Branko Jelínek: Portrét vlajky II. / Porträt der Flagge II. / Portrait of the ...

Slovak Economy in 1999 and Prospects for 2000
Slovak Economy in 1999
Macroeconomic Imbalance
The economic policy before 1999 was
characterised by comparatively high
growth with a parallel increase in both
external and internal imbalances. In
1998, the current account deficit as a
percentage of GDP was over 10%,
gross foreign debt exceeded 60% of
GDP and the budget deficit, including
the public finance deficit was in excess
of acceptable norms in mature economies.
This was due to an economic policy
which requided funds in excess of
available sources. Subsequent to the election
in the autumn of 1998, the new
government’s policies focused on ending
adverse economic trends and regaining
balance.
GDP Decrease and Growing Unemployment
A direct result of regaining balance in
1999 was a decrease in GDP growth
to 2% compared to 6% in the years
1995 to 1997 and 4.4% in 1998.
GDP growth prior to 1998 was amongst
the highest in the transition economics
of central and eastern Europe. The
main source of this growth was foreign
demand. With the slow-down in the
growth rate in the economy and the
delay in restructuring, the high level of
unemployment became critical. At the
end of 1999 unemployment reached
the alarming level of 19%, which is a
25% increase year-on-year.
Government Measures - Rapid
increase in inflation
The government adopted measures in
the first half of 1999 to address the
economic imbalances. This included the
introduction of a temporary 7% import
surcharge, increases in excise taxes and
VAT and also partial price deregulation.
As a result of these measures, year-onyear
inflation increased to 14.2% in December
1999 and the average inflation
rate for the year increased to 10.6%.
As a consequence of price deregulation,
electricity, energy, natural gas, heating
and telecommunication charges increased.
Positive Change in Foreign
Trade
The deficit on the balance of payments
decreased in 1999 by SKK 37.2 billion
to SKK 45.7 billion compared to
1998. The increased deficit in 1998
had resulted in pressures on the Slovak
Crown and on the reserves of the National
Bank of Slovakia. The main factors
that lead to the improvement in the
balance of payments were, firstly, a
decrease in domestic demand, which
resulted in a decrease in imports (yearon-year
growth of 1.6%); and secondly,
exports increased (year-on-year growth
of 11.8%) as a result of the recovery of
the economies in the Euro zone.
Restrictive Fiscal Policy - Lower
Budgeted Public Debt
The expansive fiscal policy of recent
years was replaced by a restrictive fiscal
policy in 1999. This resulted in the
deficit reaching, according to preliminary
figures, 2% of GDP. As a result of
the drop in interest rates, the cost of financing
the deficit also decreased. On
1 January 2000 the corporate income
tax rate was lowered from 40% to 29%.
Forecast for 2000
The stabilisation of the macro economy
will continue in 2000. According to
preliminary estimates, the growth in
GDP will be between 1.7% and 2%.
The high levels of unemployment will
also continue. Reducing unemployment
is dependent on long term economic
growth and a fundamental restructuring
that will impact at the micro economic
level. The Government will continue with
price deregulation, which will lead to a
further increase in the consumer price
index. The continuing economic boom
in OECD countries, which accounts for
92 to 93% of Slovakia’s exports, will
translate into a reduction in the trade
deficit and other current external imbalances.
Higher direct foreign investment
is expected, especially after 2000. The
Government has started with the long
postponed restructuring of the economy,
including the privatisiation of the large
state-owned banks (V‰eobecná úverová
banka, Slovenská sporiteºÀa and Investiãná
a rozvojová banka). These banks
are to be sold to foreign investors in
2000 or 2001. A further important
event is the possible inclusion of Slovakia
in the OECD. The decision will be
taken at the end of April 2000.
51
Annual Report 1999