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UPDATE 1-Czech budget gap widens far beyond full-year plan

Published 06/01/2009, 11:44 AM
Updated 06/01/2009, 11:50 AM
TGT
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* Five-mth budget gap widens to nearly twice full-yr target

* Analysts see full-year deficit near 200 billion crowns

* Govt struggles with 2010 budget plan

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(Adds finmin comments on 2009 and 2010 outlook)

PRAGUE, June 1 (Reuters) - The Czech budget deficit jumped to nearly double the original full-year plan in the first five months of this year as the economic crisis hit revenues.

The Finance Ministry said on Monday the central government budget gap swelled to 71.4 billion crowns ($3.79 billion) for the first five months of 2009, far above the planned full-year deficit of 38.1 billion.

Overall revenues dropped by 3 percent from the same period last year to 400 billion crowns, while expenditure rose 4.6 percent, the Ministry said.

Czech gross domestic product fell 3.4 percent in the first quarter, reducing all types of tax payments. The budget was drafted last summer when the ministry forecast 4.8 percent economic growth this year.

The budget gap for the five months equals about 1.9 percent of estimated full-year gross domestic product. It excludes local government budgets and various funds that together make up the national fiscal system. The Finance Ministry has said it expects the full-year overall fiscal gap at 4.5 percent of GDP and the central government budget deficit to reach 150 billion crowns.

But that will require savings, and analysts see an even bigger shortfall.

"The budget deficit may head to 200 billion crowns by the end of the year," said David Marek, chief economist at Patria Finance.

"Keeping it below this milestone would be difficult and would need expenditure cuts by the current government. It is difficult because it would be desirable to provide positive fiscal stimulus for the economy but there is no scope for further stimulus."

But Finance Minister Eduard Janota said after the May figures that a 150 billion full-year gap was still realistic.

The government has more than doubled its gross borrowing target to 280 billion crowns this year.

The ministers discussed the 2010 budget plan on Monday but interrupted the discussion due to demands by the Transport Ministry for an extra 50 billion crowns for road construction.

Janota told a news conference he rejected the plan unless it was accompanied by savings in order to stick to the government's limit of 170 billion crowns central state budget deficit.

The Finance Ministry has proposed a 165 billion crown gap for next year, which would require a wage freeze and 5-20 percent cuts in discretionary spending.

The budget will be completed by a new parliament after an election in October and the leftist Social Democrats, who have strong chances of forming the next cabinet, have spoken against strict spending cuts. (Reporting by Jan Lopatka and Jana Mlcochova; editing by Stephen Nisbet)

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