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Macro Economy: Government must continue reform programme

Although the coming year promises more significant economic growth than in recent years, many macroeconomists are urging the government to strenghten the country's improving macroeconomic performance with efficient legislation and reforms - reforms which they say the government was reluctant to adopt over the last 12 months.
But while important reforms such as public sector health care, social welfare system, agriculture and education should be top of the government's reform list for economic improvement, time is running out to put reforms in place.


Experts say that the coming year in the macro economy will be driven by domestic demand rather than the foreign demand of 2000.
photo: TASR

Although the coming year promises more significant economic growth than in recent years, many macroeconomists are urging the government to strenghten the country's improving macroeconomic performance with efficient legislation and reforms - reforms which they say the government was reluctant to adopt over the last 12 months.

But while important reforms such as public sector health care, social welfare system, agriculture and education should be top of the government's reform list for economic improvement, time is running out to put reforms in place.

The closer the country edges to September 2002, when parliamentary elections take place, the less effort there is, according to analysts, to push through politically sensitive but crucial reforms.

"The absence of reforms has a negative impact on economic growth and the level of living standards, and therefore there is a need to introduce them as soon as possible" said Ján Tóth, an analyst with ING Barings.

In general, after two years of macro-economic stabilisationwhich saw the implementation of unpopular measures such as three austerity packages and the adoption of an import surcharge to revive Slovakia's stagnating economy, growth predictions for 2001 show higher economic growth than in the last two years. The economy is expected to grow over 3% in 2001 compared to 2%

in 2000.

The driving force behind the growth, analysts predict, should come from burgeoning domestic demand. Despite December's approval of a fourth package of price rises bringing up costs of water, natural gas, electricity, bus and rail fares as of February 1, consumption is expected to continue unabated in Slovakia.

"This will be the most significant change in comparison with the year 2000. Then economic growth was driven by dominant foreign demand," Tóth said.

Róbert Prega, an analyst with Tatra Banka, said that the government was expected to make repayments of about 29 billion crowns for FNM bonds from a second wave of coupon privatisation five years ago, which people were likely to use in purchases, increasing domestic consumption.

"In 2001 people will spend more, and domestic demand will dominate over foreign demand," Prega said.

But while there may be a dramatic change in demand ahead, there is unlikely to be anything similar in other macroeconomic areas, with interest rates and employment improving only slightly.

"We expect the unemployment rate to drop from 17.9% in 2000 to 16.5% in the year 2001, and that short-term interest rates will drop from 8.5% to 7%," Tóth said.

One boost for industry is expected. While the 2002 elections may cast a gloomy shadow over the potential for reforms to be put in place, the construction sector is likely to find its growth boom as the election date comes closer and closer.

The government is due to pump 9 billion crowns of state expenditures into highway construction this year.

"After two years of recession the construction sector is going to improve its performance, and this will be even more intensive as the country approaches parliamentary elections," Tóth said.

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