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Estonian Finance Minister Addresses 2009 Budget Problem

by Ulrika Lomas, Tax-News.com, Brussels

17 December 2008


The Estonian parliament passed the 2009 budget on December 10, assuming revenues of EEK97.8bn (EUR6.25bn) next year against slightly reduced expenditure of EEK96.7bn.

However the almost perfectly balanced budget assumed an earlier projection of economic growth of 2.6%; forecasts now however predict the Estonian economy will contract by 3.5%. The budget will have to undergo huge changes including substantial cuts in expenditure to achieve equilibrium. Estonian Finance Minister Ivari Padar believes that the expenditure within the budget, in its current form, will have to be reduced by as much as EEK6bn, an impossible figure in his opinion; instead he has suggested utilising government's reserves as a short term fix.

Estonia's hopes of adopting the Euro early next decade could easily be shattered by a widening budget deficit, which according to the International Monetary Fund (IMF) is "likely to exceed 3% of gross domestic product in 2009 and beyond." Estonia is required to maintain a budget deficit below the 3% 'Maastricht Criteria' in order for the country to successfully adopt the Euro. Estonia had originally hoped that it would have the currency in circulation by the start of the next decade.

Despite fears of rising budget deficits the Estonian government has not had to resort to external loans like many of its Eastern European neighbours; in a recent report the IMF stated that the Estonian economy will not need any funding for at least two to three years. The Estonian government currently boasts the lowest level of government debt in the EU, according to Padar, and the government has managed to run a budget surplus for the last seven years, which has allowed it to build up reserves equal to 10% of its GDP (EEK7bn).


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