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Estonia Debt-GDP Ratio Will Decline in 2010, Ligi Says

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Oct. 28 (Bloomberg) -- Estonia’s debt will decline as a percentage of gross domestic product this year and grow at a slower pace than previously forecast in coming years, Finance Minister Jurgen Ligi said.

Debt will decline to 7.1 percent of GDP this year from 7.2 percent in 2009, and the debt-to-GDP ratio will “about double” by 2015, Ligi told reporters today in Tallinn. The Finance Ministry in August forecast that the ratio would increase to 8 percent this year and 18.7 percent in 2014.

“We can say now that our borrowing schedule is totally different from what we had forecast,” he said. “We are already borrowing 1.5 billion krooni ($130 million) less from the European Investment Bank than we forecast, we know that Latvia has given up a plan to borrow from us, and we have reserves.”

Estonia, which is due to adopt the euro Jan. 1, has the lowest level of government debt in the 27-member European Union. The former Soviet republic’s most important lesson from its deepest recession since independence in 1991 was the need to accumulate government reserves in good times, Prime Minister Andrus Ansip said last month.

Ansip pledged that government debt would remain the EU’s lowest “for years.” Estonia’s debt ratio is less than half that in second-place Luxembourg, where it stands at 14.5 percent, according to EU figures.

Estonia’s government may need to borrow 7 billion krooni for investments in state-owned utility AS Eesti Energia “which would be totally different thing than borrowing to finance current spending,” Ligi said.

State reserves of 19.2 billion krooni exceed debts by 3.35 billion krooni, he said.

Estonia last year agreed to borrow 4.2 billion krooni from the EIB to finance investments and help cover its budget deficit. The Cabinet in July approved a loan option for Latvia of as much as 100 million euros ($122.9 million) as part of an international bailout for Estonia’s neighbor.

To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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