By Nerijus Adomaitis
VILNIUS, March 5 (Reuters) - Lithuania's economic contraction this year will be a lot worse than the 4.8 percent the government has forecast and further budget cuts will be needed, the finance minister said on Thursday.
Lithuania and the other Baltic states have hit recession as the credit crunch cut off the funding that had fuelled earlier consumption-based growth. The government has forecast a gross domestic product drop this year of 4.8 percent.
"It (the contraction) is going be much bigger than 4.8 percent," Finance Minister Algirdas Semeta told Reuters. He declined to say if it would be a double-digit fall.
"The economy is shrinking at a much faster rate than we forecast in December ... Our forecasts were optimistic," he added. The new forecast would be based on a steeper fall in trade partners. New forecasts are due in mid-March, he added.
"In order to keep state finances sustainable, we need to make radical spending cuts ... we should come back to the 2007 level (in spending)," he added.
"Budget spending is to be cut by 10-15 percent, which is about 2-3 billion litas ($729 million-$1.09 billion) ... It's going to be very hard, but we have to do it," he added.
Such a reduction would be equal to about 1.7 to 2.6 percent of expected GDP this year of 114.8 billion litas. He expected further cuts in civil servants' wages after a reduction of 12 percent at the start of the year.
Repeating earlier comments, he said Lithuania might eventually seek outside financial help. "If we see the decline deepening, we do not exclude turning to outside assistance," he said when asked about the International Monetary Fund.
Semeta said Lithuania will try to stick to its fiscal deficit target of 2.1 percent of GDP, but in any case would keep the deficit bellow the EU ceiling of 3 percent.
He also again rejected the idea of devaluation.
"I do not expect the litas to be devalued before Lithuania joins the euro zone ... It's not up for debate." (Reporting by Nerijus Adomaitis; Editing by Victoria Main)