Slovakia May Need More Austerity From 2015, Budget Watchdog Says

Slovakia’s goal to squeeze the budget deficit to 2.8 percent of output next year is achievable, though the government will need to take more fiscal measures to further improve its public finances.

The administration of Premier Robert Fico relies mainly on one-time and temporary measures to keep the shortfall below the European Union’s limit of 3 percent of gross domestic product, said Ludovit Odor, a board member at the Fiscal Responsibility Council, an independent budget watchdog. This creates a need for more austerity from 2015 to ensure gap will keep narrowing.

“It seems that goal can be achieved, but problem areas will need to be monitored,” Odor told journalists at a press conference in Bratislava, Slovakia today, referring to municipal budgets and the health-care system.

Fico has made fiscal prudence his priority to differentiate the country from ailing members of the euro area it joined in 2009. The country relaxed its plan to trim the deficit more in 2014 and sought to boost revenue for temporary tax surcharges and sales of state assets as further spending cuts could harm flagging growth.

The budget is based on an assumption of economic growth accelerating to 2.2 percent next year, from a projected 0.8 percent in 2013, as domestic demand is set to join exports in driving the economy.

Slovakia expects to exit the EU’s excessive deficit procedure next year once the 2013 deficit narrows as projected to 2.9 percent of GDP from 4.4 percent last year.

Still, the EU may not allow it unless the government presents credible fiscal measures for 2015, when the deficit is set to shrink to 2.6 percent of GDP, Odor said.

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