(Adds background, analyst comment)
TALLINN, Sept 24 (Reuters) - Estonia's government okayed a 5 billion kroon budget deficit for next year on Thursday which it said would allow it to join the euro after it agreed to sell off the state's stake in its main phone company.
Hammered by an almost one-fifth contraction of economies across the EU's three Baltic Sea states, Estonia is trying to limit its public sector shortfall so it can adopt the euro at the start of 2011.
The government on Thursday approved the sale of its minority
stake in Eesti Telekom
It said spending had been agreed at 89 billion kroons ($8.38 billion) for 2010, similar to 2009, with revenues expected at 84 billion kroons leaving a deficit of 5 billion kroons.
That was equal to 2.5 percent of the expected GDP for 2010, although the statement did not say what the final deficit, which includes the social security fund and local authority spending, would be as a percentage of GDP.
In 2008, according to preliminary data from the state statistics office data, central government accounted for 73.6 percent of spending, local government 27.5 percent and social security funds 12.7 percent.
Estonia hopes to fulfill Maastricht's criteria this year and has already made savings of over 19 billion kroon to the 2009 budget as a deep recession pulled the country back from earlier double digit growth.
Analysts says it will still be a tight fit.
"They will not be comfortably under the three percent level, but they will be somewhere near the limit," SEB's Estonia based analyst Ruta Arumae told Reuters.
"The question is if the asset sale goes as planned and what is the situation in the local government with their budgets."
The government had been resisting selling its 27 percent
stake in Eesti Telekom to Norway's TeliaSonera
Nordea Markets' Helsinki-based macro analyst Annika Lindblad said: "We still think that despite the Eesti Telekom sale it will be difficult to keep the budget under the 3 percent criteria. It is not a clear cut case yet."
Estonia still has not won the budget deficit battle for 2009 and could have a hard task with the 2010 budget as unemployment increases and the economy is expected to contract another 2.0 percent.
The Estonian government plans to send the budget for 2010 to parliament on September 30 after final approval of the bill.
(Reporting by David Mardiste; editing by Patrick Graham)