Monitoring of public finance development

The Council for Budget Responsibility has a duty to monitor and evaluate the development of public finances. This in practice means that the CBR evaluates various documents presented by the government, mainly the General Government Budget. The General Government Budget represents a basic document through which the government implements its economic policy. It is therefore essential that the objectives and impacts of the proposed measures are based on realistic assumptions. The CBR’s objective is to offer the expert community and public at large an independent view on the budget, assess the extent to which the set targets are realistic, and point out both the short- and long-term effects of the measures adopted. In addition, the report evaluates the budget in terms of its compliance with both national and EU rules.

The CBR draws up the report on the development of public finances usually twice a year, following the submission of the Medium-term Budget Outline to the cabinet (April) and submission of the Budget Proposal to the parliament (October).

Evaluation of Medium-term Budgetary Objectives for 2017-2020

The Council for Budget Responsibility (CBR) views positively that the government has presented a budgetary framework that assumes continued deficit reductions toward meeting the medium-term budgetary objective and bringing the government budget into balance by 2019. The meeting of these objectives is a prerequisite for the long-term sustainability of public finances. However, provided that the 2020 objective is met and the present assumptions remain unchanged, the keeping of public finances sustainable in the long run will require additional measures worth 0.3 % of GDP. This means that, in the medium term, the government should use both the favourable economic conditions and savings through measures adopted in the pay-as-you go pension system’s pillar to attain a surplus of 0.4 % of GDP by 2020 and reduce public debt to 43.5 % of GDP.

2016 General Government Budget Results

The 2016 general government deficit reached 1.68 % of GDP and, unlike in 2014 and 2015, the budget target set at 1.93 % of GDP has been met. Adjusted for the impact of the economic cycle and temporary effects, structural deficit reached 1.9 % of GDP and improved by 0.8 % of GDP year-on-year. Also thanks to one-off revenues, gross debt reached 51.9 % of GDP, 0.2 % of GDP below the budgeted forecast, and remained in the first sanction zone under the debt rule.

Evaluation of the General Government Budget Proposal for 2017-2019

In April 2016, the newly formed government decided to postpone the meeting of the medium-term objective from 2017 to 2019, failing thus to take advantage of positive effects, including a favourable economic development, to accelerate consolidation efforts and bring the gross debt below the sanction thresholds; the CBR views this as negative, in particular with respect to the purposes of the constitutional Fiscal Responsibility Act. The CBR appreciates that the budget proposal specifies a majority of measures included in the budget and that the fiscal framework for 2018 and 2019 is based on more realistic assumptions compared with the previous practice. Though the CBR has identified certain risks and concluded that additional measures need to be adopted to meet the budgetary objectives, meeting the medium-term objective of a structurally balanced budget in 2019 can be considered realistic. With the deadline for meeting the medium-term objective postponed, backed by a favourable economic development which will contribute the most to deficit reduction, room has been created for improving the deficit without the necessity to adopt any major consolidation measures. As estimated by both the budget proposal and the CBR, the gross debt should remain within the first sanction threshold by the end of 2019. Even though meeting the medium-term budgetary objective in 2019 is realistic, it would be desirable for the government to take further measures designed to bring the debt below the sanction thresholds and take advantage of potential unexpected positive effects to speed up consolidation.

Evaluation of Medium-term Budgetary Objectives for 2016-2019

In the 2016-2019 Stability Programme, the Slovak government approved its medium-term objectives which assume further general government deficit reductions and improvements in the long-term sustainability of public finances. The meeting of these objectives should steer the public debt by 2019 outside the debt limit sanction zones, despite the progressive decrease in debt thresholds from 2018 onward. The medium-term budgetary framework is based on realistic assumptions on the development of macroeconomic environment and revenues from taxes and social contributions, as approved by the respective committees in February 20161. In comparison with the approved general government budget for 2016-2018, the objectives are less ambitious and the meeting of the medium-term objective has been pushed back by two years, from 2017 to 2019. The Stability Programme specifies mainly deficit-increasing measures, but it falls short of explaining sufficiently enough the measures to be taken for deficit reduction. The Council for Budget Responsibility (CBR) has also identified certain significant risks which increase the need to adopt additional measures if the objectives are to be met. The CBR estimates that if the government does not adopt any additional measures, general government deficit may reach 2.5 % of GDP in 2016 and then gradually decline to 1.0 % of GDP in 2019.

2015 General Government Budget Results

The 2015 general government deficit reached 2.97 % of GDP, exceeding the target of 2.49 % of GDP. Adjusted for the impacts of the economic cycle and temporary effects, structural deficit reached 2.6 % of GDP and, for the second consecutive year, deteriorated by 0.1 % of GDP year-on-year. Also thanks to one-off revenues, gross debt reached 52.9 % of GDP, 1.5 % of GDP below the budgeted forecast, and fell from the second to the first sanction zone under the debt rule.

Evaluation of the General Government Budget Proposal for 2016-2018

The Council for Budget Responsibility (CBR) views as positive that the government has declared its intention to achieve the medium-term objective by 2017. It is an important milestone which, together with lowering gross debt below the sanction thresholds, could significantly improve the position of Slovakia in the face of the risks emanating from potential crises and the negative impacts of demographic development.
Evaluation of Medium-term Budgetary Objectives for 2016-2018

Evaluation of Medium-term Budgetary Objectives for 2016-2018

The medium-term objectives approved for 2016–2018 confirm the intention of the government to continue the process of reducing general government deficit and improving the long-term sustainability of public finances. The CBR views as positive that the government remains consistent in presenting its intention to achieve a nearly balanced budget in 2017 (without temporary and one-off effects). The meeting of this commitment at the European level may increase Slovakia’s credibility in the eyes of foreign investors. On the other hand, the suggested way in which the medium-term objective is to be achieved carries certain risks. 
Evaluation of the General Government Budget Proposal for 2015-2017

Evaluation of the General Government Budget Proposal for 2015-2017

In its evaluation of the 2015-2017 budget proposal submitted by the government, the Council for Budget Responsibility (CBR) indicated that it would update it in the light of the changes introduced in the budget by the parliament.

In addition to the government-approved budget, which assumed the deficit at 1.98 % of GDP in 2015, two types of changes were introducedwhich increase the deficit to 2.49 % of GDPThe negative impact of the changes approved by the parliament represents 0.7 % of GDP,including the reserve for worse-than-expected macroeconomic development at 0.2 % of GDP. In addition, the deficit has increased particularly due to the introduction of a health insurance allowance (0.2 % of GDP), a wage rise in public administration (0.1 % of GDP) and increases under certain expenditure headings (0.1 % of GDP). The Ministry of Finance has updated certain assumptions for the development of revenues and expenditures with an overall positive impact of 0.2 % of GDP. These mainly reflect the anticipated additional expenditure reductions in the local government sector, the positive impact of wage increases in the public sector on revenues from taxes and social contributions, and the carryover of an extraordinary loan instalment from railway freight company (Cargo) from 2014 to 2015.
Evaluation of Medium-term Budgetary Objectives for 2015-2017

Evaluation of Medium-term Budgetary Objectives for 2015-2017

The Council views positively the fact that the government declares its intention to continue public finance consolidation at a pace necessary to ensure permanent deficit reduction after 2013 and put in place conditions for the abrogation of the excessive deficit procedure. Moreover, general government debt is expected to stabilise below 57 % of GDP and attain the medium-term objective (MTO) by 2017. The meeting of these objectives will significantly improve the long-term sustainability of public finances in Slovakia. On the other hand, a point needs to me made that, as of yet, these plans are not supported in their entirety by concrete measures a large number of which must be further specified. After the robust consolidation in 2013, the government is not planning to use the year 2014 to make permanent improvements in the general government balance; hence the meeting of the MTO by 2017 will require an annual consolidation effort of the government of 1.2 % of GDP between 2015 and 2017. The transgression of the third debt limit at 55 % of GDP in 2013 has triggered a set of sanction mechanisms which, among other things, entail a freeze on expenditures for 2015 at the level of the 2014 approved budget.
Evaluation of the General Government Budget Proposal for 2014-2016

Evaluation of the General Government Budget Proposal for 2014-2016

The present CBR's opinion relates to the 2014-2016 General Government Budget Proposal which the government discussed at a meeting held on 10 October 2013. In addition, this opinion largely draws from the information presented in the 2014 Draft Budgetary Plan of the Slovak Republic, submitted to the European Commission on 15 October 2013.
Evaluation of the Medium-Term Budget Outline for 2014-2016

Evaluation of the Medium-Term Budget Outline for 2014-2016

The Council views positively the fact that the government declares its intention to continue public finance consolidation at a pace set to ensure deficit reduction below 3% of GDP by 2013 on a sustainable basis, and to stabilise the level of general government debt. The proposal of the budgetary objectives respects both the domestic and international fiscal rules and presents a trajectory for reaching MTO by 2018 which, according to CBR calculations, would significantly improve the long-term sustainability of public finances in Slovakia. On the other hand, these plans are not yet accompanied by specific measures, nor do they indicate the steps to be taken should the external environment deterioration adversely affect the general government debt level.
Evaluation of the Government Budget Proposal for 2013-2015 (11/2012)

Evaluation of the Government Budget Proposal for 2013-2015 (11/2012)

The document evaluates the General Government Budget Proposal for 2013-2015 adopted by the cabinet on 10 October 2012 and submitted to the parliament. Its purpose is to offer the expert community and public at large an independent view on the budget, assess the extent to which the set targets are realistic, and point out both the short- and long-term effects of the measures adopted. In addition, the document evaluates the budget in terms of its compliance with both national and EU rules.