Evaluation of Compliance with the Balanced Budget Rule in 2019

  • 23. 7. 2020

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 and the government had deviated significantly from the adjustment path. Despite the decrease required under the balanced budget rule, the structural deficit increased both in 2018 and 2019, amounting to 2.3 % of GDP in 2019, according to the CBR. Between 2016 and 2019, the government missed the opportunity to use the additional windfall revenues and the reduction in interest payments to considerably move towards the balanced budget. Expenditures for the period grew 10.2 p.p. above the level permitted by the expenditure benchmark, contributing to a rise in deficit by 3.6 % of GDP.

Under standard economic conditions, the identification of a significant deviation should have triggered corrections as envisaged under the balanced budget rule. The government activated the correction mechanism as late as in January 2020, only after the second evaluation of the 2018 results had been released. However, the Slovak economy was affected by the pandemic of coronavirus in 2020. Upon the Ministry of Finance’s proposal assessed by the CBR, the government declared, on 24 June 2020, the beginning of exceptional circumstances for the duration of which the correction mechanism under the balanced budget rule is not applied.