Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Slovakia and delivering a Council opinion on the 2018 Stability Programme of Slovakia
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Slovakia, budget deficit, economic policy, economic reform, education policy, employment policy, health care system, independence of the judiciary, labour market, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 424 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Slovakia  and delivering a Council opinion on the 2018 Stability Programme of Slovakia  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Slovakia 

and delivering a Council opinion on the 2018 Stability Programme of Slovakia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Slovakia as one of the Member States for which an in-depth review would be carried 
out. On the same day, the Commission also adopted a recommendation for a Council 
recommendation on the economic policy of the euro area, which was endorsed by the 
European  Council  on  22  March  2018.  On  14  May  2018,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘recommendation  for  the 
euro area’). 

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OJ L 209, 2.8.1997, p. 1. 
COM(2018) 424 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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(2) 

(3) 

(4) 

(5) 

(6) 

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, Slovakia should ensure 
the full and timely implementation of the recommendation on the economic policy for 
the euro area, as reflected in the recommendations below, in particular (1).  
The  2018  country  report  for  Slovakia4  was  published  on  7  March  2018.  It  assessed 
Slovakia’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 
the Council on 11 July 2017, the follow-up given to the recommendations adopted in 
previous years and Slovakia's progress towards its national Europe 2020 targets.  

On  25  April  2018,  Slovakia  submitted  its  2018  National  Reform  Programme  and  its 
2018 Stability Programme. To take account of their interlinkages, the two programmes 
have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council5,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance6.  

Slovakia  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2018  Stability  Programme,  the  government  plans  to  improve  the  headline  deficit  to 
0.8 % of GDP in 2018, and gradually further to 0.0 % of GDP in 2021. The medium-
term budgetary objective — a structural deficit of 0.5 % of GDP — is expected to be 
reached in 2020. According to the 2018 Stability Programme, the general government 
debt-to-GDP ratio is expected to gradually decline from 49.3 % in 2018 to 43.3 % by 
2021.  The  macroeconomic  scenario  underpinning  those  budgetary  projections  is 
plausible. At the same time, the measures needed to support the planned deficit targets 
from 2019 onwards have not been fully specified. The budget includes a non-specified 
category  of  expenditure  called  budgetary  reserves  which  represents  a  non-negligible 
share  (0.7  %  of  GDP)  and  can  be  used  for  ad  hoc  operations,  thus  reducing 
predictability in budget implementation. 

(7) 

On  11  July  2017,  the  Council  recommended  Slovakia  to  ensure  that  the  nominal 
growth rate of net primary government expenditure7 does not exceed 2.9 % in 2018, 
corresponding to an annual structural adjustment of 0.5 % of GDP. At the same time, 
it  was  stated  that  the  assessment  of  the  2018  Draft  Budgetary  Plan  and  subsequent 

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SWD(2018) 223 final. 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of  17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund, the  Cohesion Fund, the European Agricultural Fund for Rural Development and the European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 
Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(8) 

(9) 

assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  of 
achieving  a  fiscal  stance  that  contributes  to  both  strengthening  the  ongoing  recovery 
and  ensuring  the  sustainability  of  public  finances.  Following  the  Commission's 
assessment of the strength of the recovery in Slovakia while giving due consideration 
to its sustainability challenges no additional elements in that regard need to be taken 
into  account.  Based  on  the  Commission  spring  2018  forecast,  there  is  a  risk  of  a 
significant deviation from that recommendation in 2018. 

In 2019, in view of Slovakia's projected output gap of 1.2 %, the nominal growth rate 
of  net  primary  government  expenditure  should  not  exceed  4.1  %,  in  line  with  the 
structural  adjustment  of  0.5  %  of  GDP  stemming  from  the  matrix  of  requirements 
under the Stability and Growth Pact. Under unchanged policies, Slovakia would be at 
risk  of  significant  deviation  from  the  requirement  in  2019, due  to  the  deviation  over 
2018 and 2019 taken together. Overall, the Council is of the opinion that the necessary 
measures should be taken as of 2018 to ensure compliance with the provisions of the 
Stability and Growth Pact.  

Slovakia's  public  finances  still  face  risks  in  the  long  term.  Healthcare  expenditure 
continues to pose a risk to the long-term sustainability of public finances as increasing 
the cost effectiveness of healthcare in Slovakia remains a challenge. In the long term, 
public  expenditure  on  healthcare  is  projected  to  increase  by  1.2  pps.  of  GDP,  above 
the average estimated increase of 0.9 pps. for the EU. The pension system has seen a 
gradual  improvement  in  its  long-term  sustainability  due  to  the  automatic  increase  in 
the retirement age, which has reduced the projected age-related spending increases in 
the long term. 

(10)  Although  some  steps  have  been  taken  to  improve  the  cost  effectiveness  of  the 
healthcare  system,  notably  through  the  implementation  of  the  Value  for  Money 
spending review, the potential to rationalise the use of resources remains significant. 
Plans for a far-reaching healthcare reform allowing the streamlining of services, better 
hospital resource management and more efficient care system are showing no signs of 
progress. The consumption of hospital services continues to be high, with high rates of 
hospitalisation for chronic diseases and discharge rates above the EU average, coupled 
with relatively low bed occupancy rates. While strengthening the primary care sector 
can  ease  the  high  burden  put  on  hospitals,  the  system  suffers  from  a  shortage  of 
general practitioners, which is exacerbated by their uneven geographical distribution. 
The  age  composition  of  general  practitioners  also  raises  concerns  for  their  future 
supply.  Lastly,  several  provisions  aimed  at  enhancing  the  cost  effectiveness  of  the 
health  system  such  as  the  full  introduction  of  a  diagnosis-related  group  payment 
system  and  the  effective  operationalisation  of  the  e-health  system  are  still  in  their 
development  phase.  They  are  likely  to  face  further  delays  and  implementation 
challenges in the future.  

(11)  Fiscal  revenues  are  increasing  on  the  back  of  swift  economic  growth  and  efforts  are 
ongoing  to  improve  tax  compliance  and  close  Slovakia's  high  value  added  tax  gap. 
While fiscal incentives promoting research and development were increased, property 
taxation remains a weak revenue source. A rolling programme of spending reviews for 
all  key  areas  of  public  spending  is  proving  to  be  an  effective  and  rigorous  tool  for 
improving cost effectiveness in government spending. 

(12)  Positive  developments  in  the  labour  market  continue,  marked  by  increasing 
employment and historically low levels of unemployment. Nevertheless, the long-term 
unemployment rate continues to be one of the highest in the EU, affecting particularly 

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the  European  Social  Fund.  The  plan 

disadvantaged  groups  such  as  low-skilled  workers,  young  people  and  marginalised 
Roma. As a result of the improving labour market conditions, reports of skilled labour 
shortages in some sectors of the economy have started to appear. Regional disparities 
in  the  labour  market  are  pronounced,  with  higher  unemployment  concentrated  in 
eastern Slovakia and labour shortages concentrated in the western part of the country. 
Slovakia  has  started  to  implement  its  action  plan  on  the  integration  of  the  long-term 
unemployed,  supported  by 
introduces 
personalised services, social counselling, and a new basic profiling system. However, 
implementation has not yet yielded any structural changes. Gaps persist in cooperation 
with  private  partners  and  non-governmental  organisations  to  alleviate  caseloads  in 
public  employment  services,  while  individualised  counselling  is  at  an  early  stage.  In 
addition, the rough segmentation of the long-term unemployed does not fully serve as 
a  tool  for  subsequent  referral  to  activation  measures.  Training  and  requalification 
programmes have been strengthened but are still insufficient and their targeting of the 
long-term  unemployed  and  disadvantaged  groups  remains  limited.  In  addition,  adult 
participation  in  learning  is  still  very  low  and  second-chance  education  for 
disadvantaged  groups  is  underdeveloped.  The  eligibility  criteria  for  unemployment 
benefits are strict and the duration of benefits is short. This results in low coverage of 
the short-term unemployed receiving unemployment benefits. 

(13)  The gender employment gap and gender pay gap are well above the EU average. The 
low  employment  rate  of  women  of  childbearing  age  reflects  the  long  parental  leave 
rarely taken up by men, accompanied by low take up of flexible working arrangements 
and  limited  affordability  and  access  to  childcare  facilities.  Particularly  for  children 
under the age of three, the enrolment rates in childcare are extremely low.  

(14)  The  education  system  does  not  sufficiently  contribute  to  the  socioeconomic 
development of Slovakia, and is underfunded at all levels. The quality of educational 
outcomes,  the  participation  of  Roma  in  inclusive  mainstream  education  and  the 
effective  integration  of  students  from  socioeconomically  disadvantaged  backgrounds 
in education and training are pressing challenges. Educational outcomes and the level 
of basic skills remain weak by international standards and are profoundly impacted by 
students'  socioeconomic  background.  Early  school  leaving  is  low  but  increasing  and 
regional disparities in dropout rates are pronounced. Despite plans to annually increase 
teacher salaries by 6% until 2020, the teaching profession is still unattractive, in part 
due  to  limited  initial  training  and  professional  development  opportunities.  The 
implementation of measures to increase the participation of Roma pupils in inclusive 
mainstream  education  is  extremely  weak  due  to  inadequate  financial  support  and 
monitoring as well as insufficient training of teachers on intercultural issues. 

(15)  Public administration is still burdened by inefficiency and bottlenecks caused by poor 
inter-ministerial  cooperation  and  weak  political  neutrality  of  the  civil  service. 
Implementation of the Civil Service Act has been slowly taking off, but its impact on 
improving  human  resource  management  remains  to  be  seen.  On  the  management  of 
EU  funds,  administration  capacity  and  efficiency  is  still  limited  and  staff  turnover 
remains high, in part linked to the political cycle. This is nevertheless being addressed 
by  strengthening  the  coordinating  role  of  the  Office  of  the  Deputy  Prime  Minister 
which  acts  as  a  stabilising  factor  on  continuity  and  institutional  expertise  in 
implementing organisations. 

(16)  European Structural and Investment Funds are pivotal in addressing key challenges to 
improve competitiveness, growth and jobs in Slovakia. Slovakia suffered from a loss 
of  EUR  26  million  of  funding  for  research  and  innovation  in  2017  mostly  due  to 

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problems  in  applying  selection  criteria  and  selecting  evaluators,  as  confirmed  by  the 
verifications  carried  out.  If  appropriate  measures  are  not  taken  to  accelerate 
implementation, there is a high risk that another part of the funding allocation will be 
lost. While the project selection rate has now exceeded half of the total allocation for 
the current programming period, implementation on the ground resulted in payments 
to beneficiaries amounting only to 11 % of the allocation. 

(17)  The low effectivity of public administration also translates to other sectors, including 
energy  and  the  environment.  Recycling  rates  are  very  low  and  air  quality  remains 
relatively poor. Sustainable forest management is an increasing challenge. The energy 
sector  suffers  from  overregulation  and  energy  policies  are  not  fully  in  line  with  the 
climate and energy objectives of the EU.  

(18)  Slovakia  has  taken  important  steps  towards  achieving  a  well-functioning  system  of 
public  procurement.  Efforts  have  been  made  to  introduce  quality  award  criteria. 
Mandatory electronic tools for conducting public procurement procedures should be in 
place 
in  October  2018.  While  not  optimally  efficient,  comprehensive  prior 
verifications have been carried out on all projects funded through the European Social 
and  Investment  Funds.  Nevertheless,  a  satisfactory  performance  has  not  yet  been 
achieved 
transparency,  digitisation, 
professionalisation  and  strategic  public  procurement.  This  is  reflected  in  Slovakia's 
scores  related  to  anti-competitive  practices,  which  remain  somewhat  above  the  EU 
average,  despite  some  improvement.  Moreover,  there  are  still  only  limited  signs  of 
commitment to fighting corruption. More than half of businesses perceive corruption 
as widespread in public procurement managed by national authorities. 

areas  of 

controls, 

internal 

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in 

(19)  Corruption, complex administrative procedures, excessive and fast-changing business 
regulations  and  the  poor  quality  of  regulatory  bodies  heavily  affect  the  quality  of 
Slovakia's  business  environment.  While  Slovakia  lost  some  ground  in  some 
international  comparisons,  it  has  identified  a  number  of  measures  to  improve  the 
quality  of  the  business  environment  and  boost  investment.  Slovakia  has  also 
strengthened  its  framework  for  regulatory  impact  assessment,  extending  its  use  in 
recent  years.  Finally,  a  new  strategy  for  better  regulation  has  been  recently  adopted. 
High  regulatory  barriers  remain  in  the  business  services  sector  with  levels  of 
restrictiveness  higher  than  the  EU  average  for  architects,  engineers,  tax  advisers, 
lawyers,  patent  agents,  real  estate  agents  and  tourist  guides.  Recommendations  to 
address  the  regulatory  barriers  were  made  in  the  Communication  from  the 
Commission of January 20178. However, Slovakia has reported no progress in tackling 
those restrictions. 

(20)  Overall,  no  progress  has  been  achieved  in  stepping  up  the  fight  against  corruption. 
Corruption  perceptions  remain  high  and  prosecutions  for  such  offences  have  fallen 
further.  The  perception  of  corruption  has  further  deteriorated  in  the  wake  of  the 
murder  of  an  investigative  journalist  and  his  findings  on  a  wide  range  of  high-level 
corruption cases. The proportion of high-level cases prosecuted is extremely low. The 
lack  of  accountability  for  police  and  public  prosecutors  has  not  been  resolved  and 
hinder the fight against corruption and investigations of sensitive corruption cases. 

(21) 

Improving the effectiveness of the justice system, including the independence, remains 
a  challenge  for  Slovakia,  despite  some  improvements  in  efficiency.  Concerns  about 
the  independence  of  the  judiciary  persist,  including  the  appointment  processes  for 
judges at all levels of the judiciary. 

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COM(2016) 820 final 

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(22)  Although boosting innovation can trigger competitiveness and facilitate the transition 
to  a  knowledge-based  economy,  Slovakia's  capacity  to  innovate  remains  moderate, 
with a business research and development intensity which is very low (0.40 % of GDP 
in  2016).  While  the  country  has  a  large  medium/high-tech  manufacturing  sector,  the 
dominant multinational companies have so far shown only limited interest in carrying 
out research and development activities and the percentage of small and medium-sized 
enterprises innovating in-house was much lower in Slovakia (13.9 %) than in the EU 
as a whole (28.8 %) in 2016.  

(23)  Public  investments  in  research  and  innovation  increased  strongly  between  2009  and 
2015  due  to  the  use  of  the  European  Structural  and  Investment  Funds.  The  full 
potential of these investments has not been realised due to inefficiencies in Slovakia's 
research  environment.  Despite  the  strengthened  role  of  the  Office  of  Deputy  Prime 
Minister  for  coordination  of  research,  development  and  innovation,  the  overall 
governance of policy in this area is weak. The fragmented nature of the system and the 
weak governance framework, with responsibilities split among several ministries and 
implementing  agencies,  which  are  often  poorly  coordinated,  leads  to  a  regular 
postponement  of  reforms.  Measures  to  stimulate  knowledge  transfer,  strengthen 
research  capacities  in  industry  and  improve  the  cooperation  between  businesses  and 
academia are advancing only slowly. 

(24) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Slovakia’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Stability  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Slovakia  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Slovakia  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

(25) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion9 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that Slovakia take action in 2018 and 2019 to: 

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 4.1 % in 2019, corresponding to an annual structural adjustment of 0.5 % of 
GDP. Implement measures to increase the cost effectiveness of the healthcare system 
and develop a more effective healthcare workforce strategy. 

Reinforce activation and upskilling measures, including quality targeted training and 
individualised  services  for  disadvantaged  groups,  in  particular  by  delivering  on  the 
action  plan  for  the  long-term  unemployed.  Foster  women's  employment,  especially 
by extending affordable, quality childcare. Improve the quality and inclusiveness of 
education, including by increasing the participation of Roma children in mainstream 
education from early childhood onwards. 

Increase  the  use  of  quality-related  and  lifecycle  cost  criteria  in  public  procurement 
operations.  Tackle  corruption,  including  by  ensuring  enforcement  of  existing 
legislation  and  by  increasing  accountability  at  the  level  of  police  and  prosecution. 
Improve  the  effectiveness  of  the  justice  system,  in  particular  by  safeguarding 
independence  in  judicial  appointment  procedures.  Reduce  the  fragmentation  of  the 

9 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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public  research  system  and  stimulate  business  innovation,  including  for  small  and 
medium-sized enterprises. 

Done at Brussels, 

For the Council 
The President 

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