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EU tells Estonia to aim for higher budget surplus

Estonia's government, with rising revenue generated by the European Union's second-fastest-growing economy, should use the expansion to run a higher-than-planned budget surplus this year, the EU said.

The Baltic country posted 11.2% Q4 growth today. That expansion has boosted state income and yesterday the Finance Ministry in the capital of Tallinn said a state budget surplus of 1.4 billion krooni ($116 million) had been generated for January alone. Estonia should „aim for a higher budgetary surplus in 2007 than planned,” the European Commission, the EU's executive body, said in a report today. That will „foster macroeconomic stability.” Estonia ran a state budget surplus of 5.2 billion krooni in 2006, the ministry in Tallinn said on January 10. Income grew 22% last year. It is unknown how government policy will develop after March 4 general elections and one government party, Center, has pledged to raise public-sector wages.

Estonia's general government surplus, derived from the central government and other sources including municipalities, was 2.5% of GDP last year. That's set to fall to around 1.25% this year and next, the commission said. The Riigikogu, Estonia's parliament, passed the 2007 state budget on December 13. It set out a 1.1 billion-krooni surplus based on income of 75.9 billion krooni and spending of 74.8 billion krooni. The commission said it expects Estonian economic growth to slow to 8.3% this year and to 7.7% in 2008. That compares with 11% last year. Estonia is the northernmost Baltic state and home to 1.3 million people. The pace of growth has also driven inflation that forced the government to abandon two target dates for adopting the euro, restating on November 30 its goal as being to make the currency switch „as soon as possible.” (Bloomberg)