Estonian state under-spent on budget by over half-a-billion euros in 2022

The explanatory memorandum to this year's state budget.
The explanatory memorandum to this year's state budget. Source: ERR

A combination of inflation, recovery from the pandemic, Russia's invasion of Ukraine, tardiness in European Union funding arriving, and a lower-than-expected need for energy support measures as winter 2022-2023 progressed, has led to findings that the state spent €516 million less last year, than had been expected, the Ministry of Finance says.

This refers to a supplementary budget issued in the wake of the pandemic, as well as the main state budget, issued late on in the previous year (ie. at the end of 2021, in last year's case).

On comparing actual expenses with the supplementary budget for 2022, the Fiscal Council (Eelarvenõukogu), an independent advisory body, finds the state spent €516 million less than forecast. These relate to state investments and support measures.

Meanwhile this was also impacted by higher tax receipts last year than expected.

Margus Täht, a leading analyst at the Ministry of Finance fiscal policy department, told ERR that: "The fall derives mainly from the state's own investments, which stand at €373 million, and from the investment support provided by the state to the tune of €157 million; this all turned out to be lower than originally forecast, due to the effects of the Ukrainian crisis.

"This in turn led to the cancellations of contracts, derailed procurements and delays in the realization of projects, including those investments financed from external funds, where the arrival of the new funds also turned out to be later than expected," Täht went on, noting that EU structural funds for the period 2021-2027 were only approved by the European Commission in October 2022.

The shortfall was not unexpected.

"Within the [finance ministry] summer forecast, we had already overestimated the costs for the current year, and specified the amounts to be transferred between years, adjusted the use of external funds, etc. Forecasts and estimates change constantly, hence why we are comparing the current situation with the latest forecast," he continued.

Moreover, conclusions on the whole year cannot be drawn from the beginning of the year, he said. "The most significant changes in the budgetary position usually occur during the second half of the year, when, for example, larger investments are realized. Add to that, pensions will only increase, via indexation, from April."

Andrus Alber, a representative of the Fiscal Council, also referenced potential expenditure lines which may have turned out to be lower than expected, due to larger themes occurring in 2022, which the Ministry of Finance itself had also mentioned.

Alber said: "The nominal volume of investments was not fulfilled, so it can be assumed that some investments were canceled or postponed in the face of rapid inflation."

"Energy price compensation measures have not turned out to be as costly as originally predicted, and the costs associated with war refugees did not turn out to be as high as originally predicted," he went on, also adding that it could not be stated at this juncture whether unused expenditure will reoccur this year.

The fact that potential new energy support measures for next winter, just as heating season has ended in Estonia, cannot yet be assessed properly, and inflation and demand will play a part.

On the other hand, when the state budget strategy, known in Estonian as the RES, was put together last fall, this saw a large leap in the nominal volume of investments for 2023, compared with 2022.

While the state January this year, €72 million, or 0.2 percent of GDP, last year's RES had forecast an overall deficit for this year of €1.49 billion – 3.9 percent of GDP.

In any case, tomorrow, Thursday, the ministry's spring economic forecast is to be published.

In it, the finance ministry will also assess the impact of last year's better position, including unfinished costs, on this and subsequent years, Täht added.

Energy prices, starting with natural gas, had already started to rise significantly from late summer 2021, leading to the first support measures being put in place in winter 2021-2022. More involved measures were rolled out in late September last year, in respect of the recent winter.


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Editor: Andrew Whyte, Aleksander Krjukov

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