13 May 2013

IMF report on Estonia

The report states that despite global financial uncertainty, Estonia's strong macro-economic policies and the economy's Nordic ties have underpinned the economic recovery, which has also been supported by euro adoption. (Includes comments from Governor of Eesti Pank, Ardo Hansson.)

Fiscal policies

Estonia’s public finances remain strong notwithstanding a small deficit in  2012. Still, strictly adhering to budgetary allocations can avoid untimely stimulus in 2013.  Should downside risks materialise however, automatic stabilisers should be allowed to  operate while maintaining fiscal credibility. Establishing a fully-fledged medium-term budgetary framework with multi-year expenditure ceilings can help prioritise expenditure  and avoid pro-cyclical policies.

Financial sector policy

The banking sector has remained profitable, liquid and well capitalised, and its funding has improved. Risks remain, but are mitigated by strengthening balance sheets and prudential positions. Further strengthening macro-prudential policies and enhancing long-standing cross-border supervision and prudential arrangements would help safeguard financial stability. The EU banking union can provide an additional avenue for these efforts.

Long-run growth

Beyond safeguarding Estonia’s competitiveness and business friendly environment, there is an urgent need to ensure that those searching for a job possess the skills demanded by employers and to curb long-term joblessness. In this regard, continued focus on enhancing training and higher education is essential.

Full report

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"The IMF quite rightly identified Estonia's main challenge as reinforcing sustainable economic growth and financial stability and that is what we are working for", said the Governor of Eesti Pank, Ardo Hansson. "We agree with the IMF that although economic policy so far and the adoption of the euro have helped to reduce imbalances and vulnerabilities, Estonia needs to continue with a prudent fiscal policy and support the current and future strengthening of the financial sector. Setting a medium-term fiscal framework will equally help reduce uncertainty and strengthen budgetary discipline".

"We share the view of the IMF that promoting sustainable economic growth will require external competitiveness to be strengthened, and knowledge-based activities will be a key factor in this. The existence of sufficiently qualified labour resources is ever more important for the longer-term development of the economy. As the ageing population and the decline in the labour force are processes that cannot easily be reversed, it becomes more important than ever to focus on developing an economic environment that favours the creation of jobs with higher added value. This means encouraging life-long learning, effective cooperation between the education system and employers, and policy measures that favour the mobility of the labour force", explained Hansson.

Press release, 14.5.13 © Eesti Pank

© International Monetary Fund