The World Bank's Strategy in Slovak Republic: 2005-2007
The Slovak Republic has made great strides in implementing reforms since the FY01 Country Assistance Strategy (CAS), and on May 1, 2004, acceded to membership in the European Union (EU). A new framework to govern relations between the World Bank and Slovakia is needed, one that moves beyond the traditional provider-client relationship to a partnership which builds on the progress that Slovakia has achieved. While financial support will have it's place, the emerging partnership is based on facilitating knowledge-sharing and policy dialogue.
The Country Partnership Strategy (CPS) proposed for FY05-07 focuses on analytical work and technical assistance operations designed to assist Slovakia to reach its goals, while leaving open the possibility for broader financial support should Slovakia determine it useful to meet specific needs.
The reforms of the past few years have put Slovakia on a firm footing for future progress. Slovakia achieved sustained growth in excess of EU GDP growth rates as public expenditures declined to an average 39 percent of GDP for 2001-2003, while the fiscal deficit was reduced to 3.6 percent of GDP in 2003. The deficit is expected to further decline to 3 percent of GDP by 2007, and Slovakia is on target to meet this as well as other components of the Maastricht criteria. Slovakia’s reform program to support growth, reduce the deficit, and develop a vigorous market economy is impressive, and includes the introduction of sweeping fiscal reforms and large-scale privatization of public sector assets with substantial foreign participation.
Slovakia now faces three broad development challenges. The first is to continue the prudent management of the economy and meet obligations under the Stability and Growth Pact as Slovakia seeks to achieve full benefits from its membership in the EU by adopting the Euro. A second challenge is to converge to European income levels and be fully competitive in European and world markets, and to build the capacity to productively use newly available EU resources. The third challenge is to reduce poverty and unemployment and to address the marginalization of the Roma. With the continued commitment of the authorities, Slovakia should proceed in the future as it has in the past, addressing these challenges by formulating and implementing practical and effective solutions.
World Bank assistance has played an important role in helping Slovakia to achieve it's goals. For the future, assistance will be formulated in the context of the Partnership Strategy guided by agreed criteria. Such assistance should: (a) have a high payoff in terms of either equity or growth, (b) complement other sources o f funds or expertise, (c) reflect the Bank’s comparative advantage, and (d) have an impact in the near or medium term, other factors being equal. Analytic and Advisory Activities (AAA) will continue to be an important part of the partnership because of it's impact on Slovakia and because lessons learned in Slovakia are applicable in less advanced countries.
At the macro level, Slovakia is strongly creditworthy because of it's sound macroeconomic management and it's reform program which has attracted large inflows of FDI. The large inflows of FDI which have played a central role in the expansion of the automobile industry have raised some concems about creditworthiness were there to be a downtum in this industry. Potentially large capital inflows are likely to continue complicating the conduct of monetary policy. While the NBS should focus its policy on securing a low rate of inflation, large capital inflows may lead to excessive upward pressure on the exchange rate which could undermine extemal competitiveness.
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