(Adds details, analyst quote, political background)
By Jana Mlcochova and Jason Hovet
PRAGUE, Sept 22 (Reuters) - The Czech government approved
the 2009 central state budget draft on Monday looking for a
sharply lower deficit next year but warned that a dimming
economic outlook may force spending cuts.
Finance Minister Miroslav Kalousek told a news conference
that in view of the latest global market turbulence and a
pending economic slowdown, he considered the ministry's
macroeconomic forecast on which the budget is based as "overly
optimistic".
The ministry expects GDP growth at 4.8 percent next year,
above the central bank's forecast of 3.6 percent. It sees
inflation falling to 2.9 percent from this year's 6.5 percent.
"If the data (indicates) that we will not reach our revenue
target, the government would freeze some operating expenses in
such an amount that guarantees fulfilling the deficit goal,"
Kalousek said.
He said the changes could be made at the end of this year,
after the budget is approved by parliament. The cabinet opted to
make no changes at this point because it required by law to
submit the budget to the lower house by the end of September.
Monday's draft provides for the central government budget
deficit to fall to 38.1 billion crowns ($2.32 billion) next year
from 71.34 billion already approved for this year.
The Finance Ministry had said it expects this year's gap to
narrow to 58.3 billion crowns.
Next year, the government sees spending up 3.6 percent to
1,152 billion crowns, with revenues at 1,114 billion.
The government aims to keep the total public sector deficit,
which also includes off-budget infrastructure funds, regional
government budgets and health insurance and other items, at 1.6
percent of gross domestic product in 2009, compared with 1.5
percent this year.
That is comfortably below the EU's ceiling of 3 percent.
SLOWDOWN WOULD HIT REVENUE
Analysts said the government was exposed to an economic
slowdown, already indicated by weak order books at industrial
firms that are the backbone of the central European economy.
In addition to sagging foreign demand, domestic demand has
slowed due to an inflation spike, and exporters in an economy
highly dependent on trade have been hit by sharp firming of the
crown currency.
"The government could face a problem to meet its deficit
targets due to the lower expected growth," said David Marek, an
analyst at Patria Finance.
Kalousek said he estimated that a 1 percentage point
slowdown in growth would cause a 10 billion crown ($607.9
million) shortfall in the budget revenues.
The country has seen three years of more than 6 percent
growth. But in the second quarter this year, GDP growth eased to
4.6 percent and is expected to falter more in the rest of the
year.
The centre-right cabinet, which lacks a parliamentary
majority, may face hurdles passing the budget draft into law.
Deputy Prime Minister Jiri Cunek said on Sunday that the
government should quit if it fails to push the budget draft
through.
(Editing by Stephen Nisbet)
