Summary: Slovakia is engaged in an ambitious reform process which has the potential to quicken productivity growth, increase the employment rate and accelerate the catch-up to the per capita income levels of more advanced OECD countries. Short-term outcomes may be demanding socially and politically, but stimulus to growth and job creation should help overcome the hardship. Policymakers should fully enforce the new framework for creating and doing business and support it with the full strength of the law. Human capital enrichment for new entrants through education reform is critical, while intensified re-training for the long-term unemployed, including the Roma population, is also indispensable,. Demand for labour will be stimulated by the planned reductions in employment costs in the low end of the market, as well as by the fundamental tax reforms raising the return to enterprise creation and development. Further cuts in social contributions, which remain among the highest in OECD countries, should be a priority. The reform of the public spending system, which is already well engaged, should facilitate such additional cuts and help promote a smaller and more effective government. Continuing efforts of fiscal consolidation will improve the macroeconomic policy mix and help maintain supportive monetary conditions in the face of currency appreciation pressures from EU accession, and will help meet the Maastricht nominal convergence rules on a sustainable basis prior to euro area participation. The nominal flexibility of wages and prices should be conserved in order to preserve the competitiveness of the economy, notably of the domestic manufacturing and service firms. By sticking to this multi-pronged policy agenda, Slovakia would make its growth process more balanced and job-rich and would further accelerate its already successful catching-up process.
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