Evaluation of Medium-term Budgetary Objectives for 2019-2022

In its Stability Program of the Slovak Republic for 2019 – 2022, the government approved its medium-term objectives assuming general government deficit reduction from 0.7 % GDP in 2018 to balanced budget during 2019 - 2022. Compared to the approved General Government Budget 2019 – 2021, budgetary objectives in 2020 and 2021 have been slightly worsened. According to the Ministry of Finance of the Slovak Republic, fulfillment of these objectives would reduce gross debt-to-GDP ratio from 48.9 % in 2018 to 44.6 % in 2022. Taking into consideration the reduction of the sanction zones of the Constitutional Act , gross debt would remain outside the sanction zones during the whole period. According to the the Ministry of Finance, the Stability Program contains measures especially on the expenditure side, whose total effect will worsen the general government balance compared to the no-policychange scenario. The CBR has prepared its opinion on the basis of the Stability Program, and from additional supporting material from the Ministry of Finance.

According to CBR, reaching and maintaining balanced budget till 2022 would not secure long-term sustainability of public finances. Taking into account current assumptions, legislation and negative effects associated with approval of the retirement age cap in March 2019, to achieve the long-term sustainability of public finances it is necessary to adopt additional measures amounting to 2.3 % GDP. Fulfillment of budgetary objectives would improve longterm sustainability by 1.0 % GDP. In order to achieve long-term sustainability of public finances while taking into consideration retirement age cap, additional measures, beyond the objectives set by the government, in the amount of 1.3 % GDP are required to be adopted; it would mean achieving a structural surplus of 1.5 % GDP in 2022 and maintaining it above 1 % of GDP during the following twenty years. Adoption of measures in present would through reduced debt create a sufficient fiscal space for absorbing ageingrelated costs and ensure more even distribution of costs over time without having major negative effect on the standard of living of current and future generations. Eventual postponing of longterm stabilization of public finances would increase the need for consolidation in the future when the government could hit taxation limits and restricted options for reducing the expenditures.