Fiscal Council: Estonia's 2020 budget deficit was €1.3 billion

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Empty seating at Tallinn's Rocca al Mare mall. Source: Ken Mürk/ERR

The Fiscal Council (Eelarvenõukogu) said that the budget deficit in 2020 was extraordinarily large and the state debt doubled.

Data from Statistics Estonia show the government sector's nominal budget deficit amounted to €1.3 billion or 4.8 percent of gross domestic product (GDP) in 2020, the council said in a statement on Thursday. According to the spring 2021 economic forecast of the Ministry of Finance, this corresponds to a structural deficit of 3.6 percent of GDP. 

The restrictions imposed to contain the spread of coronavirus brought with them an economic decline, which reduced the tax revenue flowing into the state budget. But, on the other hand, expenditures on health care increased and a large-scale economic aid package was adopted with the supplementary budget to alleviate the decline.

The fiscal deficit was smaller than the Ministry of Finance forecast during the year, but significantly bigger than projected before the coronavirus crisis, the council said.  

Compared with the projection for the state budget for 2020, according to which both the income and the expenditures of the government sector would have equaled €11.5 billion, incomes turned out to be smaller by approximately €600 million and expenditures bigger by €700 million.

Due to the economic decline, the observance of numerical restrictions in the determining of budgetary policy was discontinued in the European Union in spring 2020 and the Estonian government abandoned the goal set previously to reduce the structural budget deficit. 

The Council said this was justified in 2020.

Since the Estonian government sector budget was not in structural balance in the years before the crisis, no major fiscal buffers were accumulated during the times that were good for the economy. 

Borrowings have been used to bridge the budget gap in 2020, which has raised the Estonian government sector's debt level to €5 billion or over 18 percent of GDP.

When the crisis has passed, it is essential in the opinion of the Fiscal Council for the government to return to a rules-based fiscal policy and to set the restoration of structural budget balance as a goal. 

The Fiscal Council gives an assessment on forecasts for the macroeconomy, state financing, on the budget strategy and how the goals of the structural budget position of the general government are being achieved.

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Editor: Helen Wright

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