Slovak Republic

Investor Presentation

May 2009Slovak Republic

2

Slovakia – fully integrated EU member

Strong economic and fiscal performance

Debt management and funding strategy

Outline

3

Slovakia joined smoothly the eurozone on January 1, 2009

Slovakia is quickly catching up on the eurozone (GDP growth

10,4% in 2007 and 6.4% in 2008). The IMF forecasts for GDP

growth is -2.1% in 2009 vs. -4,2% for eurozone

Slovakia had a relatively low deficit (2.2% of GDP) and debt

(27.6% of GDP) level in 2008. Despite the impact of financial

crisis, the principal aim is to continue again with fiscal

consolidation from 2010.

Excellent business environment

Healthy banking sector

Key considerations

4

Strong Ratings Moody‘s: A1stable outlook Fitch: A+stable outlook S&P: A+ stable outlook

International Euro zone member (2009) Integration EU member (2004) OECD member (2000)

High GDP Growth 6.4 % in 2008, vs 0.8% forEuro zone, one of the

highest in the World

Low Debt Levels General government debt reached 27.6% of GDP (2008), compares favourably with peers (Euro area debt reached 69.3 % of GDP in 2008)

Key Credit Highlights

5

Pension reform:

Radical reform of 1st pillar (pay-as-you-go pillar) in 2004

Introduction of a strong 2nd pillar (private pension accounts invested in capital markets) in 2005 – contribution rates on pension insurance divided equally between the 1st and 2nd pillar (9% each)

Improving the regulatory environment for efficient functioning of the 3rd pillar

Introduction of the 2nd pillar – in the short-to-medium run lower revenues of the general government (GG), in the long-run lower GG expenditures on pensions

Key fiscal medium-term goal – to reach a balanced GG budget

Long–term public finance sustainability

2005 2006 2007 2008 2009B 2010B 2011B 2012B

Impact of 2nd pillar on GG balance 0.8 1.2 1.3 1.3 1.1 1.1 1.1 1.2

Introduction of the 2nd (fully-funded) pillar of pension scheme (ESA95, in % of GDP)

Note: B - budget

6

Radical simplification of the tax system from 2004

elimination of virtually all exceptions, exemptions, deductions, special rates, and special regimes

elimination of dividend, inheritance, gift taxes, and real estate transfer tax

Introduction of low nominal rates

19% flat individual income tax

19% corporate tax

19% unified VAT on all goods and services (since 2007 VAT rate 10% applied on medicine and medical tools and since 2008 on books)

Shift from direct to indirect taxes

Slovakia has the lowest tax quota II in EU, in 2007 it reached 29.7% of GDP

Flat Rate Tax

7

Top statutory tax rates on corporate income in V4 (2008): 18.6% in HU, 19% in SK and PL, and 21% in CZ

In Slovakia, since 2004, dividends are exempt from taxation

Effective Corporate Tax Rate in Slovakia (%)

Taxation of corporate income

Source: Ministry of Finance

19,0%19,0%19,0%19,0%19,0%

36,3%36,3%

49,0% 49,0% 49,0% 49,0%

39,7% 39,7%

49,0%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Effective corporate tax rate = statutory corporate tax rate x dividend tax rate

8

57

60

63

66

69

SK CZ HU PL

2002

2008

Index of Economic Freedom measures the economic freedom of 183 countries in the world. Slovakia scored much better than all other Central European countries both in 2002 and 2008.

Doing Business Index prepared by the World Bank provides an objective measure of business regulations and their enforcement across more than 180 economies. Slovakia achieved the 36th, best among the Visegrad countries

Doing Business Index (ranking, 2009)

Index of Economic Freedom (score, max. 100)

Business environment improvement

Source: World Bank

Source: The Heritage Foundation

36 41

75 76

1

21

41

61

81

SK HU CZ PL

9

Slovakia has the highest rating of the V4 countries

Radical rating improvement since 2000 (from BB+ in 2000 to A+ in 2009)

Slovak government has the highest credibility confirmed by the independent, unbiased subject

S&P Rating Slovakia

S&P rating in countries V4

Radical rating improvement

4,05,06,07,08,09,0

10,011,012,013,0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

BB+

BBB-

BBB

BBB+A-

A

A+

BB

A+

4,0

6,0

8,0

10,0

12,0

14,0

SK CZ PL HU

BB+

BBB-

BBB

BBB+

A-

A

A+A+

AA-

BBB-

10

Building the knowledge economy

Conditions for strong growth are in place after recovery of the world economy

Slovakia is highly attractive for export oriented production

Focus on the knowledge economy through the national Lisbon strategy

highly focused on priorities most relevant for Slovakia strong Government commitment:

Modernization Programme Slovakia 21 (June 2008) National Reform Programme for 2008 – 2010 (October 2008)

Reforms of the knowledge infrastructure

reforms of the education system and R&D infrastructure

major investments from national and EU funds

11

Five priority areas for the coming years

R&D and innovations support of high quality research, R&D and business innovations

Education modern education, training, and student mobility

Employment inclusion of the long term unemployed into the labour market, improved

quality of human capital

Business environment less and better regulation, e-government, and wider internet access

Climate Change and Energy Industry low-carbon and energy efficient economy

12




Outline

13

Excellent macroeconomic development

(growth in %) 2002 2003 2004 2005 2006 2007 2008

Real GDP 4,8 4,7 5,2 6,5 8,5 10,4 6,4

Real wages 5,8 -2,0 2,5 6,3 3,3 4,3 3,5

Employment (LFS) 0,2 1,8 0,3 2,1 3,8 2,4 3,2

Unemployment rate (LFS)

18,5 17,4 18,1 16,2 13,3 11,1 9,6

Inflation (annual average)

3,3 8,5 7,5 2,7 4,5 1,9 4,6

Current account balance (% of GDP)

-7,9 -5,9 -7,8 -8,5 -7,5 -5,3 -6,1

14

Real convergence

Increase in GDP per capita from 41,1% of EU15 average in 1995 to 64,1% in 2008

The fastest rate of convergence among the V4 countries

Since 2007 second among the V4 countries

Source: Eurostat

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Czech Rep. Hungary Poland Slovakia

GDP per capita in PPS in V4 countries (EU15=100)

15

Second highest growth in Europe

Top performer in the OECD

Sustained robust growth

Driven by both domestic and external demand

Stimulated by significant FDI

Economic growth expected to accelerate again after crisis

Slovakia Real GDP Growth

2008 Real GDP Growth, Peer Comparison

0%

1%

2%

3%

4%

5%

6%

7%

Portugal Eurozone Czech Slovakia

Economic growth still at the strong rates

Source: Ministry of Finance, NBS, European Commission

0%

2%

4%

6%

8%

10%

12%

2001 2002 2003 2004 2005 2006 2007 2008

16

0

5000

10000

15000

20000

25000

30000

2001 2002 2003 2004 2005 2006 2007 2008

Total FDI Stock (US$ million) FDI Stock by Country of Origin, 2007

Strong FDI inflows

Source: Ministry of Finance, NBS

Netherland, 28.90%

Hungary, 6.60%

Czech republic, 5.30%

Cyprus, 3.10%

Germany, 16.30%

Others, 7.6%USA, 2.10%Luxembourg,

2.30%

Korea, 2.80%

Italy, 8.50%

Austria, 16.00%

17

Exports of cars and durable consumer goods continued in the increasing trend in 2008

The current account deficit worsened to 6.1% in 2008 compared to 5.3% in 2007 due to slowdown of main trading partners

In 2008, EU countries represented 85,2% of total exports and 67,1% of total imports of goods

Slovakia Balance of Payments Components

Dynamics of the Current Account Deficit as % of GDP

0

1000

2000

3000

4000

5000

6000

7000

2001 2002 2003 2004 2005 2006 2007 2008

Current account deficit FDI

Trend in the current account

* ForecastsSource: Ministry of Finance, NBS, European Commission

-6,1%-5,3%

-7,5%-8.5%-9,0%

-8,0%

-7,0%

-6,0%

-5,0%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

2005

2006

2007

2008

18

Strong employment growth as the main factor behind declining unemployment

Employment grew at 2.4% in 2007 and 3.2% in 2008

In the European Union, Slovakia compares very favourably in the reduction of unemployment

Good prospects to recover employment due to relatively flexible labour market and low wage costs

Development of the Unemployment Rate, Peer Comparison

Slovak Unemployment Rate

2002 2008 Change in p.p.

Slovakia 18.7% 9.5% -9.1

Czech 7.3% 4.4% -2.9

Greece 10% 7.7% -2.3

Portugal 5.1% 7.7% +2.6

Eurozone 8.3% 7.5% -0.8

8%

10%

12%

14%

16%

18%

20%

2001 2002 2003 2004 2005 2006 2007 2008

Unemployment continued to decrease in 2008

Source: Eurostat

Source: Eurostat

19

0

5

10

15

20

25

30

35

40

SI

PL

CZ

SK FI

SE LT HU

AT IE NL

BE

DK

CY DE

FR EE

GR

LU LV BG UK

RO IT ES PT

MT

In Slovakia 91.3% of the population aged 20 to 24 have completed at least upper secondary education

An upper secondary school education is generally considered the minimum for taking part in a knowledge-based society, either for entering the labour market or higher education.

Only 7.2% of the population aged 18-24 have completed lower secondary education and are not continuing with further education or training

Early school leavers (%, 2007)

Youth education attainment level (%, 2007)

Secondary school education is widespread

Source: World Bank

Source: The Heritage Foundation

40

50

60

70

80

90

100

CZ PL SI

SK LT SE IE FI

CY

AT

HU

BG BE

FR

GR EE

LV UK

RO IT NL

DE

LU DK

ES

MT

PT

20

0

50 000

100 000

150 000

200 000

250 00019

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

07

0%

10%

20%

30%

40%

50%number of tertiary students (left axis)share of tertiary graduates (right axis)

The number of students in tertiary education in Slovakia has significantly increased in the last decade

Tertiaty graduates (%, 2006)

Number and share of tertiary students in Slovakia

Rising number of tertiary graduates

Source: OECD

Source: Ministry of Finance Tertiaty graduates in engineering, manufacturing and construction (%, 2006)

Source: OECD

20

25

30

35

40

45

50

PL SK CZ HU

0

5

10

15

20

CZ SK PL HU

21

8,2%

2,3% 2,8%

3,5%

1,9% 2,2%

2,7%

0,0%

1,0%

2,0%

3,0%

4,0%5,0%

6,0%

7,0%

8,0%

9,0%

2002 2003 2004 2005 2006 2007 2008

Reductions in GG deficit with the aim to meet the Maastricht fiscal criterion in 2007 and creating conditions for long-term fiscal sustainability

General government deficit of Slovakia reached 2.2% of GDP in 2008 (net of the pension reform costs it would be 0.9% of GDP)

Slovakia General Government Deficit (% of GDP) 2008 General Gov. Deficit (% of GDP), Peer Comparison

2,2%1,5%

3,4%3,9%

0,0%

0,5%1,0%

1,5%

2,0%2,5%

3,0%

3,5%4,0%

4,5%

Slovakia Czech Rep. Hungary Poland

General government deficit

Source: Eurostat

22

Significant reduction of debt – consolidation, privatisation proceeds, establishment of State Treasury System (centralisation of funds and debt and liquidity managment

Lowest general government debt among V4 countries

Slovakia General Government Debt (% of GDP) 2008 General Gov. Debt (% of GDP), Peer Comparison

Gross general government debt

Source: Eurostat

43,4% 41,4%

34,2%30,4% 29,4% 27,6%

42,4%

0,0%5,0%

10,0%15,0%20,0%25,0%30,0%35,0%40,0%45,0%50,0%

2002 2003 2004 2005 2006 2007 2008

27,6% 29,8%

73,0%

47,1%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%


23

Significant decrease in tax burden between 1995 and 2007 by 10.7 p.p. (highest in the EU27)

Shift from direct taxes towards indirect taxes

Lowest tax burden in V4 and in the whole EU27

Tax quota II in Slovakia (% of GDP) 2008 Tax quota II (% of GDP), Peer Comparison

Tax quota II

Source: Eurostat

39,5%

33,2%34,2%35,5%36,8%

37,4%40,4%

29,7%29,6%31,6%31,8%33,2%

33,3%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

45,0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Indirect taxes Direct taxes SC Other

29,7%36,9% 39,9%

34,6%

0,0%

5,0%10,0%

15,0%

20,0%25,0%

30,0%

35,0%40,0%

45,0%


24

Fiscal consolidation after 2002 – driven by decrease in expenditures

Key sources: interest payments, state benefits and social assistance

Lowest redistribution among V4 countries

Slovakia General Government Expenditures (% of GDP)

2008 GG Expenditures (% of GDP), Peer Comparison

General government expenditures

Source: Eurostat

34,9%34,4%

36,9%38,2%

37,6%40,1%

45,0%48,6%49,0%

45,8%47,8%

50,9%

44,5%

53,7%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

34,9%42,4%

49,8%43,1%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%


25




Outline

26

Active debt and liquidity management

• Debt and liquidity management strategy

refinancing risk (average maturity)

refixing risk (average duration)

• Three pillars system:

domestic capital market (primary dealership)

international capital market (syndicate)

State Treasury

• Instruments Market Non-market

T-Bonds (domestic and international) State Treasurysources

Bank Loans

T-Bills

MM operations

27

Government debt

• General government debt EUR 21.5 bln.

of which EUR 4 bln. is State Treasury resources

of which EUR 16.5 bln. is tradable debt

• Average annual financing needs lower than EUR 4 bln. debt roll-over lower than EUR 3 bln.

budget deficit usually up to EUR 1 bln.

28

Debt redemption profile

Debt currency composition 99,54 % EUR 0,46%JPY

Bond portfolio

Favourable government debt portfolio

Debt profile of the Slovak Republic (domestic and international debt)

Source: ARDAL

bn €

Fix 90,8% Float 9,2 %

Source: ARDAL

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2 00

9

2 01

0

2 01

1

2 01

2

2 01

3

2 01

4

2 01

5

2 01

6

2 01

7

2 01

8

2 01

9

2 02

0

2 02

1

2 02

2

2 02

3

2 02

4

2 02

5

2 02

6

9.2%

90.8%

29

International issuance

• Annual issue of syndicated Slovak bond (benchmark size and

maturity)

• Newly issued bonds to trade on major international trading

platforms

Euro MTS, TradeWeb, Bondvision, Bloomberg

Bigger size (minimum € 1 bn) of new issues to ensure

liquidity

• Broaden investor base to increase integration of Slovakia’s

sovereign debt in the Euro area

30

Main terms and conditions

Issuer Slovak Republic

Rating A+/A1/A+

Rating Outlook Stable (Moody’s, S&P, Fitch)

Currency EUR

Amount Benchmark size

Coupon Format Fixed Rate

Issuance Format EMTN Programme

EMTN Programme Size

EUR 2 bn

Issue date May 2009

Maturity 5 yr

Listing London Stock Exchange

Governing Law English Law

Joint-Bookrunners HSBC, SG

31

Debt and Liquidity Management Agency - ARDAL

Radlinskeho 32

813 19 Bratislava

Slovak Republic

Telephone +421 2 5726 2513

Fax +421 2 5245 0381

e-mail: [email protected]

web: www.ardal.sk

Reuters code and pages: DLMA

Additional details

32

• Ministry of Finance: www.finance.gov.sk

• All available data on state debt on the website: www.ardal.sk

• Statistical Office of the Slovak Republic: www.statistics.sk

• National bank of Slovakia: www.nbs.sk

• State Treasury: www.treasury.sk

Additional details

Slovak Republic

Documents

Transcript of Slovak Republic