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2011 Index of Economic Freedom

2011 Index of Economic Freedom

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Source: http://www.heritage.org/Index/
Source: http://www.heritage.org/Index/

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Published by: jdfogg on Apr 08, 2011
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World Rank: 37

Regional Rank: 20

Slovakia’s economic freedom score is 69.5, making its
economy the 37th freest in the 2011 Index. Its score has
decreased by 0.2 point from last year, mainly as a result of
declines in freedom from corruption and property rights.
Slovakia is ranked 20th out of 43 countries in the Europe
region, and its overall score is higher than the world average.

With sound economic fundamentals firmly established,
Slovakia has rebounded relatively quickly from the global
economic slowdown. The prudent regulatory framework
for the financial sector, combined with competitive tax
rates, has fueled Slovakia’s transition into a flexible and
vibrant economy with a considerable degree of resilience.
The country’s openness to foreign trade and investment has
positioned it as one of the most popular destinations for
foreign direct investment in Europe. Well-established prop-
erty rights and monetary stability have also contributed to
Slovakia’s economic vigor.

Although the regulatory environment is generally consis-
tent with a market economy, corruption and red tape slow
entrepreneurial dynamism. Regaining fiscal discipline in
light of recent large fiscal deficits also poses a significant
challenge.

BACKGROUND: Slovakia became independent following its
“velvet divorce” from the former Czechoslovakia in 1993.
The reforms implemented by former Prime Minister Mikulas
Dzurinda in the 1990s resulted in low labor costs, low taxes,
and political stability, making Slovakia one of Europe’s most
attractive economies, especially for automobile manufac-
turing. However, the pace of reform slowed significantly
following the election of Robert Fico as prime minister in
2006. Though Fico’s party won a plurality of seats in the
2010 parliamentary elections, a coalition of several smaller
parties installed Iveta Radicova as prime minister. Slovakia
became a member of the European Union and NATO in 2004
and adopted the euro as its national currency in 2009.

Quick Facts

Population: 5.4 million
GDP (PPP): $115.1 billion
–4.7% growth in 2009
5.0% 5-year compound annual growth
$21,245 per capita
Unemployment: 12%
Inflation (CPI): 0.9%
FDI Inflow: –$50 million

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most
free free

50
25 75

0 100

69.5

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

40

50

60

70

80

0

20

40

60

80

100

69.5

Country

59.7

World
average

66.8

Regional
average

84.1

Free
economies

368

2011 Index of Economic Freedom

SLOVAKIA (continued)

THE TEN ECONOMIC FREEDOMS

Business Freedom

No. 55

Trade Freedom

No. 12

Fiscal Freedom

No. 44
Government Spending No. 108
Monetary Freedom

No. 24

Investment Freedom

No. 26

Financial Freedom

No. 17

Property Rights

No. 52
Freedom from Corruption No. 55
Labor Freedom

No. 78

COUNTRY’S WORLD RANKINGS

BUSINESS FREEDOM: 73.4

+ 0.8

The efficiency of the regulatory system has been
improved. The process for launching a private enterprise
is more streamlined, and licensing requirements are less
burdensome.

TRADE FREEDOM: 87.6

+ 0.1

Slovakia’s trade policy is the same as that of other mem-
bers of the European Union. The common EU weighted
average tariff rate was 1.2 percent in 2009. However, the EU
has high or escalating tariffs for agricultural and manufac-
turing products, and its MFN tariff code is complex. Non-
tariff barriers reflected in EU and Slovak policy include
agricultural and manufacturing subsidies, quotas, import
restrictions and bans for some goods and services, market
access restrictions in some services sectors, non-transpar-
ent and restrictive regulations and standards, and incon-
sistent regulatory and customs administration among EU
members. Ten points were deducted from Slovakia’s trade
freedom score to account for non-tariff barriers.

FISCAL FREEDOM: 84.2

+ 0.2

Slovakia’s tax rates are relatively low. Both the income and
corporate tax rates are a flat 19 percent. Other taxes include
a value-added tax (VAT) and a property tax. In the most
recent year, overall tax revenue as a percentage of GDP
was 29.3 percent.

GOVERNMENT SPENDING: 63.7

0.8

In the most recent year, total government expenditures,
including consumption and transfer payments, held steady
at 34.8 percent of GDP, though this did not reflect growing
crisis-related spending.

MONETARY FREEDOM: 81.6

+ 3.4

Inflation has been low, averaging 1.7 percent between 2007
and 2009. As a participant in the EU’s Common Agricul-
tural Policy, the government subsidizes agricultural pro-
duction, distorting the prices of agricultural products. It
also influences prices through regulations and state-owned
enterprises and utilities. Ten points were deducted from
Slovakia’s monetary freedom score to account for mea-
sures that distort domestic prices.

INVESTMENT FREEDOM: 75

+ 5.0

Foreign and domestic investments are treated equally
under the law. Foreign investment is not screened, and
full foreign ownership is permitted in most sectors. The
state owns railroad rights-of-way, postal services, water
supplies, and forestry companies. Reforms have improved
the transparency of investment rules, but bureaucratic effi-
ciency could be improved. Dispute resolution through the
judicial system can be slow, and corruption is a problem.
Residents may establish foreign exchange accounts. There
are very few controls on capital transactions. Non-residents
from EU and Organisation for Economic Co-operation and

Development member countries may purchase land for
business use.

FINANCIAL FREEDOM: 70

no change

Most state-owned banks have been sold, and the pres-
ence of foreign banks is strong, with three foreign banks
accounting for about 60 percent of total assets. Non-per-
forming loans have declined to less than 5 percent of total
loans. All financial service operations are regulated by
the central bank. Interest rates have been liberalized, and
credit limits have been abolished. The financial sector has
become increasingly diversified as insurance and securi-
ties companies have grown. Capital markets remain rela-
tively small and underdeveloped. With little exposure to
the structured financial products that triggered the global
financial turmoil, banking remains stable and well capital-
ized. Adoption of the euro proceeded smoothly in January
2009.

PROPERTY RIGHTS: 50

5.0

The judiciary is independent and comparatively effec-
tive, although decisions can take years and corruption
remains significant. The courts recognize and enforce
foreign judgments, subject to the same delays. Secured
interests in property and contractual rights are recognized
and enforced. The mortgage market is growing, and the
recording system is reliable. Intellectual property rights
are protected under Slovak law and in practice except for
inadequate storage of proprietary data and improper regis-
tration of companies to produce generic drugs that are still
under patent protection.

FREEDOM FROM CORRUPTION: 45

5.0

Corruption is perceived as significant. Slovakia ranks 56th
out of 180 countries in Transparency International’s Cor-
ruption Perceptions Index for 2009, a drop from 2008. Leg-
islative and executive branch corruption especially affects
health care, the judiciary, and education. A special court
for corruption and organized crime that was established in
2003 was abolished in 2009, and a new Specialized Court,
with more limited powers, was established. Slovakia is a
signatory to the OECD Convention on Combating Bribery,
and it is a criminal act to give or accept a bribe.

LABOR FREEDOM: 64.5

0.6

Slovakia’s labor regulations are relatively flexible. The non-
salary cost of employing a worker is moderate, and the
severance payment system is not burdensome. Regulations
on work hours remain relatively rigid.

369

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.

2009 data unless otherwise noted.
Data compiled as of September 2010.

Ljubljana

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