(Adds crown reaction, analyst comments, more background)
By Martin Santa
BREZNO, Slovakia, Feb 13 (Reuters) - The Slovak government
aims to cut the fiscal deficit below target this year, Prime
Minister Robert Fico said on Wednesday, a move seen as designed
to boost the country's chances of adopting the euro in 2009.
Leftist leader Fico said the cabinet wanted to reduce the
public sector deficit to 2 percent of gross domestic product
this year, below the 2.3 percent target the government set last
year for 2008.
"It is quite possible we will be around two percent, or
below two percent, in 2008," Fico told reporters after a
government meeting in the central Slovak town of Brezno. "Our
ambition is to go below two percent in 2008."
Fico added the 2007 fiscal deficit was expected to reach
2.4-2.5 percent of GDP, which would also be well below the
target ceiling of 2.9 percent and below the euro entry threshold
of 3 percent.
The European Commission has urged Slovakia to tighten fiscal
policy to avoid an inflation jump following planned euro entry
next year as state spending will remain its only tool to
influence price growth after giving up interest rate policy and
the appreciating currency exchange rate.
The crown firmed slightly after Fico's comments, trading at
33.030 to the euro as of 1315 GMT, compared with 33.120 earlier
in the session.
EXTRA EFFORT
The Slovak government and the central bank expect to have
met all nominal criteria for euro adoption when the country's
application is assessed this spring.
The main challenge will be to convince EU authorities that
its inflation will stay under control after the country switches
its crown currency for euros.
Most analysts and senior EU officials expect Slovakia's euro
adoption to be approved in May, sealing the euro zone expansion
to 16 countries.
Fico said he did not expect price growth to get out of hand
after the euro zone entry, a development feared by many Slovaks
and expected by market watchers after a jump in inflation in
Slovenia following its 2007 euro entry.
"We will handle eventual risks and inflation in 2009," he
said.
Since winning a 2006 election, Fico has benefited from
record high economic growth, which is forecast at around 9
percent for 2007 thanks to rising output in key car and
electronics industries.
Strong growth has boosted state revenues and has helped Fico
pursue welfare policies, such as paying Christmas bonuses to the
poorest pensioners, while still lowering the fiscal gap.
Analysts viewed the plan to cut the shortfall as a reaction
to what they said was Brussels' demand to see more effort on the
fiscal side before assessing Slovakia's euro bid.
"It is important to declare an effort to eliminate possible
impact on inflation, and fiscal policy is key in this," said
Juraj Kotian, a Vienna-based economist with Erste Bank.
(Writing by Peter Laca, editing by David Christian-Edwards)
