INTERVIEW-Czechs face euro budget challenge -Deputy FinMin

By Marek Petrus

PRAGUE, Oct 13 (Reuters) - The Czech Republic looks unlikely to get its public finances into the shape required to win euro zone membership before the end of the decade without tightening the purse strings, Deputy Finance Minister Bohdan Hejduk said.

Hejduk told Reuters the overall public sector, or general government, deficit was forecast to shoot up to 4.2 percent of gross domestic product (GDP) in 2007, way above the 3.3 percent target envisaged by the country's euro adoption road map.

The new projection compares with an estimated gap of 3.5 percent this year, under the ESA 95 methodology used across the European Union for measuring fiscal performance.

"The door (between the forecast and euro entry criteria) is opening wider rather than closing," Hejduk said late on Thursday in his first media interview since his appointment on Tuesday as deputy minister for public budgets.

He said the newly-updated fiscal outlook saw the deficit narrowing to 3.5 percent of GDP in 2008 and 3.2 percent in 2009.

This would still be above the 3.0 percent threshold set for countries seeking to enter Europe's single currency zone. The 2008 shortfall would also exceed the 2.7 percent target prescribed by the euro convergence plan agreed with Brussels.

"Not even in 2009 will the projected deficit fall below 3 percent. That is, of course, unless the expenditure side of the budget undergoes reforms," said Hejduk, formerly a budget director at the ministry.

Czechs and their central European neighbours are finding it hard to meet the stiff fiscal test needed for euro adoption, since painful reforms are needed to trim social spending, which many West European governments have also hesitated to undertake. ((Reporting by Marek Petrus; Editing by Gerrard Raven; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH BUDGET