Cheese. Premier Mikuláš Dzurinda celebrates provisional budget with Finance Minister Schmögnerová.TASR
Short of both time and money, the Slovak government won a temporary reprieve from budget troubles on November 19 when parliament approved both a provisional budget for 1999 and the widening of the 1998 state budget deficit to 19.2 billion Slovak crowns ($548 million).
The new cabinet, which was formed only two weeks before the November 15 deadline for submission of the 1999 state budget, has been struggling to deal with unexpectedly low tax revenues.
"In this situation, there was nothing they could do but implement a provisional budget," said Martin Barto, an analyst for Dutch investment bank ING Barings. Barto stressed that as government and parliamentary bodies had not been formed until late October, cabinet had not been given sufficient time to prepare and have approved a full 1999 state budget.
The new provisional budget will be in force for the first quarter of 1999, and will be based upon the state budget law for 1998. This means that monthly state budget expenditures will be set at a maximum of one-twelfth of real budget revenues in 1998.
"The proposed changes are intended to help bridge the problems with public finances in the first quarter of next year," said Finance Minister Brigita Schmögnerová at a November 16 press conference in Bratislava (see interview, page 2).
Schmögnerová announced that the budget deficit on November 13 had been 16.3 billion Sk ($466 million) on revenue of 152.3 billion Sk ($4.35 billion) and expenses of 168.6 billion Sk ($4.82 billion). "Some large payments from the state budget still lie ahead" Schmögnerová said, without providing details of the expenses foreseen. The 1998 revised state budget of the cabinet of former Premier Vladimír Mečiar had predicted an FY98 shortfall of 8 billion Sk ($222 million).
According to Schmögnerová, the latest cabinet revision anticipated an 11.2 billion Sk ($320million) shortfall in 1998 budget revenues, while parliamentary approval gave the ministry the green light to issue state paper to cover the gap. "[The Finance Ministry] will also attempt to restructure the budget deficit from short-term to long-term resources with better interest conditions," she added.
"It's a smart plan, but the cabinet may find it hard to secure foreign resources for a comfortable price," opined Barto, explaining that recent developments on foreign financial markets might require higher interests on long-term loans. "The unpleasant situation surrounding VSŽ [Slovakia's massive steel producer, which is almost insolvent and has defaulted on a major loan] also negatively affects the credibility of Slovakia," Barto said.
Ján Tóth, an analyst at the privately-owned Tatra Banka, agreed that refinancing the deficit from domestic sources would be a more realistic plan. The state budget was a crucial tool of the government, Tóth explained, one that empowered cabinet to enact its political and economic vision. "Approving the budget law as early next year as possible will be vital," Tóth concluded.
Barto said the government's promptness in preparing and pushing a full 1999 budget through parliament would be watched very closely by foreign financial institutions. "If the cabinet shows interest in lowering the fiscal deficit, and apportions the budget reasonably, its credibility will accelerate and its chance of securing foreign loans at comfortable interest rates will impove," Barto added.
Unpleasant consequences
Despite the budget reprieve, however, analysts warned that the country's current financial situation was critical, and predicted that the new government would be forced to dip viciously into citizens' pockets. "The government will have to introduce certain measures, some of which, like heating and electricity price deregulation, will affect ordinary people," Tóth said.
Economy Minister Ľudovít Černák told a press conference on November 17 that electricity prices would rise 30% to 40% on average in 1999. The increase would affect predominantly households, adding approximately 200 Sk ($5.80), or 200%, to the current average monthly bill.
Černák explained that electricity and heating prices had been squashed by the former government for political reasons, and that the resulting revenue losses to state-owned energy providers had reached unsupportable levels.
"It [the price increase] should come at once and as soon as possible," agreed Barto, explaining that if price deregulation was introduced piecemeal, it might lose political impetus as election time approached and the eyes of politicians turned again to their voters.
According to Schmögnerová, the new government hopes to achieve a balanced budget by the end of 2000, through a combination of fiscal restraint and revenue enhancement.
