IMF calls for balanced budget

TALLINN - The International Monetary Fund praised the Estonian economy in its annual report published July 9 and warned about the influence of the slowdown in the world economy.

Margus Uudam, deputy secretary general at the Ministry of Finance, said that Estonia's economy is vulnerable to the influence of the world economy due to very open trade.

The IMF noted that Estonia's medium-term economic prospects remain favorable, but that the short-term outlook could become clouded if the slowdown in the world economy proves sharper than currently expected. The slowdown abroad may cause a decline in exports. This may halt economic growth in Estonia and increase the current account deficit.

According to the IMF forecast the economy would grow by 5 percent in 2001. Last year it grew by 6.9 percent thanks to rapid export growth and the declining unemployment rate.

"Cautious macroeconomic policies and a vigorous structural reform effort have resulted in the almost complete transition to a market economy and have supported a solid growth performance," the IMF reported.

The IMF noted that, despite its recent decline, unemployment remains high in Estonia. It reached 13.7 percent in 2000.

It welcomed Estonia's further steps to reduce unemployment through active labor market policies and a reorientation of the education system.

It also welcomed Estonia's recent pension reforms and the intention to strengthen further the social safety net. IMF analysts were, however, concerned that increased pension contribution and the proposed new unemployment insurance scheme will raise non-wage costs, which are already relatively high.

The IMF also emphasized the need to create a balanced budget. They urged the early passage of the new budget law, which would further enhance fiscal transparency.

"We hoped that the Riigikogu (Estonia's parliament) would endorse the new law by summer, but it was postponed until autumn," said Uudam. "Many additional costs, like loans and aid for example, would according to the new law be included in the budget. It would make the budget more transparent. It would also help to collect and compare international statistics."

He said the government is planning to end the year 2001 with a balanced budget. "Active lending causes deficit. The half-year results show that we would do without the deficit this year. It is our firm task," said Uudam.