Bloomberg_Estonia Aims for `Small' Budget Surplus in 2009 (June 4)

04.06.2008

June 4 (Bloomberg) -- Estonian Prime Minister Andrus Ansip said the government will aim for a ``small'' fiscal surplus next year, maintaining "conservative'' budget policies as the Baltic economy cools.

"We'd like to prepare the next annual budget also as balanced with a small surplus,'' Ansip, 51, said in an interview yesterday in the Latvian capital Riga. "We are quite well prepared for the slowdown in the economy,'' due to continued surpluses and a low level of government debt.

The three-party government has been criticized for failing to anticipate an economic slowdown this year and inflating spending. The International Monetary Fund said last month Estonia's economy, the European Union's second-fastest growing in 2006, may contract this year as consumer spending shrinks and property prices drop, and that it expects ``sharp'' spending cuts in coming years.

``The public finances are in good shape, but there are red lights flashing just about everywhere else,'' Neil Shearing, an emerging-markets economist at Capital Economics Ltd. in London, said in an e-mailed comment. ``As such it seems unlikely that Estonia can escape a prolonged period of recession.''

The government was last month forced to cut this year's spending by 3.2 billion krooni ($320 million) to balance the budget because of lower-than-forecast tax revenue. Economic expansion slowed to 0.4 percent in the first quarter from a peak of 11.4 percent two years earlier as retail sales stalled and housing prices dropped.

`No Crisis'

Estonia's budget surpluses in past seven years have helped sustain ``financial strength,'' compared with neighbors Latvia and Lithuania, which had smaller surpluses or ran deficits, Moody's Investors Service said on May 29. Estonia had the lowest level of government debt in the European Union last year, accounting for 3.4 percent of gross domestic product, Ansip said.

There is no ``crisis'' in the Estonian economy, Ansip said, pointing to an unemployment rate of 4.2 percent in the first quarter, close to a 15-year low. The number of jobs has increased by 10,000 from a year earlier, he said.

``The unemployment rate will increase a little but not too much,'' Ansip said. Jobs in textile and furniture industries will suffer most as wage increases make them less competitive and a cooldown in the housing market will cut the number of construction workers, he said.

The central bank forecast last month unemployment will rise to 6.4 percent this year from 4.7 percent in 2007, and to 6.6 percent next year.

To contact the reporters on this story: Aaron Eglitis at aeglitis@bloomberg.net
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