Analytics, Budget, Estonia, Financial Services

Andres Lipstok.

"In preparing next year's budget, nominal economic growth has been projected at 8%, but at the same time growth in expenditure is planned at almost 10%," Governor Andres Lipstok said in a statement. "This is above the projected long-term budget revenue growth. At such a pace of growth, reaching a balance must, of course, fail."

The Estonian government is in the process of drawing up the budget for 2009.

Although the country is required by law to operate a balanced or surplus budget, both the Prime Minister and Finance Minister in recent months have floated the idea of allowing the state budget to slip into deficit.

"Considering the situation in global financial markets and the global economy's uncertain outlook and our Finance Ministry forecasts, it is very important that the government continue with a balanced budget policy," Lipstok added.

In the light of falling tax collections, Estonia has already slashed by 6 billion kroons its budget revenue plan for 2008 to ensure expenditure is also curtailed to keep the budget balanced at 90.2 billion kroons.

Estonia's growth and budget revenue have been hit this year as tighter credit and collapsing consumer confidence undermined domestic consumption. The country's economy contracted 1.1% year-on-year in the second quarter.