Drawing on the experiences and lessons of other countries, we could already be asking what political parties seeking a seat in parliament see as a sustainable level of government debt for Estonia — and what they plan to do about it after the 2027 elections, write Peter Lõhmus and Viljar Arakas.
We are living in a new era for Estonia, one in which the government’s debt burden is rising rapidly. While in the coming years we can sharply increase defense spending without major difficulty thanks to the conservative fiscal policy of previous decades, over the long term a permanently higher level of expenditure will not be affordable for the state without significant changes in fiscal policy.
In numerical terms, this means that while Estonia’s government debt amounted to just 9 percent of gross domestic product (GDP) in 2019, it is set to reach 26 percent this year and, without additional measures, 35 percent by 2029.
Over this period, interest costs on government debt will rise to nearly half a billion euros annually. It was precisely this concerning development that prompted the Fiscal Council to organize a public seminar on public finances, where, in addition to analyzing the domestic situation, we also looked to lessons from our northern neighbors Finland and Sweden in restoring fiscal order.
Efforts by successive Finnish governments to repair the state of public finances have been widely covered in the media and we have a valuable opportunity to learn from a neighboring country within the eurozone.
Authors: Peeter Lõhmus, chairman of the Fiscal Council; Viljar Arakas, deputy chair of the Fiscal Council
Read more: ERR.EE
