Members of the Slovak government have quietly revised major macroeconomic targets for 1999, confirming what econpmic analysts have long been saying - that the cabinet's original goals, as stated in the 1999 state budget, were far too ambitious.
On April 30, Deputy Prime Minister for Economy Ivan Mikloš told a news conference the government had effectively approved a public sector budget deficit of around three percent, far above the two percent target originally proclaimed by the government or the 1.6% the central bank had been hoping for.
The government has not yet officially changed its budget targets, but Mikloš urged his colleagues to publicly come to grips with the new situation.
"It would be honest [now] either to adopt further measures to support this target [of 2% of GDP] or to change our targets," said Mikloš.
Mikloš explained that the figure for the entire public sector had been unavailable at the time of the state budget's passage in March, since it represented the combined deficits of the central government and all state funds, agencies and institutions, and had taken time to compile.
Economy Minister Ľudovít Černák then predicted on May 3 that the country's trade balance, a key component of the balance of payments, would end this year with a deficit some 30 to 35% below that in 1998. "The aim of reducing the trade balance deficit by 30 to 35% for 1999 is realistic," he said.
Černák's estimate was also a quiet readjustment of what the cabinet has been predicting until last week. The government had repeatedly declared it wanted to cut the balance of payments deficit in half from about 11% of GDP in 1998, a target that would be impossible to meet without a major improvement in the trade balance.
Černák added that he expected Slovak exporters to pick up the pace in 1999, but the trade gap - the difference between exports and imports - has so far worsened progressively in the first three months of this year for which data are available. While in January the trade balance deficit represented only 48% of that for the same period in 1998, this figure rose to 61% in February and 72% in March.
The slippery slope
Earlier this year, Mikloš had been the first voice within the government to disagree publicly with official economic targets, calling the government's prediction of three percent growth in gross domestic product unrealistic. Now, several months after the passage of the budget, economic analysts both in Slovakia and abroad are saying there may not be any growth at all.
Ivan Chodák, an analyst with CA IB Securities in Bratislava, said that he agreed "with those analysts who are now predicting growth of less than one percent. Domestic demand will fall sharply as a result of government restrictions, resulting in a shrinkage in GDP."
Unemployment is another target that has come under fire. Targeted in the budget at 15%, the jobless rate stood at over 17.6% in April, and a top official in the National Labour Office suggested it could easily rise to over 20% this year.
The government as a whole, however, steadfastly refuses to budge on any of its originally proclaimed aims. The one economic indicator directly under the government's control, the state budget deficit, is still targeted at 15 billion crowns, or two percent of gross domestic product. However, Mikloš and numerous analysts outside the government have expressed doubts it could be met without more major cost cutting.
The budget deficit also has a major influence on foreign trade and the balance of payments, since imports into Slovakia are directly affected by the level of domestic consumption and thus also of government consumption.
Chodák explained that the main problem the government would encounter in meeting its 1999 targets was on the revenue side of the budget. "There will be problems in collecting taxes, as tax targets have been set on the assumption of 3% GDP growth," he said.
As budget revenues shrank below projections, Chodák continued, the government would be forced to rely on non-tax revenues such as money from planned privatisation projects.
The government recently announced a revision to the strategic companies act, freeing a broad range of state firms for sale to foreign investors.
However, state and private sector economists remain convinced that non-tax revenues will not be sufficient meet the state's fiscal and trade deficit goals.
The Governor of the National Bank of Slovakia Vladimír Masár told a press conference at the end of April he saw no reversal in either the public sector deficit or in foreign trade developments, and warned the central bank may be forced to pursue a more restrictive monetary policy to temper negative fiscal developments.
