Estonia's debt burden has become a topic of concern, with predictions that it will grow to 38.6% of GDP by 2030. However, Raul Eamets, chief economist at Bigbank, argues that this may not be as alarming as it seems.
What happened
The Estonian state budget has been submitted to the Riigikogu, and discussions are underway to determine its final form. Critics have raised concerns about the rapid growth of the debt burden and the resulting interest costs, which are expected to increase from €205 million to €650 million by 2030.
Eamets acknowledges that the debt burden is growing, but argues that it is still relatively low compared to other EU countries. He also notes that the EU's founding principles allow for a debt-to-GDP ratio of up to 60%, and that many countries have higher debt burdens without facing significant problems.
Eamets also points out that the value of money decreases over time due to inflation, which means that the interest costs in the future will be worth less than they are today. He calculates that if inflation is 2.5%, the value of €650 million in four years would be equivalent to €589 million.
Furthermore, Eamets argues that the focus on achieving a balanced budget at all costs is misguided. He notes that economic growth and price growth can affect the debt burden, and that the EU's deficit and debt limits are designed to take these factors into account.
