(Recasts, adds Latvian forecast, Estonian quote, background)
By Nerijus Adomaitis and Patrick Lannin
VILNIUS/RIGA, March 30 (Reuters) - The Baltic economic picture will worsen further this year with Lithuania's economy shrinking by more than 10 percent and Latvia's contraction peaking at almost 15 percent, ministries forecast on Monday.
The Baltic states have gone from being the strongest economic performers in the European Union to the worst as imbalances in spending and credit growth have unwound.
Latvia needed to agree a 7.5 billion euro IMF-led bailout last year, though the Balts all intend to keep currency pegs and hope for eventual euro adoption.
The latest sign of woes came in Lithuania, where the Finance Ministry forecast a gross domestic product (GDP) drop of 10.5 percent this year, the largest since 1993, and double the 4.8 percent GDP fall expected in forecasts made in December.
Lithuania's economy grew by 3.1 percent in 2008.
"The larger than expected fall in GDP will inevitably affect budget revenues, therefore the government is drafting amendments to the 2009 budget, which are aimed at cutting spending significantly to assure macroeconomic stability," Finance Minister Algirdas Semeta said in a statement.
Prime Minister Andrius Kubilius told Reuters he hoped to keep the budget deficit to 3 percent of GDP and stay on course for eventual euro adoption. He repeated that his government did not exclude the possibility of approaching the IMF.
In Latvia, a report drawn up by the Economy Ministry forecast a 9 percent GDP drop year-on-year in the first quarter, 12.5 percent in the second quarter and 14.9 percent in the third. A slight improvement is forecast to come in the fourth quarter with a GDP drop of 11.1 percent, the report said.
Estonia is due on Tuesday to release its new 2009 forecasts, with some economists forecasting a drop of 10 percent in GDP.
BUDGET WOES, EURO GOALS
Lithuania, Latvia and Estonia all have to plan to cut budget spending as they aim to keep their deficits within the ceiling of 3 percent of GDP set by the European Union for euro adoption.
As well as the 3 billion litas Lithuania has to lop off spending this year, Latvia has to take a close look at its budget and draw up a fundamental restructuring as part of continuing talks with the International Monetary Fund (IMF).
Latvian Finance Minister Einars Repse was quoted by Baltic news agency BNS as saying a restructuring meant taking a look from scratch at all spending plans.
"...the Estonians with their frugal policy are much better prepared for the crisis, we have no other option but to carry out structural reforms," BNS quoted Repse as saying.
But Estonia, though it is generally deemed to be in a much better position than its Baltic peers, also faces another round of spending cuts to keep to the EU deficit target.
Leading Estonian politician Mart Laar, a former prime minister whose party is the second largest in the coalition, said in his Internet blog the new forecasts from the Finance Ministry would show whether his country needs more spending cuts this year, even though it only recently slashed expenditure. (Reporting by Nerijus Adomaitis; editing by Chris Pizzey and Toby Chopra)