The government is expecting a 3 percent budget deficit due to the impact of the coronavirus and the crisis which followed it, Dmitri Jegorov, undersecretary of Tax and Customs Policy at the Ministry of Finance has said.
Speaking on the "Otse Postimehest" ("Live from Postimees") webcast Jegorov said: "We reckon with a fall of 3 percent in the government sector, which means hundreds of millions of euros. The taxes with the biggest shortfalls were value-added tax and fuel excise duty. On the other hand, the situation of labor is deteriorating. At its peak our unemployment level apparently will be close to 20 percent, easing to 12 percent for the full-year. A problem will arise when the Unemployment Fund Measures end. At the moment subsidies are distorting the real picture."
Regarding the country's current fiscal intake, Jegorov said that the month of June, of course, ended with a shortfall in receipts compared with the budget, as the country failed to receive approximately €90 million.
"Compared with the supplementary budget, however, things have gone better than we feared. At the same time, we don't know what the second half of the year will bring. Right now the forecasts of epidemiologists are way more important than those of the economy," Jegorov said.
He also suggested Estonia limit its borrowing to 20 percent of gross domestic product (GDP).
"The question is, what we should use borrowing for. If we take into consideration that we have very strong public finances, it's too early to ring an alarm bell. It's definitely worthwhile seeing to it that the loan burden doesn't become unmanageable for us. We could set the limit at 20 percent of gross domestic product. In the long term GDP will by all means grow, which will also increase the loan burden. In a controlled manner."
The official said that Estonia, with its low debt burden, is in a better position on the money market than its potential competitors. For countries with a large debt burden also borrowing becomes expensive and it will be considerably more difficult to solve problems in the event of new crises.
Editor: Helen Wright