RRZ: Deficit to Rise above 5 precent of GDP without Consolidation Measures

Bratislava, 13 July (TASR) - Without additional fiscal consolidation measures, Slovakia's general government deficit will rise above 5 percent of gross domestic product (GDP) as of 2027 onwards, while it might reach 5.7 percent of GDP by 2029, which equals almost €9.3 billion, according to an updated medium-term fiscal forecast published by the Council for Budget Responsibility (RRZ). Using applicable legislation, the latest macroeconomic forecast and a no-policy-change scenario as a basis, RRZ expects this year's deficit to reach 4.4 percent of GDP, surpassing the planned target of 4.1 percent of GDP. "The deficit will deteriorate throughout the forecast horizon due in particular to rising interest expenditure, as the debt servicing costs will increase by 0.2 percent of GDP annually between 2026 and 2029," stated RRZ, adding that compared to 2026, the deficit is expected to worsen in 2027 primarily because of an upswing in temporarily reduced defence spending (0.2 percent of GDP year-on-year) and higher costs linked to the long-term care reform (0.2 percent of GDP). Significant consolidation measures will have to be adopted in order to achieve the government's current budgetary targets for the deficit at 4.2 percent of GDP for 2027 and 4.1 percent of GDP for 2028, as the level of deficits forecast for the years to follow exceeds the targets by 0.9 percent and 1.4 percent of GDP. "Factoring in the short-term negative economic impacts of the consolidation efforts, RRZ estimates the additional measures needed to achieve the budgetary targets for 2027 at €1.2 billion and at an additional €1 billion for 2028," quantified RRZ, noting that without additional consolidation measures, the gross debt will rise to 66.7 percent of GDP during 2027 and 74 percent of GDP in 2029, as compared to 61.4 percent of GDP at the end of 2025. "The constant increase in gross debt relative to GDP is mainly being driven by the high deficits and the associated rapidly growing costs of debt servicing," explained RRZ. Another factor having an impact on gross debt boils down to the assumption that the state will maintain an adequate cash reserve, estimated to remain at 7 to 8 percent of GDP throughout the forecast period. Net general government debt is expected to increase at a similar pace between 2026 and 2029, rising by 12.6 percentage points from 54.4 percent to 67 percent of GDP. "Without adopting consolidation measures, the level of debt will remain significantly higher than the upper debt brake limit across the entire forecast horizon, exceeding it by as much as 24 percentage points in 2029," stated RRZ, adding that Slovakia exceeded the Maastricht criterion of 60 percent of GDP back at the end of 2025, by 1.4 percentage points. jrg/df