Summary
Slovakia’s high level of public debt is a source of vulnerability for the public finances. Debt rises sharply during crises, yet in favourable periods there is neither sufficient consolidation nor a build-up of reserves. This recurring pattern gradually increases indebtedness, reduces the capacity to respond to future shocks and, at a higher level of debt, narrows the window for a discretionary fiscal policy response. Since the mid-1990s, the gross public debt ratio has almost tripled from approximately 21% of GDP to more than 61% of GDP in 2025.
External shocks have had a significant and persistent impact on debt developments. Without the global financial crisis, public debt would have been lower by approximately 19% of GDP in 2013. The pandemic and the subsequent crises increased debt from approximately 48% of GDP in 2019 to more than 60% of GDP in 2021 and to 61.4% of GDP in 2025. Compared with an alternative scenario without these shocks, their impact on the level of debt exceeded 10% of GDP. These episodes also show that Slovakia faced the shocks with limited fiscal space.
Debt dynamics can no longer count on a favourable macroeconomic environment to the extent they did in the past. Between 2014 and 2019, the interest-growth differential was predominantly negative, which automatically helped to reduce the debt-to-GDP ratio even while the budget remained in deficit. After 2022, however, this effect weakened because of higher interest rates and weaker economic growth. The one-off reduction in the debt-to-GDP ratio from high inflation in 2022-2023 merely masked this problem; it did not improve the fiscal fundamentals, and debt has been rising again since 2023. Stabilising the debt ratio will therefore require, above all, an active reduction of the primary deficit.
The change in the interest rate environment after 2021 significantly worsened the conditions for financing public debt. Up to 2022, the implicit interest rate was still declining, to approximately 1.9%, owing to older cheap debt, but yields on new issues increased to approximately 3% to 4%. Since higher rates are passed through to existing debt only gradually via refinancing, interest costs will rise with a lag even without any further deterioration in market conditions. At the current level of debt, the difference between the low-rate environment and current rates may imply additional interest costs of more than 1 percent of GDP. Interest costs were also contained by the large cash buffer built up in 2020 and 2021, which reduced the need to issue additional debt at the higher yields later in 2022.
The risk premium indicates that the rise in yields is not only a general increase in interest rates, but also a reassessment of domestic fiscal credibility. After 2022, Slovakia joined the group of euro area countries facing higher financing costs than several comparable countries with better fiscal indicators. While euro area membership dampens some of the market risks, it does not substitute for a credible fiscal policy. The current average rating is the lowest in the past 20 years.
Prevention is cheaper than a correction forced by a loss of confidence. Higher debt, rising interest costs and the risk premium may reinforce one another: more expensive financing increases the deficit, a higher deficit increases the need for new debt, and weaker credibility may further worsen the rating and increase the premium. Credible consolidation therefore delivers a “dividend” in the form of lower financing costs, greater resilience to shocks and greater fiscal policy autonomy.
