The key objective of fiscal responsibility is to achieve sustainable public finances. The protection of long-term sustainability of Slovakia’s economic performance taking into account the compliance with the principles of transparency and effectiveness of public spending was enshrined in an amendment to the Constitution of the Slovak Republic in 2020.
The key objective of fiscal responsibility is to achieve sustainable public finances. The protection of long-term sustainability of Slovakia’s economic performance taking into account the compliance with the principles of transparency and effectiveness of public spending was enshrined in an amendment to the Constitution of the Slovak Republic in 2020.
Even before the outbreak of the COVID-19 pandemic, the long-term sustainability indicator entered the high-risk zone, the worst level since 2013. In international comparison, too, the European Commission ranked Slovakia’s long-term sustainability of public finances as the worst in the EU . Subsequent budgetary performance in 2020 and 2021, combined with a gradual economic recovery, pushed the domestic sustainability indicator back to the medium risk zone. The public finance sustainability again worsened in 2022, mainly due to the war in Ukraine (contribution of 0.7 p.p.) and the approved government measures (contribution of 0.6 p.p.). The CBR estimates the sustainability indicator will return to the high-risk zone. The government measures are thus likely to erase a portion of improvement in the sustainability of public finance from the previous years and, coupled with Russia’s invasion of Ukraine, will drive the indicator back to the high-risk zone .
Given the poor condition of public finances, approving changes with a significant permanent negative impact on the budget without appropriate financial backing is in conflict with the main objective of fiscal responsibility, according to the CBR. In light of the current development in public finances, the CBR considers adopting compensation measures with a permanent effect of the same size a minimum standard that the government and the parliament should embrace.
The truth is that a considerable portion of the estimated deterioration in long-term sustainability is caused by external factors outside the government’s control. But since it has a direct impact on the long-term health of public finances, the government should, in the long run, pursue appropriate measures to improve sustainability regardless of the cause. It is, therefore, necessary to offer a trustworthy plan to revive the public finances, including the crucial, albeit repeatedly postponed, credible reform of the pension system.
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