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FINANCING HEALTH CARE AND MUNICIPALITIES STILL A SORE POINT; DRAFT BUDGET SEEMS REALISTIC, IMF SAYS

Budget pleases IMF, and IMF Mikloš

THE MAJORITY of Slovak citizens are weary from the impact of economic changes; nevertheless, the International Monetary Fund (IMF) is rosy about the recent economic development of this post-communist central European country.
The continuing growth of the economy, narrowing macroeconomic imbalances, declining unemployment, and low core inflation are the main reasons for the optimism of the IMF, which conducted its mission to Slovakia from October 7-15, 2003.

THE MAJORITY of Slovak citizens are weary from the impact of economic changes; nevertheless, the International Monetary Fund (IMF) is rosy about the recent economic development of this post-communist central European country.

The continuing growth of the economy, narrowing macroeconomic imbalances, declining unemployment, and low core inflation are the main reasons for the optimism of the IMF, which conducted its mission to Slovakia from October 7-15, 2003.

The volume of exports also impressed IMF experts. These grew by 37 percent in the first half of 2003 despite weak economic growth in Europe and, in May, June, and August, contributed to a trade surplus for the first time in three years.

The external current account deficit fell from 8.6 percent of GDP in the twelve months leading up to June 2002 to fewer than 5 percent of GDP in the twelve months prior to June 2003.

The IMF mission expects the country's economy to expand by 3.9 percent in 2003 and step up to 4.0 percent in 2004.

According to its revised monetary program, the National Bank of Slovakia (NBS) expects the growth of GDP to increase from 3.9 to 4.4 percent this year.

Following current expectations of moderate wage increases and continuing fiscal consolidation, according to the IMF mission to Slovakia, both the inflation outlook and the external current account, which is projected to narrow to under 4 percent of the GDP in 2003 and 2004, are likely to continue improving.

Slovakia's central bank estimates the current account deficit at 4.5 to 5 percent of GDP. Average headline inflation should reach 8.3 to 8.8 percent, while year-end inflation should range between 8.4 and 9.7 percent.

Slovak Finance Minister Ivan Mikloš, who is considered the prime mover of the economic reforms introduced by Dzurinda's centre-right cabinet, interpreted the IMF statement as a confirmation that Slovakia is on the right track, and reform steps have been effective.

However, the IMF did not hide its concerns over the failure to get exact data on the financial positions of municipalities and the financing of the health care sector. The IMF warned that control of their financing must improve. Mikloš said that more transparency could only help.

"It is necessary to improve the monitoring of fiscal results of the health care reform. In the event that results do not match the expectations of the state budget [for 2004], other tools will be needed," Mikloš told the press on October 21.

Father of the health care reforms, Health Minister Rudolf Zajac (New Citizens' Alliance), has ambitions to stop the accumulation of the sector's debts and to transform the deficit-producing health care system into an effective form, in which patients will pay a portion of medical treatment costs.

The mission had no serious objections to the draft state budget for 2004. After all, the budget assumes a radical reduction in the accumulation of health sector arrears in 2003.

The draft budget, including a target deficit in public finances at 3.9 percent of annual GDP, is another step toward fiscal consolidation, the IMF claims.

On October 14, Dzurinda's right wing cabinet approved the state budget for 2004 and sent it to parliament, where its approval is expected to be one of the hardest tests of the ruling coalition's strength so far. Opposition parties have made considerable effort to link the parliamentary vote over the budget with a vote of confidence in the Dzurinda team.

Mikloš budget targets the deficit at Sk59.55 billion (€1.44 billion), while budget revenues should reach Sk250.03 billion (€6.05 billion), and expenditures Sk309.57 billion (€7.45 billion).

According to the IMF, the draft budget is based on the realistic estimate that Slovakia's economic growth will reach 4.1 percent in 2004.

The IMF attitude has pleased Mikloš, who claimed that it was a confirmation of the correctness of his estimations. He said that in previous years the IMF had been rather solicitous in evaluating Slovakia's reforms while stressing potential fiscal risks. But the latest report considers the risks to be acceptable, Mikloš told SITA.

The Finance Minister welcomed the IMF projection of inflation in 2004 at 7.6 percent, even lower than anticipated by the Finance Ministry at 8.1 percent.

The IMF appreciates the reduction of budget expenditures overall for 2004. "In order to accomplish the reforms, however, it is important that the parliament adopts laws regulating taxes, the social system, health care, and state administration. If Slovakia manages to complete the reforms, the country might become one of the most rapidly developing countries of Europe," added Mikloš.

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