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Quick Facts
- Population:
- GDP (PPP):
- $120.2 billion
- 4.0% growth
- 4.7% 5-year compound annual growth
- $22,129 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Slovakia’s economic freedom score is 67.0, making its economy the 51st freest in the 2012 Index. Its score has decreased by 2.5 points from last year, with declines in freedom from corruption, business freedom, labor freedom, and the management of public finance. Slovakia is ranked 24th out of 43 countries in the Europe region, and its overall score is higher than the world average. The country recorded one of the 10 largest reductions in score in the 2012 Index.
Economic freedom peaked in Slovakia in 2008 and has been on a downward trend ever since. The momentum for implementing deeper institutional reforms appears to be all but stalled. Prospects for long-term economic development are curtailed by ineffectiveness in the fight against corruption and a lack of political commitment to enhancing the legal framework. Undermining respect for the rule of law, the judiciary remains vulnerable to political interference.
Government spending has been increasing, and privatization of many remaining state assets has been suspended.
Background
Slovakia became independent following its “velvet divorce” from the former Czechoslovakia in 1993. Reforms implemented by former Prime Minister Mikulas Dzurinda in the 1990s resulted in low labor costs, low taxes, and political stability, making Slovakia one of Europe’s most attractive economies, especially for automobile manufacturing. The pace of reform slowed significantly after the election of Robert Fico of the social democratic SMER party as prime minister in 2006. Though SMER won a plurality of seats in the 2010 parliamentary elections, a center-right coalition of several smaller parties installed Iveta Radicova as prime minister. Slovakia faced political uncertainty following the collapse of the government in October 2011. An early election has been set for March 2012. Slovakia became a member of the European Union and NATO in 2004 and adopted the euro as its national currency in 2009.
The judiciary is independent and comparatively effective. Secured interests in property and contractual rights are recognized and enforced. Court decisions can take years, and the business community views corruption as a significant factor in judicial outcomes. Intellectual property rights are protected under the legal framework, but there is room for improvement. Corruption in the legislative and executive branches continues to be a concern.
The income and corporate tax rates are a flat 19 percent. Other taxes include a value-added tax (VAT) and a property tax, with the overall tax burden amounting to 29.3 percent of total domestic income. Government spending has risen to a level equivalent to 41.5 percent of GDP, and the budget deficit has widened to over 5 percent of GDP. Public debt has reached about 42 percent of total domestic output.
The overall regulatory framework has undergone a series of reforms aimed at facilitating entrepreneurial activity. However, the pace of reform has slowed in comparison to other emerging economies in the region. The labor market lacks flexibility, resulting in a high unemployment rate of over 10 percent. Despite the challenging economic environment, monetary stability has been relatively well maintained.
Trade policy is the same as that of other members of the European Union, with the common EU weighted average tariff rate standing at 1.4 percent. However, onerous non-tariff barriers add to the cost of trade. Foreign and domestic investment receive equal treatment, and full foreign ownership is permitted in most sectors. The financial system has undergone significant liberalization, and the banking sector remains relatively sound.