New government to tackle fiscal overshoot
Overview:
The four-party, centre-right coalition that came to power following parliamentary elections in June has its work set out to tackle a rising budget deficit. Slovakia was well-placed to cope with the global financial crisis given a sound starting position with few macroeconomic imbalances. While fiscal loosening was appropriate to soften the economic downturn the budget deficit appears set to exceed 7% of GDP this year, well above target. The economy is rebounding strongly given a pick-up in world trade and Slovakia’s strong export base. Nevertheless, bringing the budget deficit back down to 5% of GDP in 2011 will require the implementation of a fiscal austerity package that includes both significant expenditure restraint and tax hikes. The opposition will seek to make political gains from this.