Fiscal Council: Increasing deficit in 2021 not justified

Photo is illustrative.
Photo is illustrative. Source: (Ministry of Finance)

The Fiscal Council (Eelarvenõukogu) believes the budget deficit should only be allowed as a crisis measure and should not be increased in the future. Next year's deficit will be €1.9 billion, accounting for 6.6-6.7 percent of GDP.

According to the state budget strategy 2021–2024 published on Tuesday, the budget deficit of the Estonian government will be €1.75 billion this year. In the following years, the deficit will start to decrease and, according to the government's target, the deficit should reach 2.5 percent of GDP.

The government has not set a target for the size of the deficit this year and in 2021, when compliance with the European Union's fiscal rules have been temporarily suspended. 

In 2022, when the economy is forecast to have reached its pre-crisis level, the budget deficit will reach €1.6 billion, or 5.4 percent of GDP. According to the council, exceeding the 3 percent deficit threshold from 2022 onwards is no longer justified.

The Fiscal Council recommends that the government restore the structural budget balance in 2023-2024. From 2022 onwards, the structural deficit will start to decrease but will not be balanced by 2024.

To improve the budget deficit after the crisis, the government intends to implement a billion-euro expenditure savings plan. It is not clear from the budget strategy where money will be cut so the achievement of the 2024 budget target is also questionable, it said.

In the view of the Fiscal Council, it is important that government spending is projected to be more in line with expected revenues and that supporting the economy with a large deficit remains only a measure in times of crisis. Covering current expenses with money taken out as a loan is not practical or sustainable in the post-crisis period.

The Fiscal Council is an independent advisory body tasked with assessing Estonian fiscal policy. It gives assessments of forecasts for the macro economy and state financing and on the budget strategy and how the goals of the structural budget position of the general government are being achieved.

The Fiscal Council meets whenever necessary, but at least five times a year and has six members. The Council's Chair, Vice-Chair and four members are appointed to office for a period of five years by the Eesti Pank Supervisory Board at the proposal of the Governor of the central bank.

Estonia's deficit has increased to cope with the economic crisis caused by the coronavirus.


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Editor: Helen Wright

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