Slovak Public Finance at the Entry to the Eurozone

Possessing sound public finances is one of the four Maastricht convergence criteria enshrined in the 1992 Treaty on European Union. By signing their accession treaties, the new member states agreed to meet the Maastricht criteria with derogation. Sound public finance criterion is defined as annual general government deficits of lower than 3% of GDP together with a general government debt lower than 60% of GDP.

The Slovak government’s official target date for entering the Eurozone was set to January 1, 2009, and as such was adopted by the new government led by left-leaning Smer-SD in 2006. The country’s preparedness to enter the monetary union will be assessed by the European Central Bank and the European Commission in spring 2008.

After eight months of 2007, the state’s budget is in black numbers with a surplus of 401.7 million Sk (12 million EUR). Year on year, this is an improvement of 6.1 billion Sk (181 million EUR). On a last twelve months basis, the state budget deficit stayed at -1.7% of GDP. Corporate tax revenues and VAT collection are both showing positive results. Hence, the probability of meeting the 3.0% EMU criterion is regarded as quite high. As a matter of fact, it is estimated at 81% according to a regular survey of economists done by the Institute for Economic and Social Reforms (INEKO).

The 2008 state budget was prepared in August this year by the Ministry of Finance and presented to the cabinet. The deficit should amount to 24.218 billion Sk (721 million EUR; 2.4% of GDP). Medium-term financial framework - the Convergence Program of May 2004 - calculates in addition with a deficit of 1.9% of GDP in 2009. The goal of the program is a structural deficit of 0.9% of GDP by 2010.

Several analysts have expressed the opinion that a record economic growth of the current years allows for a prompter deficit reduction. The public finance is constrained, however, with the costs of a brave pension reform that introduced a second private pillar for pension savings (1.1% of GDP in 2006).

The general government debt of the Slovak Republic amounted to only 30.7% of GDP (503.1 billion Sk; 13.86 billion EUR) in 2006 according to Eurostat, which is a twelve-year low. The number is compatible with the 60% Maastricht requirement, comparable with that of the Czech Republic (30.4%), and considerably lower than that of Hungary (66.0%), Poland (47.8%) or the EU-27 average (61.7%).