The National Bank of Slovakia (NBS) announced on February 16 that the country's current account deficit for the first 11 months of 1997 fell by almost $200 million compared to the same period of 1996, when it was 1.4 billion. Market analysts cite a sharp improvement in the visible trade balance as the main reason.
"We expected this development since the foreign trade deficit, which is the main segment of the current account [deficit], was improving in the last months of 1997," said Martin Barto, an analyst with ING Barings, adding that Slovakia's foreign trade deficit fell by around 30 percent in 1997 against the previous year.
Last December, the NBS estimated the current account deficit at around 7.7 percent of gross domestic product (GDP), while in 1996 the deficit stood at more than 11 percent of GDP.
"The deficit is relatively better than a year ago, but we are still far away from the level of five percent of GDP which would be safe for our economy," said Juraj Renčko, a macroeconomic analyst with the Slovak Academy of Science's Forecasting Department.
Renčko said he expected the current account deficit to continue to decrease this year, but added it was unlikely that it would fall to five percent of GDP as quickly as some government officials have claimed. But NBS Governor Vladimír Masár said last month that five percent of GDP could be possible in 1998 if the trend of rising exports recorded in the second half of last year continued.
"Our prognosis is that the deficit should be lower than in 1997, but I would say the NBS's expectation is too ambitious," Renčko said, adding that the trade situation appeared to have responded to government administrative measures, such as an import surcharge, to curb imports and NBS moves to squeeze domestic demand which had been widely blamed for the ballooning deficit in previous years.
The Slovak crown came under strong downward pressure last May and June during a run on currencies in emerging markets, especially those with high current account deficits.
But the Slovak central bank fended off the speculators and has since held tight control over money market liquidity to prevent similar attacks. "The deficit is decreasing which means that the pressure on the currency is also decreasing," Renčko said.