VILNIUS - Lithuania's next prime minister has said that the country must drastically reduce spending to avoid a total economic crash similar to the one recently experienced by Iceland.
"The only answer to such a dramatic reality is to slash spending radically... It is better to face painful reality today, than the catastrophic reality of Iceland next year," Lithuanian Prime Minister-Elect Andrius Kubilius said in his online blog.
"Our main job now is to face reality ... Our challenges are crystal clear: national budget spending could exceed revenues by 6 billion litas (1.74 billion euros) next year, and questions remain whether it will be possible to refinance 3 billion [litas] of debt," said the new prime minister.
Kubilius is currently holding talks on the formation of a new government following a Homeland Union-Christian Democratic Party win in the October parliamentary elections. One of the main issues that the new government will have to tackle is forming a budget capable of weathering the sharp economic downturn that the country is facing.
Lithuanian leaders have repeatedly said that they must avoid a similar situation to that in Iceland, where the top three banks folded and the currency crumbled in a matter of weeks.
Kubilius had previously told journalists that the country was on the verge of a recession and needed to take "radical" action to improve the situation.
"The discrepancy between revenues and expenditures is much larger than planned. The figures are significant. Economic projections manifest that we should think of recession," Kubilius told the reporters on Oct. 31.
"We see chances to reduce the deficit, as specified in the draft, radically 's up to three times," he said.
Kubilius' comments came on the heels of an announcement from outgoing Finance Minister Rimantas Sadzius that the new government may approach a 3 percent budget deficit next year.
"Given that local governments are also likely to borrow, the overall financial deficit of the public sector is planned at 2.9 percent, allowing for a certain margin [so as not to exceed] 3 percent of GDP," Sadzius told reporters after presenting the 2009 budget to parliament.
"The financial crisis is not over yet, and I have the impression it is only acceleratingâ€¦ The crisis has already affected the real economy of the European Union and Russia, markets where we export our production, and, no doubt, that will have an impact on us," the finance minister said.
A deficit of more than 3 percent would stand in violation of the Maastricht criteria 's the EUs checklist of conditions that must be met for a country to join the eurozone.
In the first three quarters of this year, the revenues of the national budget, excluding the assistance of the European Union, amounted to 17.434 billion litas, approximately fulfilling the forecasted revenues of 17.433 billion litas.
The revenues received into the national budget over nine months this year totaled 20.51 billion litas including EU assistance, which totaled 3.07 billion litas. The total revenues in the first three quarters comprised 69.7 percent of the entire planned revenues for this year.