Record-high spending not solely due to pandemic

13.10.2020 - 13:27
Record-high spending not solely due to pandemic
State expenditure growth was out of control long before Covid-19 hit the country, argues the House of Industry
The government buildings at Tinganes, Tórshavn

It is not right to blame the record-high growth in state expenditures entirely on the Covid-19 pandemic.

The 2020 budget, which was approved two months before the virus arrived in the country, pumped up an already overheated economy with the potential consequence of rapidly increasing government debt.

This is one of the key conclusions of the House of Industry’s latest analysis of the state economy.

 >> SEE ALSO The economy has withstood Covid pressures

The expenditure growth in the 2020 state budget is more than twice as high as the average annual expenditure growth from 2015 to 2018, which the House of Industry warned at the time was already far too high.

According to the new analysis, controlling the state economy in the coming years will be a big political challenge because prior to the pandemic, the economy was pumped up to an extent where even a relatively small decline in state revenues can now result in significant budget deficits and growing long-term debt.

 >> SEE ALSO Financial crisis or not?

This vulnerability is evident in the 2021 budget proposal, where a DKK 428 million surplus in 2019 turns into a DKK 367 million deficit in 2020.

With a projected deficit of DKK 171 million for 2021, there is a deficit of nearly DKK 1 billion in only two years.

At this rate, the state debt will see an annual increase of half a billion, says the House of Industry, echoing its previous statements that the warning signs were clear long before the Covid pandemic.


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