Slovak Republic WT/TPR/S/91
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I. ECONOMIC ENVIRONMENT
(1) BACKGROUND
1. Slovakia’s transformation to a market economy regained momentum in early 1999. Structural
reform had slowed in the mid-1990s, with adverse effects on economic restructuring and longer-term
performance; the economy became increasingly vulnerable and growth of around 5% a year became
unsustainable.  Macroeconomic indicators deteriorated and political, as well as institutional reforms,stalled.  International confidence in Slovakia declin ed, culminating in a currency crisis in late 1998 as
fiscal and external imbalances widened.
2. The present Government, elected in late 1998, immediately took corrective economic
measures to restore macro stability and to restart structural, as well as political, reform.  In May 1999,
it adopted a Strategy for Accelerating Economic Reform.  Since then, Slovakia’s economic prospectshave brightened, reinforced by the Government’s renewed emphasis on multilateral and regional
integration.  In December 2000, Slovakia became a member of the OECD.  Following favourable
reports by the European Commission on political and economic reform, Slovakia also commenced, in
early 2000, accession negotiations with the European Union.  EU accession is now one of the
Government’s top policy priorities  and increasingly drives Slovakia’s reform agenda. Slovakia'seconomic and trade-related policies are being harmonized with EU policies.  The push for EU
membership provides renewed opportunities for Slovakia to further implement necessary reforms,
such as in taxation, investment, trade, agricultural, an d industrial policies, as well as to strengthen the
commercial and institutional arrangements needed for a market economy to function efficiently.
3. In 2000, Slovakia's GNP per capita was around US$3,500 (Table I.1).  This increased from
approximately US$2,700 in 1994 and US$2,900 in 1989.  Most social indicators, such as life
expectancy, have improved.
Table I.1
Main economic and social indicators
Area (sq. km.) 49,000 Urban share of population (per cent) 57
Population (million) (1999) 5.4 GDP at current prices (Sk billion) (2000) 887.2
GDP at current prices (US$ billion) (2000) 19.1
Per capita GNP (current US$) (2000) 3,537
Per capita GNP (current US$) (1994) 2,700
Annual population growth (per cent)
(1999)0.1 Sectoral share of GDP current prices (per cent) (2000)
- Agriculture, hunting, forestry & fishing 4.1
- Mining 0.8
- Manufacturing 21.8
- Services 73.3
Life expectancy at birth (1998)
- males
- females72.7
69.476.9Sectoral share of formal employment
a  (per cent) (2000):
- Agriculture, hunting, forestry & fishing
- Mining- Manufacturing-S e r v i c e s4.9
0. 8
19.474.9
Crude birth rate ('000) ( 2000) 10.2 Enrolment ratio in education (per cent) (1997) 74
Infant mortality rate ('000) (1999) 8.3Adult literacy rate (per cent, 15 years and above) (1998) 99
a Excludes private entrepreneurs and small enterprises (under 20 employees).
Source : World Bank, Slovak Republic Data Profile .  [Online].  Available at: http://www.devdata.worldbank.org;  IMF,
"Slovak Republic: Selected issues and Statistical Appendix ", Staff Country Report  No. 01/129, August 2001.
[Online].  Available at: http://www.imf.org;  and UNDP , Human Development Report 2000 .WT/TPR/S/91 Trade Policy Review
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(2) RECENT ECONOMIC PERFORMANCE
4. Slovakia’s GDP growth recovered to 2.2% in  2000, after having slowed substantially from
over 6% in the period 1995 to 1997, to 1.9% in 1999 (Table I.2).  GDP growth of around 3% is
forecast for 2001.  Contributing to reduced growth in 1998 and, in particular, 1999 were the onset of
macroeconomic imbalances, especially consolidated fiscal deficits, which grew sharply from 1.3% of
GDP in 1996 to 5.2% of GDP in 1997, before falling to 4.8% in 1998 and to over 3% in 1999 and2000.  Inflation accelerated to almost 7% in 1998 and 12% in 2000.  Rising real interest rates
followed, as the Central Bank initiated tightened monetary policies by reducing monetary growth
(M1) to under 9% in 1997 and close to 4% in 1998.  Fiscal deficits also placed additional pressures on
Slovakia’s external position, with trade and current account imbalances rising to around 10% of GDP
during the period 1996-98.  A currency crisis emer ged, fuelled by widening fiscal and external
deficits, sagging international confidence in the Government’s reform programme, and the Russian
financial crisis.
5. The fixed exchange rate regime, which had been adopted in 1993, was replaced by a floating
system from October 1998.  The Government also embarked on concerted efforts to reduce the overall
fiscal deficit to below 4%, and to revitalize delayed structural reforms aimed at facilitating industryrestructuring.  These included privatization and rationalization of the financial sector to tackle the
high incidence of non-economic loans and the high level of enterprise indebtedness, including
mounting tax and social security arrears owed to the State. Slovakia's on-going economic reform
programme is intended to set the basis for future private-sector-led growth; the private sector
accounted for 84% of GDP in 2000, compared with 63% in 1995.
6. The Slovak economy is showing signs of recovery.  Growth bottomed at 1.9% in 1999, and
has since been buoyed by lower interest rates, substantial export growth, and strengthening domesticaggregate demand, including investment.  External deficits fell to around 4% of GDP in 2000, and
although projected to again rise in 2001 to more than 6% of GDP, remain well below earlier levels.
International recognition of the Government’s economic reforms has contributed to the economy’s
turnaround, and helped Slovakia attract much needed foreign investment.  Since Slovakia's previous
Review, in 1995, its merchandise trade has continued to expand relatively well, except in 1999; theaverage share of merchandise trade (both exports and imports) in GDP rose from 47% in 1995 to 64%
in 2000, and is projected to rise further to 66% in 2001.
1  The level of foreign direct investment (FDI)
remains relatively low, although increasing from around 1% to 4% of GDP in 1999 and 10% in 2000.2
Further foreign investment would he lp deepen industrial restructuring.
7. Nevertheless, the economy remains fragile.  Most growth in 2000 was generated by the
external sector with a strong export performance (almost 17% growth rate).  Unemployment, which
rose in the late 1990s to reach around 20% at presen t, continues to be a major problem.  Future growth
prospects for Slovakia appear favourable, but will depend critically on sound macroeconomic
management and continued structural reform.  External factors will also affect its economic
performance.  The Government outlined its medium-term economic policies in its Joint Assessment ofMedium Term Economic Priorities approved in 2000.  As well as highlighting EU accession, it
reaffirmed its commitment to maintain macroecono mic stability and to advance key governance and
structural reforms.  An important platform of the Government’s reform agenda is the Tripartite
                                                          
1 The share of merchandise exports in GDP rose to 62% in 2000, and that of merchandise imports to
67%.
2 The cumulative stock of FDI in Slovakia amounted to US$3.5 billion at end-2000, well behind
neighbours, such as the Czech Republic (US$21.1 b illion) and Hungary (US$19.9 billion).  See National Bank
of Slovakia, Monetary Survey, April, 2001 and Statistical Bulletin, CESTAT, 2000/4.  Foreign portfolioinvestment has been as important as direct investment for Slovakia in recent years.Slovak Republic WT/TPR/S/91
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Agreement signed in March 2000 with the Confederation of Trade Unions and the Federation of
Employers’ Unions and Associations.
Table I.2
Economic performance, 1995-2001
1995 1996 1997 1998 1999 2000 2001a
National accounts (constant prices) (Percentage change)
Real GDP, market prices 6.9 6.2 6.2 4.1 1.9 2.2 3.1
Private consumption 3.4 6.9 6.3 4.9 0.4 -3.4 4.0
Total consumption 3.3 8.4 6.7 3.5 0.4 -2.7 3.4
Gross fixed capital formation 37.4 40.8 12.0 11.0 -18.8 -0.7 6.5
Prices and interest rates (Percentage change, unless otherwise specified)
Consumer price inflation (period average) 9.9 5.8 6.1 6.7 10.7 12.0 6.9
Bank lending rate (end-of-period, per cent) 13.7 13.5 21.6 18.9 16.4 10.7 ..
Real effective exchange rate (CPI-based)b2.8 0.1 6.1 -1.4 -2.0 4.7 4.3
(Per cent of GDP)
Gross investment 28.5 38.2 38.6 41.0 32.9 32.2 33.2
Private consumption 69.2 73.1 71.1 70.5 69.4 68.1 68.2
Public finance
State budget balance -0.5 -1.9 -2.6 -2.2 -1.7 -1.7 -3.8
Consolidated central government balancec0.4 -1.3 -5.2 -4.8 -3.4 -3.3 -3.9
Total outstanding public debt 20.8 32.8 23.1 23.7 23.6 25.3 26.9
Monetary sector (end period) (Percentage change)
M1 21.2 16.7 8.8 4.2 11.4 15.5 15.0
M2 20.0 16.6 10.9 2.7 10.7 14.2 ..
External sector (Per cent of GDP, unless otherwise specified)
Trade balance 3.0 -12.2 -10.0 -11.4 -5.7 -4.5 -6.2
Current account balance 2.2 -11.2 -10.0 -10.0 -5.7 -3.5 -4.8
Capital and financial account balance 5.7 11.7 9.5 9.4 9.2 14.4 ..
Foreign direct investment, net 0.7 1.1 0.5 1.5 3.5 10.0 ..
Portfolio investment, net 1.4 0.1 0.1 3.7 3.2 4.3 ..
Total external debt (end-period) 33.6 38.8 47.8 55.9 53.4 56.7 53.9
Short-term external debt 8.6 10.1 17.1 17.9 21.9 13.5 10.6
Debt-service ratiod9.1 11.9 11.1 18.7 16.7 .. ..
Gross official reserves (US$ billion)e3.4 3.5 3.3 2.9 3.4 4.1 5.8
Reserve cover (months of GS imports)f3.6 3.2 2.9 2.3 3.1 3.3 4.4
Merchandise trade (average of imports plus exports) 47 53 54 56 55 64 66
(Twelve-month growth rate, end period)
Merchandise export growth (value, US$) 28.2 2.3 9.5 11.2 -4.9 16.8 7.4
Merchandise import growth (value, US$) 26.8 26.1 5.6 11.6 -13.6 13.4 9.7
Memorandum item :
Nominal GDP (US$ billion) 17.5 18.8 19.5 21.3 19.7 19.2 20.5
Unemployment rate (per cent) 13.1 12.8 12.5 15.6 19.2 17.9 19.7
.. Not available.
a Projection.
b Increase equals Slovak koruna appreciation.  Calculated for main trade partners (Germany, France, Austria, Italy, Czech 
Republic, Poland, and Hungary).
c Overall balance, excluding privatization proceeds and guarantees.d Debt service as a share of exports of goods and non-factor services in convertible currencies.
e Total reserves, including gold.
f GS = goods and services.
Source : IMF, Statement of Economic Policies, attached to Letter of Intent, 9 May, 2001, pp. 14 –15.  [Online].  Available
at: http://www.imf.org/external/np/loi/2001/svk/01/index.htm];  World Bank, Slovak Republic Data Profile.
[Online].  Available at: http://devdata.worldbank.org/external/dgprofile.asp?rmdk];  and data supplied by the
Slovak authorities.WT/TPR/S/91 Trade Policy Review
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(i) Fiscal policies
8. The overall consolidated central government deficit has been reduced since 1997, from 5.2%
of GDP to 3.3% in 2000 (Table I.2).  An austerity package was introduced in May 1999, and the
Government remains committed to on-going fiscal consolidation.  Nevertheless, the fiscal situation
remains frail.  The deficit is forecast to rise to 3.9% in 2001, as severe budgetary pressures continue.
Revenue, as a share of GDP, is expected to fall further to 35% in 2001 due to reductions in thecompany tax rate and the import surcharge; direct income tax cuts for individuals are foreshadowed in
2002.  Tax arrears have grown, from approximately Slovak koruna (Sk) 21 billion in 1997 to
Sk 52 billion in 1999, mainly owed by non-state enterprises.
3  Enterprises also held substantial debt,
of Sk 43 billion at end-1999, in outstanding contributions to the Social Insurance Agency for social
welfare payments.  The Government intends to streamline the Agency’s operations to improveefficiency and reduce the budgetary burden of the social welfare system.
9. Curtailing expenditure will also be essential if it is to be further reduced below its projected
level of 38.9% of GDP in 2001.  The Government is tightening expenditure controls through
enhanced fiscal management to improve the budgetary process and increase transparency.  A
medium-term financial plan was prepared for the 2001 Budget, and financial controls over state-owned enterprises and other items were strengthened.  The proposed Act on Financial Control is to
become effective from 1 January 2002.  Special efforts, including legislation on state debt and
guarantees, are aimed at reducing state guarante es below current levels of around 16% of GDP, or
Sk 160.5 billion at end-June 2000.  New state guarantees are to be limited to rolling over existing
provisions.  Aspects of public administration, including certain revenue and expenditure functions, are
to be progressively decentralized to regional self -governments, which in turn will be required to
balance budgets under strict borrowing controls.
10. Public debt remains high; it was Sk 192.3 billion at end-1999, or equivalent to about 25% of
GDP.  Of this, over half (55%) is domestic.  The Government has also incurred additional debt
recently, including financing the Sk 105 billion costs of bank restructuring by issuing bonds in 2001.
However, the Government intends to use privatization proceeds, expected to be at some 10% of GDP
in 2001 (mainly from the banking and energy sectors) predominantly to retire state debt.  Anysubstantial slippage in the privatization programme or in attempts to curtail large expenditure items,
such as social security, which accounts for almost one third of total spending, could therefore
adversely affect Slovakia’s debt and budgetary situation.
(ii) Exchange rate and monetary policies
11. The National Bank of Slovakia (the Central Bank) determines monetary policy to meet its
primary objective of maintaining price stability.  It "promulgates" the exchange rate and manages the
country’s foreign exchange reserves.  In implementing its objective, the Bank must support the
Government’s economic policies.  According to the authorities, the National Bank performs its
functions independently; its independence was further strengthened recently by revisions of National
Bank legislation, effective from 1 July 2001.  The Bank advises the Government on monetary andexchange rate policies.  The Bank prepares an annual monetary programme, which is presented to the
National Council, along with yearly and half-yearly reports on monetary developments.  It also
publishes quarterly monetary surveys.
                                                          
3 OECD (2000), p. 28.Slovak Republic WT/TPR/S/91
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12. The managed floating exchange rate was adopted from 1 October 1998 to replace the fixed
system adopted in 1993, which pegged the rate to a currency basket.4  Until then, monetary policy was
aimed at two targets; maintaining a fixed exchange  rate and controlling monetary growth to an M2
limit.  The main monetary instruments used to implement its monetary targets were changes in
discount and Lombard rates, open market operations, and minimum reserve requirements.  However,
maintaining these, largely incompatible, targets cr eated difficulties for the Bank’s sterilization
policies, and actual monetary growth substantially exceeded targeted levels until 1997.5  T h i s
generated excess liquidity over the period 1995-98, especially following increased fiscal deficits in
1997 and 1998.  Due to fiscal expansion, monetary policy bore the brunt of stabilization efforts.  It
was tightened substantially in 1996-98 to reduce liquidity and to also support the fixed exchange rate
that was increasingly being pressured during this period as external deficits widened and annualinflation increased.
6  At the same time, with economic difficulties compounded by political
uncertainties, international confidence in the econo my deteriorated.  Efforts by the National Bank to
support the currency by intervening in the foreign exchange market failed, and the fixed rate regime
was finally abandoned.7
13. With the floating of the exchange rate, monetary policy became centred on direct inflation
targeting, using, from 2000, a measure of "core" inflation instead of "net" (headline) inflation.8  I n
2000, the "core" inflation target rate was set in the range of 4.7% to 5.8%.  "Core" inflation targets
currently applied by the Bank are of 3.9% to 5.3% at end-September 2001 and 3.7% to 5.3% at end-
2001.9  Annual "net" inflation peaked at 12% in 2000, partly reflecting the temporary effects of
increases in regulated prices, and is projected to fall within the targeted range to under 7% in 2001.10
Fiscal restraint has enabled recent relaxation of monetary policy, lowering interest rates and assistinggrowth.  Overnight bank interest rates declined throughout 2000 from 12% (refinancing) and 8%(sterilization) to 9.5% and 6.5%, respectively, at end-August 2000.  The rate on two-week REPO
(repurchase contracts) tenders, introduced in 2000 by the National Bank to help control liquidity and
volatile interest rate movements, also decreased from 8.5% to 8.25%.  In addition, the minimum
reserve requirement was reduced from 8% of primary bank deposits to 6.5% from July 2000.
14. The Bank’s exchange rate policy is to interv ene in the market to stabilize exchange rate
fluctuations, aimed at price stability and lim iting excessive fluctuations, but not to prevent
fundamental movements.  It has intervened on several occasions, including in late 1999 to prevent the
currency from appreciating.  In 2000, the Bank publicly announced that it had adopted a target
                                                          
4 From 1994, the basket consisted of the Deutsche Mark (60%) and the US$ (40%).  Following current
account convertibility in October 1995, greater exchange rate flexibility was introduced by progressively
widening the fluctuation bands around the fixed rate, from initially +/-0.5% to +/-3% and +/-5% in January andJuly 1996, respectively, and to +/-7% from January 1997.  The Deutsche Mark was adopted as the referencecurrency under the floating regime until 1 January 1999 when the Euro replaced it.
5 The respective M2 target and actual monetary growth rates were 12.3% and 21.2% in 1995; 11.6%
(revised to 13%) and 16.5% in 1996;  10.7% and 8.7% in 1997;  and 9.4% and 2.7% in 1998.
6 In May 1997, when currency pressures began, the official BRIBOR (Bratislava Interbank Offering
Rate) overnight rate rose to 185% and the one-month rate to 62.5%, before being replaced by unofficial
monitoring of interbank interest rates.
7 The National Bank spent US$1 billion from 10 August to 1 October 1998, intervening to support the
currency, equivalent then to about one third of Slovakia's foreign reserves, which fell to 2.5 months of imports.
8 The "net" inflation target rate in 1999 was between 6% and 7.5%.  "Core" inflation excludes from the
CPI calculation regulated prices, indirect taxation, and subsidies.  It is generally significantly below "net"
inflation (or headline) inflation, which is the overall increase in consumer prices as measured by the CPI.
9 Corresponding "net" inflation rates are 7% to 8.2% and 6.7% to 8.2%, respectively.
10 The National Bank will attempt to keep the rate of  overall inflation at 3% to 4% in 2005 (National
Bank of Slovakia, 2000a).WT/TPR/S/91 Trade Policy Review
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corridor for the exchange rate, but did not reveal the bands.11  The Slovak koruna had appreciated
under the fixed rate regime, and by over 6% in 1997.  While small real depreciations were recorded in
1998 and 1999, the currency again appreciated in real terms in 2000 by almost 5% (Table I.2).  Such
upward pressure on the currency may continue due to higher foreign investment inflows associated
with privatization.12
15. Slovakia's monetary policy in the long term is to follow the EU's Maastricht criteria on
inflation, interest rates, and exchange rates.13  The long-term target is to harmonize monetary policy
with EMU countries.  Its future monetary-policy strategy will be derived from the need to achieve a
stabilized optimal Euro exchange rate so that the rate fixed on EMU admission will be sustainable for
Slovakia.  The National Bank introduced a number of changes to its set of monetary instruments in
2001 to strengthen qualitative monetary controls as part of their convergence to EU monetarypolicies.
14
16. The main risks to the 2001 monetary programme are unforeseen external shocks; changes in
domestic demand as a result of a sudden wage increase, exceeding the growth in labour productivity;
and increases in the fiscal deficit.15
(iii) Foreign debt and capital flows
17. Slovakia’s level of gross foreign debt  rose to almost US$10.8 billion at end-2000,
corresponding to well over half of GDP and to ju st over US$2,000 per capita.  Of this, official debt
comprised 27%.  About 22% of foreign debt, equivalent to US$2.4 billion in 2000, is short term.
18. As part of its OECD membership, Slovakia has implemented measures to liberalize capital
account transactions.  In early 2000 and 2001, for example, it amended the Foreign Exchange Act and
lifted remaining restrictions on medium- and long-term capital transactions.  Restrictions on financial
credits provided with a maturity of less than one year were abolished, for example, and non-residentcompanies headquartered in the EU were permitted to own real estate.  Further legislative changes to
liberalize capital movements were made in 2001.  Certain restrictions still apply to FDI in real estate,
energy, and aviation.  Further liberalization commitments will be implemented progressively by 2003,
including liberalization of deposit transactions and foreign currency operations as well as removal of
remaining restrictions on securities.
(iv) Structural changes
19. The Government is committed to structural reform, including trade liberalization,
privatization of state-owned enterprises, price deregulation, and opening of financial as well as other
important service sectors.  A variety of regulatory and other legal and commercial reforms are under
way to facilitate entry of both foreign and domestic firms and to create a framework for competitivemarkets based on the private sector.  Political reforms, along with measures to control administrative
corruption and improve public and corporate governance, are accompanying these changes.  An
                                                          
11 OECD (2000a), p.15.
12 Special accounts at the National Bank were opene d for the National Property Fund in 2000 to deposit
privatization proceeds in an effort to prevent destabilization of the money and foreign exchange markets fromone-off inflows of large amounts of foreign exchange (National Bank of Slovakia, 2000b, p.32).
13 On EU accession, Slovakia will become a member of ERM II, which contains those members that
are not part of the EMU (National Bank of Slovakia, 2000a, p.33).
14 National Bank of Slovakia (2001a), p. 31.
15 National Bank of Slovakia (2001a).  Real wages fell by an estimated 3.1% in 1999 and 6.1% in 2000
(Institute of Slovak and World Economics, 2001, p.8).Slovak Republic WT/TPR/S/91
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important aspect of this is to establish effective institutional and commercial practices, including
bankruptcy laws, to facilitate enterprise restructuring.
20. Transforming Slovakia from a centrally planned to a market economy has generated
substantial industrial restructuring.  Overall, services have expanded most, and accounted for close to
three quarters of GDP and employment in 2000 (Tab le I.1).  Agriculture has continued its relative
decline to around 4% of GDP and 5% of employment, despite substantial increases in governmentassistance to relatively high levels since 1997 (Box I.1).
Box I.1:  Structural adjustment in agriculture, and rural poverty
The lack of a functioning land market in Slovakia impedes economic development by lowering land and labour
productivity.  It is one of the major constraints to further improvements in agriculture, as it prevents land from being
transferred to more efficient enterprises.  A land market would also help solve the debt crisis  in agriculture.  Farmers would
have loan collateral for borrowing purposes, and pressures on Government to continuously provide loans to practically
bankrupt enterprises would be eased as farmers assets increased, since the fixed price of land in most cases is undervalued.
Slovakia’s agricultural policies are heavily biased towards dir ect policy interventions, such as  subsidies, price and market
interventions.  Such policies, however, have failed to meet their objectives, including improved income generation in rural
areas.  Most subsidies accrue to regions least suitable to agriculture and are biased against more efficient enterprises and
organizational forms, with the only profit-making organizational form – private trade companies – receiving, on average,
fewer subsidies than the cooperative sector.  Agricultural policies have hindered restructuring towards more efficient
production and have resulted in no significant technological progre ss in agriculture.  In addition,  a large part of the subsidi es
granted to agriculture were in practice transferred to down- and upstream sectors.  Current protectionist policies not only
adversely affect the sectors concerned, but impede efficient intra-sectoral changes and, more importantly, create negative
effects on other sectors with substantia l growth potential through withdrawing capital, the scarcest resource in Slovakia,
from these sectors. These drawbacks also apply to agri and wood-processing as well as agri-tourism.
Agricultural subsidization and other interventionist policies are said to be an ineffective means of alleviating rural poverty.
Since income of rural households is mainly generated by the non-agricultural sector (with only 12% of farmers’ income
derived from agricultural activities), providing agricultural assist ance to alleviate rural poverty is likely to be have very
limited impact.  Rural incomes are far more affected by non-farm opportunities.  Agricultural assistance may also have
adverse environmental effects.  Marginal land in industrial re gions has been shifted into intensive crop production, so that
150,000 to 180,000 hectares (or over 7% of Slovakia’s total agricultural land) has been damaged or endangered by soil
erosion.  A further 80,000 to 100,000 hectares of farm land has been damaged by emissions, and thus contaminated by
heavy metals.
According to the FAO, instead of focusing on direct policy measures, such as subsidies, price and market interventions,
priority should be given to indirect policy tools to promote an economic and legal environment to improve efficiency by,
inter alia , separating such policies from those aimed at social objectives of redistributing income among households.  Such
policies would include establishing an efficient land market and rationalizing current subsidization and agricultural
interventionist policies.  A gradual reduction in subsidizati on would create a more efficient agricultural production, oriented
more towards plant production, with less animal production, especially of milk and meat.
Source : FAO (2000), "A Strategy for Agricultural and Rural Adjustment for the Slovak Republic", Main Report, Phase I
and II, Technical Cooperation Programme, TCP/SLO/4552 and TCP/SLO/8922.
21. Some manufacturing sectors have experienced a remarkable improvement in their
competitiveness since 1998, especially transport equipment, including motor vehicles andcomponents; coke and refined petroleum products;  machinery and equipment; and electrical and
optical equipment.
16  Declining sectors include: chemicals, especially pharmaceuticals and paints;
rubber and plastic products; and food, beverages, and tobacco.
                                                          
16 Based on estimates of Revealed Comparative Advantage (RCA).  Sectors found to have positive
RCAs in the study, and hence to be internationally competitive, were: transport equipment; metals and metalproducts; coke and refined petroleum products; pulp, paper and publishing; wood and wood products; non-metallic mineral products; and leather and leather products.  Those with negative RCAs were: textiles and textileproducts; rubber and plastic products; food, bevera ges, and tobacco; chemicals and chemical products;WT/TPR/S/91 Trade Policy Review
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(3) TRADE PERFORMANCE
(i) Trade patterns
(a) Geographic pattern of merchandise trade
22. The geographic pattern of Slovakia's merchandise trade has altered significantly during the
period under review.  Although the share of Slovak ia’s imports from Europe has remained at over
90% during 1995-2000, the proportion sourced from the EU has risen substantially, from 35% in 1995to 49% in 2000 (Chart I.1).  At the same time, the share of imports from the Czech Republic declined
from 28% to 19%.  Russia increased in relative importance from supplying 10% of total imports in
1998 to 17% in 2000, its same share as in 1995.  The largest single supplier of imports is now
Germany.  Its share of Slovak imports rose from 14% in 1995 to 25% in 2000.  The most significant
non-European sources of imports are the United States and Japan, each accounting for 2% of importsin 2000.
23. The same redirection has occurred with exports.  Europe accounted for well over 90% of
Slovak exports during 1995-2000.  Within Europe, the EU share over this period increased from 37%
to 59%, while that of the Czech Republic declined from 35% to 20% (Chart I.1).  Germany also
became the main single export market, accounting for almost 27% of exports in 2000 compared with19% in 1995.  Other major EU destinations include Italy and Austria, accounting for 9% and 8% of
exports in 2000, respectively.  The main non-European export market is the United States, with just
over 1% of exports in 2000.
(b) Commodity pattern of merchandise trade
24. The product composition of Slovakia’s trade has also changed.  The share of primary products
imported has declined from 32% in 1995 to 27% in 2000.  This mainly reflected falls in the share of
food imports, from 7% to 5%, and crude materials, from 6% to 4%.  The share of fuel importsincreased from 13% in 1999 to 18% in 2000, the same level as in 1995.  Manufactured imports
increased over the period 1995-2000 from 68% to 73%.  Main imports in 2000 were machinery and
transport equipment (36%, up from 29% in 1995); intermediate products (unchanged at 18%); and
chemicals (11%, down from 14%) (Chart I.2).
25. Slovak exports remain mainly concentrated in manufactured products.  These accounted for
87% of Slovak exports in 2000, up slightly from 85% in 1995.  Manufactured exports have shifted
more into processed products; the share of semi-manufactured exports fell from 75% in 1995 to 45%
in 2000.  Machinery and transport equipment accounted for 39% of total merchandise exports in 2000
(up from 19% in 1995).  The share of passenger transport vehicles in total exports has increased
dramatically, from less than 1% in 1995 to  14% in 2000.  Export shares of intermediate manufacturedproducts, including mainly iron and steel goods, fell from 40% to 27% over this period, and chemicals
from 13% to 8% (Chart I.2).
                                                                                                                                                                                    
machinery and equipment;  and electrical and optical equi pment.  See Institute of Slovak and World Economics,
(2001), pp. 12-13.Slovak Republic WT/TPR/S/91
Page 9
EU
37.4EU
58.8CEFTA
30.6CEFTA
44.3Germany
26.7
Italy 
9.1
Austria 8.3
France 4.6Other EU
10.1Czech Republic
20.0Poland 5.8Hungary 4.8Former
USSR 
2.7EFTA
2.1Other
5.6
Germany
18.8
Italy 
4.8
Austria 5.0
France 2.0
Other EU
6.8
Czech Republic
35.3Poland
4.4Hungary
4.6Former
 USSR 
7.1EFTA
1.0Other
10.1(a) Exports
1995 2000
Total: US$8,579 million Total: US$11,914 millionChart I.1
Merchandise trade by partner, 1995 and 2000
Per cent
(b) Imports
1995 2000
Total: US$8,771 million Total: US$12,812 millionEU
48.8
CEFTA
23.9Germany
25.0
Italy 
6.2
Austria 3.9
France 3.3
Other EU
10.4Czech Republic
18.7Poland
3.1Hungary
2.1Former
 USSR
 18.9Other
7.0
EU
34.8
CEFTA
33.9Germany
14.3
Italy 
4.6
Austria 5.1
France 2.4
Other EU
8.4
Czech Republic
27.8Poland 2.8Hungary
2.2Former
 USSR 
19.1EFTA 1.9EFTA
 1.4Other
10.3
Source: IMF (2001), "Slovak Republic: Selected Issues and Statistical Appendix", Country Report  No. 01/129, 6 August.Other 
CEFTA
1.1WT/TPR/S/91 Trade Policy Review
Page 10
(a) Exports
1995 2000
Total: US$8,579 million Total: US$11,914 millionChart I.2
Merchandise trade by commodity (SITC-1 digit), 1995 and 2000
Per cent
(b) Imports
1995 2000
Total: US$8,771 million Total: US$12,812 million
a
Source:SITC sections  1, 4 and 9.
IMF (2001 ), "Slovak Re public: Selected Issues and Statistical A ppendix", Country Report No. 01/129, 6 Au gust.Food and 
live animals
2.5Crude materials
3.2
Machinery & 
transport
39.4Chemicals
8.0Fuels & related 
prds
7.0
Intermediate
manufactures
26.6Misc manuf. 
prds
12.8Others a 
0.5Food and live 
animals
5.0 Crude materials
5.1
Fuels & 
related prds
4.2
Chemicals
13.2
Intermediate manufactures
40.4Machinery & 
transport
18.8Misc manuf. 
prds
12.2Othersa
0.9
Food and live 
animals
6.9Crude 
materials
6.0
Fuels & 
related prds
17.5
Chemicals
13.6
Intermediate manufactures
17.8Machinery & 
transport
28.9Misc manuf. 
prds
8.0Othersa
1.4Food and live 
animals
4.5Crude 
materials
3.9
Fuels & 
related prds
17.5
Chemicals
10.9
Intermediate manufactures
17.7Machinery & 
transport
35.6Misc manuf. 
prds
9.0Othersa
1.4Othersa
1.0Slovak Republic WT/TPR/S/91
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(c) Trade in services
26. Slovakia regularly records a small, but variable, surplus on its overall trade in services.  In
2000, the surplus increased to about Sk 20.3 billion from Sk 8.9 billion in 1999.  The surplus reflects
mainly substantial receipts from energy transporta tion, which tend to outweigh the invisible trade
deficit on other services.  In 2000, the surplus on transportation services amounted to Sk 25.9 billion
compared with Sk 19.8 billion in 1999.  Travel receipts have also increased in recent years, from asurplus of Sk 5 billion in 1999 to Sk 6.3 billion in 2000.  In 2000, the deficit on other services was
Sk 11.9 billion, down from Sk 15.9 billion in 1999.
(4) O
UTLOOK
27. The outlook for the Slovak economy has improved.  The regained momentum for structural
and other economic reforms since the late 1990s has been instrumental in restoring international
confidence and helping to turn around the economy.  OECD membership and substantial progress onEU accession reflect and reinforce these positive developments.
28. The IMF and the World Bank estimate GDP growth of between 3% and 3.5% in 2001.  The
Government’s most favourable projections envisage growth rates rising to 4.5% in 2001 and to 6.5%
by 2004.  However, the economy’s turnaround is not yet secure, and future prosperity depends
critically on domestic policy developments and external factors, especially growth in the EU and other
regional economies.  Based on continued fiscal consolidation in 2002 to reduce the overall fiscal
deficit to below 2% of GDP in the medium term, the World Bank forecasts real growth rising to 4.5%
in 2002 and 5% thereafter (Table I.3).
17  Inflation is projected to fall continuously and the current
account deficit to narrow, as a share of GDP, from 4.2% in 2001 to 2.7% in 2005.  Slovakia's gross
external debt is forecast to improve accordingly from 44.6% in 2001 to 38.8% of GDP in 2005.
29. The Institute of Slovak and World Economics of the Slovak Academy of Sciences in
Bratislava projected more subdued growth.  It estimates that real GDP will increase from 2.2% in
2001 to 2.6% in the medium term and to 3.4% in 2004.18  Inflation is forecast to hover between 7%
and 8% annually over this period, and the unemployment rate to fall from 19.8% in 2001 to 18.6% in2004.
Table I.3
World Bank projections, 2001-05
ECONOMIC INDICATOR 2001 2002 2003 2004 2005
Real sector (percentage change)
Real GDP 3.5 4.5 5.0 5.0 5.0
Exports of goods and services 10.0 9.9 9.9 9.6 9.6
Imports of goods and services 12.4 10.8 9.1 8.6 8.9
Private consumption 3.1 4.3 4.3 4.2 4.4
Inflation (GDP deflator) 6.5 5.0 4.5 4.0 3.5
Fixed investment (per cent of GDP) 30.0 30.5 30.5 30.5 30.5
General government (per cent of GDP)
Overall balancea-3.5 -3.0 -2.5 -2.0 -1.6
Primary balancea-1.0 -0.7 -0.4 0.1 0.3
Table I.3 (cont'd)
                                                          
17 World Bank (2001), "Memorandum of the President on a Country Assistance Strategy for the Slovak
Republic", Report No. 20232-SK, 8 January, p. 8.  [Online].  Available at: http://www.worldbank.org .
18 National Bank of Slovakia (2001b), pp. 29-32.WT/TPR/S/91 Trade Policy Review
Page 12
ECONOMIC INDICATOR 2001 2002 2003 2004 2005
Debt 31.3 31.0 30.7 30.1 29.3
External accounts (per cent of GDP)
Current account deficit -4.2 -3.7 -3.2 -2.9 -2.7
Foreign direct investment 17.0 5.0 3.0 3.0 3.0
 - privatization related 14.0 2.0 0 0 0
 - non-privatization related 3.0 3.0 3.0 3.0 3.0
Gross external debt 44.6 40.7 40.0 39.3 38.8
Net external debtb6.6 3.8 2.8 1.8 0.7
a Excludes privatization revenues and called guarantees.
b Equals gross debt less foreign assets of the National Bank and the banking sector.
Source : World Bank (2001), "Memorandum of the President on a Country Assistance Strategy for the Slovak Republic",
Report No. 20232-SK, 8 January, p. 8.  [Online].  Available at: http://www.worldbank.org .