Compared with Estonia's neighbors, no major changes have occurred, the ministry said. Estonia's credit rating remains slightly higher than Latvia and Lithuania's, allowing it to borrow at lower rates. This position is likely to remain.

Janno Luurmees, head of the ministry's state treasury department, told ERR: "The need to issue long-term bonds will be determined over the course of the year. According to the current forecast, we may not need to issue long-term bonds this year at all, meaning the national debt level wouldn't increase. But that depends on what happens with the budget, and what the government and the Riigikogu decide in relation to defense spending — whether it will grow this year or not. These discussions are ongoing at the political level."

"We are ready, if needed, to issue bonds at the end of this year in a certain amount to pre-finance next year's expenses. And definitely next year as well," Luurmees added.

Luurmees added: "I think we definitely don't need more than €500 million," putting the figure at €1 billion to €2 billion "depending heavily on defense expenditures," he noted.

He said global interest rate volatility also affects Estonia's loan interest rates.

Interest rates have risen since January 2024, making borrowing more expensive than during last year's 10-year bond issuance. Market uncertainty and a shift to safer assets are raising risk premiums, according to Luurmees.

In January 2024, Estonia issued €1 billion in bonds at 3.25 percent, compared to €1.5 billion at 4.0 percent in 2022.

Luurmees said loan funds cover state budget needs, with defense as the fastest-growing expense, impacting the balance.

The state last issued short-term bonds in March to refinance maturing ones. The six-month €60 million bond carried an average interest rate of 2.266 percent, and the one-year €190 million bond had a 2.22 percent rate.

The Ministry of Finance's forecast is based only on current legislation, not on changes planned by the new coalition. Borrowing needs may still change this year.

The ministry has yet to decide if future bond issuances will target institutional or retail investors. Luurmees said institutional investors are easier and cheaper for borrowing larger sums.

Governments issue bonds to borrow for public spending. Bonds are seen as safe, backed by sovereign governments, with regular interest payments and full repayment at maturity.

The U.S. bond market is under scrutiny as policy changes by the Donald Trump administration have led to fluctuating interest rates.

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