IMF says Estonia does not need loan
The International Monetary Fund (IMF) gave a cautious assessment of Estonia's future prospects Monday, but said the Baltic nation does not need a bail-out package like the one recently requested by neighbouring Latvia, reported dpa.
"The most important aim at present is to achieve economies in budgetary expenditures," said Franciszek Rozwadowski, head of the IMF group which visited Estonia, at a press conference at the end of his trip.
"The most important aim at present is to achieve economies in budgetary expenditures," he said.
"There are no immediate liquidity threats, but the fiscal deficit is unsustainable over the longer term," he said. "I expect them to go on for two to three years without the need to resort to external financing."
The IMF forecasts the Estonian national budget deficit to surpass 3 per cent of gross domestic product in 2009. At the same time, the current recession should give way to a return to economic growth by 2010, the agency reported.
At the same press conference, the Estonian central bank released its own assessment of the current state of the national economy, which tallied with the IMF view.
"In the case of possible negative developments, Estonia's 2009 fiscal deficit may turn out to be larger than 3 per cent of GDP," it said, adding that the government should be prepared for a further fiscal cuts in order to meet the Maastricht criteria for euro adoption.
Last week the Estonian government approved its 2009 budget, which already includes fiscal tightening of 2 billion kroons (165 million dollars).
Estonia has made adoption of the euro a priority, and hopes to switch currencies in 2011.
But loan default rates are set to rise next year. "According to the risk scenario of Eesti Pank's autumn forecast, the share of loans overdue by more than 60 days may increase to nearly 5 per cent of the loan portfolio in 2009," the central bank predicted.
During the press conference, the IMF also drew attention to the strength of the tiny Baltic nation's political framework and state institutions, including the fixed exchange rate by which the Estonian kroon is pegged to the euro.