The Slovak Republic enjoyed several years of very strong growth and has made significant progress in catching-up to the income levels of the more advanced economies. In 2006 and 2007, GDP growth was the highest among OECD countries and the unemployment rate fell substantially. Nevertheless, notwithstanding the stellar economic performance at the national level, the benefits of higher growth remain fairly concentrated in those geographical areas where FDI inflows have been strongest, leaving large regional economic dispersions. Mirroring the progress in catch up, the exchange rate has appreciated by around 20% since 2006. Growth has been underpinned by significant structural reforms. The introduction of a flat tax raised the attractiveness of the Slovak Republic as a business location for domestic and foreign investors and, together with welfare reforms, has raised work incentives. On the fiscal side, the pension reform reduced the future fiscal costs of ageing, while raising the short-term deficit of the defined benefit system. However, recent measures will contribute to increasing future fiscal costs.