Slovakia pays record-high interest on government bonds

Slovakia is now paying record-high interest rates on government bonds, surpassing even the once-troubled Greece, which is now slowly digging itself out of the abyss of bankruptcy that Slovakia is now inching towards.

For Slovakia, the interest rate on government bonds is already higher than in the case of Greece (3.32%) and Portugal (2.9%), which had to be rescued from bankruptcy by the euro rescue fund and the International Monetary Fund (IMF) 13 years ago.

Its interest rate is the second highest in the eurozone after Rome for the 10-year government bond that Bratislava uses to finance its debt. In Italy, it is 3.87%, and in Slovakia, it is 3.4%.

“Interests on bonds increasingly reflect the decision-making of traditional market actors when saving money for a longer period,” Matej Horňák, an analyst at the Slovenská Sporiteľna bank, told denník SME.

However, in 2011, Slovakia opposed the euro-bailout fund’s approval, complicating the eurozone’s efforts to deal with the crisis. Rejection of the proposal also triggered the collapse of the fragile coalition government of then Prime Minister Iveta Radičová.

In addition, Slovakia saw the most significant increase in the so-called risk premium among the eurozone’s countries, denník SME reports.

Even more generally speaking, Slovakia’s economy is not faring too well.

In December, the Fitch Ratings agency downgraded Slovakia’s Long-Term Foreign-Currency Issuer Default Rating to ‘A-‘ from ‘A’.

“The government’s consolidation strategy remains uncertain, and in our baseline scenario, we do not expect the debt to stabilise over the next few years,” the Fitch agency stated.

Meanwhile, according to the latest EU economic forecast, Slovakia’s general government deficit of Slovakia is expected to increase to 6.5 % of GDP in 2024, the highest in the EU.

The government passed the 2024 budget with a consolidation of just 0.5% from the previous year in December. It has already presented plans to get more funds by raising taxes on tobacco and alcohol and moving a part of pension funds from an investment pillar to an immediately usable one.

(Natália Silenská | Euractiv.sk)

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