Six out of the ten new Member States have 'excessive public deficits'

The programme for Cyprus, submitted to the Commission on 24 May, covers the period 2004-2007. The Commission describes the macro-economic scenario as " plausible". It envisages the reduction of the deficit from 6.3 per cent of GDP in 2003 to below 3 per cent in 2005 and below 2 per cent in 2007. According to the Commission, "reducing the deficit below 3 per cent of GDP by 2005 will be challenging". Furthermore, the Commission confirms that the correction of the excessive deficit that exists in Cyprus should take place on the basis of the medium-term adjustment plan laid down in the programme. In the Commission's assessment, Cyprus's GDP is projected to grow from 3.5 per cent in 2004 to 4.3 per cent in 2005. As a further objective, the Commission said that Cyprus should reverse the upward trend of the debt to GDP ratio. The goal should be for Cyprus to reduce this ratio by around 7 percentage points to below 69 per cent in 2007.

The convergence programme for the Czech Republic is based on a " conservative" and " cautious" macro-economic scenario, the Commission said. The programme envisages the currently excessive deficit to narrow from 12.9 per cent of GDP in 2003 to 3.3 per cent in 2007 and below 3 per cent in 2008. (On 12 May, the Commission initiated the excessive deficit procedure for the country). The budgetary stance outlined in the programme "seems sufficient" for this purpose, the Commission said. The programme projects growth to accelerate from 2.8 per cent in 2004 to 3.5 per cent in 2007 (the Commission's forecast includes slightly higher figures). The debt-to-GDP ratio is projected by the programme to increase by 4.1 per cent over the programme period, reaching 41.7 per cent in 2007.

Estonia's first convergence programme covers the period 2004-2008. Drawing on what the Commission describes as a " conservative" macro-economic scenario, the programme envisages the general government surplus to narrow from 2.6 per cent of GDP in 2003 to a balanced position over the period up until 2008. In the Commission's view, the projected annual average growth rate of 5.7 per cent over the entire programme period "appears plausible". The country's debt-to-GDP ratio is 5.8 per cent, which is among the lowest in the EU. The current account deficit, which stood at 13.7 per cent of GDP in 2003, is set to decline to around 8 per cent of GDP by 2008. In the Commission's opinion, "Estonia has established a track record of prudent forecasting and repeated overshooting of fiscal targets". At the same time, however, "the risk of unexpected revenue shortfalls from planned tax cuts, or adverse impacts on growth from exogenous shocks cannot be entirely excluded". All in all, the Commission believes that "the budgetary stance in the programme is consistent with the Stability and Growth Pact’s medium-term objective of a budgetary position of close to balance".

The Commission recommendation describes Hungary's growth scenario as " rather favourable". According to the programme, the country's public deficit could be brought down from 5.9 per cent of GDP in 2003 to below 3 per cent in 2008. The Commission also recommends that the Council adopt a decision on the existence of an excessive deficit (as established on 12 May) and on the steps to be taken to eliminate it. Hungary's real GDP growth is expected to be around 3.5 per cent in 2004. Until 2008, the growth rate is projected to increase by 0.5 percentage points per annum. The debt ratio would decrease from close to 60 per cent of GDP in 2004 to about 54 per cent of GDP in 2008. In the Commission's view, the risks of the proposed convergence programme are that:

• the whole adjustment strategy depends crucially on the success of meeting the 2004 deficit target
• there are no clear indications about the ambitious expenditure-reducing measures
• the planned deficit would be reduced below the 3 per cent of GDP only in 2008, and then by a small margin, which could be prevented by any unfavourable macroeconomic or budgetary development.

Latvia's convergence programme, covering the period 2004-2007, is "based on a somewhat optimistic macro-economic scenario", the Commission said. The programme envisages that the general government deficit will remain unchanged at 2 per cent of GDP throughout the programme period. It also projects an annual average GDP growth of 6.6 per cent for 2004-2007. This, the Commission believes, is "plausible" though somewhat optimistic. The country's debt-to-GDP ratio is projected by the programme to increase from 15.3 per cent in 2003 to 17.7 per cent in 2007. In the Commission's view, the risks attached to the budgetary targets are "broadly balanced". However, the programme fails to provide a "sufficient safety margin against breaching the 3 per cent of GDP deficit threshold with normal macro-economic fluctuations".

Lithuania's convergence programme for 2004-2007 is described by the Commission as resting on an " optimistic" macro-economic scenario. The programme foresees GDP growth remaining robust - 9 per cent for 2003, 7 per cent for 2004 and 7.3 per cent for 2005 (the Commission's projection for 2005 is 6.6 per cent). According to the Commission, "the deficit targets do not appear very ambitious and are not consistent with the Stability and Growth Pact’s medium-term objective of a budgetary position of close to balance". Furthermore, "lower-than-projected growth and budget amendments in response to better-than-planned revenue outturns represent a risk to the envisaged budgetary targets". The country's debt-to-GDP ratio is expected to stabilise at around 21 per cent by 2007.

Malta's convergence programme is based in the Commission's view on a " plausible" macro-economic scenario. It seeks to narrow the existing excessive deficit from 9.7 per cent of GDP in 2003 to below 3 per cent in 2006. Growth is projected to accelerate from around 1.1 per cent in 2004-2005 to 2.1 per cent in 2006-2007 (the Commission's respective forecast figures are somewhat higher). The Maltese government aims to employ spending control, rationalisation and more efficient tax administration to accomplish its goals. The debt-to-GDP ratio is expected to slightly increase in 2004-2005 to 72.4 per cent, and to decrease to 70.4 per cent by 2007. This is well above the 60 per cent reference value, the Commission notes.

Poland's programme rests on the " rather optimistic" scenario, the Commission said. Among its cardinal goals, the programme aims to reduce the excessive deficit from 4.1 per cent of GDP in 2003 to below 3 per cent in 2007. GDP growth is projected by the programme to be 5 per cent in 2004-2005 and 5.6 per cent in 2006-2007. The Commission describes these projections as "plausible". The Polish programme seeks to maintain the debt-to-GDP ratio below 60 per cent (by implementing the so-called "Hausner plan"). However, the Commission believes that "the evolution of the debt ratio is likely to be less favourable than projected in the programme given the risks to the deficit outcomes and si gnificant uncertainties about the realisation of planned privatisation proceeds".

Slovakia's convergence programme for 2004-2007 is based on a " plausible" scenario, the Commission said. The Slovak government aims to reduce the current excessive deficit from 3.6 per cent in 2003 to 3 per cent in 2007. Noting the recent implementation by Slovakia of "impressive public finance reforms" and a "wide-ranging tax reform", the Commission considers this goal feasible. However, the Commission adds that "in spite of all these considerations and given plausibly assumed growth rates between 4 and 5 per cent, the adjustment over the programme period 2004 to 2007 does not look very ambitious and is back-loaded". Therefore the Commission emphasises the need for "seizing every opportunity to accelerate the deficit reduction".

Slovenia's convergence programme is based on a " plausible" scenario, the Commission said. The programme envisages a "gradual move towards a budgetary position of close to balance". As a result, the general government deficit is projected to decrease from 1.8 per cent in 2003 to 0.9 per cent in 2007. The programme foresees real GDP to expand steadily to close to 4 per cent over the medium term. However, the Commission believes that "the budgetary outcome could be worse than projected, in particular in 2004, given that the downside macroeconomic risks could lead to expenditure overruns as experienced in the past". Accordingly, the budgetary stance in the programme is "not consistent with the Stability and Growth Pact’s medium-term objective of a budgetary position of close to balance". Slovenia's debt-to-GDP ratio is projected to increase to 29.5 per cent in 2005 but fall back to 29.4 per cent in 2007.