By Marja Novak

LJUBLJANA (Reuters) - Slovenia set a budget deficit target on Monday of 3.2 percent of national output for next year and pledged to balance its books by 2017, but capital boosts for debt-laden state banks could soon undermine these goals.

Speaking after the government adopted its 2014 draft budget, Finance Minister Uros Cufer said Slovenia's general government budget deficit would be 4 percent of gross domestic product this year, 3.2 percent next year and 2.5 percent in 2015.

The deficit was 3.8 percent of GDP in 2012.

The stability of the euro zone member's finances, however, and whether it is able to avoid asking for an international bailout will depend on the results of stress tests on its teetering banks expected in November.

The tests should define how much extra capital they need, and how much the deficit will then deepen.

The government in May forecast a 2013 deficit of 7.9 per cent of GDP, to include the cost of helping Slovenia's banks.

However, the European Commission then demanded the external stress tests which delayed the bank overhaul so the government can no longer say whether any capital injections in banks will take place this year.

None of the deficit projections cited by the government on Monday therefore take account of any bank aid costs.

The budget draft now goes to parliament where Prime Minister Alenka Bratusek plans to call a confidence vote to shore up support for her ruling coalition and its handling of Slovenia's worst financial crisis in 22 years of independence.

Bratusek told Reuters last week that she expected the vote in mid-November.

The euro zone's fastest-growing economy when it joined the bloc in 2007, Slovenia saw its export-driven economy hit a wall with the onset of the global financial crisis. Bad loans soared and are now choking its banks to the tune of some 7.5 billion euros ($10 billion), or 21.5 percent of GDP.

The banks are at the heart of speculation that Slovenia will follow Cyprus in the queue for an EU/IMF bailout, once again shaking confidence that the currency union can lay its debt problems to rest.

Cufer, however, was upbeat.

"At the moment, I see no need to think about international financial aid," he told a news conference.

He said the country expected to take on new debt totalling around 4 billion euros (3.3 billion pounds) next year.

Former Prime Minister Janez Jansa, who lost office in February, urged Bratusek's government to admit defeat and seek help.

"We advise the Slovenian government to acknowledge that it is not able to solve the situation by itself and to ask international institutions for help as soon as possible," he told a news conference earlier on Monday.

(Reporting by Marja Novak; Editing by Matt Robinson and Stephen Nisbet)

 

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