Tallinn - The Baltic state of Estonia may need to make deeper-than-planned cuts to its public spending if it is to qualify for euro adoption in 2011, a representative of the International Monetary Fund (IMF) said Monday. Speaking at the conclusion of a two-week long mission to the country, the IMF's Christoph Rosenberg said the Washington-based organization's projections for the Estonian economy were "somewhat more cautious" than those of the Estonian central bank and finance ministry.
In order to qualify for the euro, Estonia must keep its government budget deficit below 3 per cent of gross domestic product (GDP).
"For 2009, we see the deficit around 3 per cent of GDP, so the target would be achieved. For 2010, our baseline projections show that the deficit will be higher than 3 per cent. We think that there is a need for additional measures," said Rosenberg.
He added that the country need to find additional savings equivalent to 1 per cent of GDP.
"I would argue (extra measures) should be taken sooner rather than later," Rosenberg told journalists.
In order to achieve sustainable growth, Estonian lawmakers may need to make adjustments in some politically-sensitive areas, Rosenberg said, such as social and child benefit payments and pensions. and broadening the tax base.
"Estonia has some benefits - especially family benefits - that are quite generous by international comparisons. Maybe the parameters could be changed there," said Rosenberg. He also mentioned child benefits as a service that might need to be trimmed.
Rosenberg also praised Estonia's approach to tackling an economy which is expected to contract by around 14 per cent in 2009 as a result of the recent global economic crisis. But he warned that euro adoption "is no panacea" to cure economic problems.
"The economy will not return to the growth pattern of the boom years," he said.
Estonian Finance Minister Jurgen Ligi told the German Press Agency
