In this guide to Slovakia’s National Debt, we discuss the amount of the debt, who manages it, the country’s credit rating, and how it raises loans.
The National Debt of Slovakia
The Slovak Republic, also known as Slovakia, is a member of the EU and so it records its national accounts following standards laid down in the Maastricht Treaty. The national debt is logged as the debt accumulated by all levels of government.
- The debts of the private sector are not counted as part of the official national debt.
- Not all public sector debts are included.
The rules on Slovakia’s declared national debt specifically refer to those debts created by formal debt agreements. That means debts are created through bank loans and raised through the sale of government securities.
How Are Slovakia’s Debt Figures Compiled?
There are some gray areas when calculating Slovakia’s national debt.
For example:
- The debts of state-owned enterprises are treated as part of the private sector and not included.
- Certain government agencies, such as infrastructure development corporations, could be counted as public works departments with their debts counted as part of government debt. Or they could be treated as state-owned enterprises with their accounts treated as part of the private sector.
- The guarantees given by the Slovak government to underwrite loans taken by enterprises and institutions is another area that is not treated consistently when compiling national debt figures. Some economic organizations count these guarantees as part of the national debt, while others do not.
Differing Rules: IMF, Eurostat, and OECD
The different rules applied to government guarantees goes a long way to explain where there are several different figures for the national debt of the Slovak Republic.
The International Monetary Fund (IMF), Eurostat, and the Organization for Economic Cooperation and Development (OECD) each produce different national debt figures for Slovakia:
| IMF | Eurostat | OECD |
|---|---|---|
| 61.79% | 48.5% | 63.4% |
The IMF doesn’t include government loan guarantees in its national debt calculations, whereas the OECD does.
The accounting rules followed by Eurostat are the same as those used by the Slovak government itself. These rules include government guaranteed to EU bodies, such as the European Investment Bank and the European Financial Stability Fund.
However, Eurostat does not include the value of loans underwritten by the government to businesses and institutions within the Slovak Republic.
How Is the Slovak National Debt Valued?
Another major reason why the IMF, the OECD, and Eurostat come up with different figures for the Slovak national debt is that they use different valuation methods.
The different methods of valuing the debt work on assumptions of how much it would cost for the government to pay off the debt in the year of the assessment of national debt instead of letting those debt instruments run to maturity.
There is no dispute about the value of bank loans but bills and bonds that the government issues to raise money can be valued in three different ways:
- Face value
- Nominal value
- Market value
Face Value
The face value of bonds is the amount that they were issued for. In the case of fixed-value bonds, this is also the amount that the government will have to pay back on the maturity date.
Nominal Value
The nominal value of Slovakia’s bonds is important because this is the value that the government of the country uses when compiling its national debt figure. This is also the method that Eurostat uses.
Index-Linked Bonds
Index-linked bonds increase in value each year in line with a given index. In each year up to its maturity, the amount that the government is liable to pay gets a little higher than the face value. This is the nominal value.
Slovakia doesn’t issue index-linked bonds, so the nominal value of the country’s bonds is the same as their face value.
Foreign Currency Bonds
The government of Slovakia issues bonds in foreign currency, so the nominal value in these cases are the original face value of the bond converted into the Slovak currency, which is the Euro.
Market Value
As soon as bonds get released onto the secondary market, their values change because investors are often willing to pay more than the face value of bonds issued by some countries. This is the market value and it’s used by the IMF and the OECD use when valuing the national debt.
These institutes argue that if the country intended to pay off its debt today, the government would have to buy back its bonds on the market, rather than just canceling them.
Where Did Slovakia’s National Debt Come From?
The global financial crisis of 2008 caused international investors and lenders to retrench and foreign investment in Slovakia dried up, causing the country’s GDP to fall for the first time since its independence.
After only one year of recession, the country returned to growth. However, subsequent years have seen growth rates more like those seen in mature economies.
Joining the European Union
Slovakia joined the EU in 2004 and its previous policy of running large budget deficits broke EU rules, which stipulate that deficits should not exceed 3% of GDP.
A second EU debt rule is that the national debt should not exceed 60% of GDP. Between 2008 and 2013, the Slovak government almost doubled the national debt.
However, at its peak level of national debt, Slovakia stayed within the guidelines laid down by the Maastricht Treaty, which is a target that many EU governments have failed to achieve.
Who Manages Slovakia’s National Debt?
The Slovak government’s Ministry of Finance is responsible for managing the national budget. This annual budget expands the national debt by including deficits.
The ultimate authority on the assumption of debt is the nation’s parliament. The government has to seek approval for its annual budget and other economic policies.
Debt and Liquidity Management Agency (ARDAL)
The division of the Ministry of Finance that monitors the national debt is called the State Treasury.
However, most of the government’s debt management functions are implemented by a separate agency, called the Agentúra pre riadenie dlhu a likvidity (ARDAL) or Debt and Liquidity Management Agency in English.
How Does the Slovak Republic Raise Loans?
ARDAL sells government securities through an auction process. Auctions take place on an electronic platform, which is called State Treasury Information System (STIS).
Primary Market
Only authorized buyers are allowed access to the STIS system, which forms the primary market for government security. These buyers are called Primary Dealers and they are expected to resell their allocations on the secondary market.
The market-making activities of the primary dealers make Slovak government securities available to all.
Secondary Market
The secondary market is another electronic platform, called MTS Slovakia. ARDAL issues three types of securities:
| Treasury Bills | Domestic Bonds | Overseas Bonds | |
|---|---|---|---|
| Maturities offered | 1 year or less | 5, 10, 15, 17, 20, 30, and 50 years | 6.5, 10, 10.5, 12, 15, and 20 years |
Treasury Bills
Treasury bills do not pay interest. They are sold at a discount and redeemed at face value.
Domestic and Overseas Bonds
The largest amount of Slovakia’s national debt is typically raised through domestic bonds.
Both domestic bonds and bonds issued overseas pay a fixed rate of interest for their lifetimes. Overseas bonds have been issued in Euros, Swiss Francs, and Norwegian Krone.
What Is Slovakia’s Credit Rating?
The three major ratings agencies all give Slovakia an A-grade rating.
Although it isn’t the top rating (which is AAA), Slovakia’s A+ rating is nevertheless respectable.
The table below shows the current credit ratings awarded to the Slovak Republic by the world’s three largest credit ratings agencies.
| Agency | Rating | Outlook |
|---|---|---|
| Standard and Poor's | A+ | Stable |
| Moody's | A2 | Stable |
| Fitch Ratings | A+ | Stable |
The “outlook” status indicates that none of the agencies expect Slovakia’s rating to change within the near future.
More Facts About Slovakia’s Debt
- You could wrap $1 bills around the Earth 275 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 7,728 km, or 4,802 miles high.
- That's equivalent to 0.02 trips to the Moon.
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Further Reading
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