Elites give praise with warning

SHORTLY after Slovakia's currency broke the 40 crowns to the euro threshold for the first time on April 26, the World Bank complimented the country's economic development but warned that the political situation remains fragile.
In its report, the World Bank reviewed the economic and reform developments in the eight central European and Baltic countries joining the EU on May 1.
"Slovakia has emerged as one of the leading reformers in the region. The fiscal deficit in 2003 came in at only 3.6 percent of GDP... well below plans and expectations.

SHORTLY after Slovakia's currency broke the 40 crowns to the euro threshold for the first time on April 26, the World Bank complimented the country's economic development but warned that the political situation remains fragile.

In its report, the World Bank reviewed the economic and reform developments in the eight central European and Baltic countries joining the EU on May 1.

"Slovakia has emerged as one of the leading reformers in the region. The fiscal deficit in 2003 came in at only 3.6 percent of GDP... well below plans and expectations. Major tax reforms aimed at lowering the tax burden as well as expenditure reforms, focused on rationalising the social security system, were introduced in the context of the 2004 budget," reads the report prepared by a team of top World Bank economists led by Thomas Laursen, lead economist for central Europe and the Baltics.

The World Bank report mentions the major reform of the health care system and the pension reform with the introduction of a second, fully funded pillar among the country's achievements.

The World Bank has not failed to notice that the country's ruling coalition has received some major blows and lacks a parliamentary majority. Though Slovak voters prevented former autocratic leader Vladimír Mečiar from returning to top politics as the country's president, the Western economic elite identified his massive victory in the first round of the elections as a sign of the fragility of the current political situation.

"Buoyant growth is continuing and unemployment easing. Output growth is sustained at around 4 percent per year, and this is slowly beginning to reduce the very high unemployment rate which nevertheless remains at over 16 percent," reads the report.

According to the World Bank, growth has been led by exports, and the current account deficit was reduced sharply in 2003. Meanwhile, core inflation remains low, although large increases in administrative prices and indirect taxes are keeping customer price index inflation high.

However, the International Monetary Fund (IMF) also stated in its recently published Global Economic Outlook Report that the strong exports have helped boost the country's economic growth and decrease the state's current account deficit of the balance of payments.

The IMF estimated the development of Slovakia's inflation in 2004 and 2005 at 7.8 percent and 4.1 percent of GDP, respectively, and the GDP growth at 3.9 percent and 4.1 percent, the news wire TASR reported.

The Slovak Finance Ministry predicted inflation at 8.1 percent of GDP this year and 4 percent in 2005. GDP growth, according to the ministry, will be 4.1 percent in 2004 and 4.3 percent next year.

The government targets a fiscal deficit of 3.9 percent of GDP in 2004 and, according to the World Bank, it should be well on track to meet its objective of reducing the deficit to 3 percent of GDP by 2006.

The Organisation for Economic Cooperation and Development also praised the government reforms in its recent Economic Survey on the country.

The international ratings agency Fitch Ratings says that Slovakia's credit foundations have improved considerably over the past year as the government has made considerable progress in implementing public finance reforms and cutting the budget deficit.

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