Estonia may have 2009 budget gap

Estonia's economy may contract next year and the government may post a budget deficit after the economy entered a recession in the second quarter, Finance Minister Ivari Padar said, Bloomberg reports.

Any shortfall would have to be covered by government reserves that equal EEK 28 bln or 11 percent of expected GDP this year, Padar told Parliament in Tallinn today.

Governments of Estonia, Latvia and Lithuania are struggling to collect budget revenue and reluctant to cut spending as growth falters and inflation cuts consumers' buying power. They risk breaching the EU's budget deficit limit of 3 pct of GDP, officials in the three countries have said, Bloomberg writes.

"I practically don't see any space in this budget for additional spending cuts,'' Padar said. "You cannot totally curb a country's budget in one year. It would ruin the state.''

The Estonian government has approved a central government deficit of EEK 900 mln for next year, aiming for an overall fiscal balance under European Union rules that also include local governments and social insurance funds.

The budget, which still must be approved by lawmakers, is based on the Finance Ministry's August forecast of economic growth of 2.6 pct in 2009. Spending is seen increasing 9 pct, while revenue growth is set at 15 percent.

"It is perfectly possible that we will have to face zero growth, or even a contraction, but in any case I advise we hold on to the 2.6 percent forecast during the budget proceedings,'' Padar said during a question period in the legislature.

Estonia's budget shortfall may reach EEK 10 bln next year, compared with a 2008 deficit of EEK 3.1 bln forecast by the ministry, former Prime Minister and Estonian Business Association president Tiit Vähi said on October 9. That would equal 3.5 pct of the expected GDP this year, according to Bloomberg calculations.

Source http://balticbusinessnews.com/default2.aspx

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