Lithuania-same fate as Iceland?

VILNIUS- Lithuania's future prime minister and chairmanof the winning Homeland Union Andrius Kubilius warned that the government's deficitmay reach six billion litas (1.739 b euro) in 2009.  Failure to shrink this debt may put thecountry at threat of reliving Iceland's fate.

"If at least half of thisyear's deficit carries over to next year, the deficit will increase by another1.3 billion litas. In this case scenario, the expenditures will exceed theplanned takings not by just 4.7 billion litas, but by an entire 6 billion litas,"Kubilius said on his Website.

This kind of debt wouldmake up six percent of the GDP or 20 percent of the entire national budget ofabout 30 billion litas.

"Oct. figures revealed afact long covered up by the government, namely that this year's fiscal deficitwill far exceed the planned levels and reach up to 2.7 billion litas (EUR 782million) or 2.35 percent of the GDP," the future prime minister said.

He went on to say that, "thegovernment has it rather difficult to finance this year's deficit, as gettingcheap loans in the international markets, all shook up by the global crisis, isobviously very complicated. It is therefore possible that a considerableportion of this year's government expenditures will be simply left uncovered,and such bills will have to be paid next year. This will definitely increase governmentexpenses even further."

The 2.7 billion litasdeficit provisioned by the incumbent government in the 2009 draft budget andthe consolidated budget deficit with the State Social Insurance Fund Board orthe fiscal deficit may be nearing the 3 percent GDP criterion under theMaastricht Treaty.

Moreover, not even a 1.5percent GDP growth may be predicted for next year, reported experts at theFinance Ministry. According to Kubilius, the predicted national budget takingsfor next year should therefore be reduced by at least 2 billion.

Kubilius also explainedthat it is practically impossible for a state to get loans in the internationalmarkets in face of the global financial crisis, the future head of Cabinetsaid. Lithuania, however, will need to refinancesome three billion litas worth of previously taken out loans.

"It is difficult tosay at this time whether this could be done next year, but there are doubts.The only possible answer to such a drastic fact of reality is a radical drop inbudget deficit", Kubilius said.

A plan came last Friday forreducing the deficit by some 3.5 to 4 billion litas, i.e. 2 billion by reducingexpenditures and 1.8 billion by restructuring the tax system and resigning taxbreak exceptions.