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BNS - At an annual discussion of Estonia's economic situation and outlooks the International Monetary Fund (IMF) recognized the fundamentals of Estonia's present economic policy and moves for strengthening the framework for settlement of the crisis.
IMF underlined that Estonia's fast progress in catching up with the average level of the European Union and integration into the European common market deserved to be undelined. Although Estonia will still be faced by several challenges in the global economic and financial crisis, Estonia's vulnerability had considerably declined.
The price hike has slowed down and also the current account shortfall is contracting, which means that Estonia depends less on foreign financing, IMF said.
"Of particular importance in the report is one more confirmation by IMF that the Estonian currency board system and the fixed exchange rate of the Estonian kroon are the pillars of the Estonian fiscal policy and financial stability," Central Bank governor Andres Lipstok said.
"That system will remain in effect until Estonia accedes to the euro zone," he added.
According to Lipstok, IMF underlined that on the background of the outlook of accession to the euro zone it was important to meet the Maastricht budget criterion. IMF recommends aspiration for a surplus of the government sector budget in the medium term.
"The Bank of Estonia has given the same recommendations to the government both earlier and in the last economic comment and it is necessary to bear these aims in mind in drawing up the budget for 2010 and the following years," Lipstok said.
He said that IMF laid importance on regional cooperation in banking supervision and exchange of information and welcomed the agreement for anticipatory ensuring of liquidity signed between Estonia and Sweden.
IMF says in its recommendation that ensuring balance between the expenditures and revenues of the budget and economic use of reserves should be the main duties of the government. In case of the currency board system stability of the exchange rate of the currency is ensured by means of budget policy measures.
The fund supports the government's decision to freeze the pay rise in the budget sector and to cut budgetary expenses.
From the negative aspect IMF added that the stiffness of the Estonian state budget, or fixed expenditures to the tune of nearly 70 percent, requires reaction and reform. The fund also recommends stopping additional tax cuts in the interests of sustainability of the budget policy.
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