Developments since Independence After an initial decline in output in 1993, as a consequence of post-independence external shocks, the country's economic performance improved in the mid-1990s and built on the structural transformation and economic liberalization that took place in Czechoslovakia during 1989-1992. Stability proved elusive, however, and, in the late 1990s, poor governance in the public and private sectors led to rising levels of inefficient investments, and macroeconomic balances worsened after 1996. The tight monetary policy to offset the loose fiscal stance resulted in high interest rates that caused debt-servicing problems for the enterprise sector, as well as deterioration in the loan portfolios of banks. At the same time, speculative attacks on the exchange rate in the wake of the Russia crisis in 1998, as well as political uncertainties, caused a sizable loss of reserves. However, the Government elected in 1998 moved quickly to enact strong and convincing stabilization measures. Good progress on the structural front since 1998 has borne fruit. The main banks and utilities have been restructured and privatized, fiscal transparency and control have improved, and quasi-fiscal activities have been curtailed. In addition, two pillars of the pension system were introduced, labor market regulation became more flexible, tax and welfare reform were implemented, and the legislative framework was strengthened. Major reforms were also introduced in the health sector. However, recent changes to the Labor Code, together with the revisions of the pension and healthcare reforms, do not improve labor market and fiscal flexibilities. Despite these advances, important challenges remain and require fiscal consolidation and disinflation as well as structural changes so the Slovak economy can be more competitive. More remains to be done in strengthening the state administration and the legal and judicial systems. In recent years, Slovakia 's investment climate has improved markedly. According to the World Bank's Doing Business report in 2007, Slovakia has been one of the fastest reformers in the world, introducing ambitious reforms in almost all areas (health care, welfare, pensions, labor market, public finance management, market exit and decentralization). The reform pace, however, has slowed, as also reflected by Doing Business results for 2008 and 2009. Recent economic performance In 2006, real GDP grew by 8.5 percent and inflation accelerated to 4.5 percent. Core inflation more than doubled to 2.5 percent in 2006, reflecting an increase in food and energy prices. The fiscal deficit in 2006 (the election year) increased to 3.4 percent of GDP. Of this, however, one third was attributed to the cost of pension reform. The current account deficit, at an estimated 8.3 percent of GDP in 2006, remains well under control because of foreign direct investment and technology-related imports, and is expected to contract by half in 2007. Slovakia plans to enter the European Monetary Union in January 2009. Challenges ahead The World Bank considers that there are four areas in which the new Government will face challenges: Containing inflationary pressures while joining the Euro; Improving the quality of growth for more jobs and lasting competitiveness; Protecting social cohesion while promoting social inclusion and reducing poverty; and Strengthening public administration and using EU resources well.
| 
RSS