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Lengthy coalition negotiations could harm economy

The business sector has been calling for reforms.

Trnava(Source: SME)

Slovakia reported a strong economic growth of 3.6 percent in 2015 but it is not expected that it would repeat such sound results this year. External factors and the stalemate situation after the March 5 parliamentary elections will likely slow growth, some say. While the ruling Smer party that has lost its majority and have problems to find coalition partners, right-leaning parties also are not strong enough to form a solid government.

Economic analysts and experts reiterate that the Slovakia’s economy needs a stable government to maintain growth. But they are sceptical do not believe that either a leftist or rightist government of more than three parties would be able to agree upon necessary reforms.

“Processes are set,” economist Vladimír Baláž from the Institute for Forecasting of the Slovak Academy of Sciences told the Sme daily. “For approximately one or two years our economy manages to operate by gravity.”

This means that problems could arise after two years as the national economy cannot grow markedly anymore without structural reforms, especially in education and research.

“The problem is, that from the spectrum that has made it to parliament I cannot imagine a government that would be able to agree on these important questions without problems,” said Baláž.  

Radovan Ďurana, an analyst at the Institute for Economic and Social Studies (INESS), pointed out that for Slovakia’s economy depending on export, the political stability that affects trust of foreign investors is very important, the TASR newswire wrote. He added that even though exports grew during the previous government, just a few foreign investors arrived in Slovakia and these came mostly thanks to generous stimuli.

The analysts do not think that the arrival of the fourth carmaker Jaguar Land Rover agreed upon during final months of 2015 would be affected by the elections, but Slovakia will have to wait to see new investors coming.

“Investors will want to wait for the new government and its concrete steps,” said Andrej Arady, economist with VÚB bank.

Martin Reguli, an analyst from the F. A. Hayek Foundation, expects that in case Smer manages to form the government, it would want to continue launching so-called social packages. But it is questionable whether the possible coalition would allow it, the TASR wrote. Reguli estimates that for a coalition formed by Richard Sulík, the head of the Freedom and Solidarity (SaS) that ended second behind Smer, a flag ship might be re-introduction of the flat tax while a reform of the old-age pension scheme and improvement of the business environment might be its other aims high on the agenda.

The economic analysts also do not exclude early elections or a caretaker government to be formed from apolitical experts.

Peter Kremský, executive director of the Business Alliance of Slovakia, believes that the election result is a great opportunity for a government of national responsibility that would not consist from politicians but experts in given fields respected in the whole society.    

“A cabinet of experts with support of as many parties as possible would have clear reform tasks, strong supervision from the side of parliament and president and should operate in a very transparent way,” said Kremský as cited by TASR.

Among needed reforms Kremský listed a reform of judiciary as well as addressing issues of corruption, bureaucracy, taxes and levies.

While Kremský believes that quickly passed reforms may help the economy, lengthy negotiations about the new government accompanied by political uncertainty may harm the economy.   

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