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Government downplays Jan-Mar budget deficit

THE FINANCE Ministry has claimed that this year's state budget targets are not under threat despite a first quarter deficit of 40 per cent of the 2002 target.
Figures released at the beginning of this month showed that the state budget deficit had hit Sk15.2 billion from January to March, 40 per cent of the full-year target of Sk38 billion.
Following the release of the data the Finance Ministry said the high figure had come on the back of early 2002 expenditures for financing the Sk100 billion restructuring of the banking sector that has been carried out over the last three years.

THE FINANCE Ministry has claimed that this year's state budget targets are not under threat despite a first quarter deficit of 40 per cent of the 2002 target.

Figures released at the beginning of this month showed that the state budget deficit had hit Sk15.2 billion from January to March, 40 per cent of the full-year target of Sk38 billion.

Following the release of the data the Finance Ministry said the high figure had come on the back of early 2002 expenditures for financing the Sk100 billion restructuring of the banking sector that has been carried out over the last three years.

More than Sk9 billion of the first quarter deficit went to covering the costs of bank restructuring.

Ministry spokesman Peter Papanek said: "These payments follow a planned schedule and the majority of those planned for this year have already been made."

He added the budget deficit would be positively influenced by April and May rises in tax revenues.

"If the rules agreed upon in the approval of the budget are observed then there is no reason to go over the budget deficit limit," Papanek said.

The 2002 state budget envisages revenues of Sk219.9 billion and expenditures of Sk257.9 billion. The deficit is planned at 3.5 per cent of GDP - an important condition of a World Bank loan and in line with EU demands prior to Slovak entry into the European Union.

Economic ministers have said the target is realistic and remain confident the deficit figure will not be exceeded.

Economists have backed the government to keep to its deficit target and say there are no major risks to the state budget.

"The first quarter results were surprising but show that the majority of the expenditures have been on the restructuring of the banking sector. There are still risks on the expenditures side, and the cost of bank restructuring may be higher than expected, but those risks are very limited," said Mario Blaščák, an economist at Ľudová banka.

Blaščák added that budget revenues were likely to come in as predicted, and that recent reports from the Economy Ministry suggested company profitability was rising, potentially boosting state tax revenues for the year.

But with parliamentary elections in September some concerns have been raised over potential threats to the expenditure side of the budget, both in the pre-election and post-election period.

Some economists have argued that as politicians push for populist measures, such as an announced five per cent increase in pensions or a rise in wages, public finances could come under extreme pressure.

They have also pointed to the uncertainty of the post-election government's economic programme. Recent opinion polls suggest the current coalition is unlikely to remain in government in its present form after elections.

However, Blaščák dismissed these concerns. "I expect the new government to follow the economic programme of this government to the end of the year, and not create new pressures on the expenditure side of the budget towards the end of 2002," he said.

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