Croatia PM vows to cut '09 budget gap to below 1 pct

By Zoran Radosavljevic

ZAGREB, Dec 10 (Reuters) - Croatia's government will try to revise the proposed 2009 budget and cut the deficit to below one percent of gross domestic product, Prime Minister Ivo Sanader told parliament on Wednesday.

"We shall make extraordinary efforts... to bring the deficit to below one percent. With this, we are sending the message that we can manage public finances in times of crisis," Sanader told deputies.

Finance Minister Ivan Suker said the main challenge was to find funds to finance the deficit and service maturing debt, particularly given Croatia's high external imbalances.

"We will need concerted effort by the government, central bank and commercial banks to reprogramme the maturing 8.4 billion euros (state and companies') debt ... and another 4 billion euros for the estimated balance of payments deficit next year," he said.

"If we don't do that, we are looking at the fate of Hungary, Iceland or Latvia," Suker told deputies, referring to countries where the credit crunch prompted governments to turn to the International Monetary Fund for help.

The government had originally planned a zero deficit, but switched to a consolidated budget draft envisaging a 1.6 percent gap after it failed to agree a wage freeze bill with public sector trade unions.

The draft, which assumed a costly health sector reform, drew criticism from economic analysts and the media, who warned the government should not resort to fresh borrowing at a time of global financial cricis and an expected growth slowdown.

"We will not be able to continue with investments in infrastructure as in previous years, but we will carry on with such investments in somewhat narrower scope to help keep the economy going," Sanader said.

A recently formed government economic council was tasked this week to propose savings which would reduce the budget gap to an acceptable level. The government would then file amendments to the budget proposal envisaging a lower deficit.

Parliament will vote on the budgetary proposal on Dec. 15.

The European Union candidate weathered the initial impact of the global financial crisis due to ample reserves, but expected growth in 2009 would slow to an expected two percent from this year's expected 3.5 percent.

Some analysts warned that even such a growth projection might prove too optimistic and threaten planned budgetary revenues.

Croatia runs severe external imbalances with foreign debt amounting to 90 percent of GDP, or some 36 billion euros ($46.74 billion), and the current account gap at 10 percent of GDP.

Its maturing foreign debt in 2009, including both state and corporate sector, surpasses 8 billion euros.

(Reporting by Zoran Radosavljevic and Igor Ilic; editing by Stephen Nisbet) ($1=.7702 Euro) Keywords: CROATIA BUDGET/

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