The IMF has published a staff report following consultations in the Slovak Republic under Article IV of the IMF’s articles of agreement.

Economic growth in the Slovak Republic is recovering and expected to reach 3.2% in 2015/16 and 3.5% in 2016/17 helped by further expansion of the automobile industry. There are potential risks to the economy from weakness in the Euro area, a slowdown in China and political tension in Eastern Europe. High unemployment remains a challenge. Various approaches are required to spur growth and employment and address demographic challenges.

Among the measures suggested by the IMF is to lower the labor tax wedge, especially for lower income and part time workers. Reduction of the health contribution allowance to offset any impact on employment from the 2015 increase in the minimum wage is suggested. The IMF is in agreement with measures in the 2015 budget to increase the childcare allowance and funding for childcare facilities.

Fiscal consolidation is required to support growth. The IMF suggests moves to broaden the tax base and enhance revenue collection. Spending efficiency will be required to offset costs from a reduced value added tax (VAT) rate for basic foods and other social spending. Further improvements are required in VAT efficiency and the IMF recommends further development of relatively growth friendly source of revenue such as a real estate tax based on market value. The government should also ensure that the introduction of the reduce rate of VAT does not undermine tax compliance.

Access to financing could be improved by capital market development and integration. The efforts underway to promote the financing of small and innovative firms are welcomed by the IMF. The plans to reduce high taxes on investment income are also seen as important first steps in developing the financial market. The IMF also suggests that the government should explore potential links to other stock exchanges in the region.