovakia, but the operating costs are 20% lower per year. Hence, electric vehicles are economical already four years after purchase (UHP, IEP and BCG, 2022[67]). Reasons for not purchasing electric vehicles despite these cost advantages include myopia, high uncertainty regarding future fuel prices, a lack of reliable information on cost differences, and concerns about practicability, such as range and the availability of charging stations (IEA, 2022[74]). To enable consumers to conduct more accurate cost comparisons, the government can require car dealers to prominently display the total typical cost of vehicle ownership for consumers (Agora Verkehrswende, 2022[75]). In addition, the charging infrastructure is lagging behind other EU countries, although it is denser than in most CEE peers (Figure 1.36). The Recovery and Resilience plan foresees an increase in charging points but implementation is delayed. Moreover, to achieve a faster replacement of the vehicle fleet, the government could also consider offering specific incentives to scrap old vehicles and replace them with newer models. Furthermore, Slovakia’s one-time registration tax depends on the Euronorm and engine power and could be refined to reflect the emissions of the car more directly. This is could be complemented by expanding the annual ownership tax, which currently only applies to company cars, to all private cars and linking it to vehicle emissions. Finally, Slovakia should close the gap between petrol and diesel excise taxes. Diesel fuel is taxed at a significantly lower rate than petrol, despite diesel’s higher emissions of air pollutants per litre (e.g. nitrogen oxides and fine particulates). A coordinated approach with neighbouring countries could be pursued to avoid diesel fuel tourism.
Moving transport off the road requires further investment in the rail infrastructure. The network of railway lines is relatively dense. However, there is a lack of high-speed rail infrastructure and large sections are not electrified and are single-track, reducing their speed and capacity (IEP, 2022[76]). Less developed regions, and regions where populations commute the longest distances and have the oldest car fleets, generally also suffer from the lowest access and quality to railway infrastructure. In 2022, the government approved plans for railway infrastructure projects in the total amount of almost EUR 4.5 billion until 2030. The Recovery and Resilience plan includes investments in the railway infrastructure in the amount of EUR 476 million until 2026. Implementing these plans without delay will require further progress in public investment governance and management as described above.
Charging points per 100km of road, 2021
Source: European Automobile Manufacturers’ Association (ACEA).
The planned phasing out of coal will further reduce the already low carbon intensity of electricity generation. The remaining two coal power plants will be decommissioned in 2023 and 2024. Instead, one new nuclear power plant went online in 2023 and another one is planned to operate by 2025. This is expected to bring the share of nuclear in electricity generation to well over 60%. Renewable sources (mainly hydropower) account for around 22% of total electricity generation. Hence over 85% of electricity generation could be carbon free by 2025. Solar and especially wind play a negligible role in energy generation. Expanding renewables will be crucial to meet substantially expanding electricity demand with the electrification of industrial production and transport, and new energy-intensive industries, such as the new electric vehicle car factory and battery cell manufacturers. There is also potential to increase renewables in heat generation, which currently account for around 20% of total heat generation, mostly from biomass (see Chapter 2).
The expansion of renewables can be further facilitated. Slovakia ended the moratorium for connecting new renewables to the grid in April 2021. In 2022, important legislative changes were also passed to facilitate access of renewable electricity sources to the grid and stimulate cross-border energy cooperation with Hungary. The Recovery and Resilience plan and REPowerEU chapter include investments in renewable energy generation and the network transmission capacity. The uptake of renewable energies can be further facilitated by streamlining administrative and permit procedures, including by simplifying and digitalising the Environmental Impact Assessment (EIA), integrating the EIA and construction permitting into a single procedure and establishing an administrative one-stop-shop (EC, 2023[27]). Moreover, grid connection fees can be lowered and access to available grid capacity further improved. There is also large potential to modernise the transmission and distribution networks, create new energy storage facilities and complete the regulatory framework for renewable hydrogen (EC, 2023[27]).
Employment in sectors directly affected by the green transition is large in international comparison. The most polluting industries, including refineries, chemicals, basic and fabricated metals and non-metallic mineral products, employ about 6% of the workforce in Slovakia, compared to 3% on average in OECD countries. Similarly, (Tyros, Andrews and de Serres, 2023[77]) and (Causa and Soldani, 2023[78]) estimate that around 9-10% of employees work in brown occupations (4-6% on average in OECD countries), with around 2% of jobs in occupations requiring skills that are not easily transferable to green jobs (Tyros, Andrews and de Serres, 2023[77]). Moreover, the transition to electromobility will impact Slovakia’s automotive manufacturing sector, which is among the largest in the OECD in terms of its share in total employment (3.4%). Slovakia is relatively well placed to benefit from this transition. In 2020, Slovakia produced the second highest number of electric cars in the EU and a car manufacturer recently announced a new production facility of electric vehicles by 2026. Overall, the authorities expect job losses in the automotive industry to be modest (around 3000 jobs) (IEP, 2022[76]). Finally, the end of coal mining and energy generation from coal directly affects around 2000 jobs, mainly in the Trenčín /Upper Nitra region.
Policies to facilitate labour reallocation and re-and upskilling need to be stepped up. While the green transition is likely to have limited aggregate employment effects (OECD, 2021[79]), it will imply shifts from more polluting to less polluting sectors or firms within sectors. Moreover, greener production processes (e.g. electric furnaces for steel production) or products (e.g. electric vehicles) will require new or modified skills of the workforce. Active labour market policies are an important tool to ensure labour market resilience and flexibility, by helping workers displaced by the green transition find jobs more quickly, and to effectively match jobseekers with emerging job opportunities (Botta, 2019[80]). As discussed in detail above, Slovakia spends relatively little on active labour market policies, especially on training programmes compared to OECD peers. Moreover, few employees participate in life-long learning programmes.
Regional development policies can mitigate the impact on the most vulnerable regions. The regions Trenčín /Upper Nitra (e.g. coal mining and energy generation), Košice (e.g. steel and cement production) and Banská Bystrica are most affected by the green transition due to their high share of energy and emission intensive firms. Lessons learned from transitions in other countries suggest that regional strategies that have wider socioeconomic focus beyond jobs can help to overcome adverse effects of economic disruption by promoting economic development. Policies include financial support to regional governments, relocation grants to support geographic mobility or on-site career counselling. Engaging local stakeholders from higher education institutions, innovative businesses, regional and local governments and building consensus around future specialisations is key (OECD, 2021[81]) (OECD, 2023[82]). In 2022, the European Commission approved EUR 459 million through the Just Transition Fund to support job creation, re- and up-skilling, energy efficiency and renewable energy projects in Slovakia’s most vulnerable regions. An Action Plan for the Transformation of the Upper Nitra Coal Region was approved in late 2022 and includes measures to improve transport and digital infrastructure, and support for new jobs and SMEs as well as measures to improve the environment in the region.
The impact of climate policies on vulnerable households needs to be addressed. Slovak households are particularly sensitive to higher energy prices as energy products make up a comparatively high share of consumption compared to other EU countries. Moreover, lower income households spend a larger share of total expenditure on energy (IEP, 2022[76]). Many OECD countries therefore recycle revenues of environmental taxes to address distributional concerns (D’Arcangelo et al., 2022[83]). Lump-sum transfers (as in Switzerland) are efficient and simple to administer but not well targeted and hence expensive. Targeted transfers to low-income households (as in British Columbia) may therefore be preferable. Several countries have also used revenues to lower other taxes such as personal income taxes (e.g. Austria, British Columbia). In Slovakia, revenues from higher environmental taxes or from the phasing out of tax exemptions for the use of fossil fuels could be used for example to lower the high labour tax wedge, in particular for low-income households. A system to support energy poor households should be designed, including a clear definition of energy poverty and addressing data requirements to identify and target eligible households (see above). Slovakia is also expected to receive EUR 1.7 billion from the new EU Social Climate Fund to mitigate distributional impacts of the Fit for 55 package.
Support to enhance energy efficiency of buildings and public transport is particularly needed in some regions. Higher carbon prices in the residential and transport sectors will particularly affect households in the Prešov, Košice and Banská Bystrica regions (IEP, 2022[76]). Many households in these regions rely on individual heating, with around 34 000 households still heating with coal (IEP, 2022[76]). To avoid that these households switch to wood burning, with negative effects on air pollution and Slovakia’s ambitious carbon sequestration targets through forests, the authorities should enhance support for the replacement of boilers and energy efficiency measures (see Chapter 2). Households in these regions are also particularly dependent on cars, as the coverage and quality of the railway infrastructure is insufficient. Hence, the expansion of public transport should be prioritised in these regions.
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