Slovakia in 2013 R adovan Ďurana, INESS 13.8.2013

1. Slovakia in 2013Radovan Ďurana, INESS13.8.2013

2. Menu • Macro • Fiscal issues • Policy papers • Q&A

3. Macro – w shape, or ww shape?

4. Macro – 2013 down, down GDP, Annual change GDP, Annual growth Source:IFP

5. Macro Consumption Investment GDP growth Change in stock Net export Source: IFP

6. Macro – Man on themoon • Export rulz + 22% between 2008-2012 (Import + 13%, due to lowhouseholdcons.) • 83% to EU • Germany 21% • CzechRepublic 13% • Industrialproduction + 13% 2008-2012

7. Macro – Man on themoon • Annualgrowthofemployment in divisionAutomotiveproduction: 3,1% (+ 1 793 workers)

8. Government spending vs. GDP

9. Macro – Darkside

10. Macro – Darkside Total lending in bln. eur Corporate lending in (right axis) Source: IFP

11. Macro employment • Total employment • Unemployment rate • Contracts

12. Macro employment

13. Macro - Unemployment

14. Unemployment rate prediction Source: IFP

15. Wages • 10% growth in HC sector = 0,7% of overall average wage growth(IFP)

16. Macro – Household Revenues

17. What is the number of PT jobs in Slovakia?

18. Contracts Age distribution of contractors in January 2012, resp. 2013 (Source: IFP)

19. Fiscal Issues • 2012 Data • State Budget in 2013 • Tax Revenues Forecasts

20. 2012 Data • Lower tax revenues by 0,7 bln. Eur (-1% GDP) • Consolidation measures 0,3 bln. Eur (0,4%) • EU Co-financing + contributions – 0,4 bln.eur (0,5%) • Municipalities+ SGR exp. Lower by 0,2 bln. Eur (0,3%)

21. Revenues of public sector Source: Fiscal council

22. Expenditures of public sector Source: Fiscal council

23. Primary balance EU 2012

24. Debt 2012 • From 43,3% GDP to 52,1% GDP • 52% ofthegrowth – deficit financing • 30% ofthegrowth – reserves • 18% ofthegrowth – Eurozonebailout • Excludingthe PICGSS, Slovak debtgrowththehighest in EU in 2008- 2012 period

25. 2013 Budget • Tax measures • II. Pillar • Banks • Frozen expenditures

27. TaxRevenuesForecasts Source: Fiscal council, IFP

28. TaxProperty, notActivity?

29. Fiscal responsibility • Overall situation • Sanctions • Municipalities • Expenditures ceiling • State companies

30. National Rules International rules Stability and Growth Pact deficit < 3% of GDP, debt < 60% HDP excessive deficit procedure MT objective, consolidation of 0,5% of GDP annualy decreasing the debt over 60% of GDP by 1/20 ann. Expendituresbenchmark Semi-automatic sanctions “Fiscal compact” + 2 pack Arule of balanced budget Medium-term objective in national legislation decreasing the debt over 60% of GDP by 1/20ann. ReviewingEC budget proposal (until 15/10) Strengtheningsupervision on countries with problems Council Directive 2011/85/EU (part of Six pack) Requirements for the fiscal framework of the Member States: Accounting, statistics, audit, transparency Independentpredictions, sensitivity scenarios Numericalrules, medium-term frameworks Constitutional Budget Responsibility Law • Debt break(until 2017 50-60% of GDP) • expenditureslimit (without specification) • Rules for self-governments • Rulesof transparency Laws about budgetary rules • debt of self-government < 60% of ordinary income • Debtserviceofself- govt debt < 25% of ordinary income • Evaluation of state budget • Termsfor submitting proposals State Budget Law • Definesincomes, expenditures, maximum deficit • expensescan be exceeded by 1% max. • valid for 1 year Source: Fiscal council

31. Debt brake sanctions • debt between 50 – 53% of GDP - MF is sending a writtenjustification of the level of debt to National Council and proposal for its cut-down • debt between 53 – 55% of GDP– Government submits to National Council proposal of measures cutting-down the debt - salaries of members of Government are lowered to the previousyearlevel f • debt between 55 – 57% of GDP – MFwilldecreasethe state budget expenditures by3% (exceptions) -consolidated expenditures ofpublicadministrationcannot rise nominally (exceptions) - self-government expenditures cannot annualyincrease in nominalterms • debt between 57 – 60% of GDP – Government cannot submit to National Council proposal of public administration budget with budget deficit -self-governments are obliged to approve only balanced or surplus budget for the next year • debt over 60% of GDP – in addition to previous action Government asks National Council for confidencevote - sanctions cumulatewhendebtis over53% of GDP, e.g. after exceedingthe limit of 60% besides the vote of confidence it is necessary also to implement measures described in previous levelsofdebt.

32. But • Sanctionsfrom 55% of GDP are notappliedfortheperiodof 24 monthsstartingthefirstdayafterthedaywhentheManifestoofGovernment and thevoteofconfidencewereapproved (15/5/2012) • Sanctionsfrom 55% of GDP are notappliedfortheperiodof 36 monthsstartingthefirstdayofthemonthafterthemonth in which: GDP decreased by 12%, costsrelated to crisisoffinancialsector, catastrophicevents, Euro bailouts + 3% of GDP

33. Debt brake in time

34. When will we have debt over 57%? Source: Fiscal council, 2013 updated

35. Sustainability index Sustainability index decreased from 7,0% of GPD in 2011 to 4,3% in 2012. It means that to make Slovak debt sustainable in a long-term period according to definition of constitutional law, it is necessary to constatnly improve the balance of public finance by 4,3% of GDP. . Source: Fiscal council

36. Future of deficits • Short term measuresturnedoff, EC predicts deficit 3,1% v 2014 • Oilmeasures • Arcticice(forhowlong?) • Limitedcapitalinvestmens • Revenuesgrowingfasterthanexpenditures? • NationalizationofHealthInsurancecompanies? • Risksrelated to ESA 2010 (autumn 2014)

37. Policy papers • Decrease Minimum wage to 1 € • Monitoring of Structural funds • Investment subsidies

38. Q & A ?

39. Resources • Ministry of Finance (IFP) Macro, Taxes • Fiscal council • Statistical office

40. Radovan Ďurana www.iness.sk radovan.durana@iness.sk +421915540395