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UPDATE 1-Slovakia aims for fiscal gap below EU limit

Published 04/08/2009, 07:48 AM
Updated 04/08/2009, 07:56 AM
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BRATISLAVA, April 8 (Reuters) - The Slovak government aims to keep the fiscal deficit under the European Union's limit this year despite a worsening economic outlook for the euro zone newcomer, Finance Minister Jan Pociatek said on Wednesday.

Pociatek, however, said the public finance gap might be bigger than the ceiling of 3 percent of gross domestic product set in the EU's Stability and Growth Pact if the global downturn deepens much more than currently expected.

The comments came only a day after the central bank said it now predicted the economy to shrink by 2.4 percent this year, a sharp cut from the previous forecastof 2.1 percent growth and a signal of Slovakia's first annual economic contraction ever.

The latest government forecast sees economic growth of 2.4 percent in 2009, but Prime Minister Robert Fico said last week a contraction of up to 1 percent was possible as the central European state suffers from a slump in demand for its exports.

"Our priority is to try and keep the deficit within the defined limits," Pociatek told reporters, adding global trends were crucial for budget performance.

"In case the downturn in the European Union, and in the whole world, is much worse than expected, then we will have to reconsider our goals," he said. The government, which has not yet officially abandoned the public finance gap target of 2.1 percent of GDP, has said earlier it does not want the deficit to exceed the EU's limit this year to avoid disciplinary measures.

Pociatek said on Wednesday the bloc's executive body might adopt a more relaxed approach to the deficits as the crisis has forced many member states to announce bigger shortfalls.

"Opinions within the European Union have been evolving, and maybe also the view of the European Commission on the 3 percent limit might be partly modified," he said.

Slovakia has not had to bail out any of its banks because they have engaged mainly in domestic financing covered by deposits.

But the 80-billion-euro economy has been hit by weakening demand for its key exports, mainly cars and electronics goods, as consumers in the West curtail spending.

Pociatek said the government would seek budget savings to counterbalance slowing revenues. Prime Minister Robert Fico, whose anti-crisis measures have focused mainly on preserving jobs, has said his expanded welfare programmes will stay intact. (Reporting by Peter Laca; Editing by Andy Bruce)

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