UPDATE 1-Slovak Dep FinMin says higher GDP may cut deficit

(adds quotes, background)

BRATISLAVA, Nov 21 (Reuters) - Higher than expected GDP growth in 2006 could lead to a fiscal deficit below the ministry's 2.5 percent of GDP forecast, Slovak Deputy Finance Minister Frantisek Palko said on Tuesday.

Slovakia posted record high third quarter GDP of 9.8 percent, which the ministry said was likely to prompt an upward revision of its full year growth forecast.

"Higher GDP growth could create room for a lower deficit than our latest forecast of 2.5 percent of GDP (for 2006)," Palko told reporters in parliament.

The ministry originally targeted a fiscal gap of 2.9 percent of GDP, excluding the costs of pension reforms, but recently lowered that outlook due to the economy's strong performance.

Analysts have also said they may revise their 2007 GDP growth forecasts upwards to around 8 percent.

Palko said he could not rule out that the government could increase 2007 budget spending due to the increased growth outlook, though he would prefer any extra revenues be used to cut the fiscal gap.

"We would prefer a continuation in responsible fiscal policy...we would see room for a further deficit reduction," he said.

Keeping Slovakia's fiscal deficit in check is a key part of the EU member's drive toward adopting the euro in 2009. Under adoption criteria, the gap must be below 3 percent of GDP.

The 2007 draft budget sets a ceiling for the total fiscal deficit at 2.9 percent of GDP. ((Reporting by Peter Laca, editing by Ron Askew; Reuters Messaging: peter.laca.reuters.com@reuters.net; +421 5341 8402))

Keywords: ECONOMY SLOVAKIA FINMIN