Eesti Pank urges spending restraint

TALLINN -- According to an economic comment the Bank of Estonia published on Feb 20, the government must be prepared to cut its bugdetary expenditures if less revenue than projected is paid into the state budget.

According to the budget passed last year the sum total of the state budget revenues should be 96.3 billion kroons (EUR 6.15 b).

Members of the government have denied until recently the need to revise their budgetary forecast, but Finance Minister Ivari Padar said a few days ago that preparations for certain major public sector projects should be frozen because of below-target revenue intake.

According to the Central Bank the Estonian economy had been generally moving in the direction forecast last Fall, though the outlook has deteriorated somewhat. Continuing confusion on the world financial markets and the expected slowdown of economic growth in the United States could rein in economic development of the European Union, thus affecting Estonia, the bank believes.

In the opinion of the Bank of Estonia it is likely that economic growth will slow down more than forecast this year, but so will inflation, particularly in the third and fourth quarters.

The latest assesment comes a week after the bank flagged up 2011-12 as its new target date for adoption of the euro.

"The fundamental principles of the Estonian and euro-area economic policy are very similar, thus euro adoption is to be taken as a natural development for Estonia. The reason we cannot currently join the euro area is Estonia's high inflation level, which should fall to the level prescribed by the Maastricht inflation criterion in 2009. Therefore, it is unlikely we can introduce the euro before 2011," Said Governor of Eesti Pank Andres Lipstok on Feb 15.