Estonia's government has approved a draft 2008 budget with a surplus of just over one percent of gross domestic product to try to cool down the economy, but the central bank on Tuesday urged greater ambition.
Producing budget surpluses is the main way the Baltic states can take money out of the economy. Ratings agencies have said Estonia and Latvia both face overheating risks. At a special session late on Monday, the government approved a planned surplus of 3.6 billio8.9 million). The government said it had decided to limit spending to 93.7 billion kroons and expects to collect 96.4 billion kroons in revenue, the Finance Ministry said in a statement.
The 2008 budget priorities will be domestic security, education, social issues and infrastructure development. The government is under pressure to increase the size of its surpluses to help limit the amount of money in the economy in order to slow rapid economic growth and ease inflationary pressures that keep the country from joining the eurozone.
In July prices rose 5.7 percent from a year earlier and inflation is expected to hit a 7.3 percent rate in 2008 after the government raises excise duties to meet the commitments it made when it joined the European Union in May 2004. The government is expected to discuss the details of the budget again at its session on September 20 and send the budget bill to parliament on September 26.