Slovak cbank urges reforms, faster fiscal gap cuts

                                
 By Peter Laca
                                
 BRATISLAVA, July 24 (Reuters) - Slovakia needs further
reforms to sustain the economic growth pace it needs to catch up
with more developed countries after it adopts the euro in 2009,
a central bank (NBS) document showed on Thursday.
                                
 The government should also aim to cut its fiscal deficit
faster this year and in 2009, while its plan for a major deficit
cut in the election year 2010 is questionable, the NBS said in a
paper posted on its web page (www.nbs.sk).
                                
 Slovakia will become the 16th euro zone member in January
after the government of leftist leader Robert Fico brought the
fiscal deficit and inflation rate low enough to meet the entry
conditions despite a global surge in energy and food costs.
                                
 Euro zone entry will crown Slovakia's decade of
transformation from a central European laggard to the European
Union's fastest growing economy in 2007 at 10.4 percent --
thanks largely to market-friendly reforms by the centre-right
coalition that Fico beat in a 2006 election.
                                
 The central bank said Slovakia would remain one of the
fastest growing economies in the EU by 2010. However, it added:
"The pace of convergence with developed countries will slow down
without adoption of additional development impulses."
                                
 With gross domestic product (GDP) per capita at around 70
percent of EU's average, Slovakia will join the euro zone as the
poorest entrant so far in terms of purchasing power.
                                
 Economic growth will be accompanied by higher inflation as
Slovakia catches up with the higher price levels of more
developed EU economies, and fiscal policy will be the key
domestic instrument for influencing price growth.
                                
 The government plans to cut the public finance deficit to
2.0 percent of GDP this year, from 2.2 percent in 2007. It wants
to reduce the gap to 1.7 percent of GDP in 2009 and 0.8 percent
in 2010, aiming for balanced public finances in 2011.
                                
 Fico's effort to cut the fiscal gap has been helped by fast
economic growth, which has boosted budget revenues.
                                
 The central bank said mid-term fiscal goals "could be more
ambitious", and that projected GDP growth would create room for
deficit cuts by 0.5 percent of GDP a year. It added additional
saving measures will be needed to meet the goal set for 2010.
                                
 "Concentration of the most significant consolidation effort
for the year 2010 is questionable," the bank said, "mainly
because of slowing economic growth, as well as because of the
fact that 2010 will be an election year."
                                
 (Editing by Ruth Pitchford)