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2009 OECD Economic Surveys: Slovak Republic 2009

image of OECD Economic Surveys: Slovak Republic 2009

This 2009 edition of OECD's periodic review of the Slovak Republic's economy finds it facing a significant slowdown. Income levels are continuing to converge with those in the rest of the EU, but additional structural reform is required to make the economy more flexible. Special chapters on fiscal policy and housing policy are included along with suggestions for improving the pension system.

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Achieving fiscal flexibility and safeguarding sustainability

Euro area entry calls for more fiscal flexibility to absorb cyclical shocks that cannot be dealt with by the common monetary policy. At the same time fiscal consolidation must not be put at risk, especially given rising ageing-related costs. The current fiscal framework could be improved by introducing multi-year expenditure ceilings and by removing pro-cyclical elements in fiscal rules. An adjustment account that serves to register breaches of fiscal rules and eliminates them over time could help in coping with projection errors. To ensure long-term sustainability of public finances it is essential not to dilute the substantial improvements in the long-term balance of the defined-benefit pillar associated with past pension reforms. The government should consider making participation in the defined-contribution pillar mandatory for new labour market entrants or, at the very least, make it the default option. For current workers the pillars should remain closed. Moreover, further parametric changes such as increasing the retirement age in line with life expectancy gains and reducing unsustainable elements in the pension formula would improve the balance of the defined-benefit pillar.

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