Slovak economy makes strides in growth, reforms, income convergence

• Pages: 69

Page 69

The Slovak Republic's economy has recorded strong productivity growth in recent years as well as declining fiscal and external deficits, the IMF said in its annual economic assessment. Key structural reforms in the areas of taxation, welfare, pensions, health care, and the labor market have increased the economy's flexibility. Large foreign direct investments and an improved business climate have expanded production capacity and boosted investor confidence.

The IMF's Executive Board commended the authorities but noted that challenges remained in further reducing the fiscal deficit and inflation, curbing unemployment, and achieving convergence with western European income levels.

Inflation, though falling, is well above the euro-area average, and strong growth poses upside risks to the central bank's inflation target. In 2004, the central bank substantially cut interest rates in response to weak demand and intervened extensively in the foreign exchange market to absorb exchange rate appreciation pressures. The Board advocated a more flexible approach to the exchange rate and welcomed the central bank's adoption of a monetary policy framework that will give disinflation priority.

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