Coronavirus postpones balanced budget in Slovakia

The Slovak cabinet adopted the general government budget for the next three years.

Finance Minister Eduard HegerFinance Minister Eduard Heger (Source: TASR)

Slovakia will continue to have deficit budgets during the following three years due to the impacts of the coronavirus pandemic on businesses in Slovakia as well as its main trade partners. The Slovak cabinet adopted the general government budgets for 2021-2023 on Wednesday, October 14, just one day before the deadline for sending the document to parliament set by the law on budgetary rules for October 15.

“We are reeling in the biggest crisis,” said Finance Minister Eduard Heger after the cabinet’s session, as cited by the SITA newswire. He said the budget reflects the truth, salvation and responsibility as it does not hide anything, mitigates the impacts of the coronavirus crisis and is balanced between needed resources and the future need for the consolidation of public finances.

The general government deficit is projected at 7.44 percent of gross domestic product (GDP) next year. The deficit should gradually decrease to 6.18 percent of GDP in 2022 and further to 5.72 percent in 2023. The current estimate for this year assumes a deficit of as much as 9.68 percent of GDP.

Total revenues of the general government budget should be €39.5 billion next year and expenditures should amount to €46.7 billion. The deficit should thus total €8.05 billion. General government debt is above the Maastricht threshold of 60 percent of GDP and next year’s gross public debt is estimated at 65 percent of GDP. Last year, it was just 48 percent.

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The budget has been drawn up based on a forecast of a 6.7-percent year-on-year decline in GDP in 2020. In 2021, the economy is expected to recover, with GDP expected to grow by 5.5 percent y-o-y. A risk scenario counts on a contraction of GDP of 8.4 percent y-o-y in 2020 and a more moderate GDP growth of 4.3 percent in 2021. A possible second wave of mass coronavirus restrictions would reduce general government revenues by €1 billion when compared to the best estimate, the Finance Ministry noted.

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Radovan Ďurana of the think-tank Institute of Economic and Social Studies (INESS) considers the projected deficit too high to be justified despite the uncertainty posed by the coronavirus. Ďurana opines that the cabinet’s reluctance to adjust the budget to times of crisis in the year 2021 and instead increase expenditures by 13th pensions and other social benefits is a problem.

“Based on the latest forecasts, total tax revenues in 2020 should only be €950 million lower than in 2019. In 2021, they should already be higher than they were in 2019,” he pointed out. “Even if the state aid to entrepreneurs, employees or artists totals €2 billion or 2.2 percent of GDP, the deficit would not be so high.”

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