Evaluation of compliance with the balanced budget rule

2014 is the first year in which the assessment of compliance with the balanced budget rule for the previous year is prepared; the rule was transposed into Slovakia’s national legislation on the basis of an obligation arising under the international Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. Under its Title III named Fiscal Compact, Member States are required to define their medium-term objective (MTO), to assess, on a yearly basis, whether the progress towards their respective MTOs has been sufficient and, should any deviations occur, to trigger an automatic correction mechanism to bring the key indicators back on their original adjustment path. In Slovakia, responsibility for the assessment of compliance with the rule rests with the Ministry of Finance. The credibility of this national rule is enhanced through compliance monitoring by an independent fiscal institution. Slovakia has entrusted this task to the Council for Budget Responsibility (CBR). Following each assessment, the Ministry of Finance should provide its opinion to the CBR, in line with the European Commission principles.

Evaluation of compliance with the balanced budget rule in 2019

The government’s medium-term budgetary objective was to achieve a balanced budget in the form of a structural deficit not exceeding 0.5 % of GDP by 2019. According to the CBR, as well as the Ministry of Finance, the objective was not achieved in 2019 as the government had significantly deviated from the adjustment path. Despite the decrease required under the balanced budget rule, the structural deficit increased in 2018 and 2019, amounting to 2.1 % of GDP in 2019, according to the CBR. Between 2016 and 2019, the government missed the opportunity to use the windfall revenues and the reduction in interest payments to considerably move towards the balanced budget. Expenditures for the period grew 10.8 p.p. above the level permitted by the expenditure benchmark, contributing to a rise in deficit by 3.8 % of GDP. The CBR had already identified a significant deviation from the balanced budget rule in its evaluation based on the 2018 results and the non-compliance with the rule became even more prominent in 2019.

Evaluation of compliance with the balanced budget rule in 2018

The Ministry of Finance of the Slovak Republic (the Ministry) published an evaluation of compliance with the balanced budget rule for 2018 on 29 November 2019, reporting a significant deviation from the required adjustment path towards the medium-term budgetary objective. The Council for Budget Responsibility (CBR) came to the same conclusion in its evaluation report published on 16 December 2019. In line with the Act on the General Government Budgetary Rules, the Ministry is obliged to propose to the government triggering a correction mechanism to ensure that a structural deficit not exceeding 0.5 % of GDP is achieved in a sustainable manner by applying a binding expenditure ceiling.

On 12 December 2019, the Ministry published a correction mechanism proposal, recommending that the Slovak government approves an expenditure ceiling for 2020 at a level of the general government budget, which had already been approved by the parliament. According to the Ministry, the proposed limit should ensure that a structural deficit of 0.5 % of GDP is achieved.

Evaluation of compliance with the balanced budget rule in 2017

The 2017 general government’s structural deficit reached 1.02 % of GDP, which means that the medium–term objective of having a close to balanced budget (structural deficit of not more than 0.5 % of GDP) was not met so far. As identified by the CBR in the primary assessment, the structural balance improvement was 0.42 % of GDP higher than required by the rule, whereas for the expenditure benchmark, the deviation amounted to 0.18 % of GDP. With the additional factors taken into account (lower interest payments and windfall revenues), the structural balance deviation reached 0.20 % of GDP, i.e., below the threshold of 0.5 % of GDP. On the contrary, the additional factors (lower co-financing expenditures and increased efficiency of VAT collection) improved the development of adjusted expenditures, by which the rule was met by 0.05 % of GDP. Convergence towards the medium-term objective was not sufficiently fast when taking into account additional factors. At the same time, however, the deviation permitted by the rule was not exceeded; and as the deviation identified was not considered as significant according to the CBR, there is no need to trigger the correction mechanism.

Evaluation of compliance with the balanced budget rule in 2016

The 2016 general government structural deficit reached 1.89 % of GDP, which means that medium–term objective of having a close to balanced budget (structural deficit up to 0.5 % of GDP) was not met. With additional factors taken into account, the development of both the structural balance and adjusted expenditures showed a deviation of up to 0.5 % of GDP. Since none of the indicators exceeded the deviation margin set by the balanced budget rule, the CBR holds that the deviation was not significant and the correction mechanism does not have to be triggered.

Evaluation of compliance with the balanced budget rule in 2015

The structural deficit of the general government in 2015 reached 2.7 % of GDP and increased for the second year in a row. Thus the medium-term objective of attaining a nearly balanced budget (structural deficit up to 0.5 % of GDP) was not achieved. Since 2012, the cumulative deviation from the adjustment path set to meet the original medium-term objective by 2017, reached almost 0.6% GDP. The adjusted expenditure since 2012 increased by 6.4 p.p. above the expenditure benchmark (with a negative impact on the balance at 2.4 % of GDP). In addition to these two indicators, in its evaluation the CBR also took into account the impact of other measures which widen the deviation (reduced contribution rates to the fully-funded pillar, windfall revenues, anticipated future financial corrections to EU funds) or which may narrow it (increased effectiveness of VAT collection, lower co-financing expenditures and upward revision of the 2015 tax revenue). Moreover, the CBR took into account the fact that albeit the debt still remains within the sanction brackets set by the Fiscal Responsibility Act the government has not yet adopted sufficient measures to reduce it. With all relevant factors taken into consideration, the CBR concludes that the 2015 deviation from the adjustment path was significant and it would be necessary to trigger the correction mechanism.

Unless the MTO deadline is amended, the correction mechanism should eliminate the deviation in order for the original medium-term objective to be met by 2017. Since in April 2016 the deadline for meeting the medium–term objective (MTO) has been postponed to 2019, the expenditure ceilings should be set at least at the level of the present plans presented in the Stability Programme for 2016–2019 (published in April 2016). This would, at least partially, prevent repeated future postponements of the MTO in line with the principles of fiscal compact.
Evaluation of compliance with the balanced budget rule in 2014

Evaluation of compliance with the balanced budget rule in 2014

The general government structural deficit in 2014 reached 2.8 % of GDP, up 0.4 % of GDP year-on-year. Thus the medium-term objective of attaining a nearly balanced budget (structural deficit up to 0.5 % of GDP) was not achieved. As a result of considerable consolidation in 2013 and fiscal easing in 2014, the structural balance in 2014 reached the level set by the adjustment path towards meeting the objective by 2017. This conclusion is also confirmed by the evaluation of the development in the adjusted expenditure which, since 2012, increased in line with the expenditure benchmark. In light of the above, the CBR concludes that no significant deviation occurred in 2014 and hence there is no need to trigger a correction mechanism.
Evaluation of compliance with the balanced budget rule in 2013

Evaluation of compliance with the balanced budget rule in 2013

According to CBR estimates, Slovakia’s general government structural deficit reached 3.0% of GDP in 2013, having improved by 1.9% of GDP year-on-year. Even though the medium-term objective expressed as structural deficit of 0.5% of GDP was not achieved, the pace of deficit reduction considerably exceeded the required improvement at a level of 0.9% of GDP, which should ensure the MTO is met in 2017 as planned. For this reason, the CBR concludes that no significant deviation occurred in 2013 and hence there is no need to trigger a correction mechanism. Despite a different evaluation method applied by the CBR, the conclusions contained in its opinion conform to the conclusions presented by the Ministry of Finance.