Last year turned out to be more favourable in terms of the public sector's management than the state budget and all relevant institutions had predicted in their forecasts, Slovakia's central bank analysts stated in their commentary on the latest development of public finances. The general government deficit equals 2 percent of GDP, improving as much as 3.4 percentage points (p.p.) year-on-year (y-o-y). However, the Central Bank views this improvement as temporary and expects the public sector's performance to significantly worsen this year again.
"Lower expenditure related to the coronavirus pandemic is mainly behind the improvement, as well as higher tax and levy revenues and higher income transfers. The impact of positive effects on the economy was partly damped by higher expenditures on energy and inflation aid, aid to Ukraine and the impact of the family package's adoption," said the analysts.
They pointed out that the positive impact of the high nominal growth of the economy and the fading of pandemic measures would be significantly outweighed by three strong negative impacts this year. The delayed impact of high inflation on social spending is gradually being reflected on the spending side of the budget. Measures to compensate for high energy prices have been mostly proposed as across-the-board ones and will thus be costly. According to analysts, measures to support families are also financially costly, the impact of which will be fully felt only this year.
"For these reasons, the Central Bank's scenario expects a steep return to high levels of the general government deficit in 2023. In addition to this, the expected deliveries of military equipment will also have a negative impact on the level of the deficit in upcoming years," stated NBS analysts.
Slovakia's public debt fell below the 60-percent threshold to stand at 57.8 percent of GDP last year. However, it still exceeds the highest sanction band of the debt brake by 1.8 p.p.
Source: TASR
