ECONOMIC BRIEFS

NBS monetary programme counts on tough restrictions

The successful implementation of the National Bank of Slovakia's (NBS) monetary programme for 1999 depends on the introduction of tough restrictive measures by the Slovak government, NBS Governor Vladimír Masár told a news conference in Bratislava on December 18. The NBS projects net inflation for 1999 at between 5 and 7%, and Masár said controlling inflation will be the central bank's single most important goal.

Regarding the development of the exchange rate for the Slovak crown, Masár said "we do not expect any extreme exchange-rate movements to occur next year."

In 1999, the NBS counts on zero growth in real wages. "The most conservative wage policy is in the public sector, which could reflect also in other sectors of the economy. A cut in the fiscal deficit from the estimated 5% to 1.3% of GDP could lead to a drop in the consumption of the state administration, as well as that of other fields of the economy in fixed prices, and a subsequent slow down in the pace of GDP growth to 3% compared with 5.9% expected this year," Masár said.

A cut in the fiscal deficit will bring a reduction of domestic demand and consumption with a subsequent influence on trade balance developments. The trade balance deficit next year will also depend on the volume of acquired foreign sources. However, the downgrading of Slovakia's rating and the developments on international financial markets limit possibilities in this field. Fiscal measures should reflect in the reduction of the deficit of current account of the balance of payments to 5.5% of GDP.

Masár underscored that a stricter fiscal policy will not mean a more liberal monetary policy in 1999. The NBS plans on a 6% growth in the money supply next year. A cut in the fiscal deficit, which for the NBS means a reduction of the annual increase of net loans to the government and the FNM (the national privatization agency), will create more room for the development of the credit activities of commercial banks. The volume of provided loans by commercial banks could swell by 34 billion Sk (up 8.7% year-on-year) next year compared with the 20 billion Sk increase expected for 1998 (up 5.5% y-o-y). "Therefore, we assume interest rates will stabilize at the current level with the possibility of a slight decrease," said Masár.

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