TALLINN - Prime Minister Andrus Ansip has said that public expenditures would have to be slashed this year as a result of dwindling revenues.
The prime minister, speaking on March 28 on the Vikerraadio program, said that judging by revenue flow in the first two months of the year, he would have to take a pessimistic view of Estonia's public finances and conclude that spending cuts are unavoidable.
VAT income has been modest in the first quarter, Ansip noted. "And there are no clear signs at present the situation could quickly take a turn for the better," he added.
"There's no reason for excessive optimism," the prime minister underscored.
In Ansip's words, debates about what expenditures to cut still lie ahead in the Cabinet, but certain activities should be suspended. No sphere would be left out, he said.
"We need to look for places where reduction of expenses hurts the least," the prime minister said.
"We'll await the summer economic forecast and then decide in September how to proceed. The possibility exists that we'll have to draw up a negative budget," Ansip said.
Estonia's economy was first in the region to begin cooling, falling in the third quarter to 6.4 percent and then in the fourth to 4.5 percent. Economists have revised their forecasts for 2008 GDP performance, with Danske Bank predicting 3 percent and SEB 3.5 percent.
Such a fall would probably not qualify as a hard-landing, though such a growth level is too low for Estonia, which is striving to catch up with developed EU nations' standard of living.
Ansip pointed out that certain positive signs could be seen. "January's export growth was robust 's that's a strong signal that the economy is recovering. It's also positive that deposit growth has outstripped loan growth," he said.
Indeed, economists believe that exports make or break Estonia's economy this year as retail sales, bank lending and the real estate market continue to lag.