Analytics, Direct Speech, Economics, Estonia, Financial Services, Interview, Markets and Companies

Hardo Pajula.

The expert commented that, in his opinion, budget deficit of Estonia is not going to increase after arrival of euro: "I rather suspect that once we are in the euro zone, the government will over the course of time adopt a more relaxed attitude towards foreign borrowing".

Answering the question on the influence of the world economical crisis on economics in Estonia, Hardo Pajula said: "Certainly it did have one. The recorded output declines have been the fastest in the world. But the same could also apply to the speed of adjustment, particularly to downward correction in wages in salaries to restore the competitive edge against more inertial trade partners".

The expert mentioned that currently for Estonia most important income sources are VAT payments and payroll tax account. At the same time, according to the specialist, one of the key problems of public finance is that labour in Estonia is heavily taxed. Besides, social spending make up the main area of Estonia's expense list – predominantly pensions but also child and other family benefits make up large and increasing share of the general government outlays, writes LETA.

"In the last ten years the share of social spending has gone up by roughly six percentage points and is now moving towards 40 percent of the total," the expert said.

Answering the question on possible increase of retail sales in Estonia, Pajula said: "to the extent that the worst contraction of retail sales occurred over the second half-year of 2009, we expect retail sales figures to start growing from the third quarter onwards, if only because of the base effect. Unless, of course, there is a further major adverse external shock to the system".