Keynote Address by Angel Gurría, OECD Secretary-General, Slovak Republic: Making Growth Inclusive, delivered at the University of Economics
5 November 2015, Bratislava, Slovak Republic
Deputy Prime Minister, Ambassador Brockova, Rector, Ladies and Gentlemen,
It is a great pleasure for me to return to the University of Economics to speak about inclusive growth in the Slovak Republic. I wish to thank in particular, Rector Rudolf Sivak for his kind invitation to speak at this important institution, which has been enlightening the profession of economics for more than seven decades.
This morning, I presented the OECD’s 2014 Economic Survey of Slovakia to government officials and journalists with Prime Minister Robert Fico. This is a study that we carried out over the past two years, in close collaboration with the Ministry of Finance and its Institute of Financial Policy.
In its pages you will find an assessment of Slovakia’s main economic achievements and challenges, including policy recommendations to improve economic performance and promote more resilient and inclusive growth.
Let me start by placing this study in the current global economic context and share some of its key reflections and conclusions with you.
A snapshot of the global economy
We are six years into the crisis, and the global economy continues to grow at a modest and uneven pace. Time after time, we have had to revise down our forecasts, and in spite of policymakers’ many efforts, the global growth engine is still only running at half speed.
Growth is also happening at an uneven pace. The recovery in the United States is more solid. But in the Euro area, growth is set to remain fragile in the near term, as weak domestic demand and low inflation raises the risks of a prolonged period of stagnation – a new ‘eurosclerosis’.
Japan continues to face similar challenges. Emerging economies are now slowing down too, but you also have wide divergences, even among the BRICS: as you know, China is growing at over 7%, but Brazil is barely growing at all.
These disparities in economic performance in a highly integrated global economy create a drag for all countries. Add to the equation mounting geopolitical tensions in Ukraine and the Middle East – and the terrible impact that Ebola is having on African human, social and economic realities – and you’ll see why we have to be very cautious in our forecasts, and why we have to re-double our efforts in implementing reforms and fostering multilateral cooperation.
How do we see Slovakia in this context?
Amidst this uncertainty, the economic vista in Slovakia is encouraging. In the past year, Slovakia has made considerable progress in recovering its economic dynamism. GDP is set to grow by 2.6% in 2014 and 2.8% in 2015, double the rate of 2013. We estimate that the rate of economic expansion will increase further in 2016 to reach 3.4%. 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. The Slovak Republic is now reaping these benefits, having exited the EU’s Excessive Deficit Procedure last June.
Our Economic 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.
Significant challenges persist
These are very important achievements, but they should give no cause for complacency. Slovakia is still facing crucial challenges in promoting stronger, more inclusive and more sustainable growth.
Unemployment remains very high; it reached 14% in 2013 and currently remains above 13%, with more than two thirds of these counted as long-term unemployed. More worrisome, youth unemployment stands at more than 30%, among the highest in the OECD, while nearly one in five young people are neither in employment, education or training.
It’s not only the quantity of jobs that matters for people’s wellbeing, but also job quality. Across a range of dimensions, and particularly when it comes to labour market security, Slovakia scores poorly compared to the rest of the OECD, and to its closest neighbours. As you know, these are not challenges unique to Slovakia, but there are many measures you can take here to start creating more and better jobs.
For example, active labour market policies can be used to much greater effect to get people back to work. Labour mobility could also be greatly improved by firmly establishing a rental housing market so that it becomes a viable alternative to near-universal home-ownership.
In addition, there is an urgent need to improve the education system in order to support the transition from school-to-work. Thus, the establishment of a dual system for vocational education is welcome and further developing early childhood education can make a big difference down the road. This is something we look at in more detail in the OECD Review of Evaluation and Assessment in Education for the Slovak Republic, also being published today.
The country can also do better in terms of public sector efficiency. It is characterised by ministerial ‘silos’, cumbersome procedures and administrative obstacles to coordination and evaluation processes.
This presents a real challenge in the case of important cross-sectoral issues like ageing. Demographic spending pressures 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: spending will rise by 3.5% of GDP, of which 1.5% of GDP to meet public pension commitments and 2% to health care.
There is a clear need for far-reaching efficiency-enhancing reforms across the public sector. For example, improving tax collection will increase revenues and address public perceptions of corruption and injustice. Action is also needed to reduce government regulation in the professional services and retail, which are amongst the most restrictive in the OECD. This undermines competition and dampens potential growth.
Last, but certainly not least, regional disparities pose an acute challenge; with economic activity and wealth highly concentrated in the West of the country. This is reflected in the regional disparity of GDP per capita: Bratislava is the 6th richest region in Europe, but the next richest region in the country – Western Slovakia, without the capital – ranks just 239th!
To avoid a ‘dual society’, it is vital to improve East-West connectivity with a fast, modern transport system. This would help firms in the East reach the more dynamic Bratislava market and from there to access Global Value Chains. And to boost investment in the Eastern and Central regions you must ensure that local firms and workers possess, respectively, the necessary capacity and the skills to innovate and adopt new technologies.
This regional cleavage is also 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. Educational differences between rural areas and cities are significant and educational outcomes for the Roma minority are particularly poor on average.
Yet there is a strong incentive for students to complete upper secondary education: the reduced risk of unemployment for Slovak men and women with upper secondary education is particularly strong in international comparison. Investing in better education outcomes in lagging regions and amongst vulnerable groups would be an important driver of more inclusive growth in Slovakia.
The OECD’s active support
To help tackle these challenges, the OECD is developing innovative tools and working closely with our member and partner countries. For example, our Skills Strategy, launched in 2012, helps governments design and implement national skills policies in light of other countries’ experiences and best practices.
In addition, our PIAAC Programme helps governments in assessing, monitoring and analysing the level and distribution of skills among their adult populations.
To improve public sector efficiency we are working with countries, and of course with Slovakia, to identify key challenges and address them efficiently. Through our Public Governance Reviews, we focus on where governments perform well and where they could improve their performance, as well as on the sustainability and delivery of public value.
Recently, we have provided policy advice on the social welfare reform in Greece, implementing strategic state capabilities in Poland and administrative reform in Spain, to name but a few.
To foster regional development we focus on how regions can contribute to national growth and well-being. Through our rural policy reviews and Regions at a Glance publication, we help governments identify areas that are either outperforming or lagging behind and offer concrete recommendations as to how a region’s contribution to aggregate development could be increased.
And we are trying to do all this with a new vision of economics and economic policy, developing new and more sophisticated tools to measure progress, beyond GDP. Our New Approaches to Economic Challenges initiative (the NAEC) aims to help countries identify trade-offs, complementarities and unintended consequences of policy choices, and as a result to improve and better target the OECD’s policy advice.
For instance, we’ll soon be releasing a report that demonstrates the adverse effects of rising inequality on growth. And vice versa: greater inclusiveness and the opening up of economic opportunity can act as drivers rather than dampeners of economic performance.
Ladies and Gentlemen:
The OECD is about cooperation – it’s in our name! We try to bring together under one roof the best minds to address the most pressing challenges on the global policy agenda. We bring together leaders, policymakers, academics and social partners from our Member and Partner countries, as well as from further afield.
We engage with the G20, the G7, APEC, ASEAN and a host of other International Organisations. In this spirit of cooperation, I am delighted to see so many of you come together today – from academia, from the business community, from the government and from the trade unions – to join the conversation.
Slovakia, a small open economy caught in the whirlwind of the global economic crisis, has shown us that it is possible to overcome obstacles effectively and come out on top.
You are on the right track and have provided us with valuable lessons learned. Let me stress that as you continue to fight the challenges of the crisis, the OECD is there to work with you, to provide support and to help you design, develop and deliver better policies for better lives.