EUROPEAN COMMISSION Brussels, 21.6.2021 SWD(2021) 161 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Slovakia Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Slovakia {COM(2021) 339 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the green and digital transition Green dimension Digital dimension 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition

4.7. Lasting impact of the plan 4.8. Milestones, targets, monitoring and implementation 4.9. Costing 4.10. Controls and audit 4.11. Coherence 1.Executive summary With a total estimated cost of EUR 6 575 000 000, the implementation of Slovakia’s recovery and resilience plan is expected to contribute significantly to the recovery from the COVID-19 crisis and economic, social and territorial cohesion. The pandemic pushed Slovakia’s economy into a deep recession in 2020, with GDP declining by 4.8% and the unemployment rate rising to 6.7%. As containment measures are eased, a swift recovery is expected with 4.8% growth in 2021 and 5.2% growth in 2022, driven by both domestic spending and foreign demand. Investments and reforms set out in the plan should help the recovery, particularly from 2022 onwards. Fiscal policy is expected to remain supportive, with the government budget deficit forecast to be 6.5% in 2021. The plan fully uses the allocation for non-repayable financial support of EUR 6 328 586 359 . Slovakia did not request any loans from the RRF. Slovakia has made fast progress in catching up with the EU average in many areas in the years following EU accession, but population ageing, climate change and the digital transformation pose long-term structural challenges to the country’s economy and society. Maintaining productivity growth, the backbone of Slovakia’s economic convergence, will require sustained structural reforms of education and of institutions, and targeted investment into infrastructure and research and innovation. Moreover, Slovakia is not yet sufficiently prepared for the green and digital transitions. Technological change, such as the automation of production processes, is likely to impact Slovakia’s economy more than the economies of other countries, given the exposure of its large manufacturing sector, including automotive production. In addition, the pension and the healthcare systems pose long-term sustainability risks to public finances and the economy. The plan is expected to contribute to effectively addressing a significant subset of the structural challenges identified in the country-specific recommendations of 2019 and 2020, and is consistent with the euro area recommendation. The plan’s strong focus on inclusive education, public governance and productivity-enhancing investment into the green and digital transition, as well as its envisaged contribution to decreasing regional divergences, can be considered a comprehensive and adequate response to the challenges Slovakia is facing. The challenge of accelerating the green and digital transition is tackled with determination and a wide range of measures. Long-standing challenges in the area of education, childcare, healthcare, as well as research, development and innovation are also addressed with comprehensive measures designed to tackle the most serious shortcomings, such as the low quality and inclusiveness of education, fragmented RDI policy coordination, insufficient public-private cooperation, and weak RDI performance. Additional measures proposed in the plan to improve the justice system, public procurement and the fight against money laundering have the potential to address many of the underlying challenges, if adopted and implemented in line with EU law requirements on proper safeguards and judicial independence and with due involvement of stakeholders. Lastly, several reforms are expected to improve the long-term sustainability of public finances. The plan thereby provides for ambitious reforms and investments across the euro area recommendations, particularly as regards the health system, the green and digital transition, and public administration, and is moreover geared towards further improving convergence and fostering economic growth. The implementation of the recovery and resilience plan is expected to contribute significantly to economic growth and job creation in Slovakia, while strengthening economic, social and institutional resilience. RRF-financed fiscal stimulus is expected to provide a boost to aggregate demand in the short to medium term, improving the cyclical position of the Slovak economy, and thereby mitigating the adverse economic effects of the COVID-19 crisis. As a result, GDP is estimated to be higher by between 1.3% and 1.8% on average during the period of 2021-2026, relative to the counterfactual scenario without the RRF. The labour market is also expected to fare markedly better than it would in the absence of RRF. Potential growth is projected to be boosted significantly and in a long-lasting manner as a result of investments and productivity gains. In the long run, structural reforms contained in the plan are expected to entail a sizeable GDP gain by 2040. Most of this impact is assumed to stem from human capital policies such as education, training, research, development and innovation, which improve the productivity of the Slovak economy. This would facilitate the country’s transition to an economic model more focused on high value-added activities, and which remains competitive amid automation and digital change. With 43% of its allocation dedicated to climate-related measures, Slovakia’s recovery and resilience plan has a strong focus on climate change mitigation, addressing adaptation and the protection of biodiversity and natural resources and intends to contribute to 2030 and 2050 climate targets and zero pollution ambition of the European Green Deal. Investments in renewable energy capacity combined with a set of reforms aimed notably at facilitating the access to the grid of clean energy sources are to set Slovakia achieve its 2030 renewables target. A wide programme of building renovations will decrease their impact on greenhouse gas emissions and improve air quality. A distinct set of measures is designed to support industry decarbonisation. In transport, a comprehensive package of reforms and investments will target electro-mobility, inter-modality and public modes of transportation. The plan also includes reforms and investments aimed at sustainable landscape, forest and water management. The plan includes a complete assessment of “do no significant harm” (DNSH) and all measures respect the DNSH principle. With 21% of its allocation dedicated to digital measures, the plan is expected to contribute significantly to the digital transformation of the Slovak economy and society. The plan puts strong emphasis on digitalisation of the public sector, both as part of sectoral reforms (justice, police, healthcare) as well as through horizontal measures aiming at increasing quality and accessibility of eGovernment solutions, improving the efficiency in public use of IT resources and strengthening cybersecurity. A reform of the governance model for the digital economy, together with investments into top digital technologies and into digital capabilities of companies, in particular SMEs, should help the development of the digital ecosystem. Development of digital skills is one of the objectives of the proposed education reforms and of the investment in skills of seniors and disadvantaged groups, which will be complemented by a digital skills strategy for persons in productive and post-productive age. Slovakia’s recovery and resilience plan entails structural changes to institutions and policies geared at addressing root causes of existing challenges and as such can be expected to achieve a lasting impact. Digitalisation efforts across a wide range of institutions and public administration are expected to structurally enhance efficiency and improve the quality of public services. Reforms of the governance framework of the judiciary and in the fight against corruption and money laundering are set to have a lasting impact. Investment measures – including into sustainable transport, building renovation, higher education infrastructure, and healthcare - are set to support and enhance the positive impact of structural reforms. Climate adaptation measures more broadly contribute to mitigating climate change related risks and improve future prosperity and well-being. Moreover, Slovakia has put emphasis on stakeholder involvement to ensure broad support for structural changes. The plan proposes a comprehensive and coherent set of milestones and targets that are clear, realistic and with a sufficient level of ambition to achieve the objectives of each component. Indicators attributed to milestones and targets are relevant, acceptable and robust. Slovakia is setting up a comprehensive implementation system with leading role of the National Implementation and Coordination Authority (NIKA) responsible for the monitoring and overall implementation of the milestones and targets and submitting payment request to the European Commission. Overall, costing information and supporting documents are provided to a relatively high extent, and provide a good basis to assess the reasonability and plausibility of cost estimates. At the same time, for certain measures information and supporting documents or other comparable data have been provided to a limited extent, which hampers the degree to which these specific cost estimates can be considered reasonable and plausible. Overall, synergies with other EU funding are explained to the extent possible at this stage. For various measures, these synergies need to be carefully monitored during implementation at strategic and project levels. Provided the milestones mentioned below (on the entry into force of the RRF Act and on the repository of information) are met before the first payment request, the arrangements proposed in the recovery and resilience plan and the additional measures contained in the proposal for the Council implementing decision are adequate to prevent, detect and correct corruption, fraud and conflicts of interests, and the arrangements are expected to effectively avoid double funding. In general, identification of the actors responsible for controls and audit in Slovakia is well explained and the independence and segregation of functions of the audit authority clearly set out, including how it is enshrined in Slovak legislation. Measures to detect and avoid double funding seem to be comprehensively included. NIKA will work to coordinate actors involved in implementing the RRF. At the same time, much of the legal basis rests on “Recovery and Resilience Facility Act” or “Act on RRF” which was still a draft at the time of submission of the plan. A milestone shall therefore cover the entering into force of the Act on RRF, as well as the absence of any material difference between the content of the Act as described in the plan and the content of the final version that will enter into force. In addition, a repository system for monitoring the implementation of the RRF and for the collection and storage of all the data referred to in Article 22(2)(d) of the RRF regulation shall be put in place and operational by the time of the first payment request. A milestone shall be included to this end. The plan presents a consistent and comprehensive package of reforms and investments mutually reinforcing each other with a strong reform drive. The plan’s vision of a modernised Slovakia is centred on three interconnected pillars of an innovative, sustainable and healthy country and five key policy areas, which are implemented through 18 components. Synergies are ensured in thematic components (e.g. education components) as well as horizontally across a number of components (e.g. when applying energy efficiency requirements for public buildings renovations or digital transition of the public administration).

(1)

Balanced Response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)

M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report Slovak economic activity was hit hard by the Covid-19 pandemic and the corresponding containment measures, resulting in a sharp fall in real output during the first half of 2020. As restrictions were lifted after the first wave of the pandemic, the Slovak economy experienced a sharp rebound in Q3-2020, but the recovery slowed down towards the end of the year amid the resurging second wave, resulting in a decline of 4.8% of annual GDP for 2020. The downturn was driven by a sharp fall in both foreign and domestic demand, with industry-heavy exports and imports as well as investment suffering relatively more than household consumption. The latter was supported by a resilient labour market (propped up by short-term work schemes) as well as by other fiscal support measures (e.g. nursing and sickness benefits). While this cushioned the fall in retail sales, the service sector (especially in hospitality) could not avoid larger losses amid the restrictions. Investment and construction output also fell sharply due to increasing uncertainty about the future. Public support measures helped mitigate the impact of the crisis on the labour market. Nevertheless, after years of strong employment growth, the unemployment rate rose from a record low of 5.8% in 2019 to 6.7% in 2020, and employment fell by 1.9%. Fiscal support measures as well as weaker tax revenues have considerably increased the government budget deficit to 6.2% of GDP in 2020, resulting in a sharp increase of the public debt-to-GDP ratio to 60.6% in 2020 from 48.2% in 2019. The macroeconomic scenario of the Slovak Ministry of Finance’s Institute for Financial Policy (IFP) expects the pandemic to keep weighing on economic activity at the beginning of 2021, mainly due to weak household consumption and muted private investment. However, as gradual vaccination rollout facilitates the lifting of restrictions, a solid recovery is forecast later in the year, also aided by continued fiscal stimulus, leading to a projected GDP growth of 3.3% in 2021. Thereafter, the IFP forecasts robust output growth of 6.3% in 2022 and 2.8% in 2023, helped by public investments to be supported under the Recovery and Resilience Facility (RRF), and by the drawing of Multiannual Financial Framework (MFF) funds, which can compensate for the effects of the planned gradual fiscal consolidation (1pp of GDP from 2023 onwards). The output gap is estimated to remain negative in 2021, and be closed by 2022 with output slightly above potential thereafter. The 2019 GDP level is projected to be reached by 2022. Aided by short-term work schemes, employment proved to be rather resilient in the face of the crisis. However, its recovery is projected to be somewhat delayed as working hours are increased first and firms remain cautious about posting new vacancies. Despite the economic rebound later on, due to the weaker first half of the year the IFP expects employment in 2021 to be 0.4% lower on average, before gradually recovering from 2022 onwards. The unemployment rate is forecast to rise to 7.1% in 2021, and to start slowly decreasing from 2022 onwards. Inflation is projected to slow down during 2021, mainly due to a fall in regulated energy prices, but then it should rise gradually as the cyclical position of the economy improves. In terms of social developments, income inequality in Slovakia remains low relative to the EU-27 average. According to the latest 2019 statistics, the S80/S20 ratio stood at 3.34 for disposable income (vs 4.99 in the EU) and the Gini-coefficient was 22.8% (vs 30.2% for the EU). However, this is due to a low wage dispersion rather than strong redistribution by the state. Similarly, the proportion of people at risk of poverty and social exclusion (AROPE) is relatively low, at just 16.4% (vs 20.9% for the EU). However, behind this average there are large disparities, with some regions (particularly South-Center and Eastern Slovakia) and groups remaining particularly vulnerable, e.g. marginalised Roma communities. Also, for children with low skilled parents the AROPE ratio is a very high 89.3% (vs 59.6% in the EU), suggesting low social mobility. Low-skilled and young people face considerable disadvantages in the labour market. Young people not in employment, education and training (NEET) comprised 14.5% of the population in 2019, similar to the EU average (12.5%), but in Q3-2020 long term unemployment among young people was very high at 6.55% (vs 3.71% in the EU). The unemployment rate for low skilled youth (53.2%) is more than twice the EU average (21.1%), while unemployment for all low-skilled workers is 30.9% (vs 13.3% for the EU). According to the plan, fiscal policy is projected to remain supportive in the near term, with the budget deficit forecast to reach 9.9% of GDP in 2021. Along with the subsequent recovery, the government projects a gradual fiscal consolidation from 2023 onwards, as the structural deficit is reduced by 1 pp. each year until the medium-term budgetary objective (MTO) of 0.5% structural surplus is reached in 2028. As a result of continued primary deficits, the public debt-to-GDP ratio is expected to keep rising in the medium term, however, its pace should be contained by low interest rates and robust nominal growth. Compared with the latest Commission forecast, the macroeconomic scenario of the plan and the 2021 stability programme is slightly more pessimistic for 2021 (see Table 1). The Commission 2021 Spring Forecast expects annual growth of 4.8% in 2021, although followed by a slower expansion of 5.2% in 2022. The Commission therefore expects the recovery to materialize sooner, mainly due to a sharper rebound in domestic spending, but also to the inclusion of the spillover effect of the US fiscal stimulus on exports. Related to this different pattern in aggregate demand recovery, the Commission’s inflation forecast is somewhat higher for 2021, and lower for 2022. In terms of the labour market, the Commission’s outlook is broadly in line with that of the IFP. The Commission’s forecast for fiscal indicators follows a more favourable trajectory than that projected by the Slovak government, as the Spring Forecast could not yet incorporate the latest information from the authorities. There are several risks around the macroeconomic scenario outlined above. The macroeconomic and fiscal outlook continue to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. According to the IFP, the main downside risk in the short run is a deterioration of the pandemic situation, which would necessitate more prolonged restrictions, harming and delaying the recovery. In addition, with the eventual withdrawal of policy support measures, unemployment and bankruptcies could rise. In the medium term, this would raise the risk of labour market scarring from sustained unemployment spells, and of persistent damage to potential growth. Upside risks include spillover effects from the recent US fiscal stimulus, which have not been incorporated to the IFP’s forecast, and could boost Slovakia’s export performance. A similar positive risk concerns spillover effects from European trading partners as they implement their own RRP. Overall, the plan’s macroeconomic assumptions are plausible and broadly in line with the Commission’s own forecasts. 2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Slovakia has made fast progress in catching up with the EU average in many areas in the years following EU accession, driven by export-based industrial production based on attractive labour costs, in particular the automotive industry. This period of swift convergence was based on industrial specialisation – achieved with the help of foreign direct investment with high shares of goods exported to the single market. Manufacturing accounted for 20% of GDP in 2018, compared to 14.6% in the EU. In the past years preceding the crisis, Slovakia’s progress in catching up has slowed down. It is now lagging behind that of regional peers in Central and Eastern Europe. GDP per person in purchasing power standards has stood around 75% of the EU average since 2010. This is partly linked to the persisting labour productivity gap vis-à-vis the EU average. With domestic unit labour costs increasing, further convergence will hinge on Slovakia’s ability to increase competitiveness and productivity, and to diversify the economy. This calls for stronger diffusion of new technologies and innovations to domestic and smaller companies – supported by increased investment in R&D and in upskilling, and development of economic sectors. There remains scope to improve public sector performance and governance effectiveness in view of fostering growth and investment. A significant economic and social developmental gap between Slovakia’s capital and its other regions further hampers economic progress. Regional disparities, especially between Eastern and Western Slovakia, constitute an important challenge, as infrastructure gaps and weak urban-rural linkages mark pronounced economic differences. The quality of Slovakia’s education and training system and the inequalities within it prevent the country from fulfilling its economic potential. There are skills mismatches between current skillsets and future labour market needs, including digital skills. Students’ performance in basic skills remains low and pronounced educational inequalities persist, with socioeconomic background having a significant impact on educational and employment outcomes. These inequalities have been exacerbated by the Covid-19 outbreak. Participation in early childhood education and care (ECEC) is among the lowest in the EU, in particular among vulnerable groups (notably the Roma minority). The quality, relevance and internationalisation of higher education is low, affected by the fragmentation of the system. Investment in high-quality and inclusive education (including the teaching profession) and training remains insufficient, affecting educational outcomes across all levels, including vocational training and schemes for upskilling and reskilling of workers, which will be essential for an inclusive recovery and to successfully manage the twin transition. Digital illiteracy features among top barriers for jobseekers indicated by employers. Slovakia has a strong labour market, but structural challenges and disparities persist. The gender gaps in both employment and wages remain. Long-term unemployment remains high in particular in eastern Slovakia, also due to lack of integrated employment and social services for the vulnerable groups. The proportion of people at risk of poverty or social exclusion is low overall, but severe material deprivation is among the highest in the EU and there are strong disparities between groups and regions. A large part of the Roma population lives in poverty or in poor housing conditions, and their access to social and basic services is hampered by missing infrastructure. For the Roma children living in concentrated residential areas, the probability of becoming unemployed or earning less than the minimum wage in irregular work is high. Access to healthcare for marginalized populations (such as ethnic minorities and those living in deprived areas) remains relatively poor and characterized by sizeable geographic disparities, reflecting the uneven distribution of healthcare staff across the country. Although some steps have been taken in recent years to alleviate this issue, the age composition of the current health workforce raises concerns about their future supply.

An underperforming public administration is a bottleneck for public investment, while low trust in the justice system undermines business confidence and private investment. The overall effectiveness of Slovakia’s public institutions, administration and regulatory environment remains low, hampering the business environment. Despite efforts, specific concerns regarding the independence and integrity of the justice system remain. There is scope to improve the corruption prevention framework and to carry out planned reforms. Public procurement procedures need to be simplified and accelerated, but proper safeguards and transparency ensured. Moreover, quality-related and lifecycle cost criteria are insufficiently used in public purchases thus limiting their strategic use. Strengthening governance capacities, performance of civil service and coordination particularly at local and regional level could bolster the implementation of reforms and investment. A stronger role of expenditure reviews and the introduction of multiannual expenditure ceilings could further improve spending efficiency. Specific but important shortcomings such as lengthy processes to get construction permits or to resolve insolvency hinder economic efficiency, and the high frequency and low predictability of changes in the regulatory framework hamper investment. In addition, late payments represent a risk to liquidity of companies and a barrier to investment. Moreover, the anti-money laundering framework and related capacities exhibit important weaknesses. Population ageing, recent pension reforms and the healthcare system pose long-term sustainability risks to public finances and the economy. The demographic old-age dependency ratio in Slovakia is projected to increase significantly due to sustained increases in life expectancy and low fertility rates. Moreover, recent reforms capping the retirement age and raising minimum pensions heighten long-term fiscal sustainability risks. Excessive reliance on hospitals to provide care services hinders the efficiency of the healthcare system, while the current Slovak long-term care system is not ready to face the challenges posed by rapid population ageing. The tax system does not promote growth and fiscal sustainability: Property, consumption and environmental taxes play a limited role; the VAT compliance gap remains high despite improvements; and the tax wedge for low-income earners is high and hampers social inclusion through employment. Technological changes are likely to impact Slovakia’s economy more than the economies of other countries. Yet, both public and private R&D investment remain low. The low quality of public research and limited cooperation of universities and research organisations with businesses, partly explained by inefficiencies related to a fragmented governance system, constrain the development and sharing of knowledge and skills. 2.3.Challenges related to the green and digital transition Green dimension The recovery and resilience plan should contribute to the green transition and at least 37% of the plan´s total allocation needs to contribute to climate objectives. The measures in the plan shall contribute to achieving the 2050 climate neutrality objective, and the 2030 energy and climate targets, taking into account the Slovak National Energy and Climate Plan. They should also contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy as appropriate, while ensuring that nobody is left behind. Slovakia is not yet sufficiently prepared for the green transition, and investment is lacking in many areas. Investments in the green transition are particularly challenging due to a limited absorption capacity of funds, and most government plans are only in an initial phase. Progress and levels of existing funding vary widely across the various policy areas that are part of the green transition and Cohesion Policy funds and public finance remain the major source of funding. In 2014-2020, the Cohesion Policy funds for Slovakia have allocated EUR 1.99 billion for environment protection and resource efficiency, EUR 1.24 billion for low-carbon economy (energy efficiency: approx. EUR 920 million, renewables: approx. EUR 315 million) and EUR 552 million for climate change adaptation and risk prevention. The main priorities in energy policy include supporting energy efficiency solutions, in particular for households, and investing into renewable energy. These priorities are reflected in Slovakia’s National Energy and Climate Plan (NECP), which estimates total investment needs to reach the 19.2% renewable energy contribution by 2030 at around EUR 4.3 billion and the cost of energy efficiency measures at EUR 2.2 billion per year. Energy policy is a key lever to mitigating climate change, as Slovakia is lagging behind on related targets. However, the decarbonisation models on which Slovak NECP is built is considered outdated and revaluation as well as reflection on new emission targets would be needed. GHG emissions Slovakia has set an ambitious emissions target, but this ambition is not always reflected in the underpinning policy measures. For sectors outside of the Emissions Trading Scheme Slovakia has set a target of -20% by 2030 compared to 2005. It is however unclear if the measures included in the National Energy and Climate Pan (NECP), would allow to achieve that objective. The existing measures projections imply a reduction of just 12% by 2030 compared to 2005, likely requiring significant additional effort for those sectors. Adapting to climate impacts Slovakia has adopted its National Adaptation Strategy, but mainstreaming of climate adaptation into sectoral policies is not yet sufficient and its implementation requires strong commitment, financial support and systemic approach. Overall, there is a lack of uptake of nature-based solutions. Renewable share Slovakia's target of 19.2% renewables share is well below the 24% share calculated in line with the formula in Annex II of the Regulation (EU) 2018/1999 (Governance Regulation), but even that will require significant additional policy effort. It is planned to achieve this target notably through a significant increase in onshore wind capacity and photovoltaics and a modest increase of renewable energy in heating and transport, based to a large extent on bioenergy and biofuels. However, recent modification in reporting of renewables needs to be taken into account in interpretation of the trends in energy sector. In particular, a higher statistical coverage of the use of bioenergy in households implied a significant increase in the reported uptake of renewables and requires assessing of further support of bioenergy with focus on LULUCF carbon sinks, biodiversity and air quality. In order to tap the potential of renewables, Slovakia should accelerate implementation of relevant measures. It should relaunch the auctions to support large-scale renewable energy installations, promoting market-based direct contracts (PPAs) and reducing investors’ risk by re-installing the right to grid connection. In other sectors, additional reforms and investments for e-mobility and for upgrading district heating and cooling could allow for more ambition beyond the NECP trajectory. The NECP estimates total investment needs to reach the 19.2% renewable energy contribution (proposed by Slovakia for 2030) at around EUR 4.3 billion. The investment costs for electricity generation are EUR 180 million and for heat generation EUR 250 million per year. Reforms in late 2018 and 2019 introduced auctions and regulated how consumers can participate in producing renewable energy (Renewable Energy Act). However, auctions for large scale sources of renewable energies have still not been re-launched, and there is a lack of investment certainty. The Action Plan for the transition of the Upper Nitra region contributes to phasing out of coal mining and coal-fired electricity generation by 2023. The solution for district heating system (now coal-based) in Nováky is being developed. The national hydrogen strategy is also being finalised and should be adopted in 2021. Energy and resource efficiency The 2030 objectives that Slovakia has fixed itself for energy efficiency are modest. But even against that benchmark there may be a need to significantly scale up measures listed in the NECP and ensure a proper implementation. Existing investment support measures should be streamlined with due regard to energy poverty and ensure that the energy efficiency first principle applies at system level. Investments needs in energy efficiency are significant, but a number of non-financial barriers need to be addressed at the first place. The NECP estimates that by 2030, EUR 3 billion are needed to renovate non-residential buildings, out of which EUR 1.2 billion are needed for public buildings. Slovakia has been pursuing an ambitious renovation programme for multi-apartment and public buildings. In addition, following Eurostat’s new rules, Slovakia has embraced the energy performance contracts and prepared enabling legislation and model contract to be followed by all public bodies. However, building owners’ low income, low awareness about energy renovation and a lack of advisory services are among Slovakia’s barriers to change. It is estimated that around 120,000 boilers are inefficient. Following an average annual renovation rate of 2.6% at the cost optimal level, the primary energy saving potential in Slovakia, by 2050, is 20.4 TWh. Over the period of 2021-2050 this is expected to generate more than 0.73 million of full time equivalent jobs.

Despite resource efficiency gains, and a relative decoupling of raw material use and economic growth, natural resources use remain at an environmentally unsustainable level. Slovakia´s secondary raw material use rate is well below EU average, with almost no progress since 2010. Moving to a circular economy, e.g. by promoting reuse, recyclability and secondary raw materials markets, can boost Slovakia´s resource productivity and efficient use of natural resources, generate cost savings and create jobs. However, fundamental changes in core systems of production and consumption which are prerequisite for the transition towards sustainability are even more challenging in Slovakia due to its existing economy model. Transport Transport systems need to be made more sustainable while serving key needs to connect regions and people. This requires shifting towards zero and lower emission transport – using low-emission technologies, changing modal shares and setting better incentives – which can also reduce (locally) congestion and high levels of air pollution. Transport networks already receive large amounts of funding, though investments could be tailored to be more sustainable. The Operational Programme Integrated Infrastructure is funding many measures amounting to an allocation of EUR 3.88 billion, also in complementarity with Connecting Europe Facility (CEF). However, as regards the future programming period it can be assumed that the available funding for transport may not be sufficient to cover all the needs. The existing investment gaps are mostly linked to the infrastructure quality and standards, in particular the infrastructure requirements defined in TEN-T Regulation. The NECP estimates total investment needs for transport by 2030 at EUR 64,8 billion with rail passenger transport, freight inland transport and public transport representing EUR 4,15 billion; EUR 1,3 billion and EUR 97 million. Rail freight transport comes with a tag of EUR 1,8 billion. Funding for transport is also provided by the CEF that focuses on cross-border projects and bridging missing links in various sections of the TEN-T Core Network and on the Comprehensive Network, as well as for horizontal priorities such as traffic management systems and installation of ERTMS. Nearly EUR 120 million have been allocated in the current programming period (2014 – 2020) for the construction of cycling track and around 150 projects are in implementation Many regions and cities have developed a masterplan for cycle tracks, thus addressing the call for sustainable mobility. However, a number of other measures to address sustainable urban mobility, such as integration of low emissions zones, are insufficiently taking up. Nature and environment A more comprehensive actions on protection of — forests, soil, water, air and biodiversity — to mitigate the effects of climate change are needed. Slovakia identified water, energy, forestry, and soil as priority areas to address drought and water scarcity. The Environmental Strategy 2030 should provide a guidance for smart and sustainable development, but the actual implementation of Slovakia´s environmental agenda continues to face several challenges. To improve environmental protection and move towards the circular economy, a number of priority policy axes should be pursued. These include improving the waste management system with innovative collection and treatment solutions, improving water efficiency across sectors, completing drinking water and sewage networks to address sanitary problems, as well as investing into natural capital by protecting and restoring forests, wetlands, and soils. An insufficient performance on waste management with low recycling rates and a strong dependence on landfilling, stagnating at around 60% remains one of the main concerns. Slovakia is among Member States of being at risk of not meeting the 2020 target of 50% preparation for re-use/recycling for municipal waste. Some important legislative changes were made but the necessary change in the waste management performance would depend on their effective implementation, in particular with respect to the obligation for biodegradable waste separation well as fiscal incentives, including the newly established deposit system for single use beverage packaging. Slovakia is among Members States where the air quality is a particularly challenging policy area, especially due to the exceedances of particulate matter concentrations with a significant health impact. The air sector still needs to reduce emissions from the burning of solid fuel in homes and from agriculture transport and industry. Assessment of second generation of River Basins Management Plans shows that Slovakia is lagging behind in achieving the good status for water bodies. This is mainly due to morphological alterations related to flood infrastructure and pressures from other sectors (e.g. agriculture) as well as insufficiencies in the water management policy, including the application of the legislation (e.g. small hydro power installations). Despite the support for investments with EU Funds, the wastewater and drinking water networks are not completed yet and Slovakia has the highest rate of waste water load addressed outside of collection systems in the EU. Preserving and restoring natural capital is a wide policy area with heterogeneous progress. Overall (public and private) investment in environmental protection has been low (0.35% of GDP) and on a declining trend since 2008. Cohesion Policy funds (2014 – 2020) for Slovakia have allocated EUR 1.99 billion for environment protection and resource efficiency, and EUR 552 million for climate change adaptation and risk prevention. With nearly 30% of its territory within Natura 2000 sites, Slovakia belongs to the Member States with the highest coverage while around 48% of the country’s forests are protected. However, this situation is subject to several pressures, mainly logging, resulting in the critical situation of the Capercaillie, a large forest bird. Although some progress has been made, significant gaps remain in the in the completion of the Natura 2000 network and in setting of conservation objectives and measures in the management plans for Natura 2000 sites. National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) -5 13 -20% Ambitious National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 16.9 14 19.2 Unambitious (24% is the result of the RES formula) National contribution for energy efficiency: Primary energy consumption (Mtoe) 16.0 16.4 15.7 Low ambition Final energy consumption (Mtoe) 11.2 10.4 10.3 Low ambition Level of electricity interconnectivity (%) 43 59 52 NA Source: Assessment of the final national energy and climate plan of Slovakia, SWD (2020) 926 final (Note: updated with Eurostat data, where available).

Digital dimension The recovery and resilience plan should contribute to the digital transition and at least 20% of the plan´s total allocation needs to contribute to digital objectives. The measures in the plan should, inter alia, contribute to the digital transformation of the economic and social sectors (including public administration, public services, and the justice and health systems). The objective of the measures in the plan should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness. Despite having achieved some progress, Slovakia’s performance in the digital area has slowed in comparison to other EU countries, hampering its potential for sustainable economic growth and resilience. Slovakia currently ranks 22nd amongst EU Member States in the Digital Economy and Society Index (DESI) 2020. The Covid-19 pandemic made existing weaknesses even more visible including in the areas of connectivity, digital skills attainment and digitalisation of schools, households, companies and in digital public services. Although the overall performance has improved over time, the gap between Slovakia and the EU average has not decreased given that Slovakia is experiencing a stagnating take-up of mobile and fixed broadband connections, underdeveloped digital public services, whereas businesses are not fully participating in the Digital Single Market. Digitalisation of education is low, as schools, teachers and pupils often lack the necessary skills and tools, and new technologies are not efficiently integrated in teaching and learning. Expanding broadband coverage and speed, and robust investments in the deployment of 5G should allow for equal and improved access to the internet, and coverage of ‘white spots’. Slovakia ranks 21st in the connectivity dimension of 2020 DESI. In 2019, only 45% of rural households were covered by fast broadband internet access, compared to 76% in Slovakia overall. The Covid-19 outbreak, revealed that many pupils and teachers do not have access to internet and digital equipment at home, especially in Eastern Slovakia, which contributes to deepening socio-economic inequalities and to a growing digital divine in education. After some initial delays the national broadband plan for 2021 – 2025 was adopted by the Government on 17 March 2021, opening the way for the implementation of broadband objectives. Although Slovakia intends to cover 95% of households with ultra-fast internet connections by 2030, there appears to be a significant investment gap, reflected also in the insufficient capacity of the Broadband Office. 5G auctions took place in 2020 after several delays, but investments currently appear to rely on private operators only, risking insufficient coverage, particularly in market failure areas. In December 2020, the regulatory authority allocated to participating operators frequencies in the 700MHz, 900MHz and 1800MHz bands. The percentage of total harmonised 5G spectrum assignation increased from 33% in 2020 to 67% in 2021. Additional allocations should take place in 2022. Investments are needed for the deployment of 5G throughout the country, including the network of base stations and the construction of cross-border corridors. Operators are mandated to cover at least 95% of the territory of each regional city by the end of 2025, 70% of the entire population by the end of 2027, and 95% by 2030. Further increasing the population coverage may not be possible without public investments. In addition, Slovakia has set the objective to cover all sections of motorways/expressways and railway corridors with 5G networks by 2025. Investments in digital skills and tools are essential as the overall low digital human capital performance in society, economy and public administration is a bottleneck for development. Slovakia ranks 20th in the human capital dimension of the 2020 DESI. Only 54% of Slovaks have at least basic digital skills, with only 27% above basic digital skills, and digital illiteracy features among the top barriers for jobseekers. Opportunities to develop digital skills should therefore be available to the entire population, including teachers and civil servants, and should also be linked to existing research and innovation challenges. Schools lack sufficient and adequate digital equipment (only 17% of Slovak primary school students attend digitally equipped and connected schools), whereas educators often lack the necessary skills to provide effective online learning. The availability of quality educational resources, virtual learning environments, and adjusted school curricula is quite limited. The pronounced regional differences result in an educational digital divide. This is detrimental to economic development and territorial cohesion. Slovakia’s public administration is underperforming, and the low level of digitalisation of the public administration and of public services is a key bottleneck for the business environment and an unnecessary drag on economic growth. Digital public services are the weakest dimension in the 2020 DESI for Slovakia, which ranks 26th. The percentage of individuals who used the internet in the last 12 months, for interaction with public authorities has also marginally decreased from 69% in 2019 to 68% in 2020. Investments are therefore needed to improve the efficiency and user-friendliness of public services, eliminate any unnecessary administrative requirements, thereby improving the overall business environment. Public Procurement of IT equipment should be complemented with reforms to facilitate the effective integration of digital methods and processes in the public administration. Investments are needed to improve efficiency of the public administration, reduce administrative burden and improve the business environment. The focus should be in particular on user-friendliness in order to make investments effective. Public Procurement of IT-purchases requires reforms and investments to make them more efficient. Technological changes are likely to impact Slovakia’s economy more than the economies of other countries, but both public and private R&D investment remain low. Slovakia’s ability to increase competitiveness and productivity requires innovation and diversification of the economy, but the low quality of public research and limited cooperation with businesses, partly explained by inefficiencies related to a fragmented governance system, constrain the development and sharing of knowledge and skills. Reforms and investments in R&I and higher education are essential for sustained economic growth and competitiveness. Efforts to reinforce and expand the current R&I ecosystem are needed in close cooperation and synergies between research organisations, universities and companies. Investments that support the integration of digital technology in businesses are needed to improve their capacity to keep up with market developments and modernise the economy. The integration of digital technology dimension in the 2020 DESI ranks Slovakia 21st in the EU Investments in Digital Innovation Hubs can play a major role in supporting companies in Slovakia (especially SMEs) in the digital transformation by providing services to businesses and the uptake of new technologies. Investments in the development and deployment of advanced technologies are also lagging behind in Slovakia. Existing infrastructure for development of supercomputers needs to be strengthened and extended, based on existing technology financed from European Structural and Investment Funds (2014 -2020) at the Slovak Academy of Science. Moreover, there is potential for investments in quantum encrypted communication technology and infrastructure as well as in block chain technology and artificial intelligence, where the National Research Centre plays a key role. Slovakia’s ranking in the Digital Economy and Society Index 2020. https://ec.europa.eu/digital-single-market/en/scoreboard/slovakia Note: EU aggregate corresponds to EU28, based on 2020 DESI report Box: Progress towards the Sustainable Development Goals Graph 2. Sustainable Development Goals and the four dimensions underpinning the recovery and resilience plans. Sustainable Development Goals and the four dimensions underpinning the Annual Sustainable Growth Strategy. The objectives of the Sustainable Development Goals (SDGs) are integrated in the European Semester since the 2020 cycle. This provides a strong commitment towards sustainability in coordination of economic and employment policies in the EU. In that respect, this section outlines Slovakia’s performance with respect to SDGs with particular relevance for the four dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the recovery and resilience plans (green transition, fairness, digital transformation and productivity, and macroeconomic stability), indicating possible areas where investments and reforms are in line with the objectives of the Facility could further accelerate progress on the SDGs. Green Transition In recent years Slovakia has made significant progress with respect to SDG 7 (Affordable and clean energy).Its greenhouse gas emissions intensity of energy consumption is now below the EU average. Although, at 16.9%, the share of renewable energy consumption in gross final energy consumption was in 2019 below the EU average (19.7%) this difference decreased significantly as compared to 2014. At the same time the share of population unable to keep their homes adequately warm increased from 6.1% in 2014 to 7.8% in 2019. A negative trend can also be observed in transport, where average CO2 emissions per km from new passenger cars increased from 131.7 in 2014 to 133.4 in 2019, The share of forest area is above the EU average and has been stable between 2015 and 2018. While the quality of water in rivers has been improving, this has not been the case for land degradation. Fairness Slovakia has made progress towards achieving SDGs in the area of fairness, but challenges remain. Slovakia performs better than the EU average in various social SDGs. It made progress towards SDG 1 (no poverty), for instance by bringing the share of population at risk of poverty and social exclusion down from 18.4% to 16.4%, which is well below the EU average of 20.9%. At the same time, the share of severely materially deprived people has also been brought down from 9.9% to 7.9%, but is still higher than the EU average of 5.5%. The share of overcrowding in the area of housing was with 34.1% still significantly higher than the EU average of 17.1%. Although inequalities are overall still higher than the EU average, Slovakia performed relatively better in reducing inequalities (SDG 10). Worrying are for instance the increased urban-rural gap for risk of poverty or social exclusion (from 5.8% to 7.5%; EU average 1.1%). Moreover, the adjusted gross disposable income per-capita went down from 73 to 68 towards 2019 (with EU-index being 100), showing increased inequality within the EU. Slovakia performed better than the EU average in reducing zero hunger indicators (SDG 2). While still lagging behind EU average, progress is visible in quality education (SDG4). Participation in early childhood education and tertiary education achievement increased significantly. However, whereas the share of early leavers from education and training decreased in the EU as a whole between 2015 and 2020, in Slovakia this increased from 6.9% to 7.6%. A negative trend is also visible in adult participation in learning. Slovakia has made progress in good health and well-being (SDG3) e.g. with a decreased obesity rate, but smoking prevalence of the population over 15 years increased from 21% to 25% between 2014 and 2020 (also the EU average). Also, the self-reported unmet need for medical care increased from 2.1% to 2.7% (EU average 1.7%). Regarding gender equality (SDG 5), Slovakia showed significant progress between 2015 and 2020 in reducing the gender employment gap and significantly increasing the share of women in senior management positions (from 12.7% to 31.4%, now above the EU average of 29.5%). At the same time, challenges remain e.g. in the gender gap for tertiary education attainment, which increased from 16.1% to 19.9%, largely above the EU average of 10.8%. Digital transition and productivity Slovakia is lagging behind the EU average in most targets related to the digital transition and productivity dimension reported under SDG 8 (Decent work and economic growth) and SDG 9 (Industry, innovation and infrastructure). Slovak investment expenditure as a share of GDP has decreased between 2015 and 2020, falling below the EU average, which increased somewhat over the same period. R&D expenditure, R&D personnel and R&D output remain well below the EU average and the gap has increased over the five-year period covered by data. Macroeconomic stability The performance of Slovakia with respect to SDG 8 (Decent work and economic growth) has been somewhat mixed in recent years. Real GDP per capita in 2020 was only slightly higher than in 2015, while it declined relative to the EU average (from 78.3% to 70.2% in 2019 at purchasing power standards), signalling a disruption in Slovakia’s convergence process. Investment as a share of GDP has also decreased from 23.7% in 2015 to 19.5% in 2020, adversely affecting capital accumulation and future growth potential. In contrast, labour market developments have been rather favourable with the employment rate increasing to 72.5% and catching up with the EU average, and long term unemployment falling from 7.6% to 3.2% between 2015 and 2020. Regarding the external balance of the Slovak economy, the country has been running moderate current account deficits since 2015, but its net international investment position is only slightly negative (-14.1% of GDP in 2019), while net external liabilities are also at a relatively safe level (31.7% of GDP in 2020). Prior to the pandemic public debt stayed below the Maastricht threshold, and even after the crisis it only slightly exceeds 60% of GDP, being significantly lower than the EU average, which affects fiscal sustainability positively. 3.Objectives, structure and governance of the plan

3.1.Overall strategy of the plan The recovery and resilience plan of the Slovak Republic presents a comprehensive response to the consequences of the COVID-19 crisis, as well as to the main challenges and systemic weaknesses of the Slovak economy. It builds on Slovakia’s global development vision based on the following three pillars: ·an innovative economy that drives sustainable economic growth and guarantees successful management of the green and digital transitions;, ·a modern state providing quality public services to citizens ·a healthy country that paves the way for the full use of human and natural capital. The Slovak recovery and resilience plan comprises 18 components in five areas: the green economy, education, research and innovation, health, and public administration /digitalisation. The total amount of the estimated costs of the plan of EUR 6.58 billion is slightly above the maximum non-repayable financial support of EUR 6.33 billion. Proposed reforms of the education system at all levels can enhance skills (including digital), while also supporting social inclusion. Reformed research and innovation governance and funding can mobilize investment and cooperation of researchers with the private sector, trigger innovation and help the manufacturing-centred economy to diversify. By removing barriers for foreign workers and students while offering scholarship schemes, Slovakia can better attract and retain talents. The emphasis on healthcare is expected to address systemic weaknesses particularly of the hospital network and should lead to tangible improvements. Investments in care facilities (both pre-primary and long-term) contributes to labour force participation, especially of women. Various important investments are geared towards the green transition, notably renewables, building renovation, industry decarbonisation scheme and sustainable transport. Measures addressing digital connectivity challenges are financed outside of the Recovery Resilience Facility, while the part financed under the facility includes significant investments in digitalisation of public services. Reforms of the judiciary and anti-money laundering framework should address long-standing concerns. Table 3. Components and associated costs. Component Cost (EUR million) Green economy 2301 C1 Renewable energy sources and energy infrastructure 232 C2 Building renovation 741 C3 Sustainable transport 801 C4 Decarbonisation of industry 368 C5 Adaptation to climate change 159 Education 892 C6 Accessibility, development and quality of inclusive education at all levels 210 C7 Education for the 21st century 469 C8 Improving the performance of Slovak universities 213 Science, research, innovation 793 C9 More efficient governance and strengthening funding for science, research and innovation 633 C10 Attracting and retaining talent 106 Health 1533 C11 Modern and accessible healthcare 1163 C12 Human, modern and accessible mental health care 105 C13 Accessible and high-quality long-term socio-health care 265 Efficient public administration and digitization 1110 C14 Improve the business environment 11 C15 Judicial reform 255 C16 Fight against corruption and money laundering, security and protection of the population 229 C17 Digital Slovakia (state in mobile, cybersecurity, fast internet for everyone, digital economy) 615 C18 Sound, sustainable and competitive public finances 0 Total 6575 3.2.Implementation aspects of the plan Consistency with other programmes The plan describes consistency with the other main European and national programmes and planning documents. The plan outlines complementarities with the National Energy and Climate Plan (NECP), which serves as both an analytical basis and a reference framework for the proposed plan´s reforms and investments. The plan explains how the five green components are in line and contribute to the objectives of the NECP. The plan mirrors the strong emphasis of the NECP on decarbonisation of industry, transport and buildings, and complements these with measures fostering climate adaptation. The measures are designed to contribute to ambitious targets to achieve carbon neutrality in the EU by 2050 and to the objective of reducing GHG emissions by 2030 by 55% compared to 1990. ·Industry: according to the NECP, industrial production and use of fossil fuels by industry are the source of 41% of all emissions produced in Slovakia, the highest share of EU countries. This is expected to be addressed by the component (4) on industry decarbonisation with the objective of driving innovation, the increased use of Best Available Technologies (BAT) standards, as well as by the modernisation of energy and material intensive installations and the transition to cleaner energy and product production processes. ·Transport: is recognised in the NECP as a sector with the fastest-growing GHG emissions among all areas of the economy. In response, the transport component (3) of the plan aims at increasing the share of public passenger transport, in particular rail transport and improving urban micro-mobility – cycling, thus contributing to priorities of the Slovak Strategic Transport Development Plan 2030. ·Renewable Energy Sources (RES): the NECP priorities of achieving an optimal energy mix and promoting the use of RES are reflected in the RES component (1), which aims at modernising the existing RES as well as increasing the new RES capacities. ·Buildings: to achieve energy efficiency targets, the NECP emphasises the need to renovate the national stock of residential and non-residential buildings, both public and private, which is reflected in the component of buildings renovation (2) pursuing the objective of at least 30% of the primary energy savings. The plan summarises the complementarities of the Just Transition Fund’s main priorities with the plan´s components. Under the new Cohesion Policy programming period (2021 – 2027), the Just Transition Fund (JTF) should be a key tool to mitigate the negative impacts of the decarbonisation on the selected most affected regions by financing the diversification and modernisation of local economy. The plan explains that the JTF will be implemented through the Programme Slovakia and on the basis of to-be-developed territorial just transition plans. Assistance from JTF should cover Slovak regions that are most affected by the decarbonisation process and face many structural and economic challenges. JTF measures should be synergetic and complementary to measures financed by both RRF and Cohesion policy funds and the implementation will require close cooperation between national, regional and local authorities. The plan is designed to be complementary to the Union Funds both in the current programming period (2014 – 2020) as well as to the new programming period (2021-2027). As the draft Partnership Agreement (PA) and the Programme are still pending finalisation and approval, the plan indicates preliminary synergies and complementarities at the strategic level (between priority areas of the Cohesion Policy funds and RRP components), which are also elaborated in individual components. This is without prejudice to programming of the Cohesion Policy measures in respective thematic areas. The plan recognises important synergies with the Cohesion Policy and stresses that complementarities and potential overlaps will be systematically and continuously assessed at different levels of the implementation (e.g. strategic, programme and project levels) including through a dedicated mechanism to avoid “double funding”. The plan clarifies that when prioritising investments for the RRF funding, the following criteria were used: i) meeting the RRF criteria (e.g. green and digital targets, CSRs), ii) selecting measures advanced in the preparation, iii) selecting reforms, which create a precondition for the delivery of Cohesion Policy investment, and iv) targeting projects for regions with less Cohesion Policy funding (e.g. Bratislava region). The plan demonstrates complementarities by presenting an indicative overview tables of sectors, where synergies between RRF and Cohesion Policy funds are envisaged. The tables are based on information available at the time of the drafting of the plan and are included in the Annex.

The plan outlines its contribution to Youth Guarantee initiative and considers that the highest contribution to youth employment is provided by the education components. The school-to-work transition of future generations is likely to be positively impacted by reforms and investments in the component 6. These measures should help to improve the performance of disadvantaged learners, in particular from marginalised Roma communities and thus improve equal chances for graduates to enter the labour market. While the component is designed to support inclusive measures to prevent any form of discrimination with a prospective wider impact on more vulnerable groups, such as young people with disabilities or young people living in rural areas. The component 7, which aims at increasing pupils´ literacy and the skills, critical thinking as well as the components on higher education (component 8) and talent retention (component 10) are designed to create a supportive ecosystem to improve the labour market perspectives of the high skilled youth employment. The plan is consistent with the challenges and priorities identified for the euro area recommendation. The draft Council recommendation on the economic policy of the euro area recommended to euro area Member States to take action, including through their recovery and resilience plans, to, inter alia, ensure a policy stance which supports the recovery, including by improving the coverage, adequacy and sustainability of their respective healthcare system. It also recommended to, inter alia, further improve convergence, resilience and sustainable and inclusive growth, notably towards the green and digital transition, as well as by improving the functioning of public administration. The Slovak plan provides for ambitious reforms and investments across these policy areas, particularly as regards the health system, the green and digital transition, and public administration. The plan is moreover geared towards further improving convergence and fostering economic growth. Administrative organisation of the RRP To ensure effective implementation, the plan outlines administrative arrangement. It plans the creation of a dedicated RRP implementation structure to be supervised by the Slovak government as the steering committee. The implementation body will be composed of: ·the National Implementation and Coordination Authority (NIKA) tasked with the main implementation and coordination responsibilities, ·implementing bodies (e.g. individual ministries and central government authorities), ·intermediaries and ·beneficiaries. The NIKA should be assigned with the overall responsibility for the coordination and implementation of the plan. It will coordinate and guide other actors, monitor and assess outcomes of the implementation, coordinate the financial flow, including submission of payment requests. It will function as the single point of contact for the Commission services. Tasks and competences will be detailed in a specific Act on the RRP, which should enter into force by 31 December 2021 and no later than the submission of the first payment request. The RRP Section, which has carried out the role of NIKA and had been set up in the Ministry of Finance will be transferred to the Government Office in the implementation phase. Administrative capacity will gradually increase in the second half of 2021 by both creating new structures (e.g. hospital.sk within the Ministry of Health, etc.) and strengthening existing ones. The Government Council for the RRP shall be set up as a new advisory body to the Government in the implementation phase. The purpose of this measure is ensuring the full involvement of professional public as well as of maintaining the structured dialogue with key stakeholders and social partners. The plan indicates that an assistance from the Technical Support Instrument was requested for the overall implementation and communication on the plan. The Technical Support Instrument (TSI) already provides expertise in building capacities to implement the plan in a number of areas covered such as healthcare, education, talent attraction, energy, green transition, research and innovation, insolvency, anti-money-laundering and public spending, as well as for the overall implementation of the plan. In addition, it is expected that the design and implementation of some reforms under R&I component (9) will be supported by a project of the Horizon Policy Support Facility currently in preparation. Gender equality and equal opportunities for all The plan describes existing national challenges in gender equality and equal opportunities and outlines which reforms and investments are expected to contribute to these aims across the different components. It foresees an early warning system for the prevention of early school leaving, including mentoring and tutoring opportunities. To address the low availability of kindergarten facilities and its impact on women’s participation in the labour market and on children´s performance later in school, a legal entitlement to a place in a kindergarten for children from the age of three should be introduced. Gender equality considerations are also integrated in some other sections of the plan, such as those related to curriculum reform (component 7). The plan addresses the quality of inclusive mainstream education by including reforms and investments to establish a system of educational support measures for students with special educational needs, to modernise the teacher training programmes, to reduce segregation in education and promoting early care services in marginalised Roma communities, and by improving access to higher education for disadvantaged students. The whole education component (6) is strongly focusing on the right to quality and inclusive mainstream education and ensuring availability of quality pre-school education. The situation and needs of people with disabilities are addressed in several parts of the plan including in relation to the buildings´ renovation plan, sustainable transport, digitalisation, and social and healthcare services. Improving accessibility to buildings renovated through plan´s financing and addressing energy poverty are additional measures to address the needs of socially disadvantaged and disabled groups. The challenges faced by older people are also covered in particular through supporting their digital skills development and improving the long-term social and healthcare systems. To respond to these challenges, the plan intends to introduce a mechanism to mainstream aspects of gender equality based on experiences from the implementation of European Structural and Investment Funds (2014 – 2020). Stakeholder consultation The Slovak authorities engaged in a wide range of consultation activities in the preparation phase of the recovery and resilience plan. The consultation has been heavily affected by the second wave of COVID-19 pandemic and the meetings were largely organised online. The plan’s preparations started in summer 2020, with the elaboration of the National Integrated Reform Plan (published in October 2020) providing the analytical basis for the Slovak recovery and resilience plan. At a later stage, RRP drafts were consulted with a wider range of stakeholders and general public. The different forms of activities, besides standard inter-ministerial consultation procedures, included working meetings both at technical and political level, dedicated debates for the general public, and six thematic round tables involving a wide range of professional and public stakeholders. In addition, a website ( www.planobnovy.sk ) and a dedicated e-mail contact for proposals by the public were made available. The roundtable discussions brought together representatives of over 100 stakeholders, including municipalities, social partners, national as well as regional associations, entrepreneurs and NGOs. The inter-ministerial consultation received nearly 2,500 comments. Most comments in the consultation process were related to environmental protection, biodiversity, climate change, and cycling infrastructure. A number of comments from the public and stakeholders have been incorporated into the plan’s measures during its preparatory phase. This included for instance a new component on climate change adaptation, extending the focus on urban cycling, actions in so-called “soft tourism” and measures addressing the inclusion of the social economy actors.

Security self-assessment Slovakia indicated that a security self-assessment of investments into digital capacities funded by the Recovery and Resilience Facility will be performed as part of the implementation stage. Assessment of security will be an integral part of the analysis and design in development of new IT systems. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. Regarding the investments related to the development and extension of a governmental cloud, information about the type of security measures or safeguards would be expected during the implementation. In this respect, it would be of relevance to explicitly identify the potential risks and associated specific mitigation measures against data security if the use of third-country providers subject to extra-territoriality laws is foreseen. Slovakia intends to fund digital connectivity investments from Cohesion Policy funds. According to the national broadband plan adopted in March 2021, a security self-assessment will be done as part of the follow-up feasibility study. Cross-border and multi-country projects The plan proposes several cross-border projects, in particular in the digital area under component 17. It includes participation in a network of European Digital Innovation Hubs/Digital Innovation Hubs to support Slovak SMEs with digitalisation and the investment in the High Performance Computer (HPC) allowing participation in the EuroHPC Joint Undertaking. This initiative will benefit from European processors as well as other technologies developed under a potential IPCEI for Microelectronics Joint Initiative. Two other multi-country projects should be supported by the RRF from a predefined list of digital projects, which includes participation in the European blockchain and quantum communication infrastructure (QCI). Quantum communication nodes will be part of the EuroQCI European initiative to build a quantum communication infrastructure across the EU, preparing for further cross-border connections (Bratislava-Vienna, and future connections of Komarno-Budapest, Žilina-Warsaw, Bratislava-Brno). Strengthening of electricity connection in the profile between Slovakia and Hungary shall allow for an increase in the capacity in the Slovak transmission system and facilitate connection of more renewable sources into the electricity grid. Communication strategy The plan outlines communication effort specifying that some communication activities have been already launched by the authorities during the preparatory phase of the Slovak recovery and resilience plan. The activities were mainly centred on raising the awareness and positive perception of the plan. It included several dedicated debates with stakeholders, a number of online public events as well as targeted public thematic discussions on thematic pillars with the line Ministers. The main objective of the communication strategy of the Slovak authorities is to raise awareness about the RRP´s priorities. It should also highlight the overall benefits of the plan , show the benefits of the green and digital transition, ensure visibility of the EU financing and improving the overall image of the EU. The communication should also address the impact of specific reforms and investments, contributing to understanding of public about the need for reforms. The plan builds upon the strategic importance of key reform and investments for the success of RRP and includes dedicated actions around the selected topics: green transition (buildings´ renovation, climate adaptation), digital transformation (“state in the mobile”), quality and inclusive education (e.g. accessible kindergartens, competitive universities), excellent science, research and innovation, quality and modern health and sustainable and reliable transport. The communication tools and activities are designed to run in two streams, the communication on benefits of the plan and information on main reforms and investments. A wide range of social networks, newsletters and webpages are planned to be used in the roll-out of communication activities. The overall communication strategy shall be further detailed in annual action plans, allowing for sufficient flexibility in view of changing circumstances. The synergies with the cohesion policy communication should be explored in order to maximise the use of existing tools, experiences and projects examples to strengthen the key messages on benefits of EU financing. The plan envisages setting up an RRP network of communication coordinators in relevant line ministries and intend strengthening the cooperation with the European Commission Representation and European Parliament Information Office in Slovakia. State aid State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Slovakia in the recovery and resilience plan cannot be deemed a State aid notification. In as far as Slovakia considers that a specific measure contained in the recovery and resilience plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Slovakia to ensure full compliance with the applicable rules.” Irrespective of whether they comply with the EU’s State aid regime, measures taken under this framework should be compatible with the EU’s international obligations, in particular under World Trade Organization rules. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Slovak recovery and resilience plan aims at a comprehensive and balanced response to the consequences of the pandemic crisis, while tackling the main systemic socio-economic challenges (as detailed in section 4.3 of this document). As such, it makes an explicit reference to six fundamental pillars of the Recovery and Resilience Facility pursuant to Article 3 of the Recovery and Resilience Facility Regulation. It presents a global vision of an innovative economy, supporting economic growth through green and digital transitions. The overarching objective of the plan is to re-launch sustainable growth and increase the quality of life in Slovakia. The focus is on five key public policy areas: green economy, education, science and R&D, health, public administration with digitalization. Table 4: Coverage of the six pillars of the Facility by the MS RRP components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation C1 - Renewable energy sources and energy infrastructure ● ○ ○ ○ ○ C2 – Building renovation ● ○ ○ ○ C3 - Sustainable transport ● ○ ○ ○ C4 - Decarbonisation of industry ● ○ ○ ○ C5 - Adapting to climate change ● C6 - Accessibility, development and quality of inclusive education ● ● ● C7 - Education for 21 Century ○ ● ● ○ ● C8 - Increase in the performance of Slovak higher education institutions ● ● ○ ● C9 - More efficient governance and strengthening RDI funding ● ● ● ○ ○ C10 - Attracting and retaining talent ○ ○ ● ● C11 - Modern and accessible healthcare ○ ○ ● C12 - Human, modern and accessible mental health care ○ ● C13 - Accessible and high-quality long-term socio-health care ○ ○ ● C14 - Improve the business environment ○ ○ ● ● C15 - Judicial reform ○ ○ ○ ● C16 - Fight against corruption and money laundering, security and protection of the population ○ ○ ○ ○ ● C17 - Digital Slovakia ● ● ○ ○ ○ C18 - Sound, sustainable and competitive public finances ○ ○ ● Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar

Green transition The Slovak recovery and resilience plan identifies key challenges of Slovakia related to climate and environment. It underlines the contribution of reforms and investments contained in the plan to achieving the EU’s carbon neutrality target EU by 2050. Slovakia is a highly industrialized economy, with energy and industrial processes contribution to overall greenhouse gas emissions of just above 70%. Slovakia ranks among the Member States with the highest average air concentrations of dust particles in the EU, resulting largely from aging industrial technologies and burning of solid fuels in households. The plan also recognizes the need for increasing resilience of ecosystems amid the deteriorating conditions due to changing climate patterns. Given the amplitude of green challenges in Slovakia, the high share of 43% of the plan´s total grant allocation attributed to climate-related actions appears appropriate. Slovakia’s ambition is to reduce greenhouse gas emissions from industrial processes, including in energy production. The ambitious industry decarbonisation auction scheme is projected to contribute significantly to greenhouse gas emission reductions, also in view of meeting the EU’s climate 2030 target. Supporting investments in renewable energy capacities, including modernisation of existing installations, is expected to boost Slovakia’s green installed capacity by total of 220 MW, supporting the EU’s 32% share of renewables target by 2030. The construction of new green buildings, in particular hospitals and schools, and the renovation of existing buildings at low emission standards (including 30,000 of single-family houses and indicatively 100 historic public buildings) shall also on balance help in decarbonising of the country. Energy efficiency measures are expected to reduce greenhouse gas emissions and air pollution. The plan will also promote circular economy processes through a reform of the construction waste management. The strategic planning and substantial investments is expected to contribute to greening of transport. Transport is one of the sectors with the highest emissions growth in Slovakia. The transport infrastructure networks will benefit from an upgrade of railways and newly constructed cycle paths. The new measures will also increase the volumes of goods transported in cleaner intermodal transport. The new investments will support the roll-out of the charging stations for alternative fuels vehicles, which is important especially for Slovakia exhibiting a high share of automotive sector in the economy. The recovery plan is expected to contribute to the long-term resilience of ecosystems to climate change. The reforms and investments will create a framework for more efficient management of watercourses and increasing the landscape’s water retention capacity. A number of measures will ensure more resilient forest ecosystems, also contributing to greater biodiversity and climate change mitigation. In national parks Muránska Planina and Poloniny, the nature conservation measures are expected to be accompanied by complementary development plans which will enable regions to be transformed from intensive use of natural resources to a more diversified, local economy. Digital transformation The plan’s diagnosis of Slovakia’s challenges in the area of digital transformation is relevant and accurate (see also section 2.3). Slovakia particularly lags behind in terms of digitalisation of public services, standing close to the end of EU Member States’ ranking in this area. The plan also rightly identifies the need for developing the digital skills of citizens and creating an innovative environment. The Slovak recovery plan assigns to digital challenges 21% of the plan´s total grant allocation. The outlined actions particularly aim at supporting faster and more efficient e-government. This should be particularly achieved through making better use of technological innovations for communication with the state and strengthening digital processes in the administration. The user-friendly information systems should reduce the time and financial costs of communicating with the state and improve the wide range of public services – including police, firefighting, rescue systems as well as the justice system. The reforms and investments are rightly targeting the improvements in digital skills and expanding the opportunities for teleworking and learning. Increasing digital skills is perceived as a key prerequisite for digitalizing the economy. The reforms and investments aim at creation of a broader digital learning ecosystem. The investment in digital infrastructure and equipment at all levels of education, together with boosting skills of teachers, should create a basis for development of digital and information skills. An improved access to technologies should connect the vulnerable, including disadvantaged children, and help them in integration into society as well as in a decisive leap in digital learning. Digital investments is expected to contribute to ambitions to modernize Slovakia nearly across all components of the recovery and resilience plan. The digitalized service center for hospital management and support to telemedicine are expected to make medical processes more efficient, improving the efficiency and accessibility of healthcare services for all citizens. The smart energy solutions including battery storage systems shall allow for connection of more renewable energy sources to the grid, contributing thus to strategic energy independence and cleaner air in Slovakia. Support to research and innovations will be key for the transformative areas such as smart mobility, smart cities and cybersecurity. Investments in automation of traffic management of railway lines shall increase the transport capacity and safety of the transport network. Smart, sustainable and inclusive growth, including economic cohesion, jobs, productivity, competitiveness, research, development and innovation, and a well-functioning single market with strong SMEs The plan presents targeted policy actions across various relevant policy areas related to smart, sustainable and inclusive growth. Smart growth will be promoted particularly through actions targeting innovation and digitalisation as well as through improvements in educational outcomes and skills. As regards the sustainable growth, the plan’s key investment initiatives should inter alia contribute to a cleaner energy mix, industrial decarbonisation and greening of public transport. The plan aims at strengthening the inclusion through addressing the negative impact of children’s socio-economic background on educational outcomes. The plan reacts to the deterioration of the labour market caused by the COVID-19 crisis. Due to the contraction in economic growth, the unemployment rate is expected to increase to above 7% in 2021. Job losses occurred mainly in selected service sectors, affecting a large share of the low-skilled workforce. The post-pandemic recovery and job creation should be particularly helped by rolling out investments into green construction sector activities (both building and reconstructions), renewables, nature protection, sustainable transport and digital infrastructure. The modernization of hospitals and clinical processes will also indirectly contribute to increasing the attractiveness of jobs in the health sector. The reform and investments are expected to contribute to strengthening of competitiveness through innovation. The plan rightly identifies the productivity-related challenges for Slovakia and the need for innovation-driven growth, while aiming at closing the gap vis-à-vis the EU in terms of average level of living standard. Delivering a higher quality of Slovak universities through promoting their profiling and greater openness to research cooperation shall kick-start innovation and make the businesses more competitive. The decarbonisation investments are expected to strengthen the competitiveness of the industrial sector, through supporting the process of green transition. Adequate reforms and investments are expected to contribute towards strengthening of Slovakia’s competitiveness through research and innovation and an improved business environment. The plan rightly identifies the productivity-related challenges for Slovakia and the need for innovation-driven growth, while aiming at closing the gap vis-à-vis the EU average in terms of living standards. The reform of research and innovation governance has the potential to overcome the current institutional fragmentation and to deliver efficient policy design, implementation and evaluation. The reform of the Slovak Academy of Sciences, research institutions and universities could increase the quality of public science base and its openness to international and cross-sectoral cooperation. Research grants and fellowships can contribute to attracting and retaining top talent in science and innovation. The set-up of innovative consortia are expected to kick-start greater knowledge diffusion. The decarbonisation investments will strengthen the competitiveness of the industrial sector, through supporting the inevitable process of green transition. Improvements in the business environment through lower administrative burden will boost investments, while the insolvency reform is expected to deliver a better allocation of resources in the economy. The reforms are expected to contribute to a well-functioning Single Market with strong SMEs. The SMEs will particularly benefit from a strong demand impulse triggered by investments, particularly in the construction and service sector. The new infrastructure for alternative fuels will support the transition of the automotive sector towards higher value-added alternatives, supporting the local manufacturing sector along the whole supply chain. The digital vouchers are expected to stimulate the uptake of new digital technologies in firms. Various financial instruments and grants will offer to both young and mature companies the opportunities to develop and grow. The increase in electricity transmission capacity between Slovakia and Hungary, more transparent public procurement and boosting mobility of talented workers are also expected to deliver positive effect for the internal market. Overall, the plan will contribute to achieving the objectives of the updated Industrial Strategy for making the EU industry more competitive globally, enhancing open strategic autonomy and fostering the twin transition. Social and territorial cohesion The plan recognises the significant economic and social disparities between the regions, especially between the west and east of Slovakia (see also section 2.2). The marked territorial gaps remain particularly large between the capital of Bratislava and other regions – not only in income levels, but also in terms of education attainment, R&D expenditure and employment share in sectors with a higher value added. Intra-regional disparities are further aggravated by infrastructure gaps in the most disadvantages municipalities and poor linkages between urban and rural areas. Despite the long-term trend of declining unemployment in years before the COVID-19 crisis, the unemployment rate of low-skilled and youth rests among the highest in the EU. The socio-economic situation of marginalized Roma communities is even more difficult amid consequences of the COVID-19 pandemic. The plan clearly sets out that social and territorial cohesion is expected to also be supported from other EU programmes than the RRF, notably from shared management funds. The authorities provide references to other types of the EU funding for a number of important policy areas. Such examples include, for instance, the rolling out the broadband infrastructure (cohesion policy funds), support to greening of the heating sector (Modernisation Fund) and transition of the coal region Upper Nitra (Just Transition Fund).

The plan addresses the cohesion challenges primarily through reforms and investments in education, health and digitalisation. In education, the attention is given to supply of quality pre-school education and inclusiveness of the system, in view of pending social inequalities. The acquisition of digital equipment for schools across Slovakia will open the opportunities for pupils from poorer regions and disadvantaged socio-economic backgrounds, including marginalised Roma. The infrastructural investments and optimization of the national hospital network is expected to reduce regional disparities in access to care, and improve the quality, cost-effectiveness and accessibility of healthcare services. A comprehensive reform of the long-term care system is expected to increase the inclusion of disabled persons into society and alleviate pressures on families caring for vulnerable. The investments will increase the accessibility of mental healthcare in less developed regions. The expansion of digital services and high-speed broadband is expected to boost possibilities for distance learning and teleworking across Slovakia, thus contributing to reducing regional and social disparities. The plan, however, does not offer a comprehensive approach to integration of the marginalised Roma communities and labour market nor solutions to the gaps in social housing provision. The green measures are expected to contribute to social and territorial cohesion. The green investments will create new job opportunities across Slovakia and across all skill levels. A significant part of building renovations shall be channeled into private family homes in regions, taking into account the needs of socially disadvantaged. People with disabilities will benefit from investments improving accessibility, especially in the renovated public buildings and in the new public transport fleet. The reforms in the area of renewables have potential to deliver positive effects for household energy bills, including for socially vulnerable people. The actions supporting industry are expected to help the recipients to adjust to challenges related to green transition, with positive effect on jobs in the regions. Health, and economic, social and institutional resilience, with the aim of, inter alia, increasing crisis preparedness and crisis reaction capacity The plan rightly identifies the significant challenges for the Slovak health system on the background of pandemic situation. It emphasises the existence of gaps in hospital-level care, particularly in ensuring critical services in crisis situations. Slovakia’s main objective in this area is to improve the resilience and cost-effectiveness of its healthcare system as a whole through a set reforms and investments in primary care, long-term care (including community-based solutions) and mental healthcare. The large investments will modernise the country’s hospital network and related infrastructure, which will deliver new hospitals and renovations of existing facilities. The digitalization of healthcare services will also increase the efficiency and capacity of the sector to respond more adequately to crisis situations. The Slovak recovery and resilience plan intends to overcome educational gaps caused by the pandemic and foster investments into digitalization and knowledge economy. The proposed measures target the digitalization of primary and secondary schools, particularly through improving the digital skills of all pupils and teaching staff. The investments will allow for support to pupils and appropriate learning also during the pandemic restrictions. The reforms of tertiary education will enable universities to adapt faster to changing economic and social developments, as well as to pandemic situations. A new national strategy for the development of digital skills will be prepared as part of the plan. Given that the plan does not offer a comprehensive approach towards adult learning, in particular in view of persistently elevated low-skilled workers’ unemployment, the strategy should be followed up with concrete measures to support adult learning, helping them to acquire new skills amid the progressing digitalization of the society. The support for innovation and digital transformation of companies is expected to contribute to adjustment of the Slovak economy to post-pandemic challenges and make it more competitive and resilient. The Slovak public sector is expected to improve its crisis reaction capacity through investment into early warning systems and crisis infrastructure. The better equipped emergency services (police, fire-fighters, rescue) should make Slovakia better prepared for security hazards in future, including the resurgence of pandemic situations. Societal resilience should be strengthened by measures protecting citizens’ legal certainty through a more efficient and transparent judicial system. The pension reform is expected to make Slovakia less vulnerable to possible financial turbulences. The green investments should contribute to Slovakia’s strategic autonomy and strengthen the resilience in view of external shocks. The increasing share of renewables in energy mix and energy efficiency investments will reduce the share of imported fossil fuels. The plan underlines that Slovakia currently imports more than 98 % of oil and natural gas, which accounts for a significant part of its energy consumption, from countries outside the EU. The resilience of the energy sector will also be increased through strengthening of electricity transmission capacity at the cross-border profile with Hungary. Policies for the next generation, children and the youth, such as education and skills Among the main socio-economic challenges for the next generation, the plan focuses predominantly on the reforms and investments in education. A large share of children have only limited access to early care and pre-primary education. The average scores for the best and worst-performing pupils remain heavily affected by the socio-economic background. In recent years, Slovakia has seen a worrying drop in the results of young people’s knowledge and skills. Slovakia is also one of the Member States most exposed to the effects of brain-drain and aut