IMF praise for Slovakia

16/11/2004 | Intellinews - Asia Today, ISI Emerging Markets

IMF praises economic growth in Slovakia, calls for tighter policies

IMF praises economic growth in Slovakia, calls for tighter policies. The IMF evaluated positively the
economic performance of Slovakia during the last couple of years, the preliminary conclusion of the
article IV consultation mission stated. The report noted that it was due equally to prudent
macroeconomic management as well as comprehensive structural reforms in the banking sector, the
labour market and the public sector. The short-run outlook, according to the IMF, points to a GDP
growth of around 5% y/y in both 2004 and 2005 while at the same time the current account deficit
should worsen to 3% of GDP in 2004. The mission, however, stressed that this deficit was well below
the sustainable limit of 6%. Despite the overall positive developments, the IMF underlined that the
targeted convergence with the EU required the completion of the reforms and their sustaining.
Moreover, the mission concluded that the monetary policy needed to turn its attention to inflationtargeting
rather than correcting the exchange rate appreciation. Accordingly, it emphasized that there
was not much room for further interest rate cuts in the future as it saw inflationary risks ahead. These
were related to the shrinking of the output gap, high oil prices, wage policies in the non-tradable sector
and at last but not at least, to the fiscal impulse. The report estimated that the projected by the
authorities fiscal consolidation was not enough and provided an expansionary impulse to the economy,
amounting to 0.75% and 0.25% of GDP in 2004 and 2005 respectively. Consequently, the IMF
recommended that the government adopts a more ambitious budget deficit reduction course till 2007
than 3% of GDP and noted that leaving no margin, compared to the Maastricht criteria, was too risky.

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