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Slovakia may go bankrupt in 15 years

IF SLOVAKIA does not adopt new reforms or does not increase taxes, it may face bankruptcy in 15 years. 

(Source: SME)

This is one of the main messages of the current report on the long-term sustainability of public finances issued by the Council for Budgetary Responsibility (RRZ).

“The demographical prediction in Slovakia is bad, and if no new measures are adopted, not even the favourable wind of the sails of the economy will save the public finances,” said Michal Horváth, member of the RRZ, as quoted by the TASR newswire.

The indicator of the long-term sustainability stood at 2.4 percent of GDP last year, up from 1.9 percent in 2013. The number is an indicator of how much the state would have to increase taxes or decrease expenses in order to not exceed the public debt at 50 percent of GDP in 50 years. The annual difference is negative for the first time, according to Horváth. One of the reasons may be the worse starting position caused by the increase in the public finances deficit from 2.6 to 2.9 percent of GDP, and the increase in the structural primary balance by 0.8 percent of GDP, as reported by TASR.

From the long term point of view, the RRZ expects the increase in the deficit and public debt. Slovakia may reach a debt level of 100 percent of GDP in 2030, according to Horváth. To avoid this situation, the country needs to behave responsibly and adopt necessary measures, he added.

“The key area to make things more effective is health and long-term care,” he said, as quoted by TASR, adding that these sectors are affected by demography and the expenses on them should grow the most.

Members of the RRZ also said that not even the positive surprises, like catching up with the developed world or steep increase in birthrate, can help Slovakia change this negative prediction.

Horváth also said that the employment will continue decreasing by 2064.

“The current setting of policies suggests that the current generation receives high benefits at the expense of future generations,” he said, as quoted by TASR.

The Finance Ministry said that RRZ uses only theoretical scenarios that may happen in case the government does nothing.

“We cannot forget that during the past three years we improved the long-term sustainability of public finances by one half with using consolidation and reforms,” the ministry press department responded, as quoted by TASR, adding that if also further cabinets will behave in similar responsible ways, there is no reason for this catastrophic scenario to happen.

Topic: Finances and Advisory

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