Data from Statistics Estonia show that the nominal budget deficit of the general government for 2020 stood at 1.3 billion euros, or 4.8% of GDP. The spring 2021 assessment by the Ministry of Finance finds that this gives a structural budget deficit of 3.6% of GDP.

The state finances were affected by the wide spread of the Covid-19 coronavirus in 2020. The restrictions introduced to stop the spread of the virus caused a recession that reduced the tax revenues in the state budget. At the same time, healthcare spending increased and a broad package of fiscal measures was passed in a supplementary budget to ease the recession.

The budget deficit has proven smaller than the Ministry of Finance forecast during the year, but much larger than was planned before the coronavirus crisis erupted. The state budget for 2020 expected that general government revenues and expenses would be 11.5 billion euros, but revenues proved some 600 million euros smaller than this and expenses 700 million euros larger.

The recession led the European Union to stop applying numerical limits on setting fiscal policy, and the Estonian government abandoned its previous target of reducing the structural budget deficit. The Fiscal Council finds that this was justified in 2020.

As the fiscal position of the Estonian general government was not in structural balance in the years leading up to the crisis, fiscal buffers were not built up during the good times. The budget deficit in 2020 was financed by government borrowing, raising the debt of the Estonian general government to 5 billion euros, or over 18% of GDP.

As the crisis passes, the Fiscal Council finds it important that the government return to a rules-based fiscal policy with the goal of restoring structural fiscal balance.

The Fiscal Council's opinion and a more thorough explanatory report can be found here.