Expert: State must think about future when increasing debt burden
While Estonia currently has the lowest amount of debt in the European Union, it is growing faster than in most other member states. According to Ülo Kaasik, vice president of Bank of Estonia (Eesti Pank), if a country increases its debt burden, it has to consider the impact that will have on state finances in decades to come.
Estonia's public debt currently accounts for around a quarter of the country's gross domestic product (GDP), making it the lowest in the European Union. At the same time, the debt-to-GDP ratio is also one of the fastest growing in the continent.
"Estonia's public debt has increased substantially since the Coronavirus. While we used to say that we were the least indebted country in the European Union, at well below 10 percent of GDP, we are now saying that we are at over 20 percent in debt. By the end of this year, we are forecast to have around €10 billion," explained Ülo Kaasik, vice president of Bank of Estonia (Eesti Pank),
This means that the amount that has to paid back in interest each year will also increase.
"Interest payments are forecast to reach almost €300 million, or a bit less. The rule of thumb is that for every billion we borrow, we have to start spending 30 to 40 million to repay it," Kaasik said.
According to Minister of Finance Jürgen Ligi (Reform), tax increases and budget cuts have put the brakes on deficit growth.
"After a couple of years struggling with cutting the budget deficit, we have got off the track that would have taken the interest over €0.5 billion. It is about half that for the foreseeable future," Ligi said.
According to Annely Akkermann (Reform), chair of the Riigikogu's Finance Committee, interest costs on public debt are currently rising at a slower rate than the nominal increase in tax revenues.
"It's bad if the interest costs in the annual budget are higher than the interest costs in the tax revenues due to economic growth. It's difficult then, in the sense that you either have to allow for more deficits in the budget or cut something else purely to reduce interest costs, not even to pay back the loan," Akkermann explained.
Kaasik agreed that Estonia's public debt is currently small, however, it is important to think ahead.
"We need to think about the need for an additional buffer for the future. If the situation gets worse, we will have to carefully manage our finances in 10, 20, 30 years' time," Kaasik said.
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Editor: Merili Nael, Michael Cole
Source: "Aktuaalne kaamera"
