Slovak Republic WT/TPR/S/7
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I. THE ECONOMIC ENVIRONMENT
(1) Major Features ofSlovakia 'sEconomy
(i) Overview
1. Centrally located inEurope, theSlovak Republic borders Austria, theCzech Republic, Poland,
Ukraine andHungary. Slovakia hasapopulation of5.4million (Table I.1),or110persons persquare
kilometre; thepopulation growth ratehasaveraged 0.4percentayearsince 1985. Percapita GDP
in1994 wasequivalent toUS$2,340.
Table I.1
Major features oftheSlovak economy
Population, 1994 5.356 million Annual population growth, 1985-94 0.4percent
Labour force, 1993 2.550 million Annual labour force growth, 1985-93 0.2percent
Lifeexpectancy atbirth, 1993 73years
GDP, 1989 US$15.6 billion GDP percapita, 1989 US$2,900
GDP, 1994 US$12.5 billion GDP percapita, 1994 US$2,340
Share inGDP, 1994aShare inemployment, 1993
Agriculture andforestry 7.4percent Agriculture andforestry 10.3percent
Industrybandconstruction 35.7percent Industrybandconstruction 40.4percent
Services 56.9percent Services 49.3percent
Merchandise exportsc,f.o.b., 1994 US$6.7 billion Merchandise importsc,f.o.b., 1994 US$6.6 billion
Merchandise exports toGDP ratio, 1994 54percent Merchandise imports toGDP ratio, 1994 53percent
Commercial services: credits, 1994 US$2.3 billion Commercial services: debits, 1994 US$1.6 billion
a Preliminary data.
b Including mining andquarrying, andelectricity, gasandwater.
c Customs basis; preliminary data.
Source: Dataprovided bytheSlovak authorities.
2. TheSlovak Republic became asovereign Stateon1January 1993uponthedissolution ofthe
Czech andSlovak Federal Republic (CSFR). Aprocess ofmarket-oriented economic reform hadbegun
three years earlier andencompassed thedecontrol ofprices, theprivatization ofStateenterprises, the
opening toforeign investment andtheliberalization ofinternational trade andforeign exchange. The
collapse inexport demand fromCouncil forMutual Economic Assistance (CMEA) countries andsome
initial effects ofeconomic reforms contributed toasevere economic contraction during thefirstfew
years ofreform.1Many reforms, including, forexample, intheareas ofpublic finance andforeign
exchange controls, nevertheless continued tobemade under successive Slovak Governments asthey
hadbeen under theCSFR, setting theframework forrecovery in1994. However, thecoupon
privatization process, afterhaving made substantial progress, appears tohavehalted andprospects
foritsreactivation areuncertain asofmid-1995 (Chapter IV(5(i))).
1Exports toCMEA countries fellby57percent, inU.S. dollar terms, from 1988 to1992.WT/TPR/S/7
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3. International trade isplaying akeyrôleinSlovakia 'seconomic transition. Trade ingoods
andservices in1994 wasequal to138percentofGDP andthe23.5percentgrowth inmerchandise
export value experienced in1994 wasamajor factor behind thenearly 5percentrealGDP growth.2
Slovakia 'smerchandise trade isheavily concentrated inEurope, withtheCzech Republic, European
economies intransition,3theEuropean Union (EU)andtheEuropean FreeTrade Area(EFTA) countries
together accounting for91percentofSlovak trade in1994.
4. Under thecentral planning system thatprevailed inSlovakia until1990alargeshare ofSlovak
production wasfortheexport ofheavy manufactures toother centrally planned European economies
andtheformer Soviet Union. Production plans, because theyweresevered from market incentives,
didnotnecessarily reflect Slovakia 'sendowment ofproductive factors, northepattern ofcomparative
advantage intheproduction ofgoods implied bythisendowment. Instead, much oftheeconomy was
directed toward supplying thedemand ofspecific trade partners forparticular goods.
5. Thedependence ofSlovak exports onthismanaged trade leftSlovakia verysusceptible tothe
disintegration oftheplanning system. When thisoccurred intheearly 1990s, Slovak exports faced
threefundamentalproblemsthatexacerbatedSlovakia'sowneconomictransition:recessionanddeclining
demand inkeyexport markets; substitution byconsumers andproducers inthese keymarkets away
fromtheproducts thatSlovakia hadbeenexporting, forexample, armaments; andaproduction pattern
misaligned withtheunderlying comparative advantage. Thefirsttwoproblems combined toseverely
undercut Slovak export demand. Thethirdimplied thatsubstantial industrial restructuring would be
necessary during Slovakia 'stransition toamarket economy.
(ii) Agriculture
6. Thevolume ofSlovakia 'sagricultural production stabilized in1994 afterhaving declined by
32percentfrom1989to1993.4Thiscontraction wasprecipitated byasharp reduction inthesector 's
terms oftrade: during theperiod 1989to1993, theprices ofagricultural inputs increased much more
rapidly thandidtheprices ofagricultural outputs (Chapter V(2)). Asaresult, theshare ofagriculture
inGDP, measured atcurrent prices, was9.4percentin1989and6.6percentin1993.5Rising input
prices contributed tothecontraction inoutput byleading toasharp reduction intheapplication of
intermediateinputs,suchasfertilizerandhigh-qualityseeds,whiletherewasalsoaone-quarterreduction
inmeasured employment. There hasbeenlittlechange inthequantity oflandorcapital usedinthe
sector.
7. Thefarming sector inSlovakia consists ofco-operatives, Statefarms, andprivate farms. Each
ofthese landtenure sectors existed under thecentral planning system, buttheirsizes andrelative
importance havechanged inrecent years. While about 5percentofagricultural landwasprivately
2Growth inexport value isreported onaU.S. dollar basis. Exports increased by28.5 percentonaSlovak
koruna basis.
3Including Russia.
4These figures partly reflect theeffects ofdrought in1993. Even by1992, however, output haddeclined
26percentfrom the1989 level.
5Themethod forGDP calculations waschanged in1992 andearlier dataarenotstrictly comparable with
datafor1992-1994.Slovak Republic WT/TPR/S/7
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farmed inthe1980s,6thefigure reached 13.5percentasof1994; 30percentofthetotalvalue of
agricultural production isfrom private farms. Thelandnewly heldbyprivate farmers wasformerly
heldinState farms, andprivatization isscheduled tobecompleted in1995. State farms comprised
22.7percentofagricultural landasof1994andcontributed 15percentoftotalagricultural production;
many oftheremaining Statefarms areoriented toward agricultural research. Most former collective
farms, which often were5,000 to6,000 hectares insize,havebeensubdivided andtransformed into
shareholder co-operatives, usually consisting of500to1,000 hectares.7Co-operative farms comprised
63.6percentofagricultural landasof1994andaccounted for48percentofagricultural production.8
8. Slovak agricultural exports in1994 were 5.5percentoftotalmerchandise exports. Inthe
same year, agricultural imports were 8.5percentoftotalmerchandise imports.9
(iii) Industry
9. Industry, including manufacturing, mining andquarrying, electricity, gasandwater supply,
andconstruction, accounted for45percentofGDP in1992 and42percentin1993. Theshare of
industry inGDP fellto36percentin1994.10By1994, 58percentoftheGDP arising fromindustry
(excluding construction) wasaccounted forbytheprivate sector, andthisshare roseto62percent
inthefirsthalfof1995. Inconstruction theshare in1994 was74percent.11
10. Manufacturing comprised 84percentoftotalindustrial output (excluding construction) in
1993, while electricity, gasandwater supply made up13percentandmining andquarrying 3percent
ofthetotal.12Slovakia 'soverall index ofindustrial production fell46percentbetween 1989and1993,
initially asaresult ofthelossofexport sales toCMEA countries.13During thisperiod, sharp
contractions inthevalue ofoutput tookplace ineachofthese sectors. Theindex ofmanufacturing
production dropped 51percent,mining andquarrying fellby56percentandelectricity, gasandwater
fellby28percent.14Theindex ofconstruction activity dropped 41percentoverthistime.15
6Theright oflandownership wasnotabolished under thecentral planning system inCzechoslovakia.
7Individual shareholders holddeed toaparticular plotoflandintheco-operative andarefreetoremove
thislandfrom thecooperative.
8Production shares andareashares arebased ondataprovided bytheSlovak authorities.
9Trade dataarecalculated onanSITC basis anddonotconform tothetrade datareported inChapter V.
10Data provided bytheSlovak Statistical Office; sectoral GDP shares arebased oncurrent prices. In1992
and1993, construction alone accounted for7percentofGDP; thisshare dropped to5percentin1994.
11Data provided bytheStatistical Office oftheSlovak Republic.
12Statistical Office oftheSlovak Republic.
13Data provided bytheSlovak authorities andbased ondatacompiled from industrial enterprises with25
ormore employees (Statistical Office oftheSlovak Republic). Available dataonGDP shares bysector prior
to1993 arenotcomparable withthedatabeginning from 1993.
14Statistical Office oftheSlovak Republic.WT/TPR/S/7
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11. Manufactures accounted for84.6percentofmerchandise exports and66.7 percentof
merchandise imports in1994. Mining andfuelproducts accounted for9.7percentofexports and
24.6percentofimports.16
(iv) Services
12. Market andnon-market services (excluding construction andelectricity, gasandwater supply)
accounted foranestimated 57percentofGDP in1994, upfrom 49percentin1992. Privatization
insome service industries proceeded veryrapidly, withtheprivate sector share intheGDP arising
fromretailing exceeding 88percentin1994. Elsewhere intheservices sector, including many parts
ofthetransport industry, forexample, thepaceofprivatization hasbeenslower.
13. Trade inservices plays asubstantial rôleintheexternal current account balance. Theservices
balance rosefrom2.4percentofGDP in1993to5.2percentin1994, largely asaresult ofreduced
expenditures onforeign services, particularly inrelation totheCzech Republic. Large shares ofexternal
services revenues come fromtourism andnatural gastransit fees,eachaccounting foroveronequarter
ofthetotal. Theservices balance wasnearly equal totheoverall 1994 current account balance of
5.7percentofGDP.
(2) Recent Economic Developments
14. TheSlovak economy began tocontract sharply in1990. In1991, when thecontraction was
most severe, industrial activity fell23percentandrealGDP dropped byover16percent.17This
contraction wassetoffbythecollapse ofexports totheformer U.S.S.R. andother EastEuropean
countries. Thedissolution oftheCSFR intotheSlovak Republic andtheCzech Republic attheend
of1992 meant thediscontinuation oftransfers toSlovakia (which hadbeenequal, in1992, tosome
7percentofSlovak GDP) andthedisruption ofsome supply anddistribution relationships. Theinitial
impact ofsome economic reforms, suchasprice decontrol, import liberalization andprivatization,
maytemporarily haveexacerbated thesituation.
15. By1994 thevalue ofintroducing market forces andcompetition intotheeconomy andofthe
newoutward orientation became clear. Aided byeconomic expansion inwestern Europe, Slovak exports
grew byover23percent(inU.S.dollar terms) andrealGDP roseby4.8percent. Surpluses were
recorded onboththemerchandise trade andservices trade accounts, andthecurrent account balance
rosefrom adeficit equal to5percentofGDP in1993 toasurplus ofnearly 6percentin1994
(Table I.2). This, combined withstrong capital inflows, resulted inabalance-of-payments surplus
inexcess of10percentofGDP andaconsequent increase inofficial reserves totheequivalent of
15Thevalue ofconstruction in1993 wasequal toabout 17percentofthevalue ofindustrial output excluding
construction.
16Trade dataarecalculated onanSITC basis anddonotconform tothetrade datareported inChapter V.
17Oneindication oftheseverity ofthecontraction isthatduring each yearfrom 1991 to1993, production
fellinallmajor categories ofmanufacturing, inmining, andinelectricity, gasandwater supply.Slovak Republic WT/TPR/S/7
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nearly 2.5months ofmerchandise andservices imports.18ByJuly1995 official reserves increased
toUS$2.6 billion, equivalent to3.1months ofimports. Inflation waslimited to13percent;
unemployment, however, remained atsome 14percentofthelabour force, andismuch higher in
some regions.19Continued export growth andarenewal ofinvestment growth inthefirsthalfof1995
ledtoanincrease inrealGDP of6.1percentatanannual rate.
16. Slovak macroeconomic policy isanimportant reason forthissuccess. Fiscal policy hasbeen
progressively tightened since1992inorder toassist inreducing inflation, generate higher economywide
savings andboost confidence intheeconomy. Thegeneral government deficit wasreduced fromover
13percentofGDP in1992 tolessthan3percentofGDP in1994 byreducing realgovernment
expenditures.20TheGovernmentaimstokeepthegeneralgovernmentdeficitbelow3percentofGDP.21
17. Slovakia hashadmonetary independence since thedissolution ofthecurrency union withthe
Czech Republic inFebruary 1993, andmonetary policy isdefined bytheNational Bank ofSlovakia.
Prudent monetary policy bytheCSFR andtheSlovak Republic haskeptinflation moderate since1991,
when price liberalization ledtoanincrease intheprice level ofmore than60percent.22In1994,
broad money grew by18.6percentasaresult ofsubstantial increases innetforeign assets, while net
domestic assets declined slightly.23Interest rateswerehigher in1994 thanin1993, increasing from
14.1to14.9percentoncredit toenterprises andfrom 9.6to11.2percentforhousehold deposits.
Interest ratesonhousehold deposits werenevertheless below therateofinflation. Following consumer
price increases in1994 of13.4percent,24theGovernment nowaims toreduce inflation tobelow
10percent.25Prices increased atanannual rateof11.2percentinthefirsthalfof1995.
18Asaresult oflowdebt, thestrong balance-of-payments position andhighhardcurrency reserves, Slovakia
recently became theonlyformer centrally planned economy other thantheCzech Republic toreceive investment
grade bond ratings from bothMoody 'sandStandard &Poor's(BNA 'sEastern Europe Reporter, 22May1995
and5June 1995).
19Unemployment varies greatly across theregions ofSlovakia, partly asaresult ofthe"one factory -one
town" economic planning under theformer régime andtherelatively lowgeographic mobility ofworkers.
Unemployment isparticularly highinthose regions thatwere previously involved inarmaments production.
20General government expenditures fellfromtheequivalent of63.8 percentofGDP in1992to53.3 percent
in1994.
21Programme oftheGovernment oftheSlovak Republic, January 1995, p.9.
22Prices rosesubstantially again in1993, butnearly halfofthe23percentincrease inthatyearappears to
have been related totheintroduction ofthevalue-added tax,while increases insome other indirect taxes and
the10percentcurrency devaluation alsocontributed.
23Foreign assets doubled tooverSk$102 billion andforeign liabilities changed little.
24Thisfigure isonaperiod average basis. Inthe12months totheendof1994, consumer prices roseby
11.7 percent.
25Programme oftheGovernment oftheSlovak Republic, January 1995, p.9.WT/TPR/S/7
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Table I.2
Economic performance oftheSlovak economy, 1992-94
1992 1993 1994
Percentage change
RealGDPa-7.0 -4.1 4.8
Private consumption 5.4 -1.2 -3.4
Government consumption 8.6 4.6 -4.4
Gross capital formation -32.5 -20.0 ...
Exports ofgoods andnon-factor services 68.3 -0.2 ...
Imports ofgoods andnon-factor services 68.2 -1.0 ...
Consumer prices (period average) 10.0 23.2 13.4
Employmentb(period average) -0.6 -0.2 ...
Unemployment (endofyear; percent) 10.4 14.4 14.2
Realeffective exchange rateappreciation, percent(endofyear) 0.5 -1.8 2.4
Nominal exchange rate,Sk$perUS$(period average) 28.3 30.8 32.0
Money supply (M2; endofyear) 4.7 18.5 18.6
Interest rates(average ofrates; endofyear)
Credit toenterprises 16.1 14.1 14.9
Household deposits 8.5 9.6 11.2
PercentofGDP
General government balancec-13.1 -7.6 -2.7
Revenue 50.7 48.0 50.6
Expenditure 63.8 55.6 53.3
Current account balance 0.4 -5.4 5.7
Merchandise trade balance -6.6 -8.4 0.8
Exports, f.o.b. 59.9e49.3 53.7
Imports, f.o.b. 66.5e57.8 52.8
Services balance -0.2 2.4 5.2
Receipts 14.1 17.7 18.0
Expenditures 14.3 15.2 12.8
Netfactor income from abroad -0.3 -0.4 -1.0
Netcurrent transfers 7.5 0.9 0.6
Capital account balance -0.8 8.9 3.6
Netdirect foreign investment 0.9 3.4f2.0
Clearing balance withCzech Republic (negative indicates surplus) n.a. 1.7 -4.9
Balance ofpayments -5.0 3.2 11.4
Change ingross reserves (negative indicates increase) -0.9 -4.7 -11.9
Official reserves, including goldd(US$ billion) 0.4 0.4 1.7
Official reserves inmonths ofimports ofgoods andservices 0.5 0.6 2.4
Gross domestic investmentc(share ofGDP; percent) 24.7 24.8 ...
Gross national savingsc(share ofGDP; percent) 19.5 22.4 ...
n.a. Notapplicable.
... Notavailable.
a Preliminary data; 1984 prices. Includes Transgas andforeign trade organizations.
b Employment fell3.2percentin1990 and14.4percentin1991.
c Figures for1992 exclude fiscal transfers fromtheCzech Republic thatamounted to7percentofSlovak GDP. Figures for1993
exclude military imports fromRussia valued at1.6percentofGDP, which wereexchanged forawrite-down ofdebt. Thisexplains
much ofthe1992 and1993 discrepancies between thesavings-investment differences andthecurrent account balances.
d Excluding US$500 million ingoldandforeign exchange obtained through goldswaps (US$122 million asofNovember 1994).
e Includes transactions withtheCzech Republic.
f Including US$529 million (4.8percentofGDP) ofSlovak shares inCzech companies acquired through voucher privatization;
thecounterpart, acapital transfer, isincluded inthecapital account balance.
Source: Dataprovided bytheSlovak authorities.Slovak Republic WT/TPR/S/7
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18. TheSlovakkorunaispeggedtoacurrencybasket(AnnexI).Followinga10percentdevaluation
inJuly1993, thekoruna 'svalue against thebasket hasremained unchanged. Atend-July 1995 the
exchange ratewasSk$29.2 perUSdollar, compared toSk$31.3 perUSdollar attheendof1994and
33.2perUSdollar attheendof1993. Inflation inSlovakia higher thanthatinitskeytrading partners
ledtoanappreciation intherealeffective exchange rateofthekoruna ofsome 2.4percentduring
theyearending December 1994; thisfollowed areal(CPI-based) effective depreciation of1.8percent
in1993andarealeffective appreciation of0.5percentin1992.26Thebilateral payments system under
which Slovak-Czech trade hasbeenconducted since early 1993istobeabolished inSeptember 1995.
19. Slovakia intends tointroduce convertibility ofthekoruna forallexternal current account
transactionsandacceptArticleVIIIoftheInternationalMonetaryFundwitheffectfrom1October1995.
Itfurther intends tointroduce convertibility ofthekoruna forallexternal capital account transactions
infuture years, depending ondevelopments intheSlovak economy.
(3) Trade Performance andthePattern ofTrade
(i) Composition ofmerchandise trade
20. Slovakia isanetimporter offuelsandrelated products (SITC 3)andofmachinery andtransport
equipment (SITC 7),andanetexporter ofintermediate manufactured products (SITC 6)and
miscellaneousmanufactures(SITC8)(TableI.3).Fuelsandrelatedproductscomprisesome20percent
ofSlovakia 'stotalmerchandise imports andarethecategory inwhich netimports arethegreatest.
Intermediate manufactured products account fornearly 40percentofmerchandise exports.
Table I.3
Foreign trade bycommodity groups ofSlovakia, 1993 and1994
(US$ million andpercent)
SITC Commodity group
No.Imports Exports
1993 1994 1993 1994
US$million US$million
Total (including Czech Republic) 6,334.3 6,600.2 5,447.4 6,726.8
Percent Percent
0 Food andliveanimals 7.33 6.96 5.49 4.51
1 Beverages andtobacco 1.46 1.29 0.88 0.93
2 Crude materials 5.16 5.28 4.92 5.09
3 Fuels andrelated products 20.90 19.28 4.92 4.64
4 Animal andplant oils,fats,etc. 0.25 0.29 0.10 0.10
5 Chemicals andrelated products 11.37 13.29 12.02 12.81
6 Intermediate manufactured products 15.10 16.86 38.75 39.21
7 Machinery andtransport equipment 29.25 27.72 19.41 19.31
8 Miscellaneous manufactured articles 9.02 8.85 13.41 13.29
9 Other commodities andproducts oftrade 0.17 0.17 0.09 0.06
Source: Ministry ofEconomy oftheSlovak Republic.
21. The23.5percentincrease (onaU.S.dollar basis) inexports in1994wasverybalanced, being
feltacross allSITC commodity groups, withthelargest absolute increases being inintermediate
26Based onthecurrencies ofAustria, theCzech Republic, France, Germany, Italy, theNetherlands, Norway,
theUnited Kingdom andtheUnited States, andusing 1992 Slovak export shares.WT/TPR/S/7 Trade Policy Review Mechanism
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manufactures andinchemicals. Underlying datashow thatthelarge increase inexports totheEU
wasalsobroad based, withthegreatest absolute increases being inintermediate manufactures andin
machinery andtransport equipment.
(ii) Geographic pattern ofmerchandise trade
22. In1989, 57percentofSlovak exports weredestined forcountries intheCMEA; by1992,
thisshare hadfallen tojustunder 30percent.27During thisinitial period ofeconomic transformation,
theshare ofexports going toindustrial countries increased from 19to54percent. Theredirection
ofSlovak exports toward thewestcontinued in1993and1994. Excluding Slovak tradewiththeCzech
Republic, 66percentofSlovak exports in1993 -and71percentofin1994 -weredestined forthe
industrial market economies.
23. With thedissolution oftheCSFR, what hadbeeninter-republic trade became international
tradeandtheCzech Republic became Slovakia 'slargest trading partner, receiving 42percentofSlovak
exports in1993 and37percentin1994 (Table I.4). However, more thanhalfofthe23.5percent
jumpinSlovak exports from1993resulted fromincreased exports totheEuropean Union (EU), whose
share ofSlovak exports rosefrom24toover29percent. Slovakia isanetimporter offoodandlive
animals, chemicals, andmachinery andtransport equipment from theEU,andanetexporter of
intermediate manufactured products andmiscellaneous manufactures totheEU.Austria, nowamember
oftheEU,accounted forafurther 5percentofSlovak exports. Substantial shares ofexports also
weredestinedforHungaryandPoland,Slovakia'sCentralEuropeanFreeTradeArea(CEFTA)partners,
andRussia, Ukraine andtheUnited States.
24. Changes inthegeographic pattern ofSlovak imports intheinitial years oftheeconomic
transformationweremoremoderatethanthechangesinexports.TheshareofSlovakia'simportssourced
from CMEA countries was50percentin1989, andthischanged littleuntil1992, when itfellto
41percent. Thisshare stood at37percentin1994ifimports fromtheCzech Republic areexcluded,
orat26percentofSlovakia 'stotal1994 merchandise imports.
25. TheCzech Republic, withashare ofnearly 30percent, remained Slovakia 'sgreatest single
source ofimports in1994, although thisshare declined by6percentage points from1993.28Theshare
oftheEUincreased bynearly thesameamount, to26percent.29Russia continues tobealargesource
ofimports, withashare of18percentin1994; three quarters oftheimports from Russia wereof
fuelsandrelated products. Other countries withmore than1percentofSlovak imports in1994were
Austria, theUnited States, Poland, Hungary, Ukraine, Switzerland andJapan.
27Data provided bytheSlovak Statistical Office; internal trade withtheCzech Republic isexcluded.
28Imports from theCzech Republic declined 14percent, orUS$320 million.
29Inabsolute terms, in1994 Slovak imports from theEUincreased byUS$430 million while exports tothe
EUincreased byUS$660 million.Slovak Republic WT/TPR/S/7
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Table I.4
Slovak Republic trade byorigin anddestination, 1993 and1994
(US$ million andpercent)
PartnerImports Exports
1993 1994 1993 1994
US$million US$million
Total imports (including Czech Republic) 6,334.3 6,600.2 5,447.4 6,726.8
Total imports (excluding Czech Republic) 4,059.7 4,645.0 3,137.4 4,229.5
Czech Republic 2,274.6 1,955.2 2,310.0 2,497.3
Percentoftotal imports Percentoftotal exports
Total imports (including Czech Republic) 100.0 100.0 100.0 100.0
Total imports (excluding Czech Republic) 64.1 70.4 57.6 62.9
Czech Republic 35.9 29.6 42.4 37.1
European countries witheconomy intransition 27.0 26.2 18.2 17.7
Hungary 1.3 1.7 4.5 5.4
Poland 1.9 2.4 2.9 2.8
Croatia 0.2 0.3 0.9 0.9
Slovenia 0.4 0.4 0.7 0.7
Former Soviet Union 22.7 20.6 8.3 6.9
Russia 19.5 17.8 4.7 4.1
Ukraine 2.4 1.8 2.6 1.7
Bulgaria 0.2 0.2 0.3 0.2
Romania 0.1 0.1 0.4 0.4
Countries withcontrolled trade 0.6 0.6 1.3 0.4
China 0.5 0.6 1.2 0.3
Countries withmarket economy 36.4 43.6 38.0 44.7
United States 1.8 2.9 1.1 1.6
Japan 1.2 1.2 0.2 0.6
European Union 20.6 26.2 24.0 29.2
Germany 11.4 13.5 15.2 17.2
Belgium 0.8 1.1 0.9 1.2
United Kingdom 1.3 1.6 1.0 1.3
Denmark 0.4 0.6 0.2 0.3
France 1.5 2.2 1.6 1.7
Italy 3.0 4.4 2.7 4.6
Netherlands 1.3 1.7 1.6 1.8
Spain 0.4 0.6 0.3 0.6
EFTA 8.9 8.9 6.3 7.0
Austria 6.2 5.8 5.0 5.2
Finland 0.6 0.8 0.4 0.6
Sweden 0.5 0.7 0.6 0.7
Switzerland 1.2 1.4 0.0 0.0
Source: WTO Secretariat calculations based ondataprovided bytheMinistry ofEconomy.
(4) Outlook
26. Theeconomic recovery thatbegan inSlovakia in1994 occurred sooner andwasstronger
thanexpected. Thiswaspartly duetoexternal factors, buttheability oftheSlovak economy torecognize
andrespond togreater export opportunities alsoplayed akeyrôle. Thisresponse facility wasgrounded
inprudent overall macroeconomic management, arelatively open international trading régime, andWT/TPR/S/7 Trade Policy Review Mechanism
Page 10
theindustrial restructuring thathasbegun toresult fromagrowing share oftheeconomy being inprivate
hands.
27. Theauthorities anticipate continued robust realgrowth, intherange of3to5percentfor
1995 (therateinthefirsthalfof1995 was6.1percent), andadecline inannual inflation tounder
10percent. Further increases inmerchandise exports, along withstrong investment demand, are
expected tounderlie thiscontinued growth. However, capacity constraints inmany export-oriented
industries arebeing reached andinvestment haslagged. Realgross capital formation fellby32percent
in1992andafurther 20percentin1993. Thissuggests thatifsubstantial export growth istocontinue,
capital formation must increase (andinthefirsthalfof1995 itincreased atanannual rateof
14.2percent) andexisting capital musteffectively beredirected toward capacity-constrained export
industries. Thisredeployment ofcapital -necessary because ofthedisintegration ofSlovakia 'sformer
export markets andbecause Slovakia 'sformer production pattern greatly deviated fromitsunderlying
comparative advantage -isakeyaspect ofindustrial restructuring.
28. Thecontinuation ofstrong economic growth beyond theshort-term willdepend foremost
onacontinued commitment onthepartofSlovakia toitsowneconomic reforms. Thisisexplicitly
noted inthe1995 Programme oftheGovernment oftheSlovak Republic, which laysdown thegoal
ofreaching, inthefirstdecade ofthenextcentury, astandard ofliving forSlovakia "comparable with
advanced countries ofEurope". Toattain thisobjective, theGovernment considers "asitsfirstpriority
theacceleration oftheprocess of[economic] transformation."Slovak Republic WT/TPR/S/7
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Annex I.1
TheForeign Exchange Control System ofSlovakia
29. Upon dissolution oftheCzech andSlovak Federal Republic (CSFR) on1January 1993, the
Slovak Republic entered acurrency union withtheCzech Republic, withbothcountries retaining the
useoftheCSFR currency, theCzechoslovak koruna. Thecurrency union ended on8February 1993
andtheSlovak koruna (Sk)wasintroduced asSlovakia 'scurrency. TheNational Bank ofSlovakia
(NBS), thecentral bank, hastheprimary responsibility formonetary policy30;itshares responsibility
forthecontrol offoreign exchange with theMinistry ofFinance.31TheGovernor andthe
Vice-Governors oftheNBS areappointed, andmay berecalled, bythePresident upon the
recommendation oftheGovernment andwiththeconsent oftheNational Council.32
30. TheNBSisrequired byArticle 28oftheNational Bank ofSlovakia Acttoestablish the
exchange rateofthekoruna. Theexchange rateofthekoruna ispegged, within bands of1.5percent
around thecentral rate,toabasket oftwocurrencies, theGerman mark (with aweight of60percent)
andtheU.S.dollar (40percent). TheNBSquotes therateagainst theU.S.dollar withallother rates
determined ascross-rates against quotations fortheU.S.dollar onmajor markets. AttheendofJuly
1995, theexchange rateofthekoruna wasSk$29.19 perU.S.dollar.
31. Other thanfortransactions withtheCzech Republic, thecurrency oftransaction isnot
prescribed. Since thedissolution ofthecurrency union, payments fortrade withtheCzech Republic
havebeenrequired togothrough theclearing account maintained bythetwocentral banks andallowed
forinthecustoms union agreement between thetwocountries.33Transactions areconverted fromthe
contract currency intoclearing ECUs attheratesetbytherespective central bank. Aclearing ECU
isinprinciple equal tooneECU, butthebilateral payments agreement allows adeviation ofupto
5percentbetween theclearing ECU andthemarket cross rate. TheSlovak koruna wasdevalued
against theclearing ECUtothemaximum 5percentdifferential fromDecember 1993untilMay1995,
when theNBSreduced thedeviation to1percent. InSeptember 1995thisdeviation waseliminated.
Balances thatexceed theECU 130million clearing limitmustbesettled inhardcurrency attheend
ofeachmonth. Thispayment system isbeing eliminated from 30September 1995.
32. Theelimination ofthebilateral payments system willbeanimportant steptoward the
introduction offullcurrent account convertibility ofthekoruna. AsofSeptember 1995, Slovakia
maintained thecurrent account convertibility forbusinesses thatwasintroduced intheCSFR in1991.
Enterprises andprivate entrepreneurs listed intheCompany Register werenotlimited intheiraccess
toforeign exchange forcurrent account purposes. Foreign exchange (forex) resident juridical persons,
which aredefined inTheForeign Exchange Acttoinclude foreign entities thatestablish afirmin
30TheNBS wasestablished byTheNational Bank ofSlovakia Act,passed bytheNational Council ofthe
Slovak Republic inNovember of1992.
31TheNBS administers exchange controls andregulations inco-ordination withtheMinistry ofFinance.
Ithasauthority overallregistered enterprises andentrepreneurs, while theMinistry ofFinance exercises authority
overgovernment credits, budgetary andsubsidized organizations, civic associations andother juridical persons
notengagedinentrepreneurialactivities,andpermanentresidentswhoseactivitiesinquestionarenotentrepreneurial
(Foreign Exchange Act,Article 6;andIMF 1994).
32TheNational Bank ofSlovakia Act,Section 7.
33IMF(1994); andCustoms Union oftheCzech Republic andtheSlovak Republic (1994).WT/TPR/S/7 Trade Policy Review Mechanism
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Slovakia, required apermit issued bytheNBStoaccept loans fromforeign exchange non-residents,
topurchase realestate abroad andtopurchase foreign securities. Trade credits could befreely obtained
byregistered enterprises. Slovakia intends tointroduce convertibility oftheKoruna forallexternal
current account transactions andaccept Article VIIIoftheInternational Monetary Fund witheffect
from 1October 1995.
33. Foreign exchange accounts bearing interest canbeopened forunlimited usebyindividuals
residing inSlovakia andthesource offunds insuchaccounts isnotsubject toinvestigation. Resident
enterprises normally must repatriate foreign exchange receipts andsellthem tocommercial banks;
withpermission oftheNBS, however, theymaymaintain foreign exchange accounts.
34. TherearenogeneralrestrictionsonequityparticipationinSlovakenterprisesbynon-residents;
however, some special restrictions apply (Chapter III(1)). Dividends, profits, capital gains andinterest
earnings maybefreely transferred abroad byforeign investors. Direct investment abroad issubject
toapproval bytheNBSandisnormally granted ifitisbelieved tofacilitate Slovak exports.
35. Theannual limit onforeign exchange fornatural persons -normally fortourist travel
abroad -stood attheequivalent ofSk$9,000 (about US$310) inearly 1995, butwasincreased intwo
steps toSk$30,000 inJuly1995 andSk60,000 inSeptember 1995. Non-resident workers wishing
torepatriate wages inkoruna require theauthorization oftheNBS. Inherited assets maybetransferred
abroad toanycountry where "such transfers arenotsubject toforeign exchange restrictions orare
subject tothecondition ofreciprocity".34
34Foreign Exchange Act,Article 31.