Government has borrowed €2.8 billion since March

View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based.
View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based. Source: Siim Lõvi /ERR

The Estonian government has borrowed €2.8 billion since the start of the emergency situation in March and most of that money, €2.62 billion, will be spent on covering the costs of the supplementary budget, Postimees reported on Wednesday. Critics are concerned the money is not being used for future investment.

The supplementary budget adopted by the parliament in April cut the budgeted full-year revenue of the state by almost €1.4 billion to €10.5 billion. A big portion of the money allocated under the supplementary budget is support for business operators and employees, with the most notable amount earmarked for KredEx. 

Finance Minister Martin Helme (EKRE) has summed up the need for Estonia's first major borrowing as follows: less-than-expected money is flowing into the state treasury, whereas expenditures are bigger due to the coronavirus. The Ministry of Finance forecasts Estonia needs to borrow €3.87 billion this year and €1.2 billion in 2021.

Critics are concerned the government is using borrowed money to cover current costs and there is little in terms of future-oriented investments among the expenditures.

Member of the Riigikogu finance committee Aivar Sõerd from the opposition Reform Party has asked: "Even if €700-800 million will be spent on new investments and aid measures this year, then where will the remaining €3 billion go?"

He said the loan taken to date has been used to bring the cash flow of the state treasury into the black.

Leading politicians of the government remain tight-lipped, at least for now, when it comes to plans for future borrowing.

Prime Minister Juri Ratas (Center) would not reveal what investments could be on the cards should Estonia decide on borrowing again, only saying the need for a new supplementary budget will be discussed in August.

The summer economic forecast of the Ministry of Finance, which is due in September, will give an idea of the impact of the coronavirus crisis on the state's wallet to date and will serve as a basis for drafting the state budget for 2021 and show how much Estonia will need to borrow. 

Helme, who is on holiday, was unavailable for comment. The cabinet member standing in for him, Minister of Foreign Trade and IT Raul Siem (EKRE), would not discuss the topic with Postimees.  

Foreign Minister Urmas Reinsalu (Isamaa), head of the government delegation of Isamaa party, said it was important to understand that the money borrowed so far have been spent on two items: filling up the budget when tax inflow and the income of the state plummeted during the crisis, and supporting the economy.

"Borrowings are used for the upkeep of the state," he said.

According to Reinsalu, borrowing should not be a goal in its own right.

"For me it's definitely important that we exit this crisis with a loan burden which is not beyond the power of our children," he said.

Reinsalu refused to be specific when it comes to the purposes that a potential new loan could be used for, as the Isamaa party has not yet approved the plan. He said, however, that the aim is to create new economic growth.

Rasmus Kattai, head of the sub-department for economic policy and forecasts at the Bank of Estonia, said borrowing is justified if the money borrowed is used for temporarily enlivening the economy and mitigating the immediate impact of the crisis, whereas permanently linking expenditures to borrowed money should definitely be avoided.   

"In case there will be talk about support measures related to a potential new outbreak of the virus and borrowings are necessary for it, [borrowings] should be used only for extraordinary and temporary assistance for the fields that suffer damage as a result of restrictions," Kattai said.

Joonas Kerge, spokesman for KredEx, pointed out that the amount earmarked for KredEx is a limit established for the event that the crisis will last longer or will deepen. 

Kerge observed that there has not been a lot of demand for the measures for now as business operators have received substantial help from the crisis measures of the Unemployment Insurance Fund and the Tax and Customs Board, as well as loan repayment moratoriums made available by banks.

"In the fall, the condition of the economy may deteriorate and the crisis definitely will reach some sectors with a delay. We have a sufficient reserve for that and we are ready for the worse, although we, of course, hope that things will go better," he said.


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Editor: Helen Wright

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