London, 16 April 1997 (RFE/RL) - A report published by the European Bank for Reconstruction and Development (EBRD) says the economy of Slovakia is "booming," with rapid growth continuing in 1996 for the third straight year. Slovakia now has the highest growth rate, and lowest inflation of any of the Central-Eastern European countries.
Estimates for 1996 suggest that real gross domestic product (GDP) growth last year was nearly seven percent, while the government expects real GDP growth in 1997 to be nearly six percent. Average inflation last year was cut to about six percent. This was one of the lowest rates of all the transitional economies, and the lowest in the Central European Free Trade Associations (CEFTA) region (the Czech Republic, Slovakia, Hungary, Poland and Slovenia)
The report was prepared by Slovak authorities for presentation to the sixth annual meeting in London this week of the EBRD. The report was prepared for publication by the EBRD country promotion team. The report says the government, assisted by the National Bank of Slovakia, has kept to projections made in a four-year economic plan passed by Parliament in January, 1995.
The plan projected average, real GDP growth of five percent per year, single-digit inflation, unemployment below ten percent, a budget deficit under three percent of GDP, while also ensuring that total state debt would remain at a level acceptable to the European Union.
The report says, "With the exception of unemployment, all these targets were met in 1995, rather than by 1998, as planned." The report says the government expects real GDP growth of nearly six percent in 1997 to take the nominal GDP to $22 billion.
According to the preliminary 1996 results, calendar year real GDP growth was nearly seven percent. This was despite a marked slowdown in industrial production, partly due to a slower growth of exports.
The main source of growth in the past two years has been consumer spending, government consumption and fixed capital investment. All rose strongly in 1996, resulting in a surge of imports. In 1996, exports increased by six percent against a 28 percent increase in imports. The modest trade deficit and current account surplus of 1995 have become substantial deficits. The trade and current account deficits were in excess of eleven percent and eight percent of GDP respectively in 1996. The report says from 1994-to-1996, Slovakia made "impressive and surprising progress" in controlling budgetary expenditure and keeping the fiscal balance under tight control, helped by strong growth.
In 1995, there was a small surplus in the general government budget. In 1996, the estimated general budget deficit was in the neighborhood of 1.5 percent of GDP. The deficit is expected to widen further in 1997.
The National Bank has expressed concern that excessive government spending -- which brought about the deficits -- is crowding out private-sector spending and contributing to an overheating of the economy. During 1995, inflation was cut sharply from 12 percent in January to seven percent by December, while in 1996 significant progress was made in bringing down average inflation. The end-1996 rate was 5.4 percent, below the government's 6-8 percent forecast range.
The National Bank has targeted a five-to-six percent year-on-year inflation rate for 1997, and a balance of payments deficit equivalent to five percent of GDP. The Bank has kept the Slovak crown stable against a basket of foreign currencies: it has appreciated in real terms.
The report notes that Slovakia has not made any drawings on funds from the International Monetary Fund since 1994. The report also says that the privatisation process in Slovakia is now almost complete. The private sector is officially estimated to have accounted for 79 percent of GDP in 1996. In January, 1997, the private sector accounted for 73 percent of industrial output.
The main restructuring tools have been indirect: privatisation, tight access to credit and subsidies for enterprises, liberal rules of market entry and import competition. The number of bankruptcies has been small. A total of 1,530 bankruptcy petitions by enterprises were filed last year, but only one company went into liquidation as a result.
The report says $845 million was invested in Slovakia over the past six years. Per capita investment is comparable to that of Poland, and is substantially ahead of Bulgaria or Romania, although it is only one-third of that in the Czech Republic, and one-sixth that of Hungary.
Austria is the leading investor, followed by Germany, the Czech Republic, the U.S. and the United Kingdom.
The report says although the domestic market is relatively small (with a population of 5.3-million), Slovakia is an "excellent location for producers seeking a low-cost, high-skilled base from which to operate."