![\"T1_Developmnet_of_main_fiscal_indicators\"](\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2024\/04\/T1_Developmnet_of_main_fiscal_indicators.png\")
<\/p>\n
The most significant positive deviation<\/strong>[2]<\/a><\/sup> from the budget as regards the general government fiscal performance in 2023 was directly linked to the successful negotiation of reimbursements for energy subsidies from EU funds (0.8\u00a0% of GDP), which was not foreseen in the budget. At the same time, these reimbursements from EU Funds were fully accounted for in the fiscal performance for 2023, as assumed by the CBR. Conversely, the most significant negative deviation from the budget was attributable in particular to the adoption of new measures concerning pension benefits (0.8\u00a0% of GDP) in the course of the year, which were not foreseen in the budget. In addition, the measures of a more permanent nature showed a lower increase in expenditure in the state budget as well as in the fiscal performance of other general government entities.<\/strong><\/p>\n From the point of view of a medium-term burden on public finances, it is better to focus on the structural deficit indicator<\/strong> (i.e., a deficit that will automatically last even into the future, if no additional measures[3]<\/a><\/sup> are adopted). In 2023, the structural deficit increased year-on-year to 3.3% of GDP, up 2.0 p.p. from 2022 which saw the ever-lowest level of structural deficit at 1.3\u00a0% of GDP.<\/strong> The increase in the 2023 structural deficit is largely due to measures adopted in 2022 (family package, parental pension, indexation of wages in the health care sector), as well as during 2023 (extraordinary indexation of pensions and parental allowance, extraordinary allowance for pensioners). At the same time, high inflation had a positive effect on the structural balance in 2022; however, in 2023, the effect was negative<\/strong>. Nonetheless, the year-on-year growth is still driven by a delayed increase in public spending in response to inflation growth, while another increase is expected in 2024 especially in the area of social transfers and wages. Last but not least, due to advance payments, accrued defence spending in 2023 was significantly lower than the cash expenditures counting towards the NATO commitment. Therefore, the expected deliveries of military equipment will increase the structural deficit level in the medium term. For these reasons, the 2023 structural balance may not give a full picture of public finances in the medium term.<\/strong><\/p>\n If no new measures were adopted in 2023 and public finances evolved in line with economic developments (NPC scenario), the structural deficit would reach 3.2\u00a0% of GDP.<\/strong> The structural deficit would therefore be up by 0.1\u00a0% of GDP compared to the budget assumptions even without the adoption of additional measures. At the same time, new measures implemented in 2023 contributed to an increase in the structural deficit by 0.1\u00a0% of GDP. As regards the impact on the general government balance, the new legislative measures, which increased the expenditure by as much as 1.1\u00a0% of GDP, were almost entirely offset by positive developments in other areas of the budget. Compared to the NPC scenario, the positive impact on the structural balance in 2023 is mainly attributable to low investment in the defence sector, improved tax revenues and lower co-financing expenditure.<\/p>\n The gross debt stood at 56\u00a0% of GDP.<\/strong> After 2022, this is another year-on-year decline<\/strong>, down by 1.7 p. p. of GDP,<\/strong> from 57.7\u00a0% of GDP in 2022. But, regardless of this decline, the gross debt was still above the<\/strong> highest sanction bracket of the debt brake<\/strong> in 2023. High inflation<\/strong> had the largest effect on the year-on-year debt decline in 2023 through the denominator effect<\/strong> (contributing -5.5 p.p.) along with a decline in the government\u2019s cash reserve<\/strong> (contributing -1.3 p.p.). In both cases, however, this is only a temporary effect<\/strong> which has already run out, assuming a gradual decline in the inflation rate while the cash reserve relative to GDP is converging to its historical levels as well.<\/p>\n The year-on-year debt-to-GDP growth was slowed down by real economic growth<\/strong>, contributing 0.6 p.p. mainly due to subdued domestic and foreign demand<\/strong>. The high primary deficit of the general government, <\/strong>combined with interest costs, had the opposite effect on the debt <\/strong>(a cumulative contribution of 4.9 p.p.).<\/strong> Combined with a decline in the cash reserve in 2023, high inflation outweighed the contributions of the primary deficit and interest costs, thus resulting in a<\/strong> year-on-year decline in gross debt<\/strong>. Slovakia\u2019s rising risk premium has so far had only a modest impact on the results for 2023.<\/p>\n Fiscal policy (coupled with EU funding and one-off expenditures) supplied a notable expansionary impulse of 4.4\u00a0% of GDP in 2023. <\/strong>The high rate of fiscal expansion is based in particular on the year-on-year increase in expenditure from EU funds as the programming period is drawing to its end, complemented by an increase in the structural deficit and new measures to compensate for higher prices. As opposed to permanent measures, the temporary and targeted measures are best suited to respond to this type of crisis because once the crisis is over, these measures expire as well and will not burden public finances over the long term.<\/strong> Adjusted for the cumulative effect of EU funds and one-off measures, i.e. focusing on the change in the structural balance, the fiscal impulse in 2023 was still significantly expansionary at 2.3\u00a0% of GDP despite the closing output gap in the economy.<\/p>\n Total expenditures to finance the measures adopted by the government in response to exceptional circumstances, i.e. compensations for the high growth in prices, as well as costs of dealing with the pandemic and the war in Ukraine, amounted to 3.2\u00a0bn euros (2.6\u00a0% of GDP). After deducting the EU refunds for energy compensation schemes (not accounted for in the budget), extraordinary taxes of windfall profits and grants received by the defence sector in connection with the delivery of military equipment to Ukraine, these measures increased the general government deficit by 1.7\u00a0bn euros (1.4\u00a0% of GDP) in 2023; however, all of them were one-off measures that have no effect on the structural deficit. On the other hand, the budget foresaw the financing of temporary measures at 3.7\u00a0bn euros, with an overall effect on the deficit totalling 3.1\u00a0bn euros after taking revenues into account. The spending under temporary measures was significantly lower (mainly due to the successful negotiation of EU refunds for energy compensation schemes by the previous government and lower world energy prices), thus<\/strong> reducing the deficit by 1.4\u00a0bn euros (1.1\u00a0% of GDP) compared to the budget.<\/strong> Excluding the impact of one-off measures, the deficit was lower by 449\u00a0mn euros (0.4\u00a0% of GDP) <\/strong>– see Chart 3.<\/p>\n EU refunds for energy compensation schemes have been fully recorded in the fiscal performance in 2023<\/strong>, even though cash payments of around 0.5 bn euros were received already in 2023. The remaining amount is expected to be received in 2024 following the final clearance of costs for the financing of the compensation schemes. The decision concerning the method of recording this transaction was made by the Statistical Office based on ESA 2010 methodology which accrues, with some exceptions, the revenue from the EU budget in the period of recording the public expenditure covered by this revenue.<\/p>\n The significantly lower deficit for 2023 suggests that, without additional measures, the deficit could reach a significantly higher level this year. Keeping this year’s budgetary target would imply a year-on-year increase in the deficit by as much as 1.1\u00a0% of GDP (1.8\u00a0bn euros), as opposed to the declared target of debt reduction by 0.5\u00a0% of GDP.<\/strong><\/p>\n From the perspective of long-term sustainability, the long-term economic growth is important. It can be supported by the formation of new capital through effective public investments. In 2023, public investment reached 4.7\u00a0% of GDP, the highest since 2015.<\/strong> The increase was mainly driven by the spending of EU funds from the programming period that is nearing its end, with investment expenditure financed by EU funds and co-financing standing at 2.0\u00a0% of GDP.<\/p>\n Because the flow of European funds depends on a longer-term spending plan, as well as on the relevant programming period schedule, it will be interesting to observe the development of domestic public investments. At the same time, it is advisable to deduct the investments related to the military equipment, because the size of these expenditures recorded in the budget balance under ESA 2010 is to a large degree affected by delivery dates. In 2023, the uptake of domestic investments outside the defence sector showed a moderate year-on-year increase; <\/strong>however, unlike in previous years, it surpassed the level of capital expenditures included in the budget. The investments were 0.2\u00a0% of GDP<\/strong> higher than expected in the budget; on the one hand, this contributed to a higher structural deficit level, on the other hand, the government managed to sufficiently use the budgetary funds to support investments that are much needed for economic growth. The final size of domestic investments was above the level of historical average since the previous crisis.<\/strong><\/p>\n [1]<\/a><\/sup> \u00a0\u00a0\u00a0\u00a0 For the purpose of assessing the development in public finances, the general government consists of the central government (state budget, organisations partly funded from the state budget, and other general government entities), the Social Insurance Agency and health insurance companies, and local government (municipalities and self-governing regions).<\/p>\n\n
![\"CHART_1\"](\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2024\/04\/CHART_1.png\")
<\/p>\n![\"CHART_2\"](\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2024\/04\/CHART_2.png\")
<\/p>\n![\"CHART_3\"](\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2024\/04\/CHART_3.png\")
<\/a><\/p>\n\n
![\"Chart_5_Public_investment_rising_to_an_all_time_high_since_2025...\"](\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2024\/04\/Chart_5_Public_investment_rising_to_an_all_time_high_since_2025-1.png\")
<\/a><\/p>\n
\n