Estonia's budget surplus continues to rise

  • 2006-08-16
  • Staff and wire reports
TALLINN - Estonia's budget surplus 's one of only several in the EU and a source of much debate at home 's continues to mount thanks to a booming economy. The Finance Ministry announced last week that, as of the end of July, budget revenues surpassed expenditures by 3 billion kroons (192 million euros).

Compared with the first seven months of 2005, budget revenues are 17.2 percent higher this year. Only two months ago, the figure was 2 billion kroons, ministry officials said.
In all, the ministry said 37.3 billion kroons were paid into the state budget over the January-July period, 60.8 percent of the annual 2006 target. Expenditures for the period amounted to 34.3 billion kroons, or 55.9 percent of the target.
Estonia continues to adhere to a surplus-based fiscal policy, with the additional revenues going to a reserve fund. Just last week the government endorsed the size of the 2005 budget surplus 's 1.8 billion kroons (115 million euros) 's and decided to place the full sum into a pension reserve.

Earlier this year, the Statistical Office reported that the size of the surplus was 1.6 percent of GDP, the fourth highest in the EU. According to Eurostat, in 2005 Denmark had the biggest budgetary surplus of 4.9 percent in 2005. Inevitably, political parties are at odds how to use the surplus, with Villu Reiljan, the leader of the populist People's Union, one of the three parties in the ruling coalition, proposing that the funds be used to boost the social sphere.
However, Finance Minister Aivar Soerd, also a member of the People's Union, has repeatedly stated that additional revenues should be used to bolster the pension fund.

Despite the surplus, Estonia's economic leadership has been unable to rein in inflation, which is currently over 4 percent and showing no signs of slacking. Growth of GDP amounted to a staggering 11.4 percent in the first quarter of the year, pointing to an economy that is under risk of overheating. The high rise in consumer prices prevented the country from being allowed to adopt the euro in January next year, which it had been hoping to do.
Meanwhile, the European Bank for Reconstruction and Development has adopted its new strategy for Estonia, which focuses on building a more effective energy sector.

EBRD officials said that the current effectiveness of the energy sphere is not fully congruent with EU regulations and that existing regulations concerning renewable energy must be strengthened. What's more, the development of the industrial sector has to be stimulated in poorer areas, the bank said.
To ensure dynamic development, small and medium size companies need a wider choice of financing opportunities, the EBRD said.

The bank has decided it would support renewable energy projects and local companies, offering to the latter long-term risk capital particularly for the financing of cross-border projects.
In addition, the EBRD is planning to support small and medium size enterprises and local governments as well as higher effectiveness of the energy sector.
The EBRD pointed out Estonia's success in turning the economy into a modern market economy and described Estonia as one of the most open and competitive economies in the world.