The large fiscal deficit should remain a crisis measure only October 01, 2020

Under the state budget strategy 2021-2024, the Estonian general government fiscal deficit for this year should be 1.75 billion euros and that for 2021 should total 1.9 billion euros, or 6.6-6.7% of GDP. After this the deficit should start to narrow and the government target is that it should reach 2.5% of GDP by 2024.

The government has not set a numerical target for the size of the deficit for this year or next year, when the fiscal rules of the European Union have temporarily been suspended. As the lowest point of the recession and the most expensive measures to support the economy will both fall in 2020 according to the forecast of the Ministry of Finance, the Fiscal Council does not find any reason for the budget deficit to be deepened in 2021.

In 2022, when the economy is forecast to have returned to its level of before the crisis, the fiscal deficit will reach 1.6 billion euros or 5.4% of GDP. The Fiscal Council does not find that there is any reason for the budget deficit to exceed the 3% limit from 2022.

The Fiscal Council recommends that the government recover structural fiscal balance in 2023-2024. The structural fiscal deficit of the general government will start to narrow from 2022, but balance will not yet have been reached by 2024.

The government is planning to introduce a programme of savings worth one billion euros to improve the fiscal position after the crisis, of which half will be introduced in 2024. Unfortunately the budget strategy does not explain the measures that will be taken to achieve these cost savings, and for this reason the Fiscal Council doubts that the budget targets set for 2024 will be achieved.

The improvement in their fiscal position planned in the state budget strategy 2021-2024 is not consequently sufficient in the opinion of the Fiscal Council, and it is based partly on measures that are only starting to be decided.

The Fiscal Council believes it important that general government spending be brought in line with expected revenues in the near future, and that large-scale budget deficits to support the economy remain a crisis measure only. Using borrowed money to cover current expenses is not wise once the crisis is over nor sustainable in the long term.

The Fiscal Council's opinion and a more thorough explanatory report can be found here.

Additional information:
Raul Eamets
Chairman of Fiscal Council
Tel: +372 514 0082

It is the responsibility of the Fiscal Council to assess the fiscal targets set in the state budget strategy for the next four years, starting from the fiscal rules and the need to improve the fiscal position. This year the budget strategy was exceptionally prepared in the autumn, as there was too much uncertainty in the spring for long-term budget plans to be produced. The fiscal rules of the European Union have been temporarily suspended in 2020 and 2021 because of the coronavirus crisis.