(Updates with Latvian party agreeing to IMF deal)
* Romania to ask IMF to raise budget gap to 5-5.5 pct/GDP
* New Bulgarian finmin pledges cost cuts, balanced budget
* Czech PM says 2010 budget deficit forecast at risk
* Latvian party baulks at IMF deal, later signs
By Radu Marinas and Tsvetelia Ilieva
BUCHAREST/SOFIA, July 27 (Reuters) - Romania signalled it
would ask the IMF to raise its public deficit ceiling and
Bulgaria pledged to slash costs on Monday, the latest emerging
EU states scrambling to address worsening budget outlooks.
The moves coincided with a stumble in crisis-hit Latvia's
talks with the International Monetary Fund to secure more
financing and a warning by the Czech prime minister that the
government may be forced to raise next year's budget deficit
plan.
Governments across Europe have trashed budgets drawn up
before the crisis and are letting deficits balloon, but that has
proven more problematic in the east than in the developed west,
mainly due to their less trustworthy image for investors.
Fighting a worse-than-expected contraction that has hit tax
revenues, Romania will ask the International Monetary Fund to
raise its budget deficit target to around 5-5.5 percent of gross
domestic product, a senior official said [].
The request -- necessary for Romania to maintain its 20
billion euro, IMF-led rescue loan programme -- would scrap the
4.6 percent of GDP target already agreed with the Fund.
"The deficit figure envisaged is bigger than 5 percent. It
could range from 5 to 5.5 percent of GDP," the official said.
The request would mimic similar moves earlier this year by
Hungary and Latvia after the economic downturn eclipsed earlier
forecasts, tearing into budget revenues and raising social costs
due to higher unemployment.
The latter of the two underscored the political difficulty
of bailouts. The largest party in the ruling coalition initially
refused to back an IMF deal that would require more belt
tightening on top of already eye-watering public spending cuts,
although it later relented [].
The EU executive also said on Monday it had paid a 1.5
billion euro ($2.14 billion) instalment of a loan to Romania and
1.2 billion to Latvia as part of their emergency loan packages.
BUDGET CRISIS
While many western states are numbing the downturn's bite
with stimulus, or at least dealing with falling tax revenues by
borrowing more, eastern EU members have more limited options.
Central European countries have battled budget gaps even in
past years of fast economic growth, and the recession and weaker
growth outlook look set to force governments to address deep
structural problems that they had hoped simply to outgrow.
A second, more distant problem is the 3 percent of GDP level
new EU members are required to meet for eventual euro zone
entry, dates that could be pushed off further into next decade
than the 2012-2014 predicted before the crisis.
Poland and the Czech Republic are loathe to undermine growth
and have baulked at the measures of the states bailed out by the
IMF. They have so far not slashed spending too dramatically or
raised taxes but are still trying to keep borrowing in check.
Czech Prime Minister Jan Fischer said on Monday the risks to
the 2010 budget deficit target of 170 billion crowns had grown
due to a worse growth forecast [].
"Should we rip our flesh even more, be even more cruel to
ourselves, or be more frivolous and cross the magic line of 170
billion?" Fischer said.
In Poland, whose constitution triggers steep spending cuts
if public debt rises past 55 percent of GDP, the government is
struggling to finance its deficit with measures ranging from big
dividends from state-owned firms to an estimated 15 billion
zloty ($5.12 billion) privatisation programme.
Capital Economics analyst Neil Shearing estimated Poland's
budget gap could hit 8 percent of GDP both this year and next,
breaching the 55 percent of GDP debt level. And like in its
neighbours, the implications for growth are grim.
"As the public finances continue to deteriorate, the
government will have to consider more radical fiscal tightening,
which, in turn, is another reason to expect the recovery in the
real economy to be extremely sluggish," he said.
Bulgaria's new finance minister said Sofia would cut about
1.5-2.0 billion levs ($1.1-$1.5 billion) in spending, mainly on
administration and some infrastructure projects, to reach a
balanced budget this year.
Simeon Djankov, a former World Bank economist, also said
Bulgaria's new government would ask the IMF to audit its budget
revision but would not seek aid for now.
"Our key task is to see where we can cut spending so that we
can achieve at least a balanced budget or a small surplus." he
said.
(Writing by Michael Winfrey; editing by Patrick
Graham/Victoria Main)
