Estonia's government has slashed spending by 3 billion kroons (192 million euros), or 3.2 percent of projected expenditures, in an emergency measure to prevent revenue shortfalls from ballooning into a damaging deficit.
The decision came as the outlook for the country's economy continues to deteriorate and signs of a hard-landing appear inevitable.
Meeting on April 24, the government also vowed to cut another 100 million kroons in order to balance the budget. Attempts to agree on those amendments failed last week, and a spokesman said ministers would convene on May 15 to finalize the cutbacks.
The expenditure losses affect all ministries and government institutions, the government said. Some 1.7 billion kroons came from operating expenses and postponing low-priority investments.
Finance Minister Ivari Padar said that slashing operating expenses was the most painful for ministries, but it is necessary to consider the state as a whole and to continue investing in key spheres and citizens' sense of security.
"As a result, the Cabinet decided to make smaller cuts from expenses on education, the social sphere, domestic security and defense," Padar said.
The austerity measures reflect the increasing pitfalls Estonia's economy is facing due to a contraction in the real estate market, unfavorable global economic trends and Russia's decision to punish the Baltic state for removal of the Bronze Soldier monument last year.
It is now clear that Estonia has lost some 400 million euros, or nearly 3 percent of gross domestic product, as a result of lost business with Russia, particularly in transit.
GDP expanded 11.2 percent in 2006, 7 percent last year, and is expected to sink as low as 3.5 percent this year.
Padar credited members of the government for accepting the Finance Ministry's austerity plan and finding the necessary items from their budgets to be slashed.
"Several countries have decided to review their possibilities in the new economic situation, and Estonia's decision to contract its expenses is quite sensible," the finance minister said.
He said a balanced budget was a step toward maintaining the economy's health, which shows the government's ability to swallow the bitter pill of cutting expenses in the middle of the budget year.
"It is pleasant to state in the light of today's [April 24] decisions that the government does not have to back away from promises given in the coalition agreement and that important investments will be made," Padar said.
The government also decided to boost revenues by 832 million kroons, primarily by selling eight properties administered by Riigi Kinnisvara (State Real Estate). The list includes the building at Pagari Street 1 in Old Town, the president's residence at Paslepa in Laane County and the former Parnu Prison that is no longer used.
The government found that the state has no use for the properties to be put on sale. In all, RKAS administers real estate to the tune of two billion kroons.
