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International Internet Magazine. Baltic States news & analytics Sunday, 05.07.2020, 20:56

Estonian analyst: Coronavirus crisis above all crisis in public finances

BC, Tallinn, 02.06.2020.Print version
The coronavirus crisis is predominantly a crisis in public finances, and the causes thereof lie partially in uncontrolled growth of health care and social expenditure stemming from demographic ageing, informs LETA, according to Hardo Pajula, professor of free economic though at Estonian Business School (EBS).

"Currently, we have entered a new phase of the debt situation that has been plaguing us from 2008, and these problems are related to the fiscal policy, not the epidemic," Pajula said on an EBS webcast "Majandus parast koroonakriisi" ("Economy after the coronavirus crisis") with the governor of the Bank of Estonia Madis Muller, according to the Estonian Business School.

Pajula opined that the strategy chosen to resolve the coronavirus crisis in Estonia proved somewhat efficient as it prevented the collapse of the health care system. "The focus should now be on reducing people's fears and fostering their trust in one another," Pajula noted.

Muller said that the steps taken by the government immediately after the crisis emerged were relatively logical. "A rapid wave of bankruptcies had to be prevented at the start of the crisis and support was needed for people whose income had declined sharply. Exit from the crisis must be analyzed in greater depth, however, to determine which areas should be supported with the taxpayer's money," he said.

Muller opined that the state's role should not be allowed to increase. "We need to analyze which economic cycle we're currently in, and aim for a balanced budget to prevent an increase in public debt in the long term," he said. 

Muller added that while there are innovative entrepreneurs in Estonia, the average production company is not overly active when it comes to using IT solutions. Excessive optimization likewise poses a risk. "The crisis highlighted risks relating to excessive optimization in the industrial sector -- businesses' supply chains had been optimized to the greatest extent possible, and everything worked like clockwork until borders remained open."

The central bank governor said that risk mitigation strategies will likely include more production being relocated to the European Union, possibly also to Estonia, which will create new opportunities for Estonian businesses.

As to the measures the state could implement to support entrepreneurs also after the primary aid packages have run their course, Muller proposed digitization, retraining and support for energy efficiency.

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