Slovakia’s debt and deficit projected to increase in the coming years

The Finance Ministry is not worried about analysts’ warnings.

Council for Budgetary Responsibility (RRZ) chairman Ivan ŠramkoCouncil for Budgetary Responsibility (RRZ) chairman Ivan Šramko (Source: Sme)

The government-approved public finance budget for the years 2020 to 2022 is not based on realistic assumptions in several items of public finance revenue and expenditure.

The risks to the draft budget amount to 1.3 percent of GDP a year. Ivan Šramko, chairman of the Council for Budgetary Responsibility (RRZ), said so when evaluating the draft budget on November 15, as reported by the SITA newswire.

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If no additional measures are taken by the end of this year, he expects the deficit to reach up to 1.8 percent of GDP in 2020 and then increase to 2.0 percent of GDP in 2021 and 2.5 percent of GDP in 2022.

The Finance Ministry claims that it perceives the risks mentioned by the RRZ.

"However, the rhetoric of analysts is similar to previous years, during which not all risks occurred," Finance Ministry spokesperson Alexandra Gogová told SITA.

The same deficiencies

The government-approved draft budget expects a deficit of only 0.49 percent of GDP next year and a balanced budget in the next two years, although it does not contain measures that would lead to a balanced budget in these years.

"The draft budget contains the same shortcomings as the previous budgets," Šramko said, as quoted by SITA. "It overestimates non-tax revenues, underestimates the expenditures of local governments, health care and the Social Insurance Agency."

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He added that the draft budget projects a reduction in the public finance budget deficit for next year through a decline in investment of 0.8 percent of GDP. This may have a negative impact on potential economic growth.

Debt can increase

On the expenditure side, expenditure revisions should continue, and the final recommendations should have a greater impact on drafting the budget, Šramko added.

The RRZ also pointed out that the budget does not take into account the adopted measures, such as changes in the pension system, which significantly worsens public finances in the long term.

Given the magnitude of the risks, the RRZ expects debt to increase to 48.2 percent of GDP in 2019 and 2020.

Without additional measures, a deepening public finance deficit combined with a gradual decline in the boundaries of the penalty zones would lead to an increase in the public finance debt in the coming years. This would be at levels that would be subject to penalties in the third penalty zone of the constitutional debt limit, Šramko said, as reported by SITA.

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