October 24, 2020 (08:06)

The Slovak government has adopted a draft state budget for 2021-2023

The draft state budget of the Slovak Republic for 2021-2023, developed by the Ministry of Finance of the Slovak Republic, was approved at the meeting of the Slovak government on October 14, 2020 and currently undergoes the process of adopting the relevant law in parliament. The document contains elements of economic forecasting and fiscal planning of the state in the context of the economic crisis that is developing in the Slovak Republic against the background of the global economic recession and the COVID-19 virus pandemic.

According to the draft government document, based on the results of 2020, under the baseline scenario, the Slovak economy may lose 6.7% of GDP, and in 2021 the economy is expected to recover and GDP is expected to grow by 5.5%. In the event of a more probable, according to the source, crisis scenario, which envisages the strengthening of government measures to limit business activity in the IV quarter of 2020 in connection with the COVID-19 pandemic and reduction in demand for Slovak products in foreign markets, GDP decrease may reach 8,4% in 2020, and GDP growth will not exceed 4.3% next year.

According to the expert, the strong economic downturn in the first half of 2020 was caused by the weak domestic and external demand. Business activity reached its lowest level in the second quarter, when the decline in industrial production reached an all-time low level. At the same time, the labor market of the Slovak Republic has proved to be more resilient, slowing down household consumption and retail sales. The economy partially recovered after the quarantine measures were weakened in the second half of this year.

Under the baseline government scenario, the total revenue of the state budget of the Slovak Republic for 2021 is projected to be EUR 39.6 billion; expenditures are projected to be EUR 46.7 billion; EUR 1.04 billion is earmarked as a reserve in the event of a crisis scenario. Thus, the budget deficit in 2021 may amount to EUR 8.1 billion (or 9.4% of GDP). The deficit is expected to gradually decrease to 6.2% of GDP in 2022 and to 5.7% in 2023. External public debt next year is estimated at the level of at least 65% of GDP, and it may grow to 69.4% of GDP by the end of 2023.

According to our experts, the implementation of the plan to achieve a balanced budget of the Slovak Republic by 2023, provided by the current program of the government of Prime Minister Igor Matovic, will require consolidation measures amounting to EUR 6 to 8 billion annually, which is unrealistic. Such a sharp fiscal upturn could have serious devastating consequences for the economy and threaten social and political stability of society.

The only source of such significant investment in the Slovak economy is currently the EU funding, which the Slovak government is counting on under the new EU budget for 2021-2027 and the European Economic Recovery Plan. According to the estimates of these two documents, in the medium term, Slovakia can use up to EUR 18.6 billion of additional aid, as well as up to EUR 7.5 billion of grant aid and up to EUR 6.8 billion of highly profitable long-term loans.

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