Remarks by Angel Gurría, OECD Secretary-General, delivered at the Launch of 2014 Economic Survey of the Slovak Republic
5 November 2014, Bratislava, Slovak Republic
(As prepared for delivery)
Prime Minister, Ladies and Gentlemen,
I am delighted to be back in Bratislava to launch the 2014 Economic Survey of the Slovak Republic. I would like to thank Prime Minister Robert Fico for the support his government has provided during the preparation of this Survey.
We have worked intensely over the past two years with the Ministry of Finance and its Institute of Financial Policy to produce this study, and we very much hope that it can help the Slovakian Government in its efforts to promote stronger, more resilient and more inclusive growth.
We are presenting this Survey in the midst of an uncertain global economic outlook, marked by weak and uneven growth and significant downside risks. We invite you to read these pages taking into account that Slovakia’s main trading partners, the other members of the European Union, have been decelerating.
Europe faces challenges of significant complexity: growth is fragile, unemployment is still high, inflation is low and credit growth is weak or even negative in some countries. Add to the equation mounting geopolitical tensions in Ukraine and Russia and this is definitely not an easy moment for any European government.
In spite of the challenging context, Slovakia has been making important progress
Amidst this uncertainty, the economic outlook in Slovakia is certainly encouraging. In the past year, Slovakia has made considerable progress. GDP is set to grow by 2.6% in 2014 and 2.8% in 2015, about double the rate in 2013.
This is one of the highest growth rates of all euro area countries since the onset of the crisis. Slovakia’s real GDP per capita is now further ahead of pre-crisis levels – than in any other Eurozone country.
Slovakia’s fiscal position has also improved significantly, with the deficit declining from 8% of GDP in 2009 to 2.7% in 2013. This has helped improve credibility with financial markets and attract more foreign investors.
Press conference of the launch of the OECD Economic Survey of the Slovak Republic. Bratislava, Slovak Republic. Photo: Government Office of the Slovak Republic
The Slovak Republic is now reaping these benefits, having exited the EU’s Excessive Deficit Procedure last June.
The Survey also highlights another positive development: high productivity gains, combined with wage moderation, have brought the real exchange rate back to pre-crisis levels, boosting competitiveness. Investment and consumption should rise as economic confidence improves, employment increases and the pace of fiscal consolidation slows.
These are very important achievements, but they give no cause for complacency.
Slovakia is still facing important challenges.
Slovakia’s growth performance has improved, but there is still a lot to get growth back to pre-crisis rates, and to ensure all regions and segments of society can benefit. The country is still facing worryingly high levels of unemployment, which peaked at 14% in 2013. Two-thirds of those without jobs were affected by long-term unemployment.
The most vulnerable groups, such as youth (with a high unemployment rate of 34%) and those with low-skills, are at particular risk. The economic situation of the Roma community is another concern, with unemployment at critically high levels: only 20% of Roma men and less than 10% of Roma women are economically active.
Income inequality is also an increasingly present challenge in Slovakia. Although personal income inequality has been amongst the lowest in OECD countries, since the crisis, Slovakia has experienced one of the highest increases. In terms of disposable income, the increase in inequality was the second highest in the OECD, after Spain.
Our Survey focuses on two central challenges: fostering growth in lagging regions and improving public sector efficiency.
Fostering Growth in Lagging Regions
Regional inequality in Slovakia is among the highest in the OECD and is increasing. Bratislava, for example, is the 6th richest region in Europe. However, the next richest region in the country, – Western Slovakia, without Bratislava – ranks a much lower 239th in Europe!
Regional disparity is the product of the combination of low economic growth and weak job creation in the eastern and central parts of the country, and insufficient labour mobility to the west: the unemployment rate in Bratislava is 6%, while in Eastern and Central regions it rises to 20%.
This regional cleavage is reflected in educational achievement, as we highlight in another report being launched today: an OECD Review of Evaluation and Assessment in Education for the Slovak Republic.
While Slovak primary school students perform similarly to their international cohort, when they graduate to secondary education regional disparities and inequalities become more entrenched. Compared to the OECD average, differences in student performance at age 15 are more strongly associated with their schools’ socio-economic intake.
Regional disparities are more pronounced in the Slovak Republic than in any other OECD country, with a particularly high concentration of poor households in the Eastern regions.
Our Survey makes a wide range of recommendations to bridge these regional gaps. To improve employment prospects in lagging regions, labour market mobility could be increased by developing the rental housing market so that workers find it easier to move to where there are jobs. More active labour market policies are also needed to stimulate growth in less prosperous regions.
Educational reform, from early childhood through to vocational streams, is also essential to address unemployment, especially for youth and vulnerable groups like the Roma.
To distribute growth more evenly, investment in transport infrastructure is also needed. This would help firms in the East reach the more dynamic Bratislava market and from there to access Global Value Chains. An Inclusive Growth strategy for Slovakia would also boost innovation, helping the country as a whole move up the value chain and benefit more from globalisation.
Whether we’re talking about tackling unemployment or boosting regional development, there is one specific avenue of reform which can address both of these challenges: to continue building a more modern, efficient, effective public sector.
Improving Public Sector Efficiency
There is certainly room for improvement in terms of public sector efficiency, with instances of ministerial ‘silos’, cumbersome procedures and administrative obstacles to coordination and evaluation. This presents a real challenge in the case of major cross-sectoral challenges like ageing.
Demographic spending pressures from ageing are due to rise considerably, as Slovakia will have the steepest increase in the old-age dependency ratio of all EU member states up to 2050. Another challenge is to address the degree of centralisation, which has weakened the incentives for public sector efficiency at the subnational level.
This is important, because these subnational governments are responsible for 60% of public investment, and many municipalities are too small to efficiently provide public services.
Your first port of call in reforming the public sector ought to be to improve tax collection and pursue tax evaders. Not only will this increase revenues, but it will help address public perceptions of corruption and injustice.
A second area for urgent public sector reform is in human resources: reducing the high turnover of civil servants linked to electoral cycles will increase competence, dedication and, ultimately, public service delivery. Action is also needed to reduce government regulation in the professional services and retail sectors, which are among the most restrictive in the OECD. This undermines competition and dampens potential growth.
To address public sector inefficiencies, the Survey recommends streamlining administrative procedures and strengthening capacities to manage EU funds. National ministries have shown reluctance so far to delegate control over EU funds to lower levels of government. But providing poorer regions with a higher share of EU funds, and a stronger role in the design of programmes, is essential to address regional disparities.
Ladies and gentlemen:
Slovakia recovered relatively swiftly from the crisis, particularly in comparison to other Eurozone economies. We need to ensure that this recovery leads to more inclusive growth. There is still much room for improvement.
The OECD continues to support the government in its reform agenda and we want to help you go further to guarantee that growth is stronger, more resilient and more inclusive. We are very keen to deepen our cooperation with the Slovak Republic to design, develop and deliver, together, ‘better policies for better lives’.