REPORT FROM THE COMMISSION Slovakia Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Slovakia, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 556 final  REPORT FROM THE COMMISSION Slovakia  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Slovakia 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION 

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 
6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of  Regulation 
(EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic 
downturn.  In  its  Communication,  the  Commission  shared  with  the  Council  its  view  that, 
given  the  expected  severe  economic  downturn  resulting  from  the  COVID-19  outbreak,  the 
current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Slovak  authorities  on  14  April  2020  and  subsequently  validated  by 
Eurostat1 show that the general government deficit in Slovakia reached 1.3% of GDP in 2019, 
while general  government gross debt stood at 48% of GDP. According to the letter sent by 
Slovak authorities to the Commission on 11 of May, Slovakia plans a deficit of 8.4%2 of GDP 
in 2020, while debt is planned at 61.2% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by of the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Slovakia’s  compliance  with  the  deficit  criteria  of  the  Treaty.The  debt  criterion  can  be 
considered to be met as the debt ratio is below in 2019 the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic. 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

1 
fef7-a07764b0369f 
2 The Stability Programme was officially submitted on 18 May. 

1 

 
 
 
 
                                                           
Table 1. General government deficit and debt (% of GDP) 

2016 

2017 

2018 

2019 

-2.5 

-1.0 

-1.0 

-1.3 

2020 
COM 

-8.5 

2021 
COM 

-4.2 

52.0 

51.3 

49.4 

48.0 

59.5 

59.9 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based on the letter sent  by Slovak authorities to  the Commission on 11 of May, Slovakia´s 
general government deficit in 2020 is expected to reach 8.4% of GDP, above and not close to 
the Treaty reference value of 3% of GDP. The increase in deficit reflects the planned stimulus 
of 2.5% of GDP and the effects of the economic contraction. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from 
a severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP in 2020 by 6.7%. 

The  planned  excess  over  the  Treaty  reference  value  is  not  temporary  based  on  the 
Commission 2020 spring forecast, which projects the general government deficit to be above 
3% of GDP in 2021. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference  value.  The  planned  excess  is  considered  to  be  exceptional  but  not  temporary  as 
defined  by  the  Treaty  and  the  Stability  and  Growth  Pact.  Hence,  the  analysis  suggests  that 
prima  facie  the  deficit  criterion  for  the  purpose  of  the  Treaty  and  Regulation  (EC)  No 
1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS 

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is  
the economic impact  of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

2 

 
 
 
 
 
 
 
 
 
 
 
 
3.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals and sectors that are particularly impacted. Significant liquidity support measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2  Medium-term economic position 

Economic growth reached 2.3% in 2019, mainly due to the robust performance of domestic 
demand in Slovakia. However, due to the COVID-19 pandemic, the Commission 2020 spring 
forecast  projects  GDP  to  decline  by  6.7%  in  2020,  reflecting  the  disruption  in  economic 
activity  caused  by  the  lockdown  measures  and  an  unprecedented  fall  in  external  demand. 
Private consumption is projected to be hard-hit due to an increase in unemployment, a sharp 
drop in wage growth and weak consumer confidence. Investment is also set to fall strongly in 
2020 as uncertainty mounts and expectations of lower demand are likely to have an impact on 
firms’ investment  plans. Output  is  set  to drop strongly in the  first  half of 2020  and then to 
gradually recover from the third quarter onwards. This a mitigating factor in the assessment 
of  Slovakia´s  compliance  with  the  deficit  criterion  in  2020.  Moreover,  the  medium-term 
economic outlook is  marked by an exceptional  degree of uncertainty  on the duration of the 
pandemic and its economic impact. 

3.3 

 Medium-term budgetary position 

On 13 July 2018, Slovakia was recommended to ensure that the nominal growth rate of net 
primary  government  expenditure  does  not  exceed  4.6%  in  2019  (‘the  expenditure 
benchmark’),  corresponding  to  a  structural  adjustment  of  0.3%  of  GDP3.  The  overall 
assessment points to a significant deviation from the recommended adjustment path towards 
the medium-term budgetary objective in 2019. A similar assessment is obtained from looking 
at 2018-2019 taken together. 

Over the course of 2019, the Slovakia adopted several measures that further endangered the 
fiscal position (in particular in pensions). 

The letter sent by Slovak authorities to the Commission on 11 of May provides information 
on  substantial  new  spending  to  contain  the  pandemic  and  to  support  the  economy.  Those 
fiscal  measures  so  far  adopted  by  the  government  are  often  not  clearly  limited  in  duration. 
The  letter  sent  by  Slovak  authorities  to  the  Commission  on  11  of  May  estimates  the 
budgetary  impact  of  those  direct  support  measures  at  2.5%  of  GDP  in  2020.  The  medium-
term fiscal outlook remains subject to high uncertainty. 

3  Council  Recommendation  of  13  July  2018  on  the  2018  National  Reform  Programme  of  Slovakia  and 

delivering a Council opinion on the 2018 Stability Programme of Slovakia (OJ C 320, 10.9.2018, p. 107). 

3 

 
 
                                                           
3.4 

 Medium-term government debt position 

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 48.0% of GDP in 2019 to 59.5% in 2020. 

The debt sustainability analysis has been updated with the Commission 2020 spring forecast. 
Overall, the debt sustainability assessment indicates that notwithstanding some risks, the debt 
position remains  sustainable over the medium-term, also  given important mitigating factors 
(including the debt profile). In particular, while the government debt position deteriorates as 
a result  of  the  COVID-19  crisis,  the  debt  ratio  in  the  baseline  is  expected  to  be  on 
a sustainable (declining) trajectory over the medium term.4 

Graph 1: General government debt (% of GDP) 

80

75

70

65

60

55

50

45

40

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Baseline

Adverse scenario

Source: Commission services 

3.5 

Other factors put forward by the Member State 

On  11  of  May  2020,  the  Slovak  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities. 

4. 

CONCLUSIONS 

According  to  the  letter  sent  by  Slovak  authorities  to  the  Commission  on  11  of  May, 
Slovakia’s general government deficit in 2020 is planned to increase to 8.4% of GDP, above 

4 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP growth is projected according to the so-called EPC/OGWG T+10 methodology. In particular, (real) actual 
GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment  considered 
(through the fiscal multiplier). Inflation is assumed to converge gradually to 2%. Interest rates assumptions are 
set in line with financial market expectations. Under the adverse scenario, higher interest rates (by 500 bps.) and 
lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the projection horizon) 

4 

 
 
 
                                                           
and  not  close  to  the  3%  of  GDP  Treaty  reference  value.  The  planned  excess  over  the 
reference value is considered to be exceptional but not temporary. 

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  Overall,  since  the  planned  deficit  is  well  above  3%  of  GDP  and  the  excess  not 
temporary, and taking into account all relevant factors, the analysis suggests that the deficit 
criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled. 

5