IMF warns: Estonia's government debt on unsustainable path

The International Monetary Fund (IMF) warns that Estonia's government debt is on an unsustainable trajectory unless current policies are changed. Eesti Pank agrees with the IMF's assessment and recommends, similarly to Sweden and Finland, concluding a cross-party agreement to stabilise the country's finances.

The International Monetary Fund (IMF) has released a summary of economic policy discussions held in Estonia, expressing serious concern about the country's fiscal sustainability. According to the IMF, Estonia's government debt is heading in an unsustainable direction at its current trajectory unless policymakers introduce corrective measures.

Eesti Pank fully supports the IMF's position and emphasises that the situation requires swift action. The proposed solution looks to neighbouring Nordic countries as examples: both Sweden and Finland have successfully established cross-party agreements that ensure long-term fiscal sustainability regardless of changes in government.

What does this mean for Estonia?

A cross-party agreement would essentially mean that all major political forces commit to adhering jointly to agreed-upon principles of budget discipline. Such an approach would help avoid situations where a change in government brings about a sharp shift in the country's fiscal policy.

In recent years, Estonia has faced growing budget deficits, partly due to increased defence spending and sluggish economic growth. The IMF warning comes at a time when Estonia is seeking to balance increased defence expenditure with fiscal sustainability.