Estonia's budget deficit target very ambitious

TALLINN - Estonia's plan to hold its budget deficit at 3 pct of GDP is very ambitious given a collapse of revenues due to a deep economic recession, an International Monetary Fund mission said on Monday.

The Estonian government is currently struggling to cut its budget for the second time this year to meet the target, but first quarter data now shows the economy contracted 15.6 percent while manufacturing shrank by over 20 percent on year.

"That which is on the table now is not enough to get to three percent of GDP," Christoph Rosenberg, head of IMF mission to Estonia said at a news conference.

"It is very, very ambitious," he added.

Rosenberg added that the IMF's current forecast is for the Baltic economy to contract by 13 percent for 2009, and that 2010 would be more challenging for the country.

"The deficit in 2010 would be twice of this years' deficit if no more measures are taken," the IMF mission head said.

Talks on another 5.5 billion Estonian kroons ($0.48 bln) in cuts have opened faultlines in Prime Minister Andrus Ansip's coalition government and some Estonian media speculate the coalition could even split over disagreement on the size of contributions to the unemployment fund and tax increases.

Estonia still hopes to join the euro zone from January 1, 2011, for which the budget deficit must be below three percent of GDP. Analysts polled by Reuters last month forecast the country would not join the euro until 2013.

The EU commission forecasts the budget deficit at three percent of GDP this year, but says it will breech the limit in 2010.

Editing by Patrick Graham

Comments

[Georgi]

The fall in industrial production is directly linked with the exporting markets but the interesting thing is that most export products that are produced in Estonia are produced from raw materials from abroad except: timber, agribusiness products and tourism. Even spirits are produced from alcohol from the US :) Joining the EUR is brought to attention so the government can justify the cuts they have to make that are caused buy their extreme "positiveness/blindness" in the wake of the global recession (November 2008 everything was fine).