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Slovakia heading for massive fiscal deficit, provisional budget in 1999

The new Slovak government, likely to be formed by the parties of the former opposition in the next few weeks, will begin its term in office with more economic troubles that it may have anticipated.
The 1998 state budget will probably show a fiscal deficit of up to 20 billion crowns ($540 million), more than twice as much as the orginally planned shortfall of 8.0 billion crowns ($216 million). Furthermore, as Brigita Schmögnerová of the Party of the Democratic Left (SDĽ) said on October 7, it is very likely that the new cabinet will only be able to start the next year with a provisional state budget.
Schmögnerová led a team of economic experts of the four opposition parties in a meeting with top Finance Ministry officials, including minister Miroslav Maxon, on October 7. "The expected risks in this year's budget have fully materialised.

The new Slovak government, likely to be formed by the parties of the former opposition in the next few weeks, will begin its term in office with more economic troubles that it may have anticipated.

The 1998 state budget will probably show a fiscal deficit of up to 20 billion crowns ($540 million), more than twice as much as the orginally planned shortfall of 8.0 billion crowns ($216 million). Furthermore, as Brigita Schmögnerová of the Party of the Democratic Left (SDĽ) said on October 7, it is very likely that the new cabinet will only be able to start the next year with a provisional state budget.

Schmögnerová led a team of economic experts of the four opposition parties in a meeting with top Finance Ministry officials, including minister Miroslav Maxon, on October 7. "The expected risks in this year's budget have fully materialised. The real deficit may be twice as big as was planned....Our estimate is that it could be as high as 20 billion crowns," Schmögnerová said.

The group of opposition economic experts spent more than five hours in talks with Maxon, his deputy ministers and heads of departments. Opposition politicians said they were satisfied with the attitude of ministry officials.

The main reasons for the higher than planned state budget deficit in 1998 are lower revenues from taxes combined with heavy capital expenditures. The hottest problem on the revenue side has been shortfalls in the collection of the Value Added Tax together with some consumption taxes. On the other side, the government of Premier Vladimír Mečiar has been carrying out large infrastructure projects, such as motorway construction. Analysts and the opposition have said the Slovak economy could not afford to pay for such projects.

Schmögnerová said that opposition deputies had asked Maxon whether there was not a danger that the state would run into liquidity problems which would prevent it from meeting its payment obligations."We were assured that liquidity problems will not appear as long as the budget deficit reached the planned eight billion. We did not get a satisfactory answer on what would happen if the deficit is bigger," Schmögnerova said.

Opposition experts also said that Parliament would probably need to approve an amendment to the 1998 state budget law that would allow the ministry to end the year with a higher than originally planned fiscal deficit.

Maxon said he had briefed "representatives of opposition parties that are likely to form the new government" about the stage of preparations of the 1999 state budget. He also said that opposition deputies were informed of the state of this year's budget, especially of the need to cut expenditures in several budget allocations, including the health care sector and the education sector. He declined to elaborate on the ministry's 1999 state budget proposals.

Schmögnerová, however, said that parliament would no be able to discuss the state budget within the deadline set by law. "It will significantly tie the hands of the new government, but we ned to prepare a provisional budget. It will be a political decision (of opposition parties), but the recommendation of experts will be this (privisional budget)" Schmögnerová said.

The provisional budget would mean that monthly government spending may not exceed 1/12 of overall state budget expenditures in the previous fiscal year. Opposition deputies said the Finance Ministry had come up with a 1999 budget estimate that set a fiscal deficit of 16 to 19 billion crowns. But Schmögnerová warned that the figures could be misleading since the new goverment will have different priorities than the outgoing administration. She would not elaborate on how big a deficit the opposition expected for 1999, though she added: "We are absolutely determined to cut the deficit of the fiscal sphere next year."

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