Ratas: Growth financed by state debt will limit Estonia's future prosperity
Former Estonian PM Jüri Ratas warns that the country's economic recovery relies heavily on budget deficits rather than genuine growth, leaving future generations to pay through rising state debt and interest costs.
Recent statistics and forecasts show Estonia's economy returning to positive growth after prolonged stagnation. Politician Jüri Ratas welcomes the news but cautions against calling it a new economic boom.
According to Swedbank, growth will reach about 2 percent this year and 2.5 percent next year. SEB forecasts 2.5 and 2.7 percent respectively, while the Finance Ministry projects 2.5 and 2.3 percent. Ratas notes these figures are better than in recent years, but the economy still has not returned to the level it had four years ago.
Deficit as the engine of growth
The key issue, Ratas argues, is that current growth depends heavily on state budget stimulus rather than genuine economic success. The Finance Ministry forecasts a general government deficit of 4.4 percent of GDP this year and 4.5 percent next year, remaining at 4.4 and 4.3 percent in 2028 and 2029.
Ratas calculates that if a nearly two-billion-euro deficit (4.4 percent of GDP) only generates about 0.7 billion euros in real economic expansion, this represents a poor return for the state.
Defense spending used as cover
The EU allows a temporary deficit of up to 4.5 percent if justified by a defense spending increase of at least 1.5 percentage points, an exemption running until 2028. Ratas points out that while defense spending will rise from 4.2 to 5.3 percent of GDP — a 1.1 percentage-point increase — the deficit will grow by 2.4 percentage points, more than twice as fast.
Rising debt and interest costs
Estonia's debt level, currently 24 percent of GDP, will reach 30 percent next year and nearly 40 percent by 2029. Interest costs, currently 239 million euros annually, will climb to 656 million euros by 2030. Ratas argues this money is being diverted from priorities such as teacher salaries and infrastructure, and calls for an honest, responsible long-term fiscal policy.
