March 25 (Reuters) - Slovakia's central bank kept borrowing
costs unchanged on Tuesday as it approaches a judgement on its
efforts to become the 16th member of the euro zone in 2009.
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The following are key facts on Slovakia, its economy and
where it stands on the path to euro adoption:
POPULATION: 5.4 million
GEOGRAPHY: Slovakia is a land-locked mountainous country in
central Europe bordering Poland, the Czech Republic, Austria,
Hungary and Ukraine.
GOVERNMENT: Prime Minister Robert Fico, a Social Democrat,
took over from a centre-right government after winning a 2006
election on pledges to take better care of the poor.
ECONOMY: Slovak gross domestic product (GDP) soared by 10.4
percent last year, according to preliminary data.
The EU's statistics service, Eurostat, estimates GDP per
head reached 67.7 percent of the EU average in 2007, in
purchasing power standards.
Slovakia has had one of the highest economic growth rates in
the European Union since joining in 2004, mainly thanks to
investments into export-oriented industries such as cars and
electronics.
MEETING THE MAASTRICHT CRITERIA FOR EURO ENTRY:
INFLATION: February EU-norm (HICP) inflation stood at +3.4
percent year-on-year.
Price growth is seen as the main challenge to the euro
adoption plan. Inflation has accelerated in recent months, but
price growth is fuelled mainly by rising food and energy costs,
which are also pushing up prices elsewhere.
The government, central bank and market analysts expect
Slovakia's inflation rate to be under the threshold for euro
adoption, defined as 1.5 percentage points above the average of
three lowest inflation rates in the European Union.
Slovakia will also have to convince EU authorities its
inflation will be under control after it gives up independent
policy and euro adoption takes away the impact of a firming
currency on consumer prices.
The central bank sees the 12-month average HICP at 2.1
percent in spring when Slovakia's euro bid is assessed. It sees
the reference inflation rate at 2.9 percent.
FISCAL DEFICIT AND DEBT: The government has benefited from
fast economic growth, which has boosted state revenues and let
the cabinet pursue pro-welfare policies while cutting the public
finance deficit.
The European Commission has urged Slovakia to tighten fiscal
policy to help counter inflation pressures after euro adoption.
Preliminary data put the 2007 fiscal gap at 2.16 percent of
GDP, well below the 2.9 percent target and under the 3 percent
euro adoption threshold.
The finance ministry has proposed cutting the fiscal gap to
2.0 percent of GDP in 2008, from the originally approved ceiling
of 2.3 percent of GDP.
Slovak gross public debt, at 29.4 percent of GDP at the end
of 2007, has been comfortably below the euro adoption limit of
60 percent of GDP since Bratislava used part of past
privatisation revenues to repay obligations.
INTEREST RATES: The NBS expects the 12-month average long
term interest rate at 4.5 percent at the time of euro entry
assessment and sees the euro entry threshold at 6.4 percent.
The official two-week repo rate is 4.25 percent and will
likely fall to match official euro zone rates ahead of adoption.
CURRENCY STABILITY: The crown <EURSKK=> has been in the
ERM-2 exchange rate mechanism since November 2005. The ERM-2
central parity rate was revalued by 8.5 percent to 35.4424 in
March 2007 to reflect improved economic fundamentals.
The central bank has intervened both against sharp crown
appreciation and weakening since entering the ERM-2.
The crown hit a record high of 32.250 per euro on March 4.
Markets expect further parity revaluation ahead of euro entry.
(Compiled by Peter Laca in Bratislava)
