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Debt exceeds 50% of GDP

THOUGH Slovakia’s public debt is one of the lowest among European Union countries, the country’s finance minister will still have to explain to parliament why the debt has climbed higher than 50-percent of GDP, based on a law on fiscal responsibility passed under the Iveta Radičová government in 2011. Slovakia’s debt of 52.12 percent of GDP, as reported by the European statistics authority, will also require Finance Minister Peter Kažimír to tell parliament how his government plans to trim the number. If in the upcoming period the country’s debt exceeds 60 percent, based on the debt brake law, the government will have to face a vote of confidence. Yet the Slovak Finance Ministry believes that the country’s debt will start to decline after 2015.

THOUGH Slovakia’s public debt is one of the lowest among European Union countries, the country’s finance minister will still have to explain to parliament why the debt has climbed higher than 50-percent of GDP, based on a law on fiscal responsibility passed under the Iveta Radičová government in 2011. Slovakia’s debt of 52.12 percent of GDP, as reported by the European statistics authority, will also require Finance Minister Peter Kažimír to tell parliament how his government plans to trim the number. If in the upcoming period the country’s debt exceeds 60 percent, based on the debt brake law, the government will have to face a vote of confidence. Yet the Slovak Finance Ministry believes that the country’s debt will start to decline after 2015.

The public debt reached €37.245 billion at the end of last year, compared to €29.911 billion in 2011, according to Eurostat.

Meanwhile, the European statistics authority has also confirmed Slovakia’s deficit at 4.35 percent for 2012. With last year’s state budget, manufactured by the previous government, the deficit was expected to stand at 4.6 percent, the Ministry of Finance said in a release. The European Commission in February 2013 estimated the country’s deficit to stand at 4.8 percent, while the International Monetary Fund’s calculations stood at 4.9 percent, according to the ministry.

“Since we have been taking concrete measures, be it on the side of spending or revenues, the result of last year is 4.35 percent, which is a very good result,” said Finance Minister Peter Kažimír.

Slower tempo?

Shortly after the government passed Slovakia’s stability programme for 2013-2016 on April 24, Prime Minister Robert Fico said that his government is ready to do everything it can to decrease the deficit. The stability programme assumes that the public finance deficit will drop from this year’s estimated 2.9 percent to 2.6 percent in 2014, the SITA newswire reported.

However, Fico has also said that Slovakia is ready to discuss a slower tempo for consolidation at the European level.

“It is nonsense to expect that economic growth will be higher if we will only be cutting and limiting public spending at any price,” Fico said on April 24 as quoted by SITA. “Thus easing the tempo of consolidation in 2014 and the upcoming years is a topic in which we want to participate, but under the condition that such easing would concern all the member states of the European Union and not only a couple of particular states.”

As for the country’s deficit at 4.35 percent of GDP, Martin Baláž and Mária Valachyová of Slovenská Sporiteľňa commented that the previously available data had suggested worse deficit developments, adding that the deficit for 2011 was revised from 4.9 percent to 5.1 percent due to higher deficits by local and regional governments and tax collection.

Market watchers noted that among eurozone countries, those which applied for bailouts by EU institutions, such as Spain, Greece, Ireland, Portugal and Cyprus, had higher deficits than Slovakia, as did France.

The debt

The 52.1 percent public debt represents a rise of 8.8 percentage points, or €7.3 billion, Kažimír told the press, explaining that “the biggest share of the rise in debt was due to the budget deficit itself, to the tune of €3.8 billion”, the TASR newswire reported.

The increase was also partly due to a rise in the value of public administration assets, as the funding of the state debt was covered from state reserves in late 2011. The third factor lay in a €1.321 billion increase in Slovakia’s contribution to the European Financial Stability Facility (EFSF), according to the Finance Ministry.

Along with the explanation for exceeding the 50-percent debt cap, Kažimír will also have to submit a set of measures to tame the public debt. The minister, however, has so far remained tight-lipped about any specific measures, although he suggested that these might be linked to the stability programme for 2013-2016, TASR reported.

The debt is expected to go up to 54.6-54.8 percent this year, according to Kažimír.
“Trust me that we will do all we can so as not to go above 55 percent,” he said.

However, the ministry believes the debt will exceed 55 percent and go up to 56.3 percent of GDP in 2014 and even higher, to 56.7 percent, in 2015. A drop is projected for 2016, standing at 55.9 percent, according to the Ministry of Finance’s estimate.

Based on the fiscal responsibility legislation, the finance minister has to provide a sound explanation when the debt reaches 50 percent of GDP, along with proposed solutions for its reduction.

If the public debt exceeds 50 percent, the finance minister must write a letter to parliament explaining the reasons and proposing remedial steps. If the debt reaches 53 percent, the government will be obliged to adopt a package of measures and freeze its own salaries. At 55 percent, it will be impossible to increase expenditures for the following year. At 57 percent, the government will have to prepare a balanced budget. If these measures fail to work and the debt still reaches the 60-percent ceiling, the government must initiate a vote of confidence.

Europe

The average public debt of the member countries of the eurozone in 2012 reached 90.6 percent of GDP, compared to 2011 when the debt stood at 87.3 percent. The debt of the EU jumped in 2012 to 85.3 percent of GDP after standing at 82.5 percent in 2011. The highest public debt was reported by Greece, with 156.9 percent of GDP, followed by Italy with 127.0 percent and Portugal with 123.6 percent, according to SITA.

The budget deficits of the member countries of the eurozone climbed to 3.7 percent on average, while in 2011 the number stood at 4.2 percent. Within the EU, the deficit of member countries dropped to 4.0 percent, while in 2011 it stood at 4.4 percent, according to SITA.

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