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International Monetary Fund - Preliminary Conclusions of the Mission

Last update: 11.01.2006 06:00

Slovak Republic - 2005 Article IV Consultation Discussions
Preliminary Conclusions of the Mission (December 14, 2005)

Sound macroeconomic management and a wide range of fundamental structural reforms over the past few years have facilitated Slovakia's successful entry into ERM2 on November 25, 2005. Policy makers should now focus on laying the ground for a smooth transition under ERM2 to euro adoption, planned for January 2009, and for strong performance in the monetary union. Although the economy is well poised in many respects (in particular, Slovakia already meets the Maastricht criteria for long-term interest rates and the public debt ratio), risks and challenges remain. The immediate challenges are to reduce inflation and the fiscal deficit to levels that meet the Maastricht criteria, satisfy the test of exchange rate stability under ERM2, and reduce the risk of an overly strong conversion rate when the euro is adopted. With the economy on course to grow at or above estimates of potential in the period ahead and given upside risks to inflation, a tighter fiscal stance than envisaged in the 2006-08 budget is necessary to minimize tensions between the inflation and exchange rate objectives. A political consensus that recognizes the pay-off from continued focus on fiscal prudence will remain essential. These aspects are elaborated below.

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