TALLINN – After changing the State Budget Act, the Estonian state could borrow up to 200 million euros every year, but the economy doesn't need that money now, Sven Kirsipuu, head of the fiscal policy department at the Ministry of Finance, says.
"The borrowing capability of the Estonian state is very big, but the budget rules that constrain us speak not of the loan burden but of deficit or surplus of the budget. The rule stands written in the state budget law that as an average over several years, the budget must be in balance all the time," Kirsipuu told public broadcaster ERR.
He explained that if the country has accumulated a fiscal balance in previous years, it can be tapped into. At most, in the amount of 0.5 percent of gross domestic product (GDP) or approximately 130-140 million euros.
Kirsipuu observed that the current state of play will become clear next week, when Statistics Estonia publishes data about the fiscal position for 2018.
"[That] will also serve as basis for the calculations in foresight on how much surplus or deficit it is possible to run or has to be run. The valid budget has been made in structural balance for this year and it will be so also in the following years," the official added.
It has been agreed upon in the the EU and the euro area that countries are permitted to run a structural deficit of no more than 1 percent of GDP. Meanwhile, the European Commission may decide looking at the long-term outlooks of individual countries that their deficit has to be even smaller than that.
"Some countries are allowed to run only a budgetary surplus already now because the of big long-term challenges that the country faces, such as in social systems," Kirsipuu said, adding that in Estonia's case the Commission's estimate caps structural deficit at 0.75 percent of GDP.
To enable a bigger deficit, Estonia would have to change the State Budget Act and write the possibility of a deficit into it.
Kirsipuu added, however, that in his opinion a budget with a bigger deficit is neither necessary nor attractive at this point. In addition, it may theoretically bring with it procedures and eventually sanctions by the EU.
"The economy rather is having good times now and in good times like this a structural deficit is not justified, generally speaking. It is true that the economic environment is cooling in foresight, there are dark clouds in Europe and the situation may arise at one moment where under certain conditions a structural deficit is justified, but that means in conclusion that whether or not one could be running a structural deficit depends on the economic cycle," Kirsipuu added.