Estonia faces current account crisis

TALLINN - The International Monetary Fund has just issued a forecast that among the Baltic countries, Estonia will have the biggest current account deficit and consumer price index rise in 2001 and 2002.

In its recent review of the world economic outlook, the IMF predicts a 7.2 percent shortfall in the current account for 2001 and a deficit of 6.8 percent for 2002. The respective figures for Latvia are 6.3 and 5.8 percent and 6.7 and 6.6 percent for Lithuania.

The IMF's 2001 forecast also said Estonia would see the largest increase in its consumer price index of all the Baltic states - 5.7 percent.

Latvia faces a 2.3 percent jump in the index, while Lithuania will barely note a 0.6 percent increase.

For 2002, the IMF's forecasts of the consumer price index show a 3.8 percent increase for Estonia, 3 percent for Latvia and 2.8 percent for Lithuania.

The fund also predicts that economic growth in the Baltic countries will continue at a fast pace.

It expects Latvia to experience the fastest growth - 6 percent - both this year and the next.

The Estonian economy is expected to grow 4.5 percent in 2001 and 5 percent in 2002. Growth in Lithuania, however, trails its Baltic neighbors', with predicted growth reaching only 3.6 percent this year and 4.7 percent in 2002.

The IMF said that activity in the Baltics is projected to remain relatively robust, with a moderate slowdown in Estonia. This in part reflects its exposure to the worldwide electronics sector.

But given the openness of the economies of the Baltic countries, they remain vulnerable to weaker external demand, particularly in Europe.

Budget deficits in all three countries have been sharply reduced in the past two years, contributing to the decline in external current account deficits across the region.

The Baltics still have many attractive features compared to other hard-hit economies around the world. The IMF said that while external deficits remain high - partly because of higher oil prices - vulnerabilities are reduced by a high level of foreign direct investment and generally low external debt.

Over the medium term, the key challenge is consolidating progress while meeting higher expenditure needs for EU accession, as well as pension reform.