By Martin Santa
BRATISLAVA, March 19 (Reuters) - Slovakia must adopt further market reforms if the euro zone newcomer wants to stay among the central Europe's top spots for foreign investors, the country's central bank said in a report on Thursday.
Slovakia, which joined the single currency area in January, has attracted foreign direct investments worth billions of euros in the past few years thanks to cheap labour and reforms introduced by the previous centre-right government.
The reforms have helped Slovakia transform from a regional laggard to a leader in economic growth, but the reform drive has faded in recent years, the central bank said.
"Slovakia's business environment has not improved significantly in the past three years," the National bank of Slovakia (NBS) wrote in an analysis posted on its web page (www.nbs.sk).
In 2006, Prime Minister Robert Fico assumed power with an agenda to expand welfare programmes.
Fico's cabinet has strengthened the state's role in the economy, boosted powers of trade unions and increased workers rights. He has also fought with foreign owners of utilities, private health insurers and western pension funds.
The central bank said the government should focus on several areas to make Slovakia more attractive for investors.
"Reserves are mainly in the area of the labour market's low flexibility, investors' protection, high tax and health and social payments, knowledge economy and bureaucracy," it said.
"Economic policy should focus on improving competitiveness in areas where we lag behind. The fact that neighbouring states are catching up with us in terms of competitiveness, is an additional reason to enforce structural changes," the NBS said.
Slovakia has avoided a direct impact of the financial crisis on its banks, but it is now hit by weaker demand for its exports - mainly cars and TV sets - on key markets.
Fico is now focusing on preserving employment as thousands of jobs are under threat because of the deepening crisis.
One of the government's measures to mitigate the impact was a temporary cut in payroll taxes for affected companies, but analysts and the opposition call for a more radical easing of the tax burden to help businesses withstand the crisis.
The Slovak economy rose by a record 10.4 percent in 2007, driven by booming car and electronics sectors, but it has slowed to 6.4 percent last year. The government expects 2.4 percent growth this year, but it sees downside risks to the prognosis. (Reporting by Martin Santa; Editing by Ron Askew)