Tuesday, June 30, 2009

Estonian Q1 budget deficit already down to 2.5% of GDP

Bloomberg reported that Estonia’s fiscal deficit under European Union terms more than doubled in the first quarter from a year earlier, indicating the Baltic country may not be able to adopt the euro in January 2011.

The deficit, including social security and state and municipal spending, rose to EEK5.57 billion from EEK2.06 billion a year earlier, according to data published on the statistics office’s website today. The gap corresponds to 2.5% of gross domestic product, according to Bloomberg calculations based on the Finance Ministry’s forecast for Estonian GDP for 2009.

The first-quarter figure means the government will have to keep the deficit below 0.5% of GDP for the rest of the year to meet euro-entry criteria. Finance Minister Jurgen Ligi has said he sees no improvement in the economy before the third quarter, giving clues on the feasibility of this challenge.

While the minority Cabinet of PM Andrus Ansip has managed to cut the 2009 budget deficit by EEK16 billion, or 7.3% of GDP, the recently published (and predictable) budget deficit figures are waking up critics against the current policy.

For instance, Eiki Nestor, member of Social Democratic Party and MP, clearly explained a couple of days ago that in spite of huge budget cuts, the goal to maintain budget deficit below 3% of GDP is not realistic. “When increasing VAT is a wrong decision in difficult time, then cutting sick benefits can be called nonsense. Especially in situation where cutting task wasn’t done and Health Insurance Fund has supplies for previous reasonable decisions” he wrote to Postimees.

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