Independent fiscal body does not approve finance ministry's summer forecast
An independent advisory body tasked with assessing Estonian fiscal policy says it does not approve of the Ministry of Finance's summer economic forecast, issued in late August, on the grounds that it uses outdated premises on the growth of government spending, partly relating to the change in administration in July.
The Fiscal Council (Eelarvenõukogu), said that: "First of all, when preparing the summer forecast, forecasts of government sector consumption and wage costs were used, which are based on the state budget strategy completed a year and a half ago, the forecasting assumptions of which have become outdated due to rapid inflation."
"Second, when preparing the summer forecast, the spending measures provided for by the new government coalition, whose contents of which were announced in July, were not taken into account," the statement said.
As a result, the finance ministry's summer forecast significantly underestimates the volume of government sector expenditures, the budget deficit and the debt burden in 2023‒2026, the council says, something which in turn has an impact on other forecast economic indicators.
In April this year, the ministry predicted a one-percent decline in Estonia's GDP, while the ministry in its summer forecast predicted a 1.2-percent increase for the coming year, instead.
Finance Minister Keit Pentus-Rosimannus said: "Whereas in the spring we were preparing for an economic recession, we can now see that Estonia will have a positive economic result overall this year. Compared with the spring forecast, the newer forecast also shows the state better state in a better situation."
The Fiscal Council also recommended that the State Budget Strategy (RES) 2023‒2026, which is currently being prepared by the government, should include an updated macroeconomic forecast also, while in the future, the council recommends that the forecasts of the Ministry of Finance should include two scenarios, one based on legislation (ie. the State Budget Act, primarily) and one on the most likely scenario, as the ministry sees it.
The summer forecast published in August puts Estonia's economic growth at a slow down, to 0.5 percent, for 2023, compared with 1 percent for this year.
According to the ministry, inflation will also drop, to 6.7 percent next year, though this year it will remain at 19.5 percent for the year, among the highest rates in Europe.
While inflation leads to increased tax revenues, this has to be offset against increased state expenditure, for the same reason. Wage and cost pressure will also continue to rise, even as expenditures in the state budget for the rest of this year is already set.
The Fiscal Council is required to give an assessment of macro-economic forecasts and state financing and on the budget strategy, as well as how budgetary goals are being achieved. The six-member council meets at least five times a year, and its members are appointed to five-year terms by the Bank of Estonia.
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Editor: Andrew Whyte