* Bank says outside risks the main CEE focus
* Kazakhstan, Montenegro eyeing eurobond issues
* Bosnia says weak euro to drive up public debt
By Sebastian Tong and Gordana Filipovic
ZAGREB, May 14 (Reuters) - The euro zone deficit crisis will
prompt fiscal cuts that will hit demand for exports from central
and Eastern Europe and undermine the region's recovery, the EBRD
said on Friday.
Against a backdrop of market uncertainty surrounding the
crisis package approved to shore up euro zone periphery states,
Kazakhstan and Montenegro said they were looking to issue
eurobonds -- the former in dollars and the latter in euros --
while Bosnia said its public debt would rise due to the weak
euro.
The European Bank for Reconstruction and Development said
the impact of southern Europe's fiscal woes and the public
sector consolidation needed to fix it would be illustrated in
new growth forecasts for the CEE region due for release on
Saturday.
"Measures in western Europe that drag down demand -- fiscal
restraints for example -- ... will have an impact on central and
eastern Europe as they depend so much on exports to the euro
zone," EBRD Chief Economist Erik Berglof told Reuters Insider
television at the sidelines of the bank's annual meeting.
In January, the London-based development bank said the
region would grow 3.3 percent on average in 2010.
One of the worst-hit regions last year at the height of the
global financial crisis, countries stretching from the Baltics
to the Black Sea and are trying to recover ground after a
downturn that saw Latvia's economy contract 18 percent and
others shrink in the high single digits.
Although Poland, the Czech Republic, and several other
countries are expected to show growth this year, low demand from
the euro zone is expected to prolong pain for countries seen
shrinking, such as Hungary and Romania.
"We were a bit more optimistic before but the outside risks
are clearly what we are worrying about now," he said.
Earlier this month, the bank warned that Bulgaria, Romania
and Serbia may suffer as a result of the crisis in Greece, due
to high levels of Greek banking exposure in these countries.
Now that risk has been compounded by sluggish demand among
more developed European Union states that has sapped the pull of
manufactured goods from the export-heavy region.
The EBRD was set up at the end of the Cold War to help
former communist economies adjust to free markets and operates
in 29 countries.
EURO BONDS
Kazakhstan's finance minister Bolat Zhamishev said his
country was planning to raise at least $500-750 million Eurobond
in the second half of the year, the first in a decade for the
resource-rich Central Asian country.
"We are not planning to issue a large Eurobond. The minimum
volume that we're focusing on is $500-750 million," he told
Reuters at the sidelines of the annual meeting of the European
Bank of Reconstruction and Development (EBRD).
Montenegro's finance minister also said his country expected
to return to mild growth this year and still planned to issue a
eurobond worth up to 200 million euros but was carefully
watching the situation in the wake of the Greek debt crisis.
"We still plan to tap the markets but whether it will be
before the summer depends on the assessment of our managers. The
plan remains to issue up to 200 million euros," Luksic said in
an interview.
He said the European Union applicant's economy, which
contracted 5.3 percent last year according to the government and
by 7 percent according to the IMF, would post "mild growth" and
in the next few years the economy would return to its "natural
growth rates of between 4 and 5 percent".
He said the budget deficit would taper off from this year's
4.5 percent of gross domestic product. "We plan to balance the
budget in 2012 and have a slight surplus in 2013," Luksic said.
Weakness in the euro would also push up Bosnia's public debt
by 5 percent this year, its central bank governor said. Bosnia's
marka currency is pegged to euro at a fixed rate under a
currency board while most of its debt is in dollars.
"We have no Greek banks but there is some impact (from the
euro zone debt crisis) because our currency is anchored to the
euro," Kemal Kozaric said.
"Our debt will be around five percent higher because of the
weak euro." Bosnia's debt currently stands at around 30 percent
of gross domestic product. Kozaric said he expected the
government to stop short of any new borrowing this year.
For factboxes on the EBRD, please click on: []
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(Writing by Michael Winfrey; editing by John Stonestreet)
