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Slovenia Business Week no. 15/2005: D&B: Slovenia Sees Higher Deficit Despite Stronger Real GDP Growth

Slovenia has firmly retained the first place in the region in the April report of the international rating firm Dun&Bradstreet (D&B), which gave the country an upward trend indicator

Sloveniahas firmly retained the first place in the region in the April report of the international rating firm Dun&Bradstreet (D&B), which gave the country an upward trend indicator.

While most of the forecast figures remain the same, D&B corrected the real GDP growth figure for 2006, from 4.2% to 4%. D&B expects higher fiscal deficit, yet still within the convergence criterion for eurozone entry.

The report observes that the government has an optimistic plan of bringing down the deficit through a combination of spending cuts in 2006 and increased revenues in 2007 stemming from a significant rise in net budgetary inflows from the EU budget.

However, D&B wonders whether Slovenia will manage to do away with administrative delays due to which a significant proportion of the funds earmarked for Slovenia were not disbursed in 2004.

Despite stronger-than-expected GDP growth in 2004 (when the economy expanded by 4.6%,
compared with 2.5% in 2003) the fiscal deficit increased to 1.9% of GDP in 2004, D&B observes.

According to D&B, the deficit is to increase to 2.1% of GDP in 2005. "While this is less than 1 percentage point of GDP below the 3% ceiling imposed under the Maastricht criteria for eurozone entry (planned for 2007), we are relatively sanguine about the prospects for bringing the deficit down in the near term. Indeed, the government plans to cut the fiscal deficit to 1.1% of GDP," D&B says.

"Given the exigencies of EMU entry, room for manoeuvre in both fiscal and monetary policy will be limited. We therefore expect a more concerted effort to tackle the labour market rigidities that have helped fuel strong real wage growth (and hence inflation) amid relatively high unemployment rates (10.4% at end-2004)," the report says.

Source: Slovene Press Agency STA

Author: STA