The new spring forecast presented by the Estonian Ministry of Finance does not paint an optimistic picture of the country's future economic recovery.
According to the latest forecast the Estonian economy with contract 8.5 percent this ear, compared to the last year's fall of 3.6 percent.
Finance Minister, Ivari Padar said price growth will slow down from last year's 10.4 percent to 0.4 percent. A previous forecast, made in February had estimated the inflation figures would reach between 2 percent and 0.2 percent.
Estonia's gross domestic product (GDP) is expected to fall by 5.5 percent according to the main scenario and by 8.9 percent according to the supplementary scenario.
"It is no doubt a complicated time for Estonia. At the same time the economic fall gives us the opportunity of making our economy more effective and stable," said Padar.
"Opportunities for accession to the euro zone and in the long term also budget policy will certainly have to be reviewed in the light of the new forecast," he said.
The spring economic forecast serves as the basis for drawing up the state budget strategy in which agreements are made concerning the development trends of the state budget during the next four years.
According to the state budget act the government will have to endorse the state budget strategy by the end of May at the latest.
On March 31 Estonian Prime Minister Andrus Ansip unequivocally ruled out the need to draw up a second negative supplementary budget this year, but said measures would be taken to reduce the budget deficit.
The government has instead opted to suspend state contributions into the second pillar of the pension system, or mandatory funded pension, for two years in a bid to improve the government sector's budget position by three billion kroons.
Halting the payments from May 1 translates into a 1.6 billion kroon (102.2 million euro) expenditure cut for the state.
According to Ansip, the Finance Ministry's latest forecast has the government sector shortfall this year at 2.9 percent of GDP under the base scenario and at 6.1 percent of GDP under the risk scenario.
Chairman of the standing finance committee in the Estonian Parliament Jurgen Ligi previously said that considering the latest financial forecast it is more likely a second negative supplementary budget will need to be drawn up.
TALLINN - According to Ligi the position of the Ministry of Finance had been overly optimistic, thus making it difficult to estimate whether the economy had reached its bottom.
Ligi said that ongoing domestic problems including the situation with unemployment insurance and compromises made in the Labor Contract Act may necessitate a new negative supplementary budget.
However, Ansip has denied the government would be required to draw up a new negative supplementary budget.
"We decided at today's [March 31] Cabinet meeting that there is no need to change the budget law, this is a very unequivocal decision," Ansip said.
Final decisions on cost-cutting measures are expected to be made during the next month.
