Czech PM warns of budget pain ahead - FT

LONDON, June 15 (Reuters) - Czechs must face up to painful budget choices and examine whether they can afford high levels of social benefits, Prime Minister Jan Fischer said in an interview with the Financial Times published on Monday.

"To be really stringent and conservative is going to be hard, it's going to be painful," Fischer was quoted as saying.

"The government has very limited manoeuvring space when it comes to the budget," he added.

The central European country's finance ministry forecast that its public sector deficit would rise by more than previously expected next year to 5.1 percent, and only fall slowly thereafter.

The 2008 budget deficit is already forecast to triple to 4.5 percent, and may increase to 7.6 percent if the full costs of long-term environmental clean-up plans are added to this year's books according to Reuters calculations. [ID:nLC539147]

"If we allow the increase of our deficit, and our deficit goes to 7 percent or even more, that would be really irresponsible, and this could ... at least complicate our exit from the economic crisis," Fischer said.

The Czech economy shrank by a record 3.4 percent in the first three months of this year after a collapse in demand for its exports in recession-hit western Europe.

Fischer said the Czech Republic faced a particular problem because of the high level of non-discretionary spending in its budget caused by a generous welfare system, which left it few avenues to cut spending when tax revenues slumped.

Fischer, a non-partisan former head of the Czech national statistics agency, leads a caretaker administration formed after the collapse in March of the centre-right Civic Democrat government. National elections are due in October. (Reporting by David Milliken)