(Repeating story from Tuesday)
By Martin Santa
BRATISLAVA, Aug 10 (Reuters) - The centre-right Slovak
government of Prime Minister Iveta Radicova won a confidence
vote in parliament on Tuesday and now faces a tough task of
fiscal consolidation to meet European Union targets.
Finance Minister Ivan Miklos expects a budget deficit of
between 7 and 8 percent of gross domestic product (GDP) this
year but plans to slash the gap by 2.5 percentage points next
year, in line with IMF recommendations.
Analysts say the euro zone member needs to lower its fiscal
deficit, fix its pension and healthcare sectors, reduce an
unemployment rate of 12.3 percent, crack down on corruption,
boost law enforcement and improve the business climate.
The following are key political risks to watch in Slovakia:
FISCAL CONSOLIDATION
Slovakia will miss the 5.5 percent of GDP deficit target
agreed with the European Commission for this year, as a drop in
tax revenue will raise the shortfall to above 7 percent, after a
7.3 percent deficit in 2009.
That has already pushed back the goal set by the previous
leftist cabinet of Robert Fico to cut the shortfall to the EU
ceiling of 3 percent of GDP by 2012 to the following year.
Miklos, who pledged to reduce the deficit to the EU limit by
end 2013, said he will deliver details of planned austerity
measures later in August.
The centre-right parties aim to cut public spending and
reducing waste but have pledged not to change Slovakia's flat 19
percent income and corporate tax rates.
Analysts say substantial changes to the pay-as-you-go state
pension system, taxes, and adjusting social and healthcare
transfer payments are needed.
The economy is expected to lead the European Union in growth
this year, but that will be based mainly on exports and
foreign-owned producers who bring in little budget revenue.
What to watch:
-- Radicova's coalition holds 79 of parliament's 150 seats,
a slim majority that could create hurdles to the government's
reform programme.
-- The economy depends heavily on net exports. Analysts warn
fading effects of European governments' economic stimulus
programmes could hamper demand, hit Slovak growth and curb
budget revenues as the domestic economy remains weak.
-- Without change, Slovakia is likely to miss the European
Commission deficit reduction deadline so a radical consolidation
could be needed. Some analysts believe some taxes will be
raised, which could cause tension in the ruling coalition.
SLOVAK-HUNGARY RELATIONS
The two nations have had rocky relations for centuries.
There was hope that both countries' EU entry in 2004 would
smooth relations, but in recent years they have eroded to the
point that analysts feared violence could erupt.
Fico's inclusion of far-right nationalists in his cabinet in
2006 sparked a series of diplomatic and political rows with
Budapest, and the policies of rightist Hungarian Prime Minister
Viktor Orban, who has tried to give more rights to ethnic
Hungarians abroad, has also stoked tensions.
What to watch:
-- The presence of the mostly ethnic-Hungarian party
Most-Hid in the cabinet is seen as a positive step towards
easing tensions.
-- Radicova plans to rein in conflicting laws on ethnic
minorities that limit the use of minority languages in official
business and strip citizens of their Slovak nationality if they
take the citizenship of another country.
CORRUPTION, BUSINESS CLIMATE
The government wants to improve the business climate, crack
down on corruption and boost law enforcement -- major concerns
for investors under the previous leftist cabinet.
Transparency International's corruption perception index
showed Slovakia fell to 56th place in 2009, down from 52nd the
previous year, worse than Central European neighbours Poland,
Hungary and the Czech Republic.
What to watch:
-- Radicova's administration has pledged to increase the
transparency of public procurement projects, publish make
government tenders on the Internet, and enhance the functioning
of the courts to reduce delays.
-- The government also plans to ease labour market
regulation, boost flexibility of the market designed to increase
employment, lure new foreign direct investments.
