According to Eurostat, Estonia's public debt stood at 23.6 percent in the first quarter of this year.

Rasmus Kattai, an economist at the Bank of Estonia (Eesti Pank) told "Aktuaalne kaamera" (AK) on Friday: "Public debt rises when state finances are not sufficiently balanced to cover expenditures out of current revenues."

"The three main areas where government spending has grown significantly in recent years are: Healthcare, social security and defense," he added.

New Finance Minister Jürgen Ligi (Reform) said that halting the rise of the public debt was achievable.

He said: "If we manage to bring the deficit within the 3 percent-range, our debt burden will no longer rise."

"However, interest expenses may grow, depending on future interest rates. A large loan amount is a substantial burden, and hiking interest rates can significantly impact the budget. This is not something to aspire to," Ligi, who was also finance minister during the financial crash a decade-and-a-half ago, added.

The government sector's debt burden increased by 6.3 percentage points in the first quarter of this year, compared with the same period in 2023, marking the steepest rise among any of the EU countries.

Despite that, Estonia's debt burden overall remains one of the lowest in Europe.

Minister Ligi said the rise in debt will be arrested if the budget deficit remains at around the 3 percent-mark.

While Estonia's overall low debt burden is an advantage, a state budget deficit is a significant drawback, Ligi added.

The government's proposed tax package and spending cuts are expected to somewhat curb the rapid debt growth, however, and Rasmus Kattai said in the next year it is likely "that half of the deficit reduction will come from tax hikes, and the other half from cost savings."

Kattai added that it is likely the deficit, along with the corresponding need for borrowing, will remain at a similar level for the next two years, and then from 2027 gradually start to shrink.

Reform MP Aivar Sõerd, a member of the Riigikogu's finance committee, told AK that rapidly reducing the debt is not feasible.

"Even if we achieve our current goal of keeping the budget deficit within 3 percent, the debt burden would still continue to grow because that 3 percent budget deficit will also need to be financed with borrowed money," Sõerd said.

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