* 2010 deficit to climb touch above earlier expectations
* Gaps in next three years seen above euro entry threshold
* Clean-up tender threatens to hike 2009 gap
* Financing seen more expensive
(Adds debt, crisis package, environment tender details)
By Jana Mlcochova
PRAGUE, June 12 (Reuters) - The Czech public sector deficit
will rise by more than previously expected next year to 5.1
percent of GDP and will only fall slowly in subsequent years as
the recession-hit economy begins to recover, the Finance
Ministry said on Friday.
This year's deficit is forecast to triple from 2008 to 4.5
percent, but may jump to 7.6 percent if the costs of awarding a
major environmental deal is added to the books, the ministry
said.
The Czech economy shrank by a record 3.4 percent in the
first quarter of this year as a slump in Western demand hit
exports, the backbone of economic expansion in past years.
Waning economic activity has curbed budget revenues while
rising unemployment hikes expenditures.
The three-year outlook for public sector deficits saw the
gap narrowing to 4.9 percent of GDP in 2011 and 4.2 percent in
2012.
In May, Finance Minister Eduard Janota had predicted next
year's gap at 5 percent, falling to 4.8 percent in 2011.
"The projection gives a much worse picture of the future
compared to the last projection," the ministry said.
"(It) is based on a prediction that the crisis phenomena
concentrate in 2009 and gradually subsides, accompanied by a
mild recovery..."
The expected deficits are far above the euro entry rules
which cap the fiscal gap at 3 percent of GDP.
The EU newcomer has not set any euro adoption date yet and
Finance Minister Eduard Janota has said a debate of entering the
euro zone was off agenda for now due to the high deficits.
Next year's budget outlook includes 77.4 billion crowns
($4.08 billion) worth of measures aimed to combat the economic
crisis, both those that are already approved and those that will
most likely be approved, the ministry said.
ENVIRONMENT DEAL MAY BOOST DEFICIT
The ministry said this year's public sector gap could jump
unexpectedly on the accounting books if the government awards a
long-term deal worth up to 115 billion crowns for various
environmental cleanup projects.
The whole amount would be put on this year's books, the
ministry said. That would raise the deficit by another about 3.1
percentage points to the 7.6 percent mark, according to Reuters
calculations.
The ongoing tender has been subject to controversy in the
press and appeals by disqualified bidders. New Prime Minister
Jan Fischer asked the Finance Ministry to review the process.
This year's budget could be boosted by around 16 billion
crowns from the sale of CO2 emission rights, the ministry said.
The outlook saw the public debt rise this year to 1.25
trillion crowns, or 33.8 percent of GDP, from 29.8 percent in
2008. Czech debt will rise fast over the next few years but will
still remain below the EU's 60 percent limit, and below many
west European member states.
Financing the government sector may become more difficult
than in the past, the ministry warned.
"With regards to the big number of stimulus packages
realised in other countries the question arises over the ability
to absorb government bonds," it said.
(Editing by Mike Peacock/Toby Chopra)
