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IMF says urgent reforms are needed

The latest International Monetary Fund (IMF) report has criticised the pace of structural reforms in Slovakia.
IMF representatives, who met with government officials on November 4, said the speed of reform must quicken.
They also stressed the need to make the progress before the September 2002 elections.

The latest International Monetary Fund (IMF) report has criticised the pace of structural reforms in Slovakia.

IMF representatives, who met with government officials on November 4, said the speed of reform must quicken.

They also stressed the need to make the progress before the September 2002 elections.

Crucial reforms of the pension and health-care systems were highlighted as urgent by the report.

The need for the structural reforms was also stressed in an EU country report for Slovakia released on November 13.

"If these reforms don't take place soon enough, in 2003 and 2004, government may find itself without the resources to subsidise all the sectors which need the reform and the projected rates of economic growth may become unsustainable.

"This may result in a funding crisis for the government," said Fernandez Ansola, the division chief for the central European division at the IMF.

He added that the government should use the unique opportunity to use privatisation revenues to finance the reforms, especially reform of the pension system which is estimated at SK55 billion ($1.1 billion)

Currently the unreformed sectors take huge government subsidies and contribute to the public finance deficit which is expected to stand at 3.9% of GDP this year.

The mission was in Slovakia to the review an IMF staff-monitored programme, containing the set of the macroeconomic and microeconomic targets including fiscal and balance of payments deficits and deadlines for the privatisation of banks and natural monopolies.

The programme backs up a $300 million Enterprise and Financial Sector Adjustment Loan (EFSAL) provided by the World Bank.

According to the concluding remarks of the report, if reforms are implemented in a piecemeal fashion and with delay, the benefits of the policies will be extremely slow and perhaps only temporary.

The report also says that with elections looming it will be a test of government and society's willingness to advance reforms.

However, the government was quick to react to the IMF worries saying that there was the need to speed up the less popular reforms even in the election year to avoid the future fiscal problems.

"It would be short-sighted if the government did not carry out the reforms in the election year," said Finance Minister Brigita Schmögnerová.

According to the IMF, the total government subsidies including social assistance funds, pension transfers, subsidies to the agriculture and the transport sector count for about 7% of GDP. The total GDP is estimated at SK960 billion this year.

"With all the reforms, we are urging to be put in place these subsidies can in several years be reduced by about 2.5% of GDP if not more. This would give government space to re-orient its expenditures to more productive activities," Ansola said

However, analysts were sceptical about progress in the reforms in 2002. "Nothing significant will happen in the sectors which need reform. Not carrying out reforms means making debts," said Ján Tóth, analyst with ING Bank.

Marek Jakoby, an analyst with the Mesa 10 think tank said it was difficult to find a consensus within the government coalition and implement reforms leading to significant cuts in subsidies to all affected sectors.

"But two important things have to be considered here: the sooner the reforms come the less expensive they will be and the more privatisation revenues can be used to fund these reforms, the less government will have to borrow for them," Jakoby said.

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