Estonia’s Parliament approved next year’s budget, targeting the first deficit in three years on concern Europe’s sovereign debt crisis will restrain the economy more than forecast.
Lawmakers voted 55-44 to back the budget in the final of the three readings in the capital, Tallinn, today. The budget is based on a 2012 forecast for gross domestic product growth of 3 percent and sets a deficit of 2.1 percent, compared with a planned surplus of 0.2 percent this year, the same as in 2010.
The central bank and the opposition called on the Cabinet to trim spending. The Finance Ministry has said that there’s a risk that growth may be as low as 1 percent next year.
Government spending “will help offset the uncertainties stemming from global markets by spurring domestic demand and creating jobs,” the ministry said in an e-mailed statement. Investment will grow by 28 percent to 1.25 billion euros, it added.
Estonia, the fastest-growing economy in the 27-member European Union this year, should brace for slowing exports and declining business and consumer confidence next year, the International Monetary Fund said on Nov. 29. The IMF forecast a 2012 GDP rise of 3.1 percent, while the Organization for Economic Cooperation and Development expects 3.2 percent growth, according to a forecast released on Nov. 28.
Spending is rising mainly because of compulsory expenditures of proceeds from selling spare UN carbon-emissions quotas and the resumption of state-pension contributions, which were frozen in 2009.
The deficit will be covered from government reserves, the Finance Ministry said. The lawmakers earlier today approved measures to consolidate the unemployment and healthcare insurance funds under the State Treasury, a move that would help Estonia avoid borrowing until 2015.
Finance Minister Juergen Ligi said last month the deficit would remain below the EU’s threshold of 3 percent of GDP even if economic growth would drop to 1 percent.