Slovakia's budget deficit: Slovakia's projected budget deficit for 2024 may surpass government estimates, particularly if EU accounting standards are applied to aid designated for individuals affected by soaring energy prices, as indicated by the European Commission on Tuesday.

Prime Minister Robert Fico, who assumed office in October, has prioritised a gradual fiscal consolidation strategy after the fiscal deficit expanded significantly in 2023. The government aims to reduce the deficit to approximately 6 per cent of the gross domestic product (GDP) in 2024, down from an estimated 6.5 per cent in 2023, based on its budget plan. However, the European Commission has projected the deficit to reach 6.3 per cent of GDP in 2024, up from 6.1 per cent in 2023.

A key factor contributing to this variance is the accounting treatment of energy aid refunds from the EU. Slovakia's government has chosen to distribute this funding between 2023 and 2024. The European Commission, following the principles of ESA 2010, registers the entire amount (equivalent to 0.8 per cent of GDP) in 2023.

Matching the relevant expenditure

In its opinion statement regarding the budget plan, the Commission emphasised the importance of matching the relevant expenditure in 2023 with an imputed revenue from the EU in the same year to maintain the neutrality principle of EU grants.

Slovakia's budget oversight body had previously highlighted this disparity in accounting methodology. Finance Minister Ladislav Kamenicky, reportedly attending a meeting of EU ministers in Brussels, acknowledged the differing opinions between the government and the Commission. The Finance Ministry has yet to respond to requests for comment.

The fiscal challenges for Slovakia are mounting, with Fitch Ratings downgrading the country's rating to 'A-' in December due to uncertainties surrounding fiscal consolidation. While the new government attributes the depleted state coffers to the previous administration, it has also approved additional expenditures for pensioners and other initiatives.

(with Reuters inputs)