Slovakia 2016

Total score

66.95

Quick facts

Population:
  • 5.421 million
Unemployement rate:
  • 11.5 %
GDP:
  • 81.171 billion EMU
GDP growth rate:
  • 3.6 %
GDP per capita:
  • 14 970 EMU

Score and comments

Political Freedom
Free and Fair Elections

Citizens in Slovakia enjoy their right to elect government and other representatives at free and fair elections, based on equal suffrage. After a while, the year 2015 went by without any elections, except the referendum on same sex marriage which wasn’t successful. But there were some changes in the electoral process. Since July 2015 political parties are faced with a new regulation on campaign spending, fines for violation of the process and prohibition of any political activity for two days before the election. Parliamentary elections in Slovakia took place in March 2016. After single party governance from 2012 the ruling party Smer-SD didn’t manage to repeat the election result, but still has been a driving political force in the country. During the same month Robert Fico, Smer-SD

leader, formed the government with three other parties, serving his third term as prime minister.

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Absence of Unconstitutional Veto Players

There are no unconstitutional veto players in Slovakia. Tycoons and oligarchs do exist, but they don’t exercise veto power. System of checks and balances, however, was put in question prior to the 2016 parliamentary elections, because power was concentrated in the hands of the ruling Smer-SD party. During that time, judiciary operated cautiously and with limited efficiency. The law in Slovakia does provide criminal charges against corrupt officials, but its implementation isn’t as efficient as it should be. Major corruption scandal from 2011, the so called Gorilla case, when leaked material had implicated at big-business influence on politicians, has still not been resolved. Nevertheless, in 2015, for the first time it was confirmed that the tape was authentic.

Freedom of Press

Freedom of the press is granted by the constitution. Both traditional and online media outlets are free to operate without government interference, expressing diverse range of opinions. Recently, growing concentration of media ownership is seen as a potential threat to this freedom. Only several business oligarchs and companies control the majority of traditional media outlets. Defamation is punishable by the law, with huge fines. Charges were often brought against journalists by public officials, thus raising chances of increased self-censorship among the journalists.

Rule of Law
Independence of the Judiciary

Judiciary in Slovakia suffers from corruption (perceived by citizens as the most corrupt part of the public sector) and inefficiency (there is a huge backlog of cases). Cronyism and special interests have an effect on the selection of judges. Political pressure grows. As Freedom House noted, background eligibility tests including security checks of the candidates for judges carry huge potential of misuse for political influence onto them. Those were introduced in 2014. President appoints judges of the Constitutional Court and 3 out of 18 members of the Judicial Council. The Constitutional Court is seated in the eastern town Košice, far away from the country`s capital Bratislava.

Corruption

For years now Slovakia has been gradually improving its score and ranking in the Transparency International`s Corruption Perception Index. With the score 51, in 2015 it arrived to the place 50 (of 168), sharing it with Bahrain, Hungary and Croatia, whereby in 2014 and 2013 it took places 54 (of 175) and 61 (of 177) respectively. It is now a desirable destination for many investors, unlike the closed and utterly corrupt country one witnessed during mid-1990s, “the black hole of Europe” as described by the US Secretary of State. The progress in fighting corruption is largely due to liberalization and deregulation of the economy and to improvements in governance generally. However, many challenges lie ahead, e.g. diminishing the role of clientele networks in public procurement or other

business fields, or further curbing petty corruption. The latter is, according to Global Corruption Barometer 2013, especially persistent in judiciary, health care, police and among civil servants. As Freedom House noted, there still exist some obsolete laws from the communist Czechoslovakian era. They need smart and not hasty, single-case-motivated changes.

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Protection of Human Rights

Freedom of association, including for NGOs and trade unions, is well respected. There were improvements in the position of Romany, as compared to early 2000s and the-then cases of forced sterilization. In 2012, the first Romany was elected to Parliament, thus opening a new era of overcoming the widespread phobia and discrimination. Hungarian minority claims it is discriminated, especially regarding public use of language (stipulated by the law as of 2009), or redistricting of the country (thus affecting local governance). Equality between religions is proclaimed albeit, because of the 20.000 members` threshold, small religious communities (including Muslims) cannot properly register and enjoy tax benefits or government subsidies. There are prejudices against both Muslims and Jews.

Extremism and hate-speech affect refugees. Slovakia is among countries which refused inner-EU quotas for the settlement of refugees and asylum seekers. Same-sex marriages or adoptions are constitutionally banned, while partnerships are not regulated. Discrimination of LGBTs is stronger than in neighboring Austria, Hungary or Czechia.

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Economic Freedom
Security of Property Rights

Property rights are mostly respected in Slovakia. However, judicial independence and impartiality in dealing justice are questionable. It is possible for some judges to manipulate case assignment system. Court verdicts are often poorly written and justified. Judge selection system is plagued by nepotism, lowering general public trust in courts. There are no specific courts for commercial cases, but only general courts. Enforcement of contracts, with its slow and inefficient procedures, remains one of the most important problems in the judiciary. Changes in bankruptcy legislation, in effect since January 2015, improved creditors’ rights and simplified procedures. There are some restrictions for foreign ownership in certain industries - for example, in air transport, where foreign non-EU

equity is restricted to 49%. Expropriation of private ownership is possible, but only in public interest. It is seldom used. In such cases adequate compensation - in the form of the market value and foregone profits - is expected. A new law regulating this matter is to take place in the second half of 2016, since the previous one was considered unconstitutional. Since 2011, disclosure of all contracts made by public administration or by SOEs had been a pre-condition for them to become valid. That has considerably undermined corruptive practices.

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Size of Government: Expenditures, Taxes, and Enterprises

Government in Slovakia is not prevalent in economic activities. It is in line with many other European economies. Total government expenditures stood at 46.5% of GDP in 2015. Moderate public deficits, below 3%, stayed within the Maastricht criteria. Public debt is also moderate, reaching 52.9% of GDP in 2015. It is easily financed. However, this level is very close to the legal public debt brake and could prove to be hard to maintain in future without further reforms. Slovakia has been recently recording robust growth, spurred by rising investments due to higher EU fund absorption, FDIs and rising private demand due to decreased unemployment. However, increased government restrictions and meddling in the private pension funds and private healthcare is a worrisome sign, maybe anticipating

more alarming measures, such as those in the neighbouring Hungary. State-owned enterprises (SOE) are present in the economy and play a very important role in sectors considered to be national monopolies, most notably transport and energy. Privatization program was continued in 2015 with government minority stake in Slovak Telekom sold to its majority shareholder Deutsche Telekom. However, direct sale instead of an initial public offering on the stock exchange was heavily criticized, as a way of privatization that favoured the buyer. In early 2016, the government declared that privatization of SOEs of strategic importance will be stopped, but there are no specifications which companies would be affected. Management of SOEs is considered not as efficient as of their counterparts in the private sector. Taxes are moderate for European standards: corporate tax is set at 22%, and income tax is moderately progressive at 19% and 25%, upon a relatively high threshold.

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Regulation of Credit, Labour, and Business

Business regulation is mostly favourable to entrepreneurial activities. Starting a business is easy and inexpensive, but with a high rate of minimum paid-in capital. This procedure was recently improved by introducing court registration at the one stop shop. Obtaining a construction permit is a long process, but it incurs very few actual monetary costs, while getting electricity could be more expedient. Compliance with tax rules is burdensome, requiring long working hours. However, recent introduction of electronic filing for VAT is expected to alleviate some of the problems. Inefficient government bureaucracy, corruption and restrictive labour regulations are cited as the biggest obstacles to a better business regulatory environment. Labour regulation has lately been under revision.

Major changes were made in 2015, with last amendments put in force at the beginning of 2016. Changes from the previous year are concerning work through an employment agency, posing restrictions on some of the current practices. The latest changes put forward an indexation measure for the minimum wages, which now have to follow the level of wages in the economy. Although labor regulation is mostly flexible, there is still much rigidity. Fixed term contracts are restricted to the duration of only 24 months. Working hours are flexible, with the maximum number of work days a week being 6, but the total number of overtime hours is limited to 400 a year. Reassignment obligations in case of redundancy, as well as trade union notifications, pose obstacles in case of firing of redundancy workers. Notice periods, as well as severance pay, rise with the years in tenure, favouring more seasoned workers, but anyway they are not significantly long or high.

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Freedom to Trade Internationally

Freedom to trade is mostly respected in Slovakia. As for all small and open economies, international trade is very important, connecting Slovakia with the rest of the world via production specialization. Slovakia is the most open-to-trade country among the new post-2004 EU members, with the highest share of exports in its GDP. As an EU member state, Slovakia implements the EU common trade policy. Therefore, tariffs are low, with the average mean tariff rate of 5.3%. Tariffs are mostly focusing on the agricultural sector. However, non-trade barriers remain, such as in the field of necessary product certification and standardization. Geographical location of Slovakia is on several major trade routes, so it is an important transit country. Good quality of public transport infrastructure is

important to free trade, allowing for time- and cost-efficient transport. However, port facilities on the Danube and overall infrastructure in eastern parts of the country are not satisfactory. Obtaining residence and work permits, although with procedure similar to other EU countries, is often considered as burdensome and time consuming, but this does not apply to EU nationals.

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