Budget, Economics, Estonia, Financial Services

If the government does not manage to meet that criterion, the gross domestic product of the following years would be considerably lower, the central bank said.

In the opinion of the central bank it is necessary to start cutting expenditures immediately. In addition to cuts it would be necessary to think hows to increas revenues.

The bank pointed out in its overview that in order to accede to the euro it would be necessary to make additional changes in the state budget. According to the spring forecast the nominal GDP (gross domestic product) will be considerably lower in the next few years than in 2008.

The central bank said that measures balancing the budget would not be necessary to meet Maastricht criteria alone. It is necessary to bring the finances of the state into line with the changed economic situation and to ensure long-term sustainability of the budget policy.

The budget strategy of the state to be drawn up this spring, the central bank said, must give answers to the questions how and when Estonia would once again achieve a balance between the revenues and expenditures of its consolidated budget and would srart restoring its budget reserve.

Importance of extensive liquid public sector reserves in order to insure security of the Estonian economy and softening of the effect of the expected changes in the economic environment is one of the main lessons of the present crisis. "As a result it is necessary to treat the measures planned for 2009 and 2010 as one package as much as possible," the central bank added.

The overview points out that both banks and investors have become much more cautious recently. Despite that banks have enough resources to support reorganizations in enterprises and in the whole economy.

Favorable outlooks of the economy in the medium and long term must be taken into consideration in making loan decisions, because convergence of the economy or movement of Estonia's incomes towards richer countries of the European Union would continue also in the future.

This will be supported by sustainability of the budget policy and Estonia's accession to the euro zone as soon as possible.