Slovak Lawmakers Back Budget Targeting Deficit of 4.6% of GDP

Slovak lawmakers approved the 2012 budget that seeks to reduce the deficit at a time when the country is heading toward early elections and the euro-area’s debt crisis is weighing on the economy.

The spending plan, approved in a 75-54 vote with 4 abstentions, targets a maximum shortfall of 4.6 percent of gross domestic product, compared with a goal of 4.9 percent in 2011. The caretaker government of Iveta Radicova has abandoned a plan to trim the shortfall to the originally targeted 3.8 percent as the debt crisis reduces economic-growth prospects in the bloc’s second-poorest member.

“There is a risk that the deficit will climb toward 5 percent as a recession can’t be ruled out,” said Juraj Valachy, an economist at Tatra Banka AS in Bratislava, Slovakia. “Despite the early elections, the government should have done more. The situation on financial markets is tight and there is no time to wait for the outcome of the elections.”

Slovakia, which adopted the euro in 2009, is seeking to trim its deficit to avert contagion from the credit crisis, which has spread from Greece into Italy. The government relies on fiscal prudence to calm investors after the cost of insuring against a Slovak default has almost quadrupled this year and the country has failed to raise the planned amount at Treasury bond auctions in November.

Lower Growth

The Finance Ministry last month revised its forecast for the 2012 growth to 1.7 percent, half the original projection, as the euro area’s debt crisis hurts demand for exports of the products made in the country such as Samsung Electronics Inc. television sets.

The European Commission expects an even bigger slowdown, forecasting 1.1 percent growth, while Tatra Banka’s Valachy says the economy may shrink 0.5 percent. The budget was also criticized by the opposition led by Smer party leader and former Prime Minister Robert Fico, who said the growth assumption isn’t realistic and the deficit may be wider.

Three months before the elections, the fractured former coalition wasn’t able to agree on more spending cuts to respond to faltering growth prospects. Radicova is in office until a March 10 vote after she lost a confidence motion on Oct. 11.

Even with the slowing economy, the country should stick to its goal of trimming the budget gap below the European Union limit of 3 percent of GDP by 2013, Finance Minister Ivan Miklos said when presenting the budget to lawmakers. Still, the central bank said Dec. 5 the risks of not meeting this goal have risen, boosted by the government’s collapse.

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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