(Bloomberg) -- The European Union's least-indebted member will turn to private investors to boost infrastructure spending to avoid breaking the bloc's budget rules.
Estonia, with total public debt expected to reach just 8.9% of gross domestic product this year, is “a complete freak in Europe” and could triple its state liabilities before it reached the level of Bulgaria or Luxembourg, which are ranked two and three in the EU, according to Finance Minister Martin Helme.
But with the EU's budget-deficit limits, the Baltic nation would face penalties for any sizable spending over current levels, Helme said Monday. It will therefore opt for state contracts to build, finance and run highways and other infrastructure, known as public-private partnerships.
“We will essentially be buying back that service, which isn't as favorable as repaying a loan because a loan would obviously be the most sensible in the current environment of negative interest rates,” Helme said.
Public-private partnerships would allow the Baltic country to meet calls by international organizations, including by International Monetary Fund Managing Director and incoming European Central Bank President Christine Lagarde, who last week urged European governments with low deficits to boost infrastructure spending.
The euro-area country of 1.3 million people hasn't used PPPs for national projects before. Smaller municipal contracts included the renovation of schools in the capital under such an arrangement last decade that were more costly than alternatives, according to former Tallinn mayor and now Premier Juri Ratas.
While the government will discuss the details at its meeting later this month, the issue boils down to whether the faster completion of the projects will compensate for their higher price, Ratas told the public broadcaster ERR last week. EU budget rules stipulate members' budgets mustn't exceed 3% of gross domestic product. Public debt must be below 60% of GDP, or heading that way.
Helme first indicated his support for PPPs late last month, when he said he would propose such partnerships to complete four-lane highway projects connecting capital Tallinn with the towns of Tartu, Narva and Parnu, as well as for building a bridge to the western island of Saaremaa.
Still, Ratas's previous government agreed to postpone a decision last year on a bridge project after estimating it would be twice as costly as current ferry subsidies, with payments scheduled for almost 50 years.
To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net
To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey
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