TALLINN — The International Monetary Fund on Monday said Estonia has reasonable chances of adopting the euro by its new target date in 2011 but urged the government to broaden the tax base in order to reduce the budget deficit.
"Estonia now has euro adoption within reach," Christoph Rosenberg, head of the IMF's mission to central Europe, told journalists. "But we're not there yet. Euro adoption...is not a solution to all problems."
He said the government will have a hard time keeping the deficit below 3 percent — required for adopting the euro — unless it seeks ways to increase the budget's revenue side, particularly by broadening the country's tax base.
Estonia, which is part of the Exchange Rate Mechanism II, a preliminary step to joining the euro, and once was due to phase out its national currency — the kroon — in 2007. High inflation prevented that, and now, with consumer prices under control, the center-right government has a different problem: keeping its budget deficit in check.
The center-right government has kept costs down by slashing wages and other expenditures, and has targeted January 2011 as a deadline for joining the eurozone. Analysts, however, say 2012 or 2013 is a more a realistic date.
The IMF suggested in its assessment report published Monday that Estonia review its current tax system and consider new taxes — such as an annual vehicle tax or real estate taxes — to increase revenues.
The IMF said its expects Estonia's GDP to drop by 14 percent this year and resume growth in the second half of 2010.
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