Finance Minister Sergej Kozlík says his country will continue drinking from the cup of economic success for the rest of 1997, but some analysts are not convinced.
In a wide-ranging speech at the annual Finex banking and finance conference held in the central Slovak town of Banská Bystrica, Kozlík characterized the economy's development in the first half of 1997 as favorable, saying he saw no impediments to continued growth for the rest of the year.
"Our economy kept strong growth in the first half and we don't forecast any significant slowdown," Kozlík said referring to data released by the Slovak Statistical Office (ŠÚSR) on September 16 showing first half real GDP growth of six percent.
Slovak GDP grew by a real 5.1 percent, year-on-year, in 1997's first quarter, and by 7.1 percent in the first half of 1996. The finance minister said domestic demand mostly fuelled the growth, but that much of this was from investment demand "which is a good sign."
"Public sector demand slowed to three percent in the first half from 24 percent over the same period last year, but investment demand rose by 45 percent," Kozlík said. "Economic growth is still growth even if it is driven by domestic demand so we think the trend is favorable."
Kozlík, who is also deputy prime minister in the governing cabinet, said that the Slovak crown's outlook was also favorable, despite recent pressure from abroad which have caused some investors to see the currency as vulnerable.
"With good cooperation between fiscal and monetary policies, we can manage to keep the crown stable at least in the mid-term," Kozlík said. "The crown's strong exchange rate remains one of our main priorities."
The Slovak crown has been under almost constant siege since May when a crisis with the Czech crown spilled across the border. To fight short-selling pressure created by speculators, the National Bank of Slovakia (NBS) has used its daily crown fixings to stabilize the market and tightened liquidity to make the currency more dear.
But the austerity measures have forced debt servicing payments to near-record levels of around 25 percent. This, analysts said, has pushed the government, as well as many Slovak firms, to seek funds from outside the country. "What's also wrong is that expenditures in the public sector are being covered mostly by loans from abroad, which is contributing to the foreign indebtedness of Slovakia," said Libor Briška of Creditanstalt .
No ballooning budget
Kozlík also said that the government has made cuts to budget expenditures of some five billion Sk, and reiterated that 1998's fiscal deficit - the budget deficit after payments for debt servicing are subtracted - would fall to five billion Sk. The fiscal deficit this year is expected to reach 11 billion Sk on an overall budget shortfall of about 35 billion Sk, an amount in line with the cabinet's projection for the year.
Kozlík rejected the notion that budget spending, which stood at 17.98 billion Sk as of August 25, will accelerate in the last quarter of 1997, as has happened in past years.
"The [budget] deficit will not accelerate at the end of this year, like what happened in 1996 and 1995," the daily Národná Obroda quoted him as saying.
In December 1996 alone, the budget deficit jumped 15 billion Sk, pushing the full year shortfall to 25.5 billion Sk. "This year, the development of the [budget] deficit will be smoother... we know how to manage this," Kozlík added.
But some analysts were not convinced. "The budget deficit is already significantly higher than in the middle of last year," Creditanstalt's Briška said. "Even if Kozlík is right [on slowing the deficit's growth], there still is no good news."
Closer NBS-gov't ties
Kozlík said his ministry intended to increase the role of the central bank in refinancing the budget deficit by increasing its capacity to 8-10 percent of budget revenues in the previous fiscal year from the current five percent, mainly by increasing the NBS's compulsory quota of state bond purchases.
The central bank chastised the ministry for relying too heavily on it to help refinance the state budget. "I think it is easy and comfortable to force the central bank to refinance [the budget deficit], but it also could be dangerous," NBS Governor Vladimír Masár said. "I would prefer more balanced budgeting."
Added Pavol Kárász, an analyst at the Slovak Academy of Science: "If the government tries to cut the deficit by using any [other] measures instead of cutting expenditures, it could put enormous pressure on the economy and completely change its current design."
It seems the cabinet isn't listening. A draft law being proposed by the government may strengthen its hand with the central bank by giving it increased participation on the NBS's board of directors. "We definitely feel the need for the better government participation in central bank activities," Kozlík said, adding that according to the draft law, the government would chose some "independent experts" to become members of the bank board, thus not jeopardizing the institution's independence.
The finance minister did allow that some storm clouds were on the economic horizon, admitting that the 1997 trade deficit would exceed the central bank's target of five percent of GDP, but he added the total should be less than last year's shortfall of 64.54 billion Sk. "We've seen positive developments in the past few months with the trade balance, but the deficit will definitely be higher than five percent of GDP for the year," Kozlík told conference participants. "[But] the deficit in 1997 will be lower than last year."
He also said that while there was a need for further economic restructuring, the Slovak government is in no hurry to complete banking privatization, and will not rush negotiations with the Czech Republic on an exchange of shares in the sector from the split of former Czechoslovakia. "The government will not hurry in [the completion of] bank privatization," Kozlík said. "We have more important things to deal with, and this is not the issue of the day."
Foreign participation in the Slovak banking sector will not increase, either. "I consider this level - currently about 35 percent - as sufficient," Kozlík said.
25. Sep 1997 at 0:00 | Peter Javurek and Peter Laca