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NBS: There are Risks in Fiscal Consolidation Strategy
Monday 21 December 2009 Zoom in | Print page
Bratislava, December 21 (TASR) - Slovak Central Bank (NBS) sees risks in the national fiscal consolidation strategy, it was announced on Monday.
As planned, the deficit should start decreasing next year from 6.3 percent to the requested 3 percent in 2012.
The biggest risk is the absence of active measures on the expenditure side of the balance to restore the public finances, comments the bank on the budget for the next three years. The comments were published in the latest Biatec magazine issue.
The planned consolidation is based only on the natural growth of incomes and GDP, and therefore criticism may be expected from the EU as Slovakia didn't introduce binding limits for public expenditures. The budget doesn't count on such limits.
A weak point of the budget also is, according to NBS, that expenditures are planned to be financed by an ambitious drawing of eurofunds. Slovakia in the past showed only limited ability to absorb them. The budget doesn't elaborate on more active support of drawing, and it is thus difficult to expect a more significant acceleration of sources, states NBS.
NBS appreciates planned savings in the total value of €700 million, but says that these should be done in such areas that have lower potential to contribute to the economy, while the savings should be carried out in a sustainable way via adequate structural measures and reforms. If obligatory expenditures are kept on account of capital investments, there are risks created for the maintenance and long-term sustainability of public finances, reports NBS.
Another risk can be the expected growth of public debt as the need to refinance it with growing indebtedness of European governments can be pushing out private investments, while the growing interest rates may present further pressures on budget expenditures.
The bank points out that the public debt is estimated to reach 42.2 percent of GDP (€14.7 billion), and, taken the problem of long-term sustainability into account, simulations show that even 40-percent debt can be too high.
NBS considers it a risk also that the Government in its fiscal plan for the next three years isn't more actively preparing for the ageing of the population. The remaining money from the privatisation will be spent in 2010 that substitute the shortfall of incomes in the state-owned social insurer Socialna Poistovna due to the introduction of the second pension-saving pillar, and this shortfall will then have to be financed directly from the state budget. Adding unfavourable situation in incomes to the Social insurance due to the crisis, the running pension system is endangered.
It is therefore also necessary to pay attention to the long-term sustainability of the pension system, which was also recommended by the EU Commission when it evaluated the Slovak Stability Programme for 2008-2012, stated the NBS.
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