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Bestpracticereportbutton Last Updated: April 2009
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Slovakia
Score Rank
Financial Standards Index 57.50 out of 100 19
Business Indicator Index 10.98 out of 12 12

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Overall Standards Summary

Slovakia achieves high overall compliance with international standards and codes, with a score of 57.5 out of 100 in our Standards Compliance Index. Slovakia's compliance in the area of macroeconomic fundamentals is high. However, its compliance in the market infrastructure is average. Banking supervision has significantly improved with the passage of the 2001 Banking Act and is broadly in line with international requirements. Motivated by its objective of adopting the Euro by 2009, Slovakia has also taken positive measures and passed enabling laws to strengthen its corporate governance, auditing, money laundering, payment systems, and securities regulatory frameworks. Its insurance supervisory regime is also assessed to be broadly in line with international standards. On the downside, Slovakia lacks independent assessments of its compliance with the Core Principles for Systemically Important Payment Systems.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
FC
Code of Good Practices on Transparency in Fiscal Policy
CP
Effective Insolvency and Creditor Rights Systems
ID
International Financial Reporting Standards
ID
Principles of Corporate Governance
EN
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
EN
Insurance Core Principles
CP
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

Slovakia has been a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) since September of 1996, and first posted metadata on the SDDS website in October of 1998. According to the IMF's SDDS website, Slovakia presently observes or exceeds all of the SDDS's standards for coverage, timeliness, and periodicity of data in the categories required. Slovakia does not avail itself of any flexibility options. It provides summary methodologies for all required datasets and disseminates advance release calendars for all those to which this requirement is applicable. Slovakia does not have specific laws governing the confidentiality of its fiscal data, and generally provides notice of methodological changes only after the changes are implemented. There is no information on the SDDS website regarding advance official access to data on the general government or public sector operations or central government debt. Legal protections of confidentiality appear to be lacking with regard to fiscal datasets.

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FCCode of Good Practices on Transparency in Monetary Policy

Slovakia adopted the euro in January 2009. Thus, its monetary policy is no longer governed by the National Bank of Slovakia, but by the European Central Bank's (ECB) Governing Council. Thus, Slovakia does not have direct responsibility for the handling of monetary policy, and its compliance with this standard is equivalent to the compliance rating accorded to the Euro-system as a whole. According to the IMF, the Euro-system is highly transparent, is strongly committed to openness, and is highly observant of the Code of Good Practices on Transparency in Monetary Policy. The IMF finds that the ECB is also committed to an active public communications policy. However, one area where transparency is at least partially compromised is in the inconsistency of disclosure practices across the individual national central banks of European Monetary Union member states.

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CPCode of Good Practices on Transparency in Fiscal Policy

In 2002, the IMF published a Report on the Observance of Standards and Codes (ROSC) in which it concluded that Slovakia was compliant with the IMF's standards for fiscal transparency in a number of areas. The report attributed this to the Slovak Republic's accession to the European Union in 2004, which inspired a rapid move to amend or introduce legislation that would bring the regulatory framework into line with international standards. By the time of the 2005 IMF ROSC update, significant progress toward international best practice had been achieved. The 2005 assessment found that Slovakia had addressed most of the Fund's earlier recommendations. Among the improvements cited were enhanced coverage of fiscal information, strengthened budgetary laws, and progress toward fiscal decentralization. Slovakia has subscribed to the IMF's Special Data Dissemination Standard (SDDS) since September of 1996. However, some shortcomings still exist and relate to audit requirements for public enterprises, state budget data, and the newly established extra-budgetary environmental fund. A working paper published by the Organization for Economic Cooperation and Development (OECD) in 2009 urged Slovakia to enact national legislation on spending limits in order to encourage better compliance with EU standards on budget spending, specifically the Stability and Growth Pact.

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Institutional and Market Infrastructure

IDEffective Insolvency and Creditor Rights Systems

In preparation for, and since actually acceding to the European Union (EU), Slovakia has undertaken significant reforms to its creditor rights and insolvency framework in order to bring it into line with EU requirements. In 2002, the World Bank found the creditor-rights framework to be "fragmented, inadequate, and inefficient," but a Commission was established to develop comprehensive reforms based on the World Bank Principles on Effective Insolvency and Creditor Rights Systems. A 2009 report by the European Bank for Reconstruction and Development (EBRD) noted that on January 1, 2006 the Act on Bankruptcy and Restructuring ("Insolvency Act") became effective, which completely reformed the bankruptcy system in Slovakia. Citing the findings of a 2006 EBRD assessment of the insolvency regime in Slovakia, the 2009 report pointed out that the Slovak Republic's insolvency laws are in medium compliance with international standards, although certain deficiencies remain. Specifically, protection of creditors in the reorganization process could be reinforced, and the creation of specialized bankruptcy courts instead of relying on the courts of general jurisdiction was recommended. Also, there is no automatic conversion to liquidation in the event of a failed reorganization, in addition to weak legal provisions concerning sanctions for breach of the terms of a reorganization plan. The EBRD noted that amendment of the Insolvency Act could improve compliance with international standards. At the time of the writing of the report, however, consideration of the bill to amend the Insolvency Act had been suspended.

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IDInternational Financial Reporting Standards

According to a 2008 European Commission (EC) publication on the implementation of International Financial Reporting Standards (IFRSs) in European Union (EU) member states, Slovak listed and unlisted companies are required to prepare their consolidated accounts in accordance with IFRSs. Slovakia thereby complies with EC Regulation No. 1606/2002, which requires all EU-listed companies to prepare consolidated accounts following IFRSs as endorsed by the EC, starting on January 1, 2005. Regarding the options provided for the extended use of IFRSs, IFRSs are required in the annual accounts of companies of public interest which include banks, insurance companies, stock exchanges, companies meeting the specified size criteria, and certain other entities. Other companies can choose to prepare financial statements in accordance with IFRSs or Slovak accounting principles. In a 2001 assessment of auditing and accounting practices in the Slovak Republic, the World Bank noted that there was a "large gap" between Slovak accounting standards and IFRSs and recommended full adoption of IFRSs. Based on the World Bank's recommendations, the Slovak authorities initiated an accounting and auditing reform program with the support of a grant from the Institutional Development Fund. The Slovak government set up the Project Implementation Unit in 2003 to strengthen the regulatory framework and the accountancy profession. As of 2008, a KPMG report noted that Slovak accounting principles were slowly converging with IFRSs; however, differences still existed.

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ENPrinciples of Corporate Governance

Preliminary results of a 2007 Corporate Governance Sector Assessment Project, conducted by the European Bank for Reconstruction and Development (EBRD), came to the conclusion that corporate governance legislation in Slovakia is in "high compliance" with the Organization for Economic Cooperation and Development's (OECD) Principles of Corporate Governance. This reflects progress from the 2003 assessment where Slovakia was evaluated as being in "medium compliance" with the OECD Principles. The World Bank, in its 2003 Report on the Observance of Standards and Codes, made recommendations in three broad categories: legislative reform, institutional strengthening, and voluntary/private initiatives. These issues have since been addressed to a certain extent. However, a 2009 EBRD country strategy report for Slovakia notes that minor shortcomings remain in relation to the "responsibilities of the board" and "rights of shareholders." Furthermore, related party transactions are not well detailed in the legislation, prosecutors lack experience in corporate law cases, and judges and lawyers have limited access to and use of case law. The Bratislava Stock Exchange issued a Code of Corporate Governance in September 2002 and updated it in 2008, which listed companies must adhere to on the "comply or explain" basis. In January 2006, the Financial Market Authority was integrated into the National Bank of Slovakia, which became the integrated financial supervision authority in Slovakia, under the 2004 Act on Supervision of the Financial Market.

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ENInternational Standards on Auditing

On May 17, 2006, Directive 2006/43/EC of the European Parliament and the Council came into force requiring all statutory audits of annual and consolidated accounts to be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission (EC). European Union member states were to adopt and publish the provisions necessary to comply with this directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. According to the information provided on the European Commission website, Slovakia has fully transposed the above-mentioned Directive into its national legislation. In a 2001 assessment of Slovak auditing and accounting practices, the World Bank pointed out the differences between Slovak requirements and ISAs and recommended wholesale adoption of the international standards. As indicated on the Ministry of Finance website, based on the World Bank recommendations, the Slovak authorities initiated a program for reform in the area of accounting and auditing with the support of a grant from the Institutional Development Fund. One of the purposes of the reform was to ensure that ISAs would be adopted, without modifications, as mandatory auditing standards. As stated in the Slovak Chamber of Auditors 2007 self-assessment and other publications on the issue, in line with the EC directive and the World Bank recommendations, effective December 31, 2004 Slovakia adopted ISAs as national standards for auditing.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

An assessment of Slovakia's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime was undertaken by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) and a report of its findings was published in 2006. According to this report Slovakia is only partially compliant with most of the Financial Action Task Force's (FATF) forty recommendations and nine special recommendations. The most significant shortcoming identified in the report is Slovakia's noncompliance with SR II, dealing with the criminalization of terrorist financing. However, a 2007 progress report submitted to MONEYVAL by the Slovak authorities indicates that they are addressing several of the shortcomings identified in the 2006 report regarding recommendations 1, 5, 10, 13, and special recommendations II and IV. According to the report, most of the insufficiencies identified in the 2006 MONEYVAL assessment will be eliminated once Slovakia has transposed the Third European Union (EU) AML/CFT Directive into its new AML/CFT Law. The Third EU Directive requires member countries to adopt the FATF's 40+9 recommendations. According to a 2009 report by the U.S. Department of State, amendments made in 2008 to Slovakia's AML Law defines, among other things, basic notions such as "terrorist financing." Furthermore, the FATF, in its 2007-2008 Annual Report names Slovakia as one of the jurisdictions that have undertaken to implement the FATF's 40+9 recommendations.

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IICore Principles for Systemically Important Payment Systems

On January 1, 2009, Slovakia adopted the euro and simultaneously became part of the Trans-European Automated Real-Time Gross Settlement Express Transfers (TARGET2). Until this transition, the systemically important payment system in the country was the Slovak Interbank Payment System (SIPS), which was also the country's real time gross settlement system. After joining TARGET2, SIPS began processing retail payments with final settlement in TARGET2-SK, Slovakia's TARGET2 component. TARGET2 provides harmonized payment services under a single shared platform across its member countries. However, there is no published report assessing TARGET2's compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS) except for a statement in a 2008 European Central Bank (ECB) report, in which the ECB indicates that the system is expected to fully observe all the CPSIPS. Despite the lack of information on TARGET2, it is generally believed that the system is an improvement over its predecessor, TARGET and its component systems. Prior to joining TARGET2, Slovakia's then systemically important payment system, SIPS, was identified by a 2002 International Monetary Fund (IMF) assessment as efficient and largely observant of the CPSIPS. However, this system through the years underwent several iterations, which resulted in significant changes to the composition and legal framework of the system. Subsequent to these changes and Slovakia's joining of TARGET2 there is no information publicly available regarding Slovakia's compliance with the CPSIPS.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

The IMF's Financial System Stability Assessment (FSSA), published in 2002, indicated that financial sector supervision was weak in Slovakia, and that the country was either not observing or only partially observing most of the Basel Core Principles (BCPs) for Effective Banking Supervision. In July 2007, the IMF conducted an update of its FSSA, and concluded that Slovakia either complied or largely complied with the BCPs. The 2007 IMF Update was conducted based on the revised (2006) BCPs and its accompanying methodology. Accordingly, Slovakia shows a high level of observance with the new BCPs as well, and is found lacking in only four principles, namely capital adequacy, problem assets, provisions and reserves, interest rate risk in the banking book, and internal control and audit. Per the same report, the regulatory framework has improved significantly since the 2002 IMF assessment, as a result of the authorities drive to address shortcomings and comply with European Union (EU) directives. Regarding the implementation of the Basel II framework, the Slovak authorities were preparing extensive amendments to the Act on Banks in order to transpose the EU Capital Requirements Directives No. 2006/48/EC and No. 2006/49/EC into Slovak law, as reported in the 2006 study by Lubor Malina. The National Bank of Slovakia acts as Slovakia's financial market supervisory authority.

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ENObjectives and Principles of Securities Regulation

The overall financial sector in Slovakia is growing rapidly, and financial intermediation is approaching developed countries' depth, according to the IMF's 2007 FSSA Update. The financial system has also become more diversified, and total assets have expanded. Still, despite improvements in recent years, domestic securities markets in Slovakia are limited and illiquid finds the IMF and the U.S. Department of Commerce. On the regulatory side, the IMF Update concludes that Slovakia has achieved significant progress in improving its supervisory framework, and that most of the recommendations from the initial IMF assessment published in 2002 have been addressed. Confirming these findings, the European Bank for Reconstruction and Development's (EBRD) 2007 Securities Markets Legislation Assessment finds Slovak legislation to be in "high compliance" with the International Organization of Securities Commissions' Objectives and Principles of Securities Regulation, as reported in the EBRD's 2009 Strategy for Slovakia report. The IMF expects that Slovakia's integrated financial market supervisory authority--the National Bank of Slovakia (NBS)--will lead to improvements in the areas which have experienced comparatively less progress. The former securities regulator, the Financial Market Authority, was integrated into the NBS in January 2006.

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CPInsurance Core Principles

The IMF published a FSSA in 2002, which evaluated insurance supervision in Slovakia based on the Insurance Core Principles (ICPs) issued by the International Association of Insurance Supervisors (IAIS) in October 2000. The report found weaknesses in the regulatory and supervisory framework in Slovakia, including a lack of human resources, inadequate corporate governance and internal controls requirements, absence of legislative base for consumer protection, and others. The IMF report made several recommendations, and Slovak authorities responded that the adoption of the 2002 Insurance Act, which was scheduled to become effective in March 2002, would address deficiencies and improve compliance with the 2000 ICPs. According to the IMF's 2007 FSSA Update, which used the ICPs and Methodology revised by the IAIS in October 2003, insurance supervision in Slovakia has shown a substantial improvement, and is broadly compliant with the 2003 ICPs. Most of the IMF recommendations have been implemented through the transposition of European Union directives, and stronger collaboration with foreign supervisory authorities. The IMF notes that shortcomings remain in the level of technical provisions and insurance fraud. Internal and external auditors, as well as actuaries, also continued to play a limited role in the supervisory framework. The Slovak authorities concurred with the IMF findings and, at the time of the writing of the IMF report, were in the process of amending the Insurance Act in order to incorporate the recommendations. The new Act on Insurance and on Amendments to Certain Acts. No. 8/2008 was adopted in 2007.

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Business Indicators

With an overall score of 10.98/12, Slovakia is at standard on the economic, legal, and political indicators that make up our Business Index. Slovakia joined the EU in 2004 and has made a successful completed its transition to a market based economy. Government spending equaled 37.7 percent of GDP in 2008. However, the state's role in the economy has been reduced. Slovakia does not impose screening processes on foreign investment, but there are ownership requirements in some sectors. A new program was approved in 2005 to provide incentives to foreign investors based on the geographic location, sector, size, and employment benefits of the investment. The rules governing incentives are judged to be transparent. Slovakia has one of the most advantageous tax environments for corporations among all OECD member countries, according to the U.S. Department of Commerce. Property rights are considered sound and enforced. While its 52nd rank out of 180 countries in Transparency International's 2008 Corruption Perception Index is not overly worrisome, it still suggests a significant degree of corruption.

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Global Indices & Quick Facts

Slovakia is ranked from the 1st to the 2nd quintile in the global indices benchmarking political, economic, business, and human capital climates, as shown below. Slovakia is categorized as a country with a consolidated market-based democracy by the Bertelsmann Transformation Index. Although average tariff rates are low and foreign investment is actively promoted, the Heritage Foundation Index discloses that total government spending equals almost two-fifths of GDP. Furthermore, an inefficient bureaucracy and inadequate infrastructure remain the most problematic factors for doing business, as highlighted by the Global Competitiveness Index. The high perceived level of corruption, reflected in its relatively low score in Transparency International's Corruption Perceptions Index is noteworthy.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 6/128 9.14/10 1
Heritage Foundation Economic Freedom Index 2010 35/179 69.7% 1
Economic Freedom of the World Index 2009 26/141 7.52/10 1
World Economic Forum Global Competitiveness Index 2009 47/133 4.31/7 2
Milken Institute Capital Access Index 2009 40/122 5.53/10 2
World Bank Ease of Doing Business Index 2009 42/183 N/A 2
UNDP Human Development Index 2009 42/177 0.88/1 2
Transparency International Corruption Perceptions Index 2009 56/180 4.5/12 2
Freedom House Index 2009 Free 1/7

Credit Ratings

A+/Stable Fitch

A1/Stable Moody's

A+/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 88.3 billion USD (IMF)

2009 GDP (Per Capita): 16,315 USD (IMF)

2010 GDP (Growth Forecast): 3.7% (IMF)


2009 Inflation (CPI): 1.5% (IMF)

2008 Unemployment: 7.7% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 3.4 billion USD (UNCTAD)

FDI (Outward): 0.30 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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