TALLINN - Eesti Pank, Estonia's central bank issued a statement August 27th calling for fiscal balance to be preferred to other election promises.
"The Estonian economy is adjusting after a period of very fast domestic demand growth and this process is accompanied by slowing economic growth. In light of Eesti Pank's spring forecast, it can be said the economy is developing according to the scenario of a speedier decline in domestic demand, especially investment growth," the statement says.
Eesti Pank admits that "it is possible that real growth will be negative this year" but notes the slowdown will be accompanied by the virtual disappearance of risks related to rapid credit growth, the current account deficit and inflation.
"We expect economic growth to recover in 2009. To this end, resources should be reallocated in order to reinforce the export potential even more. In addition, the labour market should quickly react to the changing economic conditions," Eesti Pank believes, adding that index-linking wage demands would be a mistake.
"Eesti Pank supports the government's objective to prepare the 2009 state budget so that it would be at least in balance. Taking into account the forecast of the Ministry of Finance and the risks arising from the current economic situation, this is the only possible goal for the next year. In Eesti Pank's opinion, fiscal balance should be preferred to other election promises, which should possibly be postponed," the statement says, before urging the government to aim for a budget surplus.