Slovakia's 80.9 billion Slovak crown ($2.2 billion) foreign trade deficit was slightly higher than expected, analysts said on January 27, but it failed to move the country's generally unresponsive currency market.
Local macroeconomic analysts said the deficit, amounting to 11.2% of gross domestic product, was unsustainable and unless it was reduced, the country may have problems financing it. "It is bad...The high number was a little bit of a surprise" CSOB macroeconomic analyst Martin Finčák said.
Tatra Banka's Ján Tóth added "it is the third year that Slovakia has had a deficit over 10% (of GDP), which of course, is unsustainable. What could happen is that other countries will not be willing to finance our deficit... this could lead to problems for the Slovak crown," he added.
There was no immediate reaction to the new data on the crown market. "Whatever numbers come out about Slovakia, unless they are extremely bad or extremely good, they won't move the crown," one chief dealer at a foreign bank said. "There has been no response."
Some analysts said the cabinet would have to concentrate on correcting specific trade imbalances. Finčák said the large deficit in mutual trade with Russia needed attention. "One of the ways to reduce the deficit is to focus on increasing exports to Russia, although it won't be easy," he added. The government has promised to re-think its export promotion policy, but full details have not yet been announced.
Other analysts saw fiscal conservatism and increasing export effectiveness as the key ways to reduce the unfavourable trade deficit trend in 1999. "The most standard way of solving the balance problem is through reducing fiscal expansion," said Tóth. "If a public sector deficit of 2% of GDP is achieved, I can imagine the trade deficit falling to 6 or 7% of GDP," he added.
Barely hours after the trade data were released, the government released details of a long awaited economic package designed to slash the state budget deficit and generally revitalise the Slovak economy. The package, announced on January 28, sets out a timetable of proposed laws and measures with the overall aim of cutting the state budget deficit to around 2.0% of gross domestic project from 5% and cutting the current account deficit in half from over 10% of GDP now.
These aims should be achieved without cutting growth to less than 3% from the current 5.8% or pushing inflation to over 10% from 5.6% year-on-year in December.
The package lists 75, generally unspecific, items ranging from wage freezes in the public sector to plans to attract more foreign investment.