The Governor of the Bank of Estonia Ardo Hansson replied to the interpellation concerning the economic situation and the budget deficit (No. 382), submitted by members of the Riigikogu Andres Ammas, Monika Haukanõmm, Andres Herkel, Külliki Kübarsepp, Krista Aru, Ain Lutsepp and Artur Talvik on 16 October.
The interpellators wished to know how he assessed the changing of the macroeconomic environment and the risk arising therefrom that the economy as a whole or individual sectors may be overheated, and what advice the Government had been given in this issue.
Hansson said that the recommendation of the Bank of Estonia had been to preserve in the Act the requirement of annual structural balance. In his words, based on various economic indicators, the Estonian economy has achieved a volume and a growth speed that exceed the sustainable level.
“In addition, the Bank of Estonia has paid attention to the possibility that the risk of overheating may concern in particular the construction sector which has limited capacity to respond to an increase in demand,” Hansson explained. In his words, both private and public sector commissions to the construction sector have grown and, according to poll results, will keep growing in the near future. This can lead to temporary employment relocating to the construction sector and such a cyclical instability would damage the long-term growth capacity of the economy. “If we remember the last boom, very many people went to the construction sector and remained there for a couple of years. Then the economic recession came, they lost their jobs, and we can see this cyclicity restoring to some extent now,” Hansson said. In his opinion we do not want to live in a situation where things go very well for a couple of years and then you are unemployed for a couple of years. The Bank of Estonia has recommended taking into account the cyclical state of private sector investments when planning national investments, in order to balance it, if possible.
Hansson said that the Bank of Estonia had submitted an opinion on the Bill on amending the State Budget Act to the Ministry of Finance in spring, in which it had been critical of the relaxation of the budget rule that allowed for the budget to be drafted in a structural deficit of up to 0.5 per cent of GDP. “In September I sent the assessments of the Bank of Estonia of the situation of the Estonian economy to Prime Minister Ratas and the Minister of Finance Tõniste in which I drew attention to the fact that the cyclical state of the economy was such that it should not be additionally stimulated at the expense of a budget deficit,” the Governor of the Bank of Estonia explained.
The Minister of Foreign Affairs Sven Mikser replied to the interpellation concerning the right to self-determination of peoples (No. 376).
During the open microphone, Jüri Jaanson and Krista Aru took the floor.
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu
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