Slovakia: Increasing Consolidation Fatigue Challenges Medium-term Fiscal Sustainability

The Slovak government recently approved a third fiscal consolidation package to be implemented in 2026 worth around EUR 2.7bn (2% of GDP). While the plan is ambitious, the task of bringing long-lasting benefits to the country’s public finances is complicated by the export-oriented economy’s vulnerability to higher US tariffs and the slowdown among its main European trading partners.

Scope Ratings (Scope) expects a material slowdown in GDP growth this and next year. The rating agency has revised down real GDP growth estimates for 2025 to 0.8%, from 1.5%, and to 1.2% in 2026 from 1.7%. Slovakia’s estimated economic growth this year will be well below that of some peers in central and eastern Europe, such as Poland (+3.1%), Slovenia (+1.8%) and Czech Republic (+2.3%).

As the fiscal consolidation package comprises a substantial number of revenue-raising measures, it is likely to prove a drag on economic growth, weighing on domestic private consumption, business activity and reducing the scale of potential benefits for growth in public revenues. Some measures are temporary, so additional fiscal consolidation will be necessary in coming years to safeguard fiscal sustainability.

The new fiscal consolidation package – approved by the government at end-September and recently signed by the president – could help the government to bring the budget deficit down to the 4.1% of GDP target next year from an estimated 5% of GDP in 2025. This follows two previous packages implemented in 2024 (EUR 1.9bn, 1.5% of GDP) and in 2025 (EUR 2.7bn, 1.9% of GDP) attempting to reverse the negative effects of previous fiscal loosening. Most of the measures planned for 2026 (EUR 1.4bn) aim at boosting revenues mainly through making personal income taxes more progressive and increasing health and social contributions, among other measures (Figure 1).

Figure 1. Slovakia’s fiscal targets compared with outcomes

% of GDP (targets for 2024-26; estimated outcomes for 2024-25)

Further Consolidation Efforts Will Be Necessary to Safeguard Fiscal Sustainability

In contrast, the government has yet to give details of EUR 1.3bn in planned expenditure cutbacks. A portion of these savings could include refunds of previous large-scale energy subsidies, amounting to EUR 435m, neutralising their previous adverse effects on the budget deficit.

The remaining expenditure savings will likely include cuts to public administration operating and personnel costs, and savings on local government spending. The government is likely to steer clear of major revisions of pensions and social transfers to avoid harming living standards of the most vulnerable households.

The scale of revenue-side consolidation measures will likely hamper an already slowing economy, with higher US tariffs holding back demand for Slovak goods exports, which could feed through to reduced tax receipts and higher welfare spending.

In addition, the temporary nature of some measures, such as a one-off cancellation of two public holidays, a temporary freeze on wages and a temporary suspension in the adjustment for inflation of the extra annual pension payment, could limit the durability of the fiscal adjustment. This would require additional austerity in forthcoming years to prevent wider budget deficits and an accelerating public debt trajectory.

In this context, the risk of a fiscal consolidation trap amid growing austerity fatigue is growing. Scope currently projects the public debt-to-GDP ratio of Slovakia to continue increasing gradually to around 69% by 2030, from 59.3% in 2024 (Figure 2).

Figure 2. Public debt-to–GDP to remain on a rising path in the medium term

% of GDP

NATO Commitments, Run-up to the 2027 Elections Could Complicate Government Debt Reduction

A slowdown in economic activity would also result in reduced contributions from growth to the reduction in government debt. Further strain on government spending could stem from pressures to increase military spending, for which new NATO targets have now defined at 3.5% of GDP by 2035, above Slovakia’s estimated 2% of GDP as of 2024. Moreover, potential attempts at additional fiscal consolidation could be particularly challenging going forward, especially by the 2027 election year.

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Alessandra Poli is an Analyst in Sovereign and Public Sector ratings at Scope Ratings.