National Audit Office: Estonia was lazy in the good times
14.10.2009, 13:01Estonia should have collected more reserves in the good times and also motivate entrepreneurs to produce and market, National Audit Office’s annual report says, aripaev.ee writes.
In 2000-2007 the Estonian economy grew on average by 8 pct in a year, being among three fastest growing economies in the European Union.
In good times reserves were increased, but too little, finds the office. In 2005 was made reserve for paying pensions, which collected more than EEK 4 bln in 2005-2007. But not all surpluses were put aside for worse times: In 2005-2007 the supplementary budgets increased spending by EEK 10 bln. State budgets were planned with surplus, but spending grew on average by 20 pct in a year in 2005-2007. Notable part of state reserves was made due to the fact that money was still coming better than expected and the government didn’t have the time to legalize spending it.
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Stabilization reserve is meant for using in crisis and using that requires decision from the Parliament. In 2006-2007 the surpluses were directed to the cash reserve to take money to use sooner, in case of need. Stabilization reserves weren’t increased in that period from the surpluses. The money there came from the interest money, part of Estonian central bank’s profit and privatization of land.
The state put entrepreneurs to situation where money flowed in from here and there and that resulted in high inflation, wage growth that exceeded productivity and disinterest for export. Rapidly grown domestic demand and tax cuts didn’t bring changes to the economy’s structure. Therefore Estonia faced second crisis besides the global financial one – getting rich through building and selling real estate hadn’t taught people to produce and market what other countries would need. Therefore the state didn’t favour producing and marketing.