Strong growth could not continue

OECD Observer

The structure of the Slovak economy seemed particularly rigid at the outset of the transition process. For this reason, the good macroeconomic performance of recent years came as a surprise. Fuelled initially by exports, real GDP growth resumed in 1994 and has remained buoyant, at around 6% per year, while inflation has declined substantially. In 1996 the emphasis of growth shifted, from being export to demand led, largely thanks to a fiscal loosening and the coming on stream of large public and private investment projects.

The immediate result of all this has been an explosion of the current account deficit, which has stood at an average of around 10% of GDP since 1996; it used to be in surplus. Slovakia was able to finance this deficit by borrowing significant international funds. This may have helped to maintain the economy’s momentum, but at increasing cost. The independent central bank’s response to these growing imbalances and, in 1997, to the deteriorating international environment was to tighten monetary policy and slow domestic demand. It also set itself the task of defending the fixed exchange rate regime – that was against a currency basket comprising the deutsche mark and the dollar. The regime was abandoned in October 1998 and the currency, the koruna, was allowed to float.

The burden of high real interest rates resulting from the restrictive mone-tary policy was aggravated by delays in enterprise and financial restructuring. The financial situation of the enterprise sector deteriorated considerably, as reflected in an increase of payment arrears and bad debts. Tax arrears also grew, contributing to revenue shortfalls in the state budget and increasing public deficits. The latter peaked at over 5% of GDP at the end of 1998, whereas it was in balance in 1995.

The main problem for Slovakia over the last two years was not so much a lack of growth, but too much of it; the economy was in fact on an unsustainable path. The central bank did well to act and is keeping monetary policy tight, now that the currency is floating. Without this action by the bank and the pro-spects of improved fiscal discipline, then the result may almost inevitably have been a sharp, perhaps more painful, correction.

©OECD Observer No 2016, March 1999 




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017