Estonia's 2023 state budget deficit likely to be smaller than forecast

The joint ministries, which contains the Ministry of Finance, building in Tallinn.
The joint ministries, which contains the Ministry of Finance, building in Tallinn. Source: Siim Lõvi /ERR

The Estonian state budget ended up in better shape in the first half of 2023 than had been forecast. While it is still running at a deficit, the level is 0.9 percent of Gross Domestic Product. At the same time, this deficit is forecast to worsen over the latter half of the year, experts say, though likely still at a rate better than predicted.

The Ministry of Finance had previously forecast a budget deficit of over 4 percent of GDP for this year.

While the figure will not be this high after all, the situation will worsen through the second half of this year, however.

Martti Randveer, head of economic analysis at the central bank – the Bank of Estonia (Eesti Pank), told ETV news show "Aktuaalne kaamera" (AK) that: "This is a positive thing that the budget deficit in the first half of the year had been smaller than initially feared, since our budget deficit is already large, while international economic organizations have also recommended reducing that deficit."

"At the same time, recent years demonstrate that, based on the data from the first half of a year, it is still not viable to predict with a high degree of accuracy what the next year will bring," Randveer went on.

Professor of economics Urmas Varblane says that while the results from the first half of the year had proven more amenable than expected, there is no escape from the budget deficit at year-end.

"This one percent deficit, the €500 million that we lack, we will have to borrow from somewhere," Varblane said.

The Ministry of Finance notes that revenue receipts have been somewhat better than expected at the same time that expenses have also been somewhat lower, but also adds that there is no reason for excessive optimism – the deficit will worsen in the second half of this year.

Raoul Lättemäe, head of the ministry's fiscal policy department, said: "Usually in crisis years, the deficit worsens in the second half of the year. This is because when there are crisis measures, one-time investments and decisions made, these materialize in such a way that they cannot be planned for until they are in the budget, which tends to be in the second half of the year."

Lättemäe noted that the growth of VAT income ran clearly below inflation in the first half of this year; in reality, this is due to fewer purchases being made, due to consumer caution precisely because of inflation, he said.


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Editor: Andrew Whyte, Merili Nael

Source: 'Aktuaalne kaamera', reporter Mart Linnart.

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