Central Europe slips in 2019 Economic Freedom Index

Warsaw, Poland – Widespread corruption, deficient judicial systems and over-regulation are among the reasons why Central European countries have slipped in this year’s Economic Freedom Index.

The Heritage Foundation recently published its annual index to measure the level of economic freedom in over 180 countries, based on a wide range of criteria gathered into four categories: rule of law, regulatory efficiency, government size and open markets.

With a score of 90, Hong Kong is crowned the freest country in the world – as it has been for many years in a row – followed by Singapore, New Zealand, Switzerland, Australia and Ireland.

At the other end of the scope, countries at the bottom of the ladder of economic freedom include North Korea, Venezuela, Cuba, Eritrea, Republic of Congo and Zimbabwe. Six states (Iraq, Libya, Somalia, Syria, Yemen and Liechtenstein) were not ranked due to lack of reliable data.

The Czech Republic is the only Central European country placed in the second category of “mostly free” countries: ranked 23rd worldwide (and 12th in Europe), the Czech Republic has a score of 73.7, decreasing by 0.5 point compared to last year, with particularly low scores for judicial effectiveness and monetary freedom. Improvements have been noted for government spending and property rights.

“Amid rising populism and political polarization, the government has been pulled slightly to the left (…) but is expected to continue pro-EU, pro-business, and fiscally prudent policies”, experts from the Heritage Foundation point out. “Implementation of critical reforms by previous administrations streamlined business start-up procedures, embedded a relatively efficient tax regime to facilitate entrepreneurial growth, and institutionalized an openness to global trade and investment”.

More broadly, the report highlights the Czech Republic’s attractiveness, with a prosperous market economic, one of the highest GDP growth in the EU, the lowest unemployment level in Europe and rising standard of living.

Ranked 46th worldwide and 22nd in Europe, Poland is placed in the category of “moderately free” nations and remains below European average. Its overall score decreased by 0.7 point, with a significant fall in judicial effectiveness only slightly offset by improvements in investment freedom and fiscal health.

Although Poland rightly earned a strong economic reputation after implementing structural reforms, numerous challenges remain, including “deficiencies in road and rail infrastructure, a rigid labor code, a weak commercial court system, government red tap, and a burdensome tax system for entrepreneurs”, according to the index.

The biggest drop was reported in Hungary, ranked 64th worldwide with an overall score of 65(-1.7 point compared to last year). This drop is mainly due to declining scores in labor freedom and judicial effectiveness, according to the report. “Systemic economic challenges include pervasive corruption, labor shortages driven by demographic declines and migration, widespread poverty in rural areas, vulnerabilities to changes in demand for exports, and a heavy reliance on imports of Russian energy”, according to the foundation.

With a small decrease of 0.3 point, Slovakia is placed right after Hungary as the 65th freest country in the world. Despite improvements in its fiscal health and government spending, business freedom has dropped and Slovakia “is still affected by widespread corruption and a judicial system that remains weak, inefficient, and vulnerable to political interference”. As Deutsche Welle points out, the former ‘Tatra Tiger’ is facing a set of challenges that will need to be addressed in the near future to pursue its impressive economic growth, including threats to its flagship automotive industry, decreasing economic confidence in the rest of the Eurozone and widespread organized crime and corruption.

Both Hungary and Slovakia, already ranked among the most corrupt countries in Europe by Transparency International, are among the least free countries when it comes to business opportunities and economic environment. Only a handful European countries – including France, Italy, Croatia, Greece and Ukraine – fared worse in this year’s ranking.