Slovakia forecasts first budget surplus

Posted on August 16, 2016

Chairman of the Slovak Smer-Social Democ...Chairman of the Slovak Smer-Social Democracy party Robert Fico addresses supporters during an election rally on March 2, 2016 in Bratislava ahead of the March 5 general elections. / AFP / SAMUEL KUBANISAMUEL KUBANI/AFP/Getty Images©AFP

Slovakia has forecast its first budget surplus in 2019, as the small eurozone country continues to outperform many of its peers in the bloc and calls for tougher treatment of states that flaunt EU spending rules.

The central European country is betting on strong GDP growth and a number of tax reforms to achieve a surplus. Such a fiscal tightening would be a contrast with most of its eurozone peers — Germany, Luxembourg and Estonia are the only countries in the 19-member bloc that ran a budget surplus last year.

    “Slovakia is doing very well economically,” Robert Fico, the country’s prime minister, said at a press conference in Bratislava on Tuesday. “Primarily this is based on fiscal consolidation and, on the other hand, promoting economic growth.”

    The government’s three-year fiscal plan forecasts a budget surplus of 0.16 per cent of GDP in 2019, following a predicted budget deficit of 1.29 per cent in 2017 and around 2 per cent this year. The pledge comes three weeks after the EU decided not to enforce penalties against Portugal and Spain for oversized deficits.

    Unlike most of its peers, Slovakia rebounded strongly from the 2008 financial crisis thanks to healthy inflows of EU funds, a surge in private investment into the country’s manufacturing industry and steady demand for exports. Upcoming foreign investment projects in Slovakia, such as Jaguar Land Rover’s planned £1bn factory
    , are expected to boost output.

    However, some analysts were sceptical of the government’s growth forecasts and its confidence in generating higher tax revenues. Slovakia has not posted a budget surplus before in its 23-year history.

    “I am a bit sceptical about how successful the budget will be in meeting its aims. It seems to have something for everyone,” said William Jackson, senior emerging markets economist at Capital Economics in London. “The main problem here is that it’s based on overly optimistic growth forecasts . . . In practice, it is unlikely that the Slovakian economy will grow that quickly.”

    I am a bit sceptical about how successful the budget will be in meeting its aims. It seems to have something for everyone

    – William Jackson, Capital Economics

    Bratislava forecasts economic growth of 3.7 per cent in 2017, up from 3.2 per cent this year and above the EU’s forecast of 3.3 per cent for the country. The surplus forecast is based on predicted GDP growth of 4.1 per cent in 2018 and 4.6 per cent in 2019, levels not seen since before the financial crisis.

    “We are one of the best performers in the euro area,” said Peter Kazimir, the country’s finance minister. His reform plans include cutting corporate tax by 1 percentage point to 21 per cent, alongside levying a 15 per cent tax on dividends.

    Both the budget and the reform plans must be approved by parliament, where Mr Fico’s shaky four-party rainbow coalition holds a slim majority.

    The country’s good economic progress under Mr Fico was the linchpin of his first term in office, and was crucial in enabling him to muddle together a coalition after losing his parliamentary majority in March, amid rising support for nationalist and far-right parties.

    The bullish forecast shrugs off earlier fears that Slovakia would suffer from the economic fallout of Britain’s vote to leave the EU, given its dependence on exports to other EU countries and its sensitivity to a continental slowdown.

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