Czech, Slovak budget gaps hit record as crisis stings

The Czech budget deficit jumped well past expectations last year, but better than expected revenue in Hungary and Slovakia.

Czech, Slovak budget gaps hit record as crisis stings

The Czech budget deficit jumped well past expectations last year, but better than expected revenue in Hungary and Slovakia helped avoid their governments' most pessimistic forecasts.

Economists say governments across the European Union's eastern arm must rein in deficits or risk derailing efforts to catch up with richer EU states and join the euro, also worrying that upcoming elections across the region may complicate that.

Although not as dire as double digit budget gaps in the EU's worst hit states, the Czechs saw their central state budget deficit hit 192.2 billion crowns, almost five times the original plan and above previous estimates.

Finance Minister Eduard Janota said the deficit would likely mean an overall public sector deficit of 6.6-7.0 percent of gross domestic product under the European Union's ESA rules, well over the 3 percent ceiling for euro entry.

The expected 4 percent contraction in the economy was key to missing the cabinet's 175 billion crown target for a central state budget that makes up the main part of the total fiscal balance.

"This is historically the highest deficit... and it was caused almost exclusively by a failure to meet revenue (plans)," Janota said.

The 2010 budget foresees a deficit of 163 billion crowns, with the overall public sector gap at 5.3 percent of GDP.

Prime Minister Jan Fischer said this year's gap could still grow if left-leaning parties push more spending -- rolling back maternity pay cuts, cancelling doctor fees or adding an extra pension payment -- in a January parliamentary session ahead of a general election in May.

Czech President Vaclav Klaus vowed on Monday not to sign any new bills into law that would push the proposed 2010 budget deficit above the plan. Klaus has veto rights but can be overruled by a parliamentary majority.

Cuts

Poland is the only country in ex-communist Central Europe to avoid recession last year, and it expects its 2009 budget target to come in lower than its 27 billion zloty ($9.41 billion) plan.

But that is expected to double this year for a general fiscal deficit that could hit 7 percent of GDP, while the government has avoided tax hikes and spending cuts ahead of presidential and parliamentary elections this year and next.

In Slovakia, the newest euro zone member, the central state budget gap rose to 2.791 billion euro ($3.99 billion) in 2009, four times the 2008 deficit and a record in nominal terms.

But an upgraded economic outlook in the final quarter of the year helped it to a better result than the 3.154 billion euro deficit estimated in October by the centre-left cabinet of Prime Minister Robert Fico, a goal triple the original target.

Slovakia switched to the euro a year ago and aims to bring its overall fiscal gap -- estimated at 6.3 percent of GDP -- under the EU's 3 percent ceiling by 2012, one year earlier than requested by the European Commission.

The Commission has forecast Slovakia to emerge from the crisis as one of the EU's fastest growing members in 2010 with a 1.9 percent expansion, but analysts were cautious on staking lower deficits squarely to economic growth.

"Based on the prime minister's latest comments it appears that the government is counting mainly on economic growth and does not plan many pro-active steps," said Slovenska Sporitelna analyst Michal Musak.

Hungary, after years of lax fiscal controls, was the first country in the European Union to seek International Monetary Fund aid in 2008 to help plug financing holes -- help that came with tight conditions attached. The country's finance minister, Peter Oszko, said the 2009 cash-flow budget deficit will be below the government's target as tax revenues in December came in above expectations while spending remained under control.

That means Hungary is on track to meet one of the key conditions of its $25.1 billion IMF-led bailout. The ministry will publish details of December budget performance on Tuesday.

Reuters
Last Mod: 04 Ocak 2010, 22:47
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