- Positive effects of consolidation are expected from 2028.
- Economic consequences include slowing growth and declining employment.
- The public finances of the Slovak Republic are approximately one third of the recovery process.
The consolidation package adopted in the fall of this year will have a noticeable negative impact on the Slovak economy in the next four years. The positive effects of consolidation will begin to manifest themselves later, by the end of the decade growth will level off and in the following years will eventually exceed the dynamics compared to expectations in the scenario without consolidation. Analysts of the Council for Budget Responsibility (RRZ) state this in the current commentary.
“The most significant adverse impact is expected in 2026, when economic growth will be approximately 0.36 percentage points (pp) lower compared to the no-consolidation scenario,” they calculated.
According to them, the impact on the labor market will be most felt in 2027. Employment will fall mainly as a result of measures aimed at self-employed persons (SZČO), while the higher tax burden on labor will also translate into slower wage growth. Tax and levy measures that dampen economic activity will hamper the economy in the long term.
Analysts have announced that the positive effect of consolidation will begin to manifest from 2028. “From 2028, a permanently lower risk premium will begin to significantly contribute to stimulating the economy. Thanks to it, slower debt growth and a lower deficit will gradually outweigh the negative effects of a higher tax burden.” they explained.
At the same time, they pointed out that even though consolidation is inevitable and always brings a temporary weakening of the economy, the magnitude of this negative effect depends on its structure. With the current package set, according to RRZ analysts, it will take 12 years for the level of gross domestic product (GDP) to approach the performance that the economy would have achieved without consolidation interventions. “Such a long return period is caused by an inappropriate composition of measures – too high a weighting of those that have a more significant dampening effect on economic growth,” they evaluated.
NBS analysts: The recovery process of public finances is about a third complete
The approved budget for next year with a deficit of 4.1% of the gross domestic product (GDP) represents a visible, but only a small step towards the recovery of Slovak public finances. Compared to last year, this is the largest planned improvement within the eurozone, but Slovakia will still have one of the highest deficits in the EU.
After the three adopted consolidation packages, public finances are thus about a third of the way to recovery, the goal of which is to gradually achieve a balanced economy so that the country’s indebtedness begins to decrease. This is stated by the analysts of the National Bank of Slovakia (NBS) in the current Analysis of the Slovak public administration budget for the years 2026 – 2028.
The planned improvement of economy next year is to be achieved by the adopted consolidation package worth 2.7 billion euros, which is mainly based on increasing taxes and levies, as well as limiting some expenses. Analysts reminded that despite recovery plans, the number of employees in the public administration continues to increase. Savings on wage costs are mainly carried out through slower salary growth, not through reducing the number of workers, which historically has a rather short-term effect.
“Consolidation will further slow down the economy, which will dampen deficit reduction. We estimate that the current package, tilted towards the taxation of income from work, will have a more significant impact on economic growth than so far, even in view of its size and structure.” assessed the analysts. In 2026, the growth of the Slovak economy should slow down by approximately 0.8 percentage points (pb). Along with the uncertain impact of some consolidation measures, according to the NBS estimate, additional measures in the amount of 0.2% of GDP will be necessary to achieve the budget target next year.
Analysts pointed out that the public debt of the Slovak Republic remains high, at the expected level of 64% of GDP in 2028. Its apparent stabilization is to be achieved mainly with the help of a higher drawdown of cash reserves, while the net debt will grow dynamically thanks to persistent high deficits. In the ten-year horizon, even with the achievement of the budget goals, it would continue to grow above the level of 70% of GDP. “To reduce the debt below 60% of GDP, ongoing consolidation will be necessary even after 2028 in the amount of at least 0.5% of GDP per year until 2033,” they calculated.
According to economists, the consolidation of public finances can be helped by the effective use of European funds and the Recovery and Resilience Plan, which Slovakia draws on more slowly and more intermittently than most EU countries in the long term. The year 2026 will be important from this point of view, because it will be the last period for drawing up the recovery plan.
In the long term, Slovak public finances will be under pressure caused by the aging of the population, higher social spending and rising interest on the debt. analysts warned. According to them, the fiscal strategy should be closely linked to the support of the potential growth of the economy, especially with investments in research, digitization, green transformation and education, instead of the expansion of current expenditures.
“The government will probably have to move from short-term and administrative measures to permanent and long-term sustainable changes. There is room for more efficient spending of funds, improvement of tax collection, support for growth, and thereby strengthening the domestic ability to finance public investments,” NBS analysts added.
