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2014 OECD ECONOMIC SURVEY OF SLOVAK REPUBLIC

For a strong inclusive growth in Slovakia Bratislava, 5 November 2014

Main Findings

1. The recovery of Slovak GDP is one of the strongest in the euro area.

2. Economic activity in Bratislava is among the highest in Europe.

3. Eastern and central regions are not attractive enough for business.

4. The unemployed do not search for a job in other regions.

5. The efficiency and effectiveness of the public sector is low.

6. Fiscal consolidation has been successful, but more is needed to maintain sound fiscal balances

Key Recommendations

1. Improve transport and innovation infrastructures throughout the

country.

2. Strengthen regional mobility by developing the rental housing market

3. Step-up training and job search assistance programmes in the eastern and central regions.

4. Strengthen administrative capacities and reduce high turnover in the public sector

5. Create fiscal room for bad times by avoiding overspending in good times

Main economic growth and fiscal challenges

Economic growth is becoming more balanced

• Private consumption and investment are picking up but exports remain an important driver of growth

• The unemployment rate has started to fall but is still high, especially long-term unemployment

• Wage growth is catching up with productivity which sustains private consumption

• The unemployment rate is one of the highest of the OECD.

• Two third of unemployed are long term unemployed, the highest share in the OECD countries.

• Joblessness especially hurts the most vulnerable groups, such as the low-skilled, the youth, and the Roma.

Low employment is holding back growth

Innovation is low

• Deep integration in the global value chain has raised productivity gains

• But the domestic value added of exports is small

• Climbing the value chain will help to make the most of globalisation

The fiscal deficit is falling but the debt-to-GDP ratio is still raising

• Slovakia exited from the excessive deficit procedure in June 2014.

• The deficit declined by 5 pp between 2009 and 2013

• More needs to be done to reduce the debt-to-GDP ratio in a growth-friendly way

The efficiency of tax collection is weak

• Eliminating value added tax (VAT) evasion would raise VAT revenues by more than one half.

• Efforts to fight major tax evasion (e.g. «tax cobra» scheme) should be strengthened and extended.

Reforming the public sector

e-government tools are underdeveloped

• Develop electronic public services to increase the scope for single contact points and lower red tape

• Strengthen electronic contract management tools to enhance the transparency of public procurement

High staff turnover undermines administrative capacities

• Disconnect the career

of civil servants from the political cycle

• Expand the use of strategic human resource management

Regulation is not business friendly enough

• Ease the regulation in professional services and the retail sector

• Develop and improve the quality of regulatory impact assessment

More could be made out of EU funds

• Strengthen administrative and analytical capacities to manage EU funds. • Avoid another end-of-period surge in the absorption of EU funds

A more balanced country

Regional disparity is high and increasing

• Regional inequality is one of the highest of OECD countries

• Regional inequality has strongly increased during the past two decades

• Western regions are booming and eastern and central regions are not

Low regional labour mobility fuels unemployment

• Job seekers in lagging regions do not move to the booming west

• As a result, two-thirds of unemployed live in eastern and central regions where job opportunities are low

Housing policies support home ownership rather than rental housing

• Promote mobility by expanding a rental housing market (90% of Slovaks own their house)

• Phase out public support to home ownership and expand the rental housing allowance

Spending on training programmes is almost non-existent

• Step-up spending on active labour market policies.

• Develop training programmes to improve the employability of the low-skilled, 39% of them being unemployed

• Give specific attention to lagging regions

Educational opportunities are highly unequal

• Improve educational outcomes of students with low socio-economic backgrounds by expanding and promoting early childhood education

• Give specific attention to Roma children

Transport infrastructures and innovation are weak

• Improve east-west transport connections to increase the attractiveness of eastern and central regions for business.

• Strengthen support for innovation and business R&D to improve the capacities of firms to adopt new technologies and to innovate

All main messages from the Survey

Key recommendations for reforming the public sector

For a more efficient and effective public administration • Establish better human resource management, modernise public

administration and strengthen horizontal and vertical co-ordination and collaboration across government.

• Ensure that public procurement achieves the best value for money and continue with measures fighting corruption, inter alia by guaranteeing better transparency.

For a more efficient and effective regulatory environment for doing business • Reduce regulation in professional services and retail trade, strengthen

regulatory impact assessment.

• Strengthen the efficiency and independence of the judicial system.

Key recommendations for reforming the public sector

For a more efficient and effective regulatory environment for doing business • Reduce regulation in professional services and retail trade, strengthen

regulatory impact assessment.

• Strengthen the efficiency and independence of the judicial system.

For a better use of EU funds

• Streamline administrative procedures and strengthen capacities to manage EU funds.

• Provide the poorer regions with a higher share of EU funds and a stronger role in the design of programmes. Build capacity for more evidence-based decision making.

For better local services delivery

• Encourage joint public service delivery for small municipalities and strengthen the revenue raising power and spending responsibility of viable local governments.

Key recommendations for spurring growth in lagging regions

Strengthen mobility and employability to reduce unemployed and inactive labor

• To develop the rental housing market, phase out support to home ownership and expand means-tested rental housing allowances.

• Develop training as well as job-search support and phase out public works programmes.

• Make sure minimum wages and legal extension are implemented without damaging employment prospects, especially in lagging regions.

Reduce skills mismatch and better integrate Roma population

• Implement a dual vocational education and training system and give specific attention to school-to-job transition in eastern regions.

• Develop the provision and quality of early childhood education and ensure wide access to low socio-economic background children, especially Roma children.

Key recommendations for spurring growth in lagging regions

Boost the capacity to adopt new technology and reduce transport barriers

• Develop professional tertiary education and support for co-operation with employers.

• Provide financial incentives for adopting new technology and innovation spending.

• Improve national road and rail transport infrastructure and international connections.

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