Compared with the forecast made last fall, the outlook for both the Estonian economy and public finances has deteriorated. According to the Fiscal Council (Eelarvenõukogu) economic and geopolitical uncertainty remains very high, which may lead to larger-than-usual forecasting errors.

According to the Ministry of Finance's spring forecast, Estonia's general government deficit will be at least 4 percent of GDP for this and the coming years. This is clearly higher than previous estimates.

As Estonia's public debt is projected to grow rapidly, the council considers the deficit reduction justified. As budgetary regulations, which were suspended at the start of the coronavirus pandemic, are due to come back into force next year, the council recommends that the government ought to target keeping the deficit below 3 percent of GDP until at least 2024.

This would mean an improvement in the fiscal position of around €0.5 billion over the coming year. In other words, ensuring the deficit does not exceed €1.2 billion.

The steps envisaged to reduce the deficit, along with their estimated impact on the state budget could, according to the council, already be outlined by the government by the end of April, once the sufficient details are known regarding the proposed tax reforms and decisions related to expenditure.

The Fiscal Council was established under the Bank of Estonia (Eesti Pank) Act to assess Estonia's macroeconomic and monetary forecasts. The council is also tasked with examining Estonia's budgetary strategy and assessing the government's achievements in relation to structural balance targets.

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