The Riigikogu discussed the implementation of the long-term development strategy “Estonia 2035”

Akkermann noted that the achievement of the strategic objectives of “Estonia 2035” had to be supported by fiscal policy decisions, and therefore the process of drafting it had been tied to the process of drafting the budget strategy at the level of the Government of the Republic.

Akkermann emphasised that budgetary balance was a national fiscal policy measure to curb inflation. “Without a responsible fiscal policy, it is impossible to manage any other sphere of life responsibly, in a stable and balanced manner, making strategic plans and adhering to them,” the minister said.

In her words, it is true that the measures to mitigate the effects of the pandemic crisis and the war started by Russia have taken the budget into an unprecedented deficit by today. “Decreasing the deficit and returning to a fiscally sustainable path is undoubtedly important in the interests of achieving the longer-term national objectives,” Akkermann noted. She explained that, in the strategy and action plan of “Estonia 2035”, changes and reforms had been agreed upon that were necessary to resolve challenges and to comply with government-based recommendations and to achieve long-term strategic objectives. “We are using various sources to implement these reforms and changes, both European Union support funds and tax revenues, trying to find the best combination and combined effect between funding sources and thereby to restore the achievement of the objectives set,” the minister said.

She explained that, by way of a very large rounding and generalisation, it could be said that the following allocations from European Union funds had been planned in the following financial period, that is, 2021–2027: 1.78 billion euro for the implementation of the Green Deal; 439 million towards supporting the digital transition; 1.35 billion into transport and mobility, that is Rail Baltic and the electrification of roads and railways; 842 million into the health and social sector infrastructure and 1.3 billion into innovation, research capability, education and the development of business.

Akkermann noted that the Estonian economy had withstood the crisis well. The economic outlook has deteriorated in Estonia due to very high inflation and cost pressures. GDP fell by 2.4% in the third quarter of 2022 compared to the third quarter of 2021. The reasons are the negative effects of the war in Ukraine and the energy crisis which is worsening the competitiveness of Europe. GDP growth should however remain slightly positive as an average of 2022 and 2023 and should accelerate to 3% in 2024. 

Akkermann explained that the current high inflation was mainly caused by the dramatic increase in energy prices. It is a shock in terms of supply which is probably not temporary. In the electricity market, our main problem is that we are consuming more electricity than we are producing. If scarcity of supply is the main cause, it is necessary to focus particularly on increasing supply. Decreasing of demand also helps. It is also important that everyone adjust their habits according to increased costs.

Akkermann said that the budget position was strongly affected by the increase in energy prices and by the additional budget needs due to the war started by Russia. According to the summer economic forecast, in 2022, we expected a budget deficit of nearly a billion euro, that is, 2.7% of GDP. Fortunately, the budget deficit is going to be considerably smaller than projected. By the end of October 2022, the government sector budget deficit was 44 million euro, that is, 0.12% of the projected annual GDP.

As a result of the economic downturn caused by the global financial crisis, the debt burden of the country increased from 4% of GDP to 10% in 2012 and the COVID crisis increased the debt burden of the country to 18.5% in 2020. As a result of the deficit, the government sector debt burden will increase to 18.8% of GDP in 2022 and to 26.2% of GDP by 2026.

The Minister of Finance explained the opportunities to improve the financial situation of the country. She emphasised that she considered it important to pursue a conservative fiscal policy.

During the debate, Maris Lauri (Reform Party), Reili Rand (Social Democratic Party) and Aivar Kokk (Isamaa) took the floor.

During the open microphone, Tarmo Kruusimäe, Peeter Ernits and Kalle Grünthal took the floor.

Source: Parliament of Estonia