Reform MP hits out at ministry's summer economic forecast criticism

Special Riigikogu sitting, August 31 2022.
Special Riigikogu sitting, August 31 2022. Source: Ken Mürk/ERR

Criticism of the Ministry of Finance's summer economic forecast, issued near the end of August, by an independent body tasked with monitoring progress on fiscal policy, has puzzled one senior Reform Party MP, who says including government decisions in the forecast before they had been made would effectively require the work of a clairvoyant.

The criticism of the summer forecast issued by the The criticism of the summer forecast issued by the Fiscal Council (Eelarvenõukogu), an independent body, is exaggerated and inconsistent, while the forecast cannot reflect decisions which the cabinet has yet to adopt, Jürgen Ligi (Reform), a former finance minister himself, told ERR.

He said: "It has been a tradition that the forecast is made based on already enforced decisions. Budget makers cannot forecast political decisions," he said.

"It is not clear to me why this change of perspective arose from [the Fiscal Council]," Ligi added.

Ligi cited the Fiscal Council's recommendation that the budget strategy to be completed at the end of September could also include an updated economic forecast as a way to move things forward. "Of course this will be included," Ligi noted, adding that this would happen once the updates were available.

"Certainly, it is odd if decisions that have not yet been made are suddenly required to be taken into account in an economic forecast. They still have to be included in the forecast, together with the decisions themselves; this line is incomprehensible to me," Ligi went on

As reported by ERR News, the council said earlier this week that the summer forecast should include two scenarios, one based on legislation (ie. the State Budget Act, primarily) and one on the most likely scenario in reality, as the ministry sees it.

Ligi said that the forecast is altered according to decisions made in the course of the state budget being drawn up – 2023's is currently at cabinet level with a view to being sent to the Riigikogu at the end of the month – and not vice versa.

Doing things the other way round would in effect require the drafters of the summer forecast to have a crystal ball, Ligi noted.

As to the council's point about state and public sector consumption and wage bills being based on information that was 18 months old (refering to the last state budget strategy document, known in Estonian as the RES), Ligi was similarly mystified on what had been going on.

While some statistical data takes time to become available, the latest information, in this case the spring forecast, would have been used, while the spring forecast itself would have been based on 2021's data (including the RES) and also that of the first quarter of this year.

The Fiscal Council is a requirement of legislation governing the central bank and is aimed at providing an impartial assessment of the country's macroeconomic and financial forecasts, as well as the budget strategy and progress on goals relating to the the structural budget position of the state and public sector.

The council is chaired by professor Raul Eamets of the University of Tartu, and includes other experts from the Bank of Estonia, think tanks, and from academia.

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Editor: Andrew Whyte

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