January 27, 2026Slovak Republic: Staff Concluding Statement of the 2026 Article IV Mission

January 27, 2026

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or 'mission'), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

Bratislava, Slovakia: An International Monetary Fund mission, led by Magnus Saxegaard, and comprising Leonardo Indraccolo, Shinya Kotera and Yen Mooi conducted discussions for the 2026 Article IV consultation with the Slovak Republic during January 14-27, 2026. At the conclusion of the visit, the mission issued the following statement:

Growth slowed in 2025, complicating efforts to reduce the fiscal deficit and put debt on a sustainable path. Meanwhile, structural headwinds related to geoeconomic fragmentation and population aging are weighing on medium-term growth and raising concerns about Slovakia's ability to converge to living standards in more advanced EU countries. The key objectives now are to put in place a multi-year strategy for restoring debt sustainability, while implementing structural reforms to strengthen productivity and support medium-term growth.

Economic Developments, Outlook, and Risks

The economy slowed in 2025 amid necessary fiscal consolidation. Growth is estimated to have declined to 0.8 percent from 1.9 percent in 2024, with tighter fiscal policy (an improvement in the structural primary balance of close to 1 percent of GDP) restraining consumption and high global uncertainty weighing on private investment. Strong imports (due primarily to an expansion of capacity in the automotive sector) outpaced a modest export recovery. Inflation accelerated, reflecting the VAT increase in early 2025 and elevated services inflation. The fiscal deficit, estimated at 5 percent of GDP in 2025, remains significantly above pre-pandemic levels.

Growth is projected to hold broadly steady at 0.9 percent in 2026. Another year of fiscal consolidation and a cooling labor market are expected to constrain domestic demand, more than offsetting robust public investment ahead of the expiry of the Recovery and Resilience Facility (RRF) in 2026. In staff's baseline of no further fiscal consolidation, growth could pick up in 2027 as the impact of the 2025-26 fiscal consolidation fades and automotive exports pick up. Core inflation is expected to fall to the 2 percent target by mid-2027, but headline inflation will stay elevated due to the gradual removal of energy price subsidies. Projected medium-term growth is significantly below Slovakia's pre-pandemic average.

Risks to growth are tilted to the downside while inflation risks are broadly balanced. Globally, escalating trade tensions and prolonged uncertainty would weigh on investment and exports. Geopolitical tensions and commodity price volatility could raise energy prices and disrupt supply chains, fueling inflation and weakening growth. Domestically, delays in fiscal consolidation would raise long-term yields and increase future adjustment needs. Absorption constraints and governance concerns could slow disbursement of EU funds and weaken investment. A sharp correction in real estate prices combined with an economic downturn could trigger losses for financial institutions. Finally, the EU agreement to phase out Russian gas by 2027 could result in higher energy prices, putting upward pressure on inflation.

Fiscal Policy

The amount of fiscal consolidation in the 2026 budget is broadly appropriate, but the consolidation package, as a whole, appears driven by last-minute political compromises.

• Staff projections suggest the headline deficit could reach 4.4 percent of GDP in 2026. While this is above the 4.1 percent budget target, the estimated 0.9 percentage point reduction in the structural primary deficit is broadly consistent with the budget and strikes a good balance between avoiding a further economic slowdown and the need for fiscal consolidation. If the economy weakens, the authorities should let automatic stabilizers operate to avoid fiscal policy becoming more procyclical, while saving as much as possible of available buffers to contain the resulting increase in the deficit.
• Most savings in the budget come from revenue measures, but the greater emphasis on expenditure cuts compared to previous years is welcome. The decision to deliver energy support in a more targeted way is a step in the right direction. However, other measures, including abolishing some public holidays and increasing sin taxes, appear driven by decisions taken late in the budget process and do not appear to be part of a comprehensive deficit-reduction plan. Steps to improve tax compliance are welcome, but tax amnesties should be approached with caution as they can lower voluntary compliance and increase money laundering (ML) risks.

Sustained fiscal adjustment is required to rebuild fiscal buffers and make the economy more resilient to shocks.

• Under staff's baseline of no further fiscal consolidation from 2027 onwards, the deficit is projected to widen gradually due to rising aging-related spending, higher debt service costs, and a structural decline in indirect taxes-pushing public debt close to 105 percent of GDP by 2040 (a near doubling since 2023). Absent fiscal consolidation in recent years, debt would have been even higher.
• Stabilizing the debt-to-GDP ratio will require fiscal consolidation to continue in 2027 and beyond. About 2.3 percent of GDP in measures will be necessary to meet the authorities' target of reducing the deficit to 2.8 percent of GDP by 2028. If fully met, this target would place the debt-to-GDP ratio on a declining trajectory by 2028. Beyond 2028, staff simulations suggest that a further 1.7 to 2.3 percent of GDP in measures will be needed to offset rising spending related to population aging and maintain debt sustainability over the medium term, bringing the overall consolidation need to around 4 to 4.5 percent of GDP.

There are options for achieving this in a way that supports Slovakia's growth objectives while safeguarding the most vulnerable.

• Revenues: According to IMF staff estimates, increasing the reduced VAT rate from 5 to 10 percent, streamlining items eligible for reduced VAT rates, reforming the system of property taxation-including transitioning to a market value-based system and increasing the taxation of secondary homes and investment properties-and indexing excise taxes to inflation could generate around 1.5 percent of GDP in revenues. Further increases in the already elevated tax burden on business and labor should be avoided, but replacing size-based corporate tax rates with a uniform rate would remove growth disincentives. Reducing the VAT compliance gap could yield up to 0.5 percent of GDP in revenues. In that context, reducing the gap between VAT rates and returning to a two-rate system could help limit misclassification and fraud. The authorities should also evaluate whether changes to the Criminal Code, including higher thresholds for criminal liability, have weakened deterrence against tax fraud. Implementing recommendations from the 2024 Tax Administration Diagnostic Assessment (TADAT) could strengthen revenue collection further.
• Spending: Better targeting of social spending and implementation of already identified Value for Money initiatives (e.g., a reduction in subsidies) could yield around 1.3 percent of GDP in savings. In addition, reversing the recent increase in the 13th pension and abolishing the initial indexation of new pensions would generate an estimated 0.5 percent of GDP in long-term savings. Domestically financed public investment and education expenditure should be preserved, given that such spending yields significant economic benefits. Finally, the authorities should phase out energy support measures (projected to cost 0.3 percent of GDP in 2026) as they are costly and discourage energy conservation.

A multi-year fiscal strategy for reducing the deficit would strengthen policy credibility. Advancing key political decisions on the size of the adjustment and providing more forward guidance on the strategy for reducing the fiscal deficit in future years would allow more time to prepare complex tax reforms and spending efficiency initiatives, reduce uncertainty, and support the execution of domestically financed public investment projects. Ongoing efforts to strengthen fiscal risk monitoring will help mitigate threats to debt sustainability, thereby improving the resilience of public finances.

A strong fiscal framework is essential for the credibility of the fiscal consolidation. Slovakia's strong and independent Council for Budgetary Responsibility remains important for monitoring the long-term sustainability of public finances. Also, reforming the debt brake ahead of its reactivation in 2026 would help reduce the risk of a sharp fiscal consolidation that would further weaken the economy.

Financial Sector Policy

The banking sector remains resilient, but the economic slowdown calls for continued vigilance. Higher interest rates have raised households' and corporates' debt service burden, increasing their vulnerability to further labor market softening or weaker revenue growth. Risks in the commercial real estate sector remain elevated due to high leverage and low margins.

The current macroprudential stance is broadly appropriate. The credit gap remains negative, but risks remain elevated in certain segments of banks' credit portfolio and house prices appear somewhat overvalued. On balance, the current level of the countercyclical capital buffer (CCyB) is appropriate. Borrower-based measures (BBMs) have helped contain household credit risk and should remain unchanged. Finally, the authorities should phase out the bank levy as planned.

Sustaining momentum in implementing FSAP recommendations will require continued efforts and robust interagency coordination. The National Bank of Slovakia (NBS) has made progress on high-priority FSAP recommendations, including strengthening legal protection for supervisors, enhancing systemic risk analysis, and increasing access to data. Efforts are ongoing to streamline off-site supervision and strengthen on-site inspections in key risk areas, though further effort is needed to close potential gaps in BBMs. Implementation of recommendations to strengthen the legal protection of Resolution Council members who are not NBS staff, confine banks' appeal powers to finalized prudential decisions, and restrict judicial powers to suspend or reverse resolution decisions is pending finalization of EU-level reforms to the Crisis Management and Deposit Insurance (CMDI) framework. Finally, further efforts are needed to strengthen the AML/CFT framework, including by improving beneficial ownership transparency, addressing tax crime and related ML risks, and strengthening monitoring of ML/FT risks associated with cross-border financial flows.

Structural Policy

Growth-enhancing structural reforms are necessary to sustain income convergence and support efforts to keep public debt on a sustainable trajectory.

• Labor market reforms: Raising labor force participation, especially among the elderly and women, would help address the challenges that come with an aging population. A further tightening of early retirement rules and tax credits could boost employment rates among the elderly. Reducing the maximum maternity leave, expanding childcare and elderly care, promoting flexible work options, and removing the early retirement option for women with children could support female employment. Expanding active labor market policies and leveraging data-driven tools to improve job matching could improve job prospects for the long-term unemployed. Finally, policies to raise employment rates among the Roma would allow Slovakia to better mobilize the potential of this untapped labor force.
• Addressing skill shortages: While the easing of visa rules for highly skilled nationals is welcome, further efforts are needed to integrate and retain foreign workers. Removing barriers to labor mobility within the single market would boost productivity for the EU as whole but could increase outward migration. This underscores the importance of national reforms to address the root causes of emigration, including raising the quality of tertiary education, supporting a business environment conducive to the creation of high-quality jobs, and fostering confidence in the country's long-term prospects and institutions.
• Innovation and technology adoption: While recent reforms to strengthen the innovation ecosystem are welcome, further efforts are needed to promote innovation-driven growth. Tax allowances for investing in human capital could accelerate technology adoption, while redirecting R&D spending toward targeted tax incentives-including for startups that are not yet profitable-would stimulate firm-level innovation. Deeper collaboration between businesses and universities, along with programs to attract and retain global talent, would enhance knowledge spillovers and technology adoption.
• Strengthening access to risk capital: Slovakia's financial markets offer limited access to equity financing that firms need to grow. Greater participation by institutional investors, including allowing pension funds to invest a small share of their assets in domestic firms, would help. Advancing the Capital Markets Union would facilitate cross-border flows of capital and mitigate constraints associated with underdeveloped domestic markets. Simplifying the tax treatment of non-resident equity holdings could increase predictability for prospective investors.
• Deepening the single market: Removing remaining barriers for the EU single market would help domestic firms leverage economies of scale to boost productivity and growth. The proposed 28th corporate regime, if effectively designed and implemented, would provide a voluntary harmonized legal framework for firms operating across the EU, making it easier for Slovak firms to deepen their integration into EU value chains.
• Strengthening governance: Concerns remain about the effectiveness of anti-corruption policies and the rule of law, as highlighted by GRECO in its recent report on the 2024 legislative amendments to the Criminal Code. There are some indications of increased investigations and prosecutions of corruption, alongside ongoing legislative efforts to strengthen judicial independence. Implementation of the other key policy priorities outlined in the 2025 Article IV consultation would strengthen the governance framework further and help lift the economy's growth potential.

Secure access to affordable energy is critical for competitiveness, productivity, and growth. While progress in diversifying Slovakia's energy supply is welcome, it could result in higher prices given the greater cost of non-Russian oil and gas, infrastructure bottlenecks, and higher transit fees. This underscores the need for a combination of domestic measures (e.g., phasing out fossil fuel subsidies and investing in clean technologies like heat pumps) and EU-wide reforms (e.g., expanding interconnection capacity and harmonizing regulatory frameworks) to lower energy costs and volatility, enhance energy security, and promote energy efficiency and decarbonization.

The IMF team thanks the authorities and other interlocutors for their generous hospitality and constructive dialogue.

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