* Public finance may worsen dramatically in several years * Fiscal revamp needed to avoid mid-term trouble
By Jana Mlcochova and Robert Mueller PRAGUE, July 21 (Reuters) - The Czech Republic must revamp its public finances to avoid a dramatic erosion in several years which may lead to a crisis already seen in some other central and east European countries, central bank Vice-Governor Miroslav Singer said on Tuesday.
The Czech Republic has experienced a deep economic downturn due to a collapse of demand in export markets, which has sharply raised the budget deficit to an expected nearly 5 percent of gross domestic product this year.
The country remains one of the best credits in the region, with credit default swaps at 105 basis points, compared with 321 for Hungary. Agency Fitch rates the Czech Republic at A+, Moody's at A1 and Standard and Poors at A.
But Singer warned that action was needed now to steer the public sector finances, burdened by growing non-discretionary spending, in the future.
"Considering the horizon of public finances, which is several years, we really face the threat that they will start developing dramatically worse than now," Singer told Reuters in an interview.
"On an ocean ship, there is no point in asking where it will be the next minute, the position in the next minute was determined long ago. It is worth discussing where it will be in an hour," he said.
Several countries in the region, such as Hungary, have been forced to take out an IMF-led bailout package and deep cuts in spending after falling deep into debt.
"If we do not do something about it within some mid-term horizon, we could in the next crisis get into the position of those who have no room today and must accept very dramatic measures, which further deepen the crisis," Singer told Reuters in an interview.
"Their people are almost getting out on the streets, I would not like to see that day."
The Czech government debt stands at 29.8 percent of gross domestic product but it will jump fast this year and the next due to the combination of high deficits, growing costs of debt and falling GDP, and is expected to hit 34 percent in 2009.
The central bank has raised its warning over the fiscal policy in the past weeks.
The country will hold parliamentary elections on Oct 9-10, and the mainstream political parties have so far not come up with plans to narrow the budget gap.
The leftist Social Democrats have proposed a tax hike for top earners but that would be more than offset by a hike in benefits.
The interim government in charge until the election has no time to present any fiscal revamp, but it has called for a change in the budget structure.
Spending on pensions, welfare and other costs mandated by law have grown to about 80 percent of the budget, and will keep rising without a restructuring.
Finance Minister Eduard Janota said budget gaps have made discussion about adoption of the euro currency irrelevant for now.
The country has no euro entry target but the government does not see adoption possible until the second half of the next decade. (Editing by Stephen Nisbet)