Czech 2006 budget gap seen around CZK 90 bln-paper

PRAGUE, Oct 4 (Reuters) - The Czech state budget deficit is expected to overshoot this year's target and reach about 90 billion crowns ($4.05 billion), the daily Pravo reported on Wednesday, quoting finance ministry analysis.

The narrowly-defined central government budget, the biggest and most closely-watched part of the overall fiscal balance, was approved by parliament with a gap of 74.4 billion crowns.

The newspaper said the shortfall was expected to widen mainly because of frontloading a 15.2 billion crown guarantee payment to the central bank, allowing the government to narrow the planned deficit for next year to 91.3 billion crowns.

The government said last month that this year's budget gap could deepen by an additional 10 billion crowns to meet higher- than-expected pension payments towards the year-end, unless the finance ministry finds savings within the budget.

Rising social spending, in part approved prior to a June election, has increasingly weighed on the EU member's fiscal balance, leading central bank policymakers and independent economists to raise alarm bells over the budget outlook.

The overall general government fiscal balance is seen ending in a deficit of 4.0 percent of expected GDP in 2007, above the 3.3 percent target laid out in the programme mapping out the road to joining Europe's single currency zone.

Czechs and their central European neighbours are finding it hard to meet the stiff fiscal test needed to win euro adoption, since painful reforms are needed to trim social spending.

The Maastricht Treaty criteria say a country's budget deficit cannot be more than 3 percent of gross domestic product (GDP). ((Reporting by Marek Petrus; Editing by Cheryl Juckes; 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)) ($1=22.22 Czech Crown)

Keywords: ECONOMY CZECH BUDGET