#1# Slovak Republic Investor Presentation May 2007 H#2牛 Disclaimer Important Notice The information contained herein has been prepared by Ardal (the “Issuer") solely for informational purposes. This presentation does not constitute an offer or invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. This presentation is being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawful to communicate it to (all such persons being referred to as relevant persons). This presentation is only directed at relevant persons and any investment or investment activity to which the presentation relates is only available to relevant persons or will be engaged in only with relevant persons. Solicitations resulting from this presentation will only be responded to if the person concerned is a relevant person. 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Please read and understand this entire statement before utilizing the Information. 2#3Outline Healthy macro-economic fundamentals 04 Transforming Slovakia to a knowledge-based economy 14 Funding strategy and debt management 20 H 3#4Key considerations ■ The Slovak authorities are set on joining the euro in January 2009 - Slovakia is already in ERM II since November 2005. ■ Slovakia is quickly catching up on the eurozone - S&P forecasts for Slovakia GDP growth of +7.2% this year, while Moody's forecasts 6.5%. ■ Moody's and S&P see Slovak general government debt as a % of GDP as low and stable based on their forecasts. ■ Slovak government bond spreads in EUR have been tightening vs. debt of EU and EMU Sovereign and agency peers H 4#5Slovakia: Key Credit Highlights + Strong Ratings + International Integration + High GDP Growth + Low Debt Levels + Early EMU Entry Moody's: A1 stable outlook S&P A stable outlook Fitch: A stable outlook EU member (2004) NATO member (2004) OECD member (2000) 8.3 % in 2006, vs 2.7% for Eurozone, one of the highest in the World General government debt is 30.7% of GDP (2006), compares favourably with regional peers Slovakia is expected to be one of the first Central and Eastern European sovereigns to enter EMU, planned for 2009 H LO 5#6Economic growth shifting to a higher plateau 2006 Real GDP Growth, Peer Comparison 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Do do do do do do do do do do Portugal Eurozone Greece Czech Slovakia Slovakia Real GDP Growth Second highest growth in Europe + Top performer in the OECD + Sustained robust growth + Fuelled by net exports and household consumption + Stimulated by significant FDI + Economic growth expected to remain high 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2001 2002 2003 2004 2005 2006 2007* 2008* ++ Source: Ministry of Finance, NBS, European Commission * Forecasts: Ministry of Finance CO#7Fiscal Deficit Lower than Neighbouring Countries Slovakia General Government Deficit (% of GDP) 0,0% -0,5% -1,0% -1,2% -2,3% -2,3% -1,7% -1,5% -3,0% -3,7% -1,2% -2,0% -1,2% -2,5% -0,8% -1,1% -3,0% -3,0% -2,9% -3,5% -3,1% -3,4% -2,4% Maastricht Criteria -4,0% -3,7% Slovakia Czech Poland Hungary ויייי 2006 General Gov. Deficit (% of GDP), Peer Comparison 0,0% -1,0% -2,0% -3,0% -4,0% -5,0% -6,0% -7,0% -8,0% -9,0% + Continued fiscal prudence Relatively strong fiscal position in Central Europe + General government deficit reached 3.4% of GDP in 2006 (incl. pension reform costs 1.1% of GDP) + 2007 Budget set general government deficit at 2.9% of GDP... + ...within Maastricht Criteria H -10,0% Note: EA13- euro area Source: Ministry of Finance, NBS, European Commission * Forecasts: Ministry of Finance 7#8Positive trend in the current account Slovakia Balance of Payments Components (US$ million) Exports of cars and durable consumer goods are increasing, therefore... ...the current account deficit is expected to improve to 4.1% in 2007. + In 2006, EU countries represented 85,1% of total exports and 68,0% of total imports of goods + Financing needs more than covered by FDI (in 2006) and in 2007 FDI inflow expected to exceed CA deficit 5000 4000 3000 2000 1000 H 0 2001 2002 2003 2004 2005 2006 2007* I Current account deficit FDI Positive dynamic of the Current Account Deficit as % of GDP 0 2005 2006 2007 2008 -2.6 ייוד -1 -2 -3 -4 -5 -6 -7 -8 -9 -8.6 -8.3 -4.1 H -10 * Forecasts: Ministry of Finance Source: Ministry of Finance, NBS, European Commission 8#920000 18000 16000 14000 12000 10000 8000 6000 4000 2000 H Strong FDI inflows Total FDI Stock (US$ million) FDI Stock by Country of Origin, 2006 0 2001 2002 2003 2004 2005 2006 Source: Ministry of Finance, NBS Others; 9,9% Cyprus; 2,7% Netherland; 19,5% USA; 3,3% Korea; 3,6% Czech republic; 4,1% UK; 5,3% Hungary; 6,1% Italy; 12,4% Austria; 14,8% Germany; 18,3% 9#10Unemployment Expected to Continue to Decline 20,0% Slovakia Unemployment Rate IIIII... 19,0% 18,0% 17,0% 16,0% 15,0% 14,0% 13,0% 12,0% 11,0% 10,0% 2001 2002 2003 2004 2005 2006 2007* 2008* Development of the Unemployment Rate, Peer Comparison -0.2 2002 2007* Change in p.p. Slovakia 18.7% 13,2% Ø -5.5 Czech 7.3% 7.1% Greece 10% 8.9% Portugal 5.1% 7.7% ↑ +2.6 Euroarea 8.3% 7.7% ↓-0.6 Source: European Commission NBS, Ministry of Finance * Forecasts: Ministry of Finance ↓-1.1 Factors behind declining unemployment: + strong employment growth + structural reforms leading to sustained economic growth + major labour market reform + more favourable demographic trends + Employment forecast to grow at 1.5% in 2007 and 0.9% in 2008 In the European Union, Slovakia compares favourably in reduction of unemployment H 10 10#11H The Koruna in ERM II since 2005 + Inflation is forecast to be 2,2% in 2007 + Free float of the Koruna since 1998 + Successive liberalization of financial transactions since 2000 + Healthy state of the financial system + ERM II revaluation as of 19 March 2007 (1 EUR = 35.4424 SKK) + ERM II standard fluctuation band of +/- 15% will be observed 9% 8% 7% 6% 5% 4% 3% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Slovakia CPI Inflation Regulated prices contr. 2% 1% 0% 2001 2002 2003 2004 2005 2006 2007* 2008* 2006 HICP Inflation, Peer Comparison سلا Greece Slovak Eurozone Portugal Czech * Forecasts Ministry of Finance Source: Ministry of Finance, NBS, European Commission 11#12+ Inflation criteria expected to be met in 2H 2007 14% + Fiscal criteria to be met this year 12% + Long-term yields are below reference value of Maastricht criteria 10% EMU Entry in Sight Fulfilment of Maastricht Criteria 65% 60% 55% 8% 50% * Forecasts Source: Ministry of Finance, NBS 45% 6% + Public debt level already below Maastricht threshold 4% 40% 2% 35% + EMU Entry Expected in January 0% 30% Inflation 2009 Fiscal deficit Interest rate FX volatility Public debt ■Maastricht Slovakia H Note: FX volatility is defined as deviation from central parity at 35.4424 SKK/€ within the period from revaluation of the central parity(19.3.2007) up to 20.4.2007 % 12#13Outline Healthy macro-economic fundamentals 04 Transforming Slovakia to a knowledge-based economy 14 Funding strategy and debt management 20 H 13#141989 Well-under way toward successful knowledge-based economy CENTRALLY PLANNED ECONOMY GOALS OF functioning market REFORMS economy TYPE OF REFORMS H • . • privatizations price deregulations market institutions 1999 2004 FUNCTIONING MARKET ECONOMY • . • efficient market economy long-term financial sustainability Lisbon strategy goals 2010 KNOWLEDGE-BASED ECONOMY • long-term growth . long-term • competitiveness Lisbon strategy goals structural reforms of social welfare system and business environment • reforms and upgrading of education, R&D, IT infrastructure deepening of capital markets 14#15Pension Reform Key reforms recommended by EC to relieve pressure on public financing: Provide economic incentives to prolong working lives + Limit access to early retirement schemes + Strengthen link between contributions and entitlements + Curtail future public spending requirements by instituting more appropriate pension indexation mechanism + Spread future pension-related risks across several pension pillars SLOVAK REFORM IMPLEMENTS ALL THESE RECOMMENDATIONS + Radical reform of 1st pillar (pay-as-you-go pillar) + Introduction of the 2nd pillar (private pension accounts invested in capital markets) + Improving the regulatory environment for efficient functioning of the 3rd pillar H 15#16Flat Rate Tax 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) Shift from direct to indirect taxes Slovakia has one of the lowest corporate and effective tax rates in EU + 16#17Next step: building the knowledge economy Conditions for very strong growth in the next decade are in place + Slovakia is currently highly attractive for production aimed at export Focus on the knowledge economy through a national Lisbon strategy + Highly focused on those priorities that are most relevant for Slovakia Undergoing reforms of knowledge infrastructure + Reforms of education and R&D systems + Significant investments in these areas planned from national and EU funds. H 17#18Four priority areas for the coming years Information society + Information literacy, e-government, and wide access to the internet Science, R&D and innovations Support of high quality research, R&D and business innovations Education and employment Modern education, training, and other active tools. Business environment + Better enforcement of laws and contracts and less and better regulation H 18#19Outline Healthy macro-economic fundamentals 04 Transforming Slovakia to a knowledge-based economy 14 Funding strategy and debt management 20 H 19#20• Republic of Slovakia debt Central government debt + EUR 16 bln. + of which EUR 14 bln. is tradable debt Annual financing needs lower than EUR 4 bln. + debt roll-over lower than EUR 3 bln. + budget deficit and temporary shortcomings up to EUR 1 bln. Instruments H Market T-Bonds (domestic and international) T-Bills MM Loans Non-market State Treasury sources via refinancing system 20 20#21In bn €uros 2,500 2,000 1,500 1,000 500 牛 Favourable state debt portfolio Stable debt service profile Debt profile of Slovak Republic (domestic and international debt) Most debt denominated in local currency Outstanding debt by type of currency سلسال Principal Interest Source: SG CIB research, Bloomberg 80% EUR ■SKK Source: SG CIB research, Bloomberg 20% 21 21#22H 0 Italy France Germany Spain In bn €uros 900 800 700 ğ g g g g g g g 100 200 400 500 600 817.5 632.4 571.2 300 268.9 217.8 189.7 186.8 127.1 73.8 45.6 30.8 Belgium Greece Netherlands Austria Portugal One of the highest rated credits in Central Europe. + Excellent performance of Slovakia Eurobonds over the last year. Source: SG CIB, bloomberg 22 22 Finland Ireland Poland Hungary Denmark Lithuania 16.1 7.5 6.6 25 3.2 3.1 2.5 2.5 2.4 = 1.4 0.6 0.1 Sweden Czeck Republic Slovakia Slovenia Cyprus Latvia Estonia A Strong Credit Offering Scarcity and Diversification Outstanding Euro denominated bonds (EUR Billions), EU Comparison#23+ + + + + 1. 2. International issuance 1998 - issuance of first foreign currency sovereign bonds with maturities from 3 to 5 years and in currencies of JPY, USD and DĔM Subsequent foreign currency issues - were sold in 1999, 2000, 2003, 2004 and 2006 with maturities of 5, 10, 2, 10 and 15 years respectively, all in EUR 3 outstanding EUR issues (maturity 2010, 2014 and 2021) Plans: Increase portion of EUR denominated bonds Annual issue of Slovak Eurobond (benchmark size and maturity) initiated in 2004 Newly issued bonds to trade on major international trading platforms + New Euro MTS, TradeWeb, Bondvision, Bloomberg + Bigger size of new issues to ensure liquidity minimum € 1 bn Broaden investor base to increase integration of Slovakia's sovereign debt in the Euro area H 23 23#24Additional details 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 H 24#25Additional details All available data on state debt on the website: www.ardal.sk State Treasury: www.treasury.sk National bank of Slovakia: www.nbs.sk Ministry of Finance: www.finance.gov.sk Statistical Office of the Slovak Republic: www.statistics.sk H 25