Updated convergence programme of Slovakia, 2006-2009 - Main contents

EN

Official Journal of the European Union

C 72/1

On 27 February 2007 the Council examined the updated convergence programme of Slovakia, which covers the period 2006 to 2009.

The macroeconomic scenario underlying the programme envisages that real GDP growth will increase from 6,6 % in 2006 to 7,1 % in 2007 and then decrease to 5,5 % and 5,1 % in 2008 and 2009, respectively. Assessed against currently available information, this scenario appears to be based on cautious growth assumptions for 2006 and plausible growth assumptions for the rest of the programme period. The programme's projections for inflation also appear realistic.

For 2006, the general government deficit is estimated at 3,4 % of GDP in the Commission services' autumn 2006 forecast, against a target of 4,2 % of GDP set in the previous update of the convergence programme. The better outturn is due to much stronger GDP and employment growth and lower interest expenditure and pension reform costs than expected. However, some of the additional revenues owing to the growth surprise were spent rather than devoted to faster deficit reduction.

As in the previous update, the main goal of the new programme's medium-term budgetary strategy is to achieve long-term sustainability of public finances in 2010, notably by reaching the medium-term objective (MTO) for the budgetary position of a structural balance (i.e. cyclically-adjusted balance net of one-off and other temporary measures) of – 0,9 % of GDP. According to the programme the headline deficit should gradually decline from 3,7 % of GDP in 2006 to 1,9 % of GDP in 2009 and the primary deficit from 1,9 % of GDP in 2006 to 0,2 % of GDP in 2009. The envisaged fiscal consolidation relies on expenditure restraint with respect to both current and capital expenditure (decline in the expenditure ratio by around 3

 percentage points of GDP), which is less than fully offset by a decline in the revenue ratio (1

percentage point). Compared with the previous update, the new programme confirms the planned adjustment against a more favourable macroeconomic scenario.

The structural balance calculated according to the commonly agreed methodology is planned to improve from around – 3

% of GDP in 2006 to some -2

% of GDP in 2009. As in the previous update, the medium-term objective (MTO) for the budgetary position presented in the programme is a structural deficit of just below 1 % of GDP, which the programme does not aim to achieve within the programme period but by 2010. As the MTO is more demanding than the minimum benchmark (estimated at a deficit of around 2 % of GDP), achieving it should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The MTO lies within the range indicated for euro-area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.

The risks to the budgetary projections in the programme appear broadly balanced. The risks from the macroeconomic scenario are broadly neutral, while tax projections seem on the whole based on prudent assumptions. The envisaged...