The government's never-ending chorus of fiscal balance is the bell tolling for the Estonian economy.
Recent economic news hardly gives reason for optimism. The Bank of Estonia's recent forecast comes as yet another downward adjustment.
It made for painful reading that recession in Estonia was the biggest in the EU and far steeper than previously believed. We are expecting the economy to contract by 3.5 percent. What is more, recession is also forecast for next year, meaning it will last longer than previously expected. We are talking about three years in a row.
Justification from Prime Minister Kaja Kallas, according to which the economy is cyclical by nature, no intervention was necessary, and that growth is about to return comes off naive at best.
There is no rapid and automatic recovery on the horizon. The recent forecast suggest the Estonian economy will only gradually start bouncing back on the domestic and foreign markets in 2025. The economy is not expected to reach 2021 levels before 2026. We are now talking about five lost years and a major gap compared to previously forecast trends.
While coalition politicians still mentioned the need to ensure economic security before elections, the post-elections policy of aimlessly thrashing about has only left the Estonian economy weaker.
Major global disruptions – the coronavirus pandemic, Russia's war of aggression in Ukraine, energy and raw material price hikes, loss of recent economic ties – washed over us like waves of a storm. It became obvious that maintaining the status quo was not an option. Many developed countries shifted their focus, in addition to national security, to protecting their economies, supporting domestic production and the survival of companies.
But Kaja Kallas and Reform's finance ministers only repeated the mantra of a balanced state budget. Nothing else came close in terms of importance, not the slashed competitive ability of Estonian companies, rapid growth of poverty and inequality, breaking their own promises to teachers, large families and in the field of national investments. None of it even merited a proper debate.
Was it worth it? The Bank of Estonia's forecast certainly suggests otherwise. Because of the weaker than forecast economy, tax receipt will fall short of targets and fiscal deficit will exceed 3 percent of GDP in the next three years.
In other words, all the sacrifices – leaving people to their own devices, prior cost-cutting and new tax hikes – did not move us any closer to a balanced budget. Indeed, it is difficult for a shrinking economy to generate more revenue.
Aimlessly thrashing about in economic policy has stark consequences, but it is not too late yet. We can emulate Lennart Meri in seeing the situation today as fertilizer for tomorrow. I urge all politicians and experts to rack their brains and figure out a way to make the Estonian economy secure and resilient.
Editor: Marcus Turovski