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The following is the Executive Summary of OECD assessment and recommendations taken from the Economic Survey of the Slovak Republic published on 9 February 2009.
Adoption of the euro on 1 January 2009 marks a significant achievement for the Slovak Republic. This hard won result will bring many benefits but will also pose challenges. Decisive policy action will be needed in a number of areas to maintain high growth in the coming years. Special care will be needed to mitigate the effects of asynchronous shocks, and to deal with the effects of the longer-term process of catching up, including structural changes to the economy, rapid financial development and a persistent positive inflation differential with the euro area. These factors have, in some other countries, resulted in boom-bust cycles. In particular, flexibility in labour and product markets needs to be raised, the fiscal policy framework needs to be improved and housing policies need to be reformed. This Survey makes the following recommendations in these areas:
Wage and product market flexibility are essential to better absorb shocks
Wage flexibility and a business-friendly regulatory environment would allow the economy to absorb shocks. Current efforts aim at strengthening collective wage bargaining at the sectoral level and legal extension in those sectors where unionisation is low. Legal extension of collective bargaining agreements should be abolished or, alternatively, the conditions for exoneration should be eased. Product market flexibility needs to be improved further, in particular in service sectors. To strengthen competition in the liberal professions, entry conditions should be eased, although high standards of professional qualification need to be ensured. Points of single contact that exist already for small enterprises should be swiftly extended to entrepreneurs also of the liberal professions. In addition, efforts to improve the e government strategy and strengthen its implementation are welcome.
Raising fiscal flexibility and ensuring long-run sustainability will aid macroeconomic stabilisation
Fiscal policy will be the remaining macroeconomic stabilisation tool. As the current fiscal rule has a pro-cyclical bias, it should be improved to foster the working of the automatic stabilisers. A mechanism clawing back debt overruns should be considered to ensure long-term fiscal sustainability. Another important issue is to strengthen the long-term financial position of the pension system while acknowledging the short-term costs of pension reform. Frequent ad-hoc changes to pension legislation reduce transparency and potentially undermine the financial viability of the system. The authorities should avoid such changes and, in particular, refrain from measures that tend to undermine the sustainability of the defined benefit pillar. Parametric changes to the defined benefit pillar should be considered to ensure its long-term solvency.
A better functioning housing market would increase labour mobility
Housing in the Slovak Republic is predominantly owner-occupied and the small rental market does not function well, hampering regional labour mobility. To improve the functioning of the housing market and increase the neutrality of capital taxation, the bias of real estate taxation in favour of owner occupied housing should be reduced. Furthermore, housing support should be made more efficient by increasing the role of housing allowances and making public housing provision more targeted.
How to obtain this publication
The complete edition of the Economic Survey of the Slovak Republic 2009 is available from:
The Policy Brief (pdf format) can be downloaded in English or in Slovak language. It contains the OECD assessment and recommendations.
For further information please contact the Slovak Republic Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Felix Hüfner and Isabell Koske under the supervision of Andreas Wörgötter. Research assistance was provided by Béatrice Guerard.