By Peter Laca
BRATISLAVA, Oct 24 (Reuters) - Slovak central bank Governor
Ivan Sramko called on the government to have spending cuts ready
from early 2009 to ensure it meets its fiscal deficit goal if
budget revenues fall short of the plan.
In an interview with Reuters cleared for publication on
Friday, Sramko welcomed the planned fiscal gap cut to 1.7
percent of gross domestic product from an estimated 2.2 percent
this year.
However, the central bank governor said the two main risks
to this were an economic slowdown stemming from the global
financial crisis and one-off revenues that may undershoot the
target.
The leftist Slovak government, preparing the country to join
the euro zone in January, had based the 2009 state budget draft
on an assumption of 6.5 percent GDP growth, a forecast made
before the financial market turmoil escalated in September.
The cabinet has since said it was aware of downside risks.
But it said the budget draft, now in parliament for approval,
did not need to be reworked, and that it would react when it
sees income coming in below the plan.
"It is important that the government create reserves and be
prepared to react to counterbalance the risks if they
materialise," Sramko said.
"What is needed is to be ready to react from the beginning,
especially on the expenditure side, so that the final deficit
target is met, because that is a key issue," he added.
While Slovakia has been largely shielded from any direct
impact of the financial turmoil on its banks, the small and open
economy will feel an indirect effect if demand in its main
export markets weakens as consumers curtail spending.
Sramko declined to comment how much the central bank's
forecast of 6.6 percent GDP growth for 2009 may be revised in
the quarterly update of economic prognosis, which will be
published together with other euro zone countries in December.
But Sramko said the slowdown might not be dramatic.
"We have to respect the fact that the cooling of economy is
happening on a global scale, and is quite significant," he said.
"On the other hand, signals from the latest meeting with the
largest exporters were the impact might not be very dramatic,
though the development is very dynamic and can bring surprises."
ONE-OFF REVENUES
Apart from GDP growth, the other main budget draft risk is
one-off revenues, related partly to pension system changes.
The cabinet, which now has to include the pension system
deficit in the overall fiscal gap, wants to let people leave
private pension funds and return to the state-run scheme.
The plan should cut the gap in the state-run pay-as-you-go
pension scheme, and free money in the state budget. Those funds
are already allocated for spending next year.
The budget draft expects some 150,000 people to cancel their
private pension accounts and return to the state-run scheme, but
Sramko said such a prediction was hard to calculate precisely.
"This transfer of people is difficult to forecast, it can
only be a rough estimate and it needs to be viewed as a risk in
the budget," he said.
The one-off revenues in the budget draft, which Sramko said
totalled more than 10 billion crowns ($420 million), will also
make it harder to prepare a budget aiming for a further deficit
reduction in 2010 when such one-time income will not repeat.
The central bank would also welcome more detailed measures
in the fiscal outline for 2010 and 2011 identifying steps
towards the balanced public finances envisaged in 2011.
Sramko declined to comment directly on when and how Slovakia
would align its interest rates with the euro zone before it
becomes the 16th member of the single currency bloc in January.
The main Slovak interest rate is 4.25 percent, 50 basis
points above the European Central Bank's benchmark following the
coordinated rate cut by major central banks earlier this month.
Sramko said the Slovak monetary authority is discussing
whether to cut its rates in one step or in gradual moves.
"I personally prefer a method without large jumps, but the
key in this respect will be further policy decisions of the
European Central Bank," he said.
(Reporting by Peter Laca; Editing by Andy Bruce)
