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Tiger beats the average

SLOVAKIA is keeping up with its western neighbours quite well in its handling of public finances. Last year's finance deficit, weighing in at 3.3 percent of gross domestic product, came close to the EU average of 2.6 percent.

SLOVAKIA is keeping up with its western neighbours quite well in its handling of public finances. Last year's finance deficit, weighing in at 3.3 percent of gross domestic product, came close to the EU average of 2.6 percent.

Moreover, the Slovak governmental debt at 43.6 percent of GDP outperforms many European states where the average holds at 63.8 percent, according to the European Union's statistical office, Eurostat.

Analysts say that public finance reforms are behind the positive results.

"Reforms pertaining to budgetary spending contributed to this positive development. Reforms have been carried out in the social sphere and the healthcare sector; the pension reform will also add its plusses to the development in the long-term," Robert Prega, an analyst with Tatra banka, told The Slovak Spectator.

VÚB bank analyst Mária Valachyová suggested that the favourable development reflects improvements on both sides of the state's finances - spending and income.

For the first time, Eurostat published a report on the public deficit and debt data for all 25 EU members.

According to Eurostat's 2004 report, the government deficit of the EU25 improved compared to 2003, while the government debt increased.

"In the eurozone, the government deficit decreased from 2.8 percent of GDP in 2003 to 2.7 percent in 2004, and in the EU25 it fell from 2.9 percent in 2003 to 2.6 percent in 2004.

"In the eurozone the government debt-to-GDP ratio rose from 70.8 percent in 2003 to 71.3 percent in 2004, and in the EU25 from 63.3 percent to 63.8 percent," Eurostat writes.

The most indebted governments are Greece and Italy. Greece's government debt has reached 110.5 percent of GDP; Italy's is at 105.8 percent.

However, Eurostat maintains that it could not validate the figures for Greece since an inconsistency in recording methods was recently brought to light.

The statistics office reproached Italy for inconsistencies in how it records tax payments.

Greece also carries the largest government deficit (6.1 percent), followed by Malta (5.2 percent).

However, the Slovak analysts warn that the results are relative because the Slovak economy is a young one.

"It is a fact that Slovakia's share of the deficit and debt to GDP turns out better than average, but one reason is that Slovakia's market economy is still young compared to other western European countries.

"The time during which the deficit and debt could have cumulated is short. Considering this short period, the numbers are not that low," Tatra banka's Prega told The Slovak Spectator.

Still, Slovakia has cause for contentment, Prega added. Compared to other countries, the rate of pushing down the deficit is ambitious, and international markets trust that it will continue to go down in the future.

Prega said that the expected growth of the economy will naturally push down the deficit's share on GDP even further.

While analysts take care to say that the road to better performance is laborious and that there are many risks waiting to entrap the young country, they are prevailingly optimistic.

VÚB's Valachyova says that the tempo of Slovakia's fiscal consolidation is one of the fastest in the region.

In terms of deficit and debt results, she says that euro adoption in 2009 seems a realistic goal for Slovakia.

Prega said that while controlling the public finance deficit is one of the toughest conditions for adopting the euro, the economy's development gives him reason to be optimistic.

The condition for entering the eurozone is a deficit less than 3 percent of GDP.

"If the political and economic policies of the government do not change, I do not think it will be a problem to meet this [euro] criterion," Prega said.

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