Minister of Finance: We considered the prospect of a higher interest rate | New
Asked during an interview with “Aktuaalne kaamera” (AK) what impact the new rate will have, Pentus-Rosimannus said it will hopefully kill the idea that loans with non-existent interest rates will exist for all time.
“I hope the time for these stories is now over. A year ago I was reprimanded in Parliament for daring to doubt the veracity of such claims, but now interest rates are rising,” he said. she declared.
Second, the Minister said that the overall external environment in the region makes investors cautious. This means that Estonia has a higher rate than other countries in Europe.
“While the base rate for European countries is currently around 3%, there is an additional interest rate specific to each country. In the case of Estonia, it amounted to just over 1%. There are also experts who say that, given the situation, it was even surprisingly low,” she said.
Asked if the 4% figure was unexpected, the minister said a “significantly higher” interest rate had been taken into account when planning the budget. She said 4% was “within the range” that had been discussed.
“Of course, it was hoped that this level would be lower, but since the base rate itself is already 3%, it was predictable that the days of cheap credit were over,” she told AK. .
Asked if the rate hike would affect decisions about Estonia’s state budget and deficit, she said the deficit stemmed mainly from an “inevitable” increase in defense spending.
This could not be excluded from the budget due to the current security situation, she said.
“So that [the deficit] has been unavoidable and certainly justified for some time, but in the long term, of course, the only solution remains fiscal discipline. There is no justification for maintaining the budget in deficit in the long term. We must not allow fixed expenses to be covered by borrowing, and this is something we must keep in mind at all costs when planning our fiscal policy,” the finance minister said.
Ninety million euros have been allocated to cover interest costs in next year’s budget and she said that will not change.
Pentus-Rosimannus said calculations had been made for future interest costs – which increase every year – and that had been kept in mind when discussing the budget strategy.
“In four years, the interest charges that will have to be paid to service the loans already contracted will be around 200 million euros. This is a very high cost. Of course, the situation would have been better if we had been able to use the reserves in the years following the crisis. Unfortunately, we have not had the possibility of using the reserves that we had built up instead of issuing bonds. That is why our situation is such that the cost of interest increases from year to year,” she says.
On Thursday morning, Estonian 10-year bonds were reported to be sporting a coupon rate of 4%, down from 0.125% when Estonia issued 1.5 billion euros worth of bonds two years ago. Effectively, a 32-fold increase.
Prime Minister Kaja Kallas (Reform) described the rate as a bad surprise for everyone.
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