Republic of Estonia Investor presentation 1 June 2020 - Rahandusministeerium
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Republic of Estonia
Investor presentation
1 June 2020Disclaimer (I/II)
The following applies to this document, the oral presentation of the information in this document by the Republic of Estonia (“Estonia”) or any person on behalf
of Estonia, and any question-and-answer session that follows the oral presentation (collectively, the “Information”).
In accessing the Information, you agree to be bound by the following terms and conditions. This document is not intended for distribution to, or use by, any
person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, nor does it constitute an offer of securities
in, the United States, the United Kingdom, Canada, Australia, Japan or any other jurisdiction. In particular this document and the information contained herein
do not constitute an offer of securities for sale in the United States and this document may not be disseminated, directly or indirectly, into the United States, its
territories or possessions, except pursuant to registration or an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended.
Any failure to comply with this restriction may constitute a violation of United States securities law.
The Information does not constitute or form part of, and should not be construed as an offer or the solicitation of an offer to subscribe for or purchase the
securities referred to herein (the “Securities”), and nothing contained therein shall form the basis of or be relied on in connection with any contract or
commitment whatsoever, nor does it constitute a recommendation regarding the Securities. Any decision to purchase the Securities should be made solely on
the basis of the information to be contained in the offering circular (or equivalent disclosure document) produced in connection with the offering of the
Securities. Prospective investors are required to make their own independent investigations and appraisals of the business and financial condition of Estonia
and the nature of the Securities before taking any investment decision with respect to the Securities. The offering circular (or equivalent disclosure document)
may contain information different from the Information, and should be read in its entirety.
This presentation has been prepared solely by Estonia for information purposes only. It is not to be used for any other purpose.
The Information is confidential and is being provided to you solely for your information and may not be retransmitted, further distributed to any other person or
published, in whole or in part, by any medium or in any form for any purpose. If this document has been received in error it must be returned immediately to
Estonia. The opinions presented herein are based on general information gathered at the time of writing and are subject to change without notice. Estonia relies
on information obtained from sources believed to be reliable but does not guarantee its accuracy or completeness.
This presentation is not intended to be an invitation or inducement to engage in investment activity for the purpose of Section 21 of the Financial Services and
Markets Act 2000 of the United Kingdom (the “FSMA”). This announcement is directed only at: (i) persons who are outside the United Kingdom; (ii) persons who
are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as
amended) of the United Kingdom; or (iii) any other persons to whom this announcement for the purposes of Section 21 of the FSMA can otherwise lawfully be
distributed (all such persons together being referred to as “relevant persons”), and must not be acted on or relied upon by persons other than relevant persons.
Any investment or investment activity to which this announcement relates is available only to and will be engaged in only with relevant persons.
1Disclaimer (II/II)
The Information which relates to countries other than Estonia has not been independently verified and no responsibility is accepted, and no representation,
undertaking or warranty is made or given, in either case, expressly or impliedly, by Estonia or any of its officers or advisers as to the accuracy, reliability or
completeness of the Information or as to the reasonableness of any assumptions on which any of the same is based or the use of any of the same. Accordingly,
no such person will be liable for any direct, indirect or consequential loss or damage suggested by any person resulting from the use of the Information which
relates to countries other than Estonia or for any opinions expressed by any such person, or any errors, omissions or misstatements made by any of them. The
statements contained in this presentation are made as at the date of this presentation, unless another time is specified in relation to them, and delivery of this
presentation shall not give rise to any implication that there has been no change in the facts set forth in this document since that date. Save as otherwise
expressly agreed, none of Estonia, its officers or its advisers should be treated as being under any obligation to update or correct any inaccuracy contained
herein or be otherwise liable to you or any other person in respect of any such information. Market data used in the Information not attributed to a specific
source are estimates of Estonia and have not been independently verified. No reliance may be placed for any purpose whatsoever on the information contained
in this document or on its completeness.
This presentation may contain statements, statistics and projections that include words such as "intends", "expects", "anticipates", "estimates" and words of
similar import. All statements included in this presentation other than statements of historical facts, including, without limitation, those regarding financial
position, strategy, plans and objectives of management for future operations (including development plans and objectives) are forward-looking statements.
Where forecasts have been included in the presentation, these are on the basis of government budget numbers. There can be no assurance that such
forecasted or budgeted numbers will be achieved. If such figures are not achieved, this may have a negative impact on the performance of the economy of
Estonia. By their nature, such statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.
No assurances can be given that such expectations will prove to be correct and actual results may differ materially from those projected because such
statements are based on assumptions as to future economic performance and are not statements of fact. Estonia expressly disclaims to the fullest extent
permitted by law any obligation or undertaking to disseminate any updates to these forecasts, projections or estimates to reflect events or circumstances after
the date hereof, nor is there any assurance that the policies, strategies or approaches discussed herein will not change. Nothing in the foregoing is intended to
or shall exclude any liability for, or remedy in respect of, fraudulent misrepresentation.
THIS DOCUMENT DOES NOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ISSUES RELATED TO AN INVESTMENT IN THE SECURITIES/TRANSACTION.
PRIOR TO TRANSACTING, POTENTIAL INVESTORS SHOULD ENSURE THAT THEY FULLY UNDERSTAND THE TERMS OF THE SECURITIES/TRANSACTION AND
ANY APPLICABLE RISKS. THIS DOCUMENT IS NOT A PROSPECTUS OR OFFERING CIRCULAR FOR ANY SECURITIES.
2Table of contents
I Introduction p. 2
II Economic Developments p. 8
III Banking Sector p. 20
IV Fiscal Discipline p. 24
V Educated and Competitive Estonia p. 30
VI COVID-19 Response p. 34
VII Debt Management p. 38
VIII Contemplated Transaction p. 41
3Introduction 4
Republic of Estonia in a nutshell
Small, fast-growing and dynamic Northern European country
Republic of Estonia
Population (1) 1,328,976 Tallinn Narva
Territory 45,227 km2
Capital Tallinn Estonia
Estonia
Currency Euro Pärnu
(2) Tartu
Nominal GDP EUR 28,037 million
(2)
GDP per capita EUR 21,163
(2)
GDP growth in 2019 4.3%
(2)
Unemployment rate 2019 4.4%
S&P: AA- positive
Credit ratings Moody's: A1(u) stable
Fitch: AA-(u) stable
Finland: 16.30%
Sweden 10.50%
Largest export destinations (2) Latvia: 9.09%
USA: 6.78% In 1993 first local bond issued, 300m Estonian In 2002 first Eurobond issued, EUR 100m
Germany: 6.30% kroons (EUR 19.2m)
Euro area membership 1 January 2011 Regains Joins the Joins NATO Joins EMU, and Latest parliamentary
OECD membership 9 December 2010 Independence WTO adopts Euro currency elections
EU membership 1 May 2004
NATO membership 29 March 2004 1991 1999 2004 2010 2011 2017 2019 2020
UN membership 17 September 1991
Independence restored 20 August 1991
UN membership EU OECD EU presidency Non-permanent
Declaration of independence 24 February 1918
membership membership member of UN
(1) Statistics Estonia, as of 1.1.2020
(2) Statistics Estonia, 2019 full year
Security Council
5Estonia’s credit rating on a positive track
Estonia is firmly in the AA category of European countries with low debt-to-GDP ratio
Estonia’s credit rating development
• Estonia has been able to improve its credit rating
AAA/Aaa
firmly into the AA category over the years, and the
AA+/Aa1 Estonia became a Estonia joined the
trajectory is still upwards member of the EU euro area
AA/Aa2
• As the latest development, S&P assigned a AA-/Aa3
AA-
AA-
positive outlook to Estonia’s AA- rating at the end A+/A1 A1
of February 2020 A/A2
• Estonia credit rating is approaching (and A-/A3
sometimes above) that of its western European BBB+/Baa1
peers BBB/Baa2
• General government debt has remained extremely BBB-/Baa3
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
low even in times of economic distress during the
financial crisis and the euro crisis S&P Fitch Moody's
Source: Standard & Poor’s, Fitch Ratings, Moody’s, all as of 15 May 2020
Credit rating comparison Development of general government gross debt as % of GDP
Country S&P Outlook Moody's Outlook Fitch Outlook 120%
Estonia AA- positive A1 stable AA- stable 100%
Austria AA+ stable Aa1 stable AA+ positive 80%
Finland AA+ stable Aa1 stable AA+ stable
60%
France AA stable Aa2 stable AA negative
40%
Belgium AA stable Aa3 stable AA- negative
20%
Ireland AA- stable A2 stable A+ stable
Lithuania A+ stable A3 positive A stable 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Latvia A+ stable A3 stable A- negative Estonia Ireland Finland Germany
Austria Euro area France Belgium
Source: Standard & Poor’s, Fitch Ratings, Moody’s, as of 15 May 2020 Source: Eurostat
6Key credit highlights of Estonia
Estonia‘s strengths range from its dynamic economy to its strong institutions
Strong growth and • Estonia has a robustly growing economy with annual GDP growth averaging 4.9% from 2017 to 2019(1)
dynamic economy • With a flexible, dynamic and diversified economy, Estonia has a history of recovering swiftly from economic downturns
• Estonia is a small open economy, and the export sector represented 72.6% of GDP in 2019(1)
Strong external
performance • The export base has expanded significantly with growth driven by high value-added Information, Communications and Technology and
professional services sectors and the country has competitive and large electronics manufacturing sector
• Estonia has the lowest general government debt level of any EU country at 8.4% of GDP in 2019(1)
Fiscal prudence • Fiscal prudence has been tight over the economic cycles, and the government does not seek to diverge from the established track record
• Taxes are low, providing competitiveness and a buffer for fiscal balancing, and tax structure is growth-boosting with low deadweight losses
• Estonia’s economic policies have supported future growth and competitiveness by investing in education and research and development
Sustainable economic
policies • Estonia’s investments in education have resulted in the best scores of any western country in latest PISA student assessments – evidence that
the country is nurturing a future generation of experts and increased competitiveness
• Stable and strong institutional and governance landscape characterise Estonia with continuity in key policies and high ranking in Worldwide
Strong institutions Governance Indicators
and governance
• Estonia is a free society with open debate of policy issues, freedom of information and low corruption
• Unemployment rate in Estonia was only 4.4% in 2019(1) and the country has the second-highest employment rate in the EU at 68.7% in 2019(1)
Dynamic labour
market • Competitiveness has remained strong despite substantial wage increases due to robust productivity growth, and Estonia has a proven track
record of being able to adjust wages in an economic downturn
Stability from • International cooperation is the base for sustained stability for Estonia, with the country having joined both the EU and NATO in 2004
international • Estonia joined the EMU and eurozone in 2011, and has benefited from the ECB’s proven track record of clear policy goals, monetary policy
cooperation independence and a wide arsenal of monetary policy tools at its disposal
• Estonian banks have on average the highest CET1 ratios in the EU(2), and one of the lowest NPL ratios in the EU at 0.4% at the end of Q1 2020(3)
Stability of the • Deposits have grown by nearly twice as much as private sector credit, and banks have expanded their funding mix by starting to issue bonds
banking sector • The banking sector is dominated by Nordic-owned banks, whose parent companies have historically supported their subsidiaries, but also the
local banking sector is growing
• Estonia was quick to react to the COVID-19 pandemic, declaring emergency on 12 March 2020 and implementing various restrictions
Timely COVID-19 • EUR 2.8 billion Supplementary Budget (10.8% of GDP) has been approved to support businesses, individuals and the healthcare sector
response • COVID-19 will lead to a substantial government budget deficit, and Estonia expects its total funding requirement for 2020 to be EUR 3.78 billion,
with additional EUR 1.2 billion needed in 2021(4)
Source: (1) Eurostat; (2) ECB; (3) Bank of Estonia; (4) Ministry of Finance
7Estonia has a stable government
Estonia is renowned for good governance and effective political system
Current Estonian Parliament composition – strong government
Isamaa
• Governance in Estonia is renowned for its efficiency ("Fatherland"),
• OECD assigned Estonia the highest score in its reform Conservative People's Party 12 seats
of Estonia, 19 seats Estonian Reform
responsiveness rate indicator in its 2019 study
Party, 34 seats
• Estonia has a strong majority government made of a centre-right
coalition Estonian Centre
• The latest parliamentary election was conducted in March 2019 Party, 25 seats
and the parliament has a 4-year term
• Record number of women were elected to the parliament in Social Democratic
the election, and Estonia has a female president Party, 10 seats
• The state budget strategy for the years 2020-2023 has five Unaffiliated MPs, 1
priorities: 1) family-friendly Estonia; 2) cohesive society; 3) seat
knowledge-based economy; 4) efficient governance; 5) free and Government Opposition
56 seats 45 seats
protected state
0 101
Source: Riigikogu
Estonia is an agile country in making reforms – top performer as measured by OECD’s reform responsiveness rate indicator
60 58,3
2017-2018 Responsiveness Rate
50,0 50,0
50
42,9
40,0 40,0 40,0 41,7 41,7 41,7 41,7 41,7
40
31,3 31,4
Indicator
28,6 30,0
30 25,0 25,0 25,0
20,0 20,0 21,4 21,4
20 16,7 16,7 16,7
8,3 10,0
10
0
SVK ISL AUS BEL PRT EU FIN ITA GBR ESP CHE SVN LUX HUN NLD OECD CZE DNK NOR AUT DEU IRL POL SWE LVA FRA GRC EST
Source: Economic Policy Reforms 2019: Going for Growth, OECD
8Key policy measures
The basic principles of the Government coalition are forward-looking
Government’s five priorities Main measures to achieve the targets
Investments to the digitalisation of the economy and increases in state R&D financing. IT, robotics and
Knowledge-based economy Higher programming expanded in the national curriculum. Lifelong learning for adults.
productivity and employment Investments into infrastructure – roads, railways, incl. Rail Baltic. Development of public transport and
importance of having a high-quality international air connection with Estonia.
Extraordinary pension increase according to the possibilities of the state budget. More child welfare workers
Cohesive society and investments to detect children’s problems, including mental health.
Lower absolute and relative poverty
Investments in research and development – the goal is to increase private sector R&D expenditure to 2% and
public sector R&D expenditure to at least 1% of GDP.
Efficiency of current family policy measures will be increased, support for multi-child and young families.
Family-friendly Estonia Measures to support the housing stock investments of local governments.
Lower poverty of children Reform of the second pillar of pension system, which will allow people to opt out of the second pillar pension
scheme if they so wish.
Steps to reduce bureaucracy and administrative burden. Further development of e-state, enabling electronic
Efficient governance Expenditure communication with the state in all fields.
and employment of the general
government will not increase In order to stimulate both domestic and foreign trade, the excise duty on alcohol will be reduced by 25% and the
increase in tobacco excise duty will be lower than previously agreed.
A broad-based audit of the state budget will be carried out, in the course of which all sources of state revenue
and expenditure will be reviewed and their purposefulness will be assessed.
Free and protected state Defence
expenditure at least 2% of GDP Cybersecurity capabilities will be strengthened. Independent and consistent foreign and security policy
implemented, mainly through involvement in the European Union and NATO.
9Economic
Developments
10Estonia – the growth story
Estonia’s economy has grown strongly for many years, outpacing peers
• Robust domestic demand and strong exports have been key drivers for the strong GDP growth of around 5% in real terms from 2017 to 2019
• Estonia has been one of the fastest growing economies in the EU during the 2010s as it rebounded quickly from the financial crisis and avoided
the stagnation many EU countries suffered from
• Supported by strong institutions and with increased focus on high value-added sectors like ICT, Estonia’s relatively small and dynamic economy
has a solid basis for future growth
• With a diverse sectoral split, GDP growth is not overly dependent on the contribution of just one sector
Real GDP Growth GDP by expenditure, 2019
8%
Estonia Euro area
Belgium France Change in Final consumption expenditure
inventories of non-profit institutions serving
Latvia Finland 2%
6% Net exports households
4% 1%
General
government final
4% consumption
expenditure Private consumption
20% expenditure
47%
2%
0% Gross fixed capital
formation and valuables
26%
-2%
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Eurostat Source: Statistics Estonia
11Estonia’s GDP – sectoral split
Service sectors playing an ever larger role whereas construction has slowed down
Contribution of different sectors to value added growth
7
Agri
Agriculture Energy, mining
Energy, mining Manufacturing
Manufacturing Construction
Construcion
6
Contribution to VA growth,
Trade Transportation
Transportation ICT Finance
5
percentage points
Prof.services
Prof. services Other
Other
4
3
2
1
0
-1
-2
2012 2013 2014 2015 2016 2017 2018 2019
Source: Statistics Estonia
Annual growth in selected sectors of the economy Composition of gross value added by sector, 2019
30%
Manufacturing Human health and Others Manufacturing
Wholesale and retail trade; repair of motor vehicles and motorcycles social work activities 18% 14%
25%
Information and communication 4% Wholesale and retail trade;
Real estate activities
20% Financial and repair of motor vehicles and
Professional, scientific and technical activities
insurance activities motorcycles
15% 4% 11%
Education Real estate
10% 5% activities
Professional, scientific and 10%
5% technical activities
Information and
6%
communication
0% Public administration and
7%
defence; compulsory social Transportation
-5% security Construction and storage
2012 2013 2014 2015 2016 2017 2018 2019 7% 7% 7%
Source: Statistics Estonia Source: Statistics Estonia
12Strong and dynamic labour market
Both low unemployment and high employment ratio drive the dynamic labour market
Very low unemployment rate Fast real productivity growth despite rising wages
8,5
Real productivity growth, % change on
9% 4% 16%
Unemployment rate, % of active 15-74-
8% 7,5 4%
6,7 6,8 3% 12%
7% 6,3
year population, 2019
3%
previous year
6% 5,4
5,0 2% 8%
5% 4,4 4,5 2%
4% 1% 4%
3% 1%
0% 0%
2%
-1%
1% -1% -4%
0% 2016 2017 2018 2019
Estonia wage growth (rhs) Estonia Euro area
Belgium Germany France
Finland
Source: Eurostat Source: Eurostat
Substantial reduction in long-term unemployment Second highest employment rate in the EU
60% 70%
Long-term unemployment, share of total
68,8 68,7 68,3
Employment rate of 15-74 year-old
55% 68%
66,0
50% 65,3 65,0
66%
45% 63,7
unemployment
people, 2019
64% 62,4
40%
35%
62% 60,6
59,7
30% 60%
25% 58% 57,0 56,5
20% 56%
15%
2013 2014 2015 2016 2017 2018 2019 54%
Estonia Euro area Belgium
France Latvia Finland
Source: Eurostat Source: Eurostat
13Migration has increased the workforce size
Estonia has experienced positive migration in recent years
Estonia has a positive net migration inflow
8 000
• At the end of 2019, Estonia’s economy had an unemployment rate of 7 000
only 4.4% and the employment rate had increased to 68.7%, second 6 000
Net migration, persons
highest in the EU(1) 5 000
4 000
• The labour market conditions are tight, which has also provided
3 000
grounds for wage increases but productivity growth has been robust 2 000
• Net migration has turned significantly positive both due to Estonians 1 000
returning to their homeland and foreign workforce being imported 0
-1 000
• Estonia’s working age population is also proportionately larger than in
-2 000
many comparable countries -3 000
2015 2016 2017 2018 2019
Estonian citizens EU citizens Russian citizens
Ukrainian citizens Others Net migration
Source: (1) Eurostat
Source: Statistics Estonia
Increase in short-term foreign labour Population by age groups 2019 - large working age population
35 000 0% 5% 10% 15% 20% 25% 30% 35% 40%
Working permits granted to persons from
Short-term working permits (up to 1 year)
30 000
0-14 years
25 000
Temporary residence permit for working (up to 5
15-24 years
years)
outside EU
20 000
25-49 years
15 000
10 000 50-64 years
5 000 Estonia Finland
65-79 years
0 Euro area
80 years +
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Ministry of the Interior Source: Eurostat
14Inflation at healthy levels
The fast-growing services sector and tight labour market are the main drivers of inflation
Annual HICP* inflation rate in Estonia HICP inflation rates in different countries
6 3,0
% 2010-2018 avg 2019
HICP HICP excl. energy, food, alcohol and tobacco %
5 2,5
2,0
4
1,5
3
1,0
2
0,5
1
0,0
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Eurostat Source: Eurostat
Annual HICP by components in Estonia
10
% Food Goods Services
8
6
4
2
0
-2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Eurostat * The Harmonised Indices of Consumer Prices (HICP) measure the changes over time in the prices of consumer goods and services acquired by households.
15Balance of payments
Current account surplus shows that Estonia is a balanced and export-oriented economy
Development of current account balance as % of GDP Current account balance peer group comparison, 2019
10% 6%
3,9
8% 4% 2,2 2,6
6% 2%
4% 0%
% of GDP in 2019
% of GDP
-2% -0,8 -0,8 -0,7 -0,5 -0,4
2% -1,2
0% -4% -2,9
-2% -6%
-4% -8%
-6% -10%
-9,4
-8% -12%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Current account balance Goods Services
Primary income Secondary income
Source: Bank of Estonia Source: Eurostat
Exports development of high value-added sectors Net foreign direct investment inflow as % of GDP, 2019
25%
ICT services Business services 4% 3,4
Net FDI inflow as % of GDP in 2019
3%
20% 1,5
% of services exports
2% 1,3
1% 0,5
15% 0%
-1% -0,4
10% -2% -1,4 -1,6 -1,9
-3%
5% -4%
-5% -4,1
-6% -5,5
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Statistics Estonia Source: Eurostat
16Active export sector and stable growth
Estonia is an export-driven economy - proven track record in recovering from shocks
Export of goods and services, volume change YoY
• The volume of exports has grown at 4-5% annual rate over the past 4
years. The growth can be attributed to the swift expansion in the exports, 30 24,2 24,2
% change YoY
especially in high value-added services exports 19,9
20 17,3
12,6
• Estonia also has a very good track record of recovering from economic 10,2 9,5
10 6,3 5,1 3,8 4,3 4,9
shocks such as the financial crisis or Russian sanctions 2,8
4,8
2,8 2,6
0,9
• Estonia has a high trade surplus and exports form a significant part of 0
the GDP -1,5
-10 -7
• The trade surplus arises from the high net export rate of services
whereas Estonia is a net importer of goods -20
-20,3
• Downward trending share of exports in GDP is balanced by increasing -30
domestic demand due to increased domestic wealth
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Statistics Estonia
Development of exports as % of GDP Export of goods and services
100 France 31,4
Exports of goods Norway
90 36,8
and services, %
Finland 40
80 of GDP 86 86 84
81 Germany 46,9
70 77 78 76 74
74 73 Sweden 47,4
60 66 63 63 66 Euro area 48
62 61
50 58 57 61 61
Austria 55,7
40 Denmark 55,9
30 Latvia 59,9
20 Estonia 72,6
10 Belgium 81,7
0 Netherlands 82,5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
20% 30% 40% 50% 60% 70% 80% 90%
Exports of goods and services as % of GDP, 2019
Source: Statistics Estonia Source: Eurostat
17Estonia’s exports – sectoral split
Diversified exports with strong growth in high value-adding sectors
Development of services exports by sector
• The share of services in total exports has grown steadily and was 35% 35%
Share of services exports as % of total exports
almost 35% in 2019. Information and communication services are
% of total services exports
30% 34%
driving the development
25% 33%
20% 32%
• Goods continue to form the bulk of the exports and there the stable 15% 31%
Nordic countries are the biggest market, with the other important
10% 30%
markets being principally EU countries
5% 29%
0% 28%
• Estonia has an advanced electronics manufacturing sector coupled 2013 2014 2015 2016 2017 2018 2019
with robust ICT exports, and also general manufacturing sector plays Transportation, storage Information & communication
Manufacturing Professional, scientific & technical
an important role in goods exports Construction Administrative & support services
Wholesale & retail trade Financial & insurance activities
Services exports (rhs) Source: Statistics Estonia
Composition of export of goods by country Composition of export of goods by sector
4
2,5 16.3%
Exports of goods of Estonian origin, 2019
3
2,0 Exports of goods of Estonian origin, 2019
EUR billions
Re-exports, 2019
EUR billions
10.5% 2
1,5 Re-exports, 2019
9.1%
1,0 6.8% 6.3%
6.1% 6.0%
1
4.1%
3.8% 3.3%
0,5 2.6% 2.1% 2.0%
1.9% 1.5%
1.2% 1.1%
0.4%
0,0
Source: Statistics Estonia Source: Statistics Estonia
18Imports play a large role for a small economy
Imports increasing in nominal terms but slightly decreasing as a % of GDP
Import of goods and services, share in GDP Import of goods and services, volume change YoY
100 35
35 27,2
27,2
90 25
25 21,3
21,3
80
84 81 15 9,7
80 15 9,7
YoY
78
changeYoY
70
% of GDP
73 71 73 74 72 71 66 5,7
4,24,2 5,7
69 71 70 68 69 2,4
2,4 33 3,73,7
60 55
%change
65 65 65 66
50 56
-5-5 -1,9
40 -1,9
%
-6,2
-6,2
30 -15
-15
20
-25
-25
10
0 -35
-35 -30,6
-30,6
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Statistics Estonia Source: Statistics Estonia
Composition of import of goods by country, 2019 Composition of import of goods by sector, 2019
2,5 4
12.6%
2,0 3
EUR billions
10.2%
EUR billions
10.2%
9.4% 9.1%
1,5 8.1% 2
6.3%
1,0 1
4.2%
3.4%
2.5% 2.3% 2.2% 2.1%
0,5 2.0%
1.5% 1.4% 1.1%
0.7%
0,0
Source: Statistics Estonia Source: Statistics Estonia
19Household finances
Households have healthy finances backed by rising dwelling prices
Household debt relative to disposable income Dwelling price indices
120% 16 000 240
% EUR million Index, 2010=100
110% 14 000 220
100% 200
12 000
90% 180
80% 10 000
160
70% 8 000
140
60% 6 000 120
50%
Household debt as % of income, lhs 4 000 100
40% Disposable income, gross, rhs
30% 2 000 80
Financial liabilities, rhs Total Apartments Houses
20% 0 60
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Statistics Estonia, Bank of Estonia Source: Statistics Estonia
Net pension assets COVID-19 affects economic sentiment
6 000 110
EUR million Index
105
5 000 100
95
4 000 90
85
3 000
80
75
2 000 Economic sentiment indicator
70
1 000 65
60
apr.15
juuli.15
apr.16
juuli.16
apr.17
juuli.17
apr.18
juuli.18
apr.19
juuli.19
apr.20
jaan.15
okt.15
jaan.16
okt.16
jaan.17
okt.17
jaan.18
okt.18
jaan.19
okt.19
jaan.20
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Pensionikeskus Source: Estonian Institute of Economic Research
20Climate policy and energy sector
Estonia is largely self-sufficient in energy production and moving towards renewables
Renewables play a large role in Estonia
• Estonia has already met its 2020 renewable energy target of 25% in gross final energy
35%
consumption and is on good track to meet the 2030 target of 42%
Share of renewable energy in gross final
• Estonia is among the least dependent EU countries on energy imports thanks to the oil shale 30%
reserves in Estonia and increasing renewable energy capacity
25%
energy consumption
• Due to environment and climate policies, the share of the oil shale energy is diminishing
(production of oil shale electricity fell by half in 2019), and renewable energy production is 20%
increasing
• Renewable energy made up 51% of total Estonian power output in the first three months of 15%
2020 (1)
10%
• Of the renewable energy 49% was wind power, 47% biomass, biogas and waste, and the
rest hydroelectric and solar energy (1) 5%
• In 2019, the renewables totalled 30% of electricity production (1) Estonia EU - 28 countries
(1) 0%
• Renewable energy accounted for 24% of the total electricity consumption in Q1 2020
• In 2019, the share of renewable energy was 21% (1)
• By 2030, the goal is to achieve a share of at least 30% Source: Eurostat
Total emissions have come down drastically
• Estonia aims to reduce greenhouse gas emissions by almost 80% by 2050 compared to 1990 100
CO2 emissions, Index, 1990 = 100
emission levels
• This entails reduction of 70% by 2030 and 72% by 2040 90
• The objectives are in line with those of the Paris Agreement 80
• Estonia will also meet the EU’s 2020 renewable energy target, and supports the EU’s long-
70
term climate neutrality target by 2050
• Estonia’s strategy to reach emission reduction targets is based on: 60
Increasing the share of renewables in the energy sector 50
Reducing burning of oil shale and refining it into higher value-added products such as
shale oil and using the by-product gas for electricity 40
Estonia European Union - 28 countries
Modernisation of the vehicle fleet and public transport 30
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Supporting the reconstruction of the building stock
Source: (1) Elering Source: International Energy Agency
21Banking Sector 22
Stable and profitable banking sector
Well-capitalised banking system with solid interest rate margins
• Estonia’s banking sector predominantly comprises subsidiaries of larger, Ownership structure of Estonian banking sector
well-capitalised Nordic banks By owner’s residency as of 5 May 2020
• As of 5 May 2020, nearly 70% of the banking sector was Nordic-controlled. Others;
Estonia; 6,7%
The US share arises from Blackstone’s ownership share of Luminor Bank
9,0%
• The parent banks have a proven propensity to support their subsidiaries if
needed Norway;
6,5%
• Estonian banks have on average the highest CET1 ratio of any euro area
Finland;
country according to ECB’s Q4 2019 statistics 6,5% Sweden;
• Interest rate margins have been resilient and remain at healthy levels, 56,7%
with the difference between interest on household loans and deposits at
USA; 14,6%
3.62% at the end of Q1 2020 (1)
Source: Estonian Financial Supervision Authority
Source: (1) Bank of Estonia
Strong capital adequacy position Interest rate on loans and deposits
45% 7%
40% 6%
35% 5%
30% 4%
25% 3%
20% 2%
15% 1%
10% 0%
5%
0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 Interest rate on loans to households Source: Bank of Estonia
Total ratio Estonia (1) CET1 ratio Estonia (1) Interest rate on loans to non-financial corporations
CET1 ratio eurozone SIFIs (2) Minimum total capital requirement (1)
Interest rate on EUR deposits of households
Source: (1) Estonian Financial Supervision Authority; (2) ECB Interest rate on EUR deposits of non-financial corporations
23Sustained growth in loans and low NPLs
Non-performing loans have decreased substantially and lending growth is conservative
Development of non-performing loans Loan growth in the banking system
6% 70%
Total growth of loan stock, %
60%
5%
Overdue loans, over 90
50% Growth of loan stock to resident non-fin.
days, share in loan
4% corporations, %
portfolio, % 40%
Growth of loan stock to resident households,
3% 30%
%
20%
2%
10%
1%
0%
0% -10%
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.…
dets.00
dets.01
dets.02
dets.03
dets.04
dets.05
dets.06
dets.07
dets.08
dets.09
dets.10
dets.11
dets.12
dets.13
dets.14
dets.15
dets.16
dets.17
dets.18
dets.19
Source: Bank of Estonia Source: Bank of Estonia
Loan-to-deposit ratio Growth of deposits
250% 25 50%
Loan to deposit ratio, % EUR billions Stock of non-residents' deposits, EURbn
200% Loan to deposit ratio of Stock of residents' deposits, EURbn
20 40%
residents, % Growth of deposits, % (rhs)
Loan to deposit ratio of non-
150% residents, % 15 30%
100% 10 20%
50% 5 10%
0% 0 0%
dets.00
dets.01
dets.02
dets.03
dets.04
dets.05
dets.06
dets.07
dets.08
dets.09
dets.10
dets.11
dets.12
dets.13
dets.14
dets.15
dets.16
dets.17
dets.18
dets.19
dets.00
dets.01
dets.02
dets.03
dets.04
dets.05
dets.06
dets.07
dets.08
dets.09
dets.10
dets.11
dets.12
dets.13
dets.14
dets.15
dets.16
dets.17
dets.18
dets.19
Source: Bank of Estonia Source: Bank of Estonia
24Money laundering risks have declined
Estonia has taken multiple measures to tackle money laundering
Outgoing payments per year, EUR billion
• In recent years, Estonia has taken multiple steps to reduce the risks of
misuse of the banking system 70
63,2
Outgoing payments, EUR billion
• Combating money laundering has been a strategic priority for Estonian 60
50,9
FSA since 2016 and an area of focus since 2014
50 41,4
• Legislative changes to Money Laundering and Terrorist Financing Act are 39,1 37,6
40 35,0
currently before Parliament 31,2
• Forced and guided closures of high-risk business lines of multiple credit 30
20,1
institutions and total closure of Danske Bank’s operations in Estonia 20
11,2
8,8
• The share of non-resident deposits in the banking system has declined 5,1 3,8
10
sharply and the non-resident composition has changed with non-residents
outside EU being only 1% of the total in 2019 0
2014 2015 2016 2017 2018 2019
• Outgoing payments, especially in USD, have diminished greatly TOTAL USD
Source: Estonian Financial Supervision Authority
Dynamics of non-resident deposits
20%
19,1% Off-shore deposits Deposits from platform holders
18% 16,2% Other non-resident deposis Non-resident total
16% 10,6%
All non-residents outside EU
Share of total deposits
14% 12,7%
9,6%
11,8%
12%
11,4%
10% 8,4% 10,0%
7,9%
9,2% 10,0%
8%
6,1%
6% 8,5% 6,6% 6,2%
4% 6,6% 2,8% 3,6%
1,2%
2% 4,3% 0,5% 1,5% 1,0%
1,3% 0,5% 0,3%
0%
Source: Estonian Financial Supervision Authority
25Fiscal Discipline 26
Estonia – Model for fiscal prudence
Prudent fiscal policy in long-term and low tax relative to GDP
Gross Debt-to-GDP ratio Tax-to-GDP ratio
98,1 98,6 50% 45,1 46,5
General government gross Debt-to-GDP
100% 44,8
42,2 42,3
Tax-to-GDP ratio in 2018, %
90% 84,1 45% 40,1 40,5
38,7
80% 40%
70,4 32,8
70% 35%
58,8 59,4 59,8
ratio in 2019, %
60% 30%
48,6 22,6
50% 25%
40% 35,1 20%
30% 15%
20% 10%
8,4
10% 5%
0% 0%
Source: Eurostat Source: European Commission
Budget surplus/deficit Total general government spending and tax revenue
1,0% 0,7 14 000
0,2 0,1 Total general government spending (1)
Government budget deficit / surplus,
Total government revenue (1)
12 000
-1,0% -0,3 -0,3 Forecast: Government spending (2)
-0,5 -0,6
Estonia, EUR million
-0,8 Forecast: Government revenue (2)
10 000
-3,0%
% of GDP
8 000
-5,0%
6 000
-7,0% 4 000
-9,0% 2 000
2012 2013 2014 2015 2016 2017 2018 2019
0
Estonia Euro area Belgium 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e
Source: (1) Eurostat; (2) Estonian Ministry of Finance, forecasts as of 15 April 2020
Source: Eurostat (The forecasts on revenue and expenditure are subject to change)
27Low tax rates boost competitiveness
Low tax rates provide competitiveness and buffer for fiscal balancing
Corporate income tax Personal income tax maximum rate
35% 60% 55,9
32,0 52,3 53,1
Maximum personal income tax rate
Top statutory corporate income tax
49,5 50,0 51,1 51,5
29,9 47,5
30% 50%
40,0
25,0 25,0 25,0 40%
rate in 2020, %
25% 32,0
22,0
in 2020, %
21,4
20,0 20,0 30%
20% 20,0
20%
15% 12,5 10%
10% 0%
Source: European Commission Source: European Commission
Tax on capital Tax wedge on labour
60% 55,1 60%
Tax wedge on labour in 2019, 100% of
Overall implicit tax rate on capital in
52,2
47,9 49,4
50% 50% 46,7
41,9 42,6 42,7
39,8
40% 37,2 37,3
40%
earnings, %
32,9 33,2
29,3 30,6
2018, %
26,6 28,3
30% 30%
20% 14,7 14,8 15,1 20%
10,7
10% 10%
0% 0%
Source: European Commission Source: European Commission
The main principles of Estonian tax policy are (1) simple tax system and (2) broad tax base and low rates. The structure of the tax system is growth-
enhancing with relatively small deadweight losses, and the tax collection system is efficient. Taxes are divided into state taxes and local taxes to ensure
sustainable and socially and regionally balanced growth. CIT, PIT and VAT are all state taxes.
28Government spending – future growth
Government spending aims to fuel future growth, with ageing not a serious problem
Distribution of the original state budget for 2020 Distribution of European Structural Funds 2014-2020
Total state expenditure was approved at EUR 11.7bn Total sectoral EU contribution + own contribution: EUR 3.72bn
Recreation, culture and religion
3,8%
Public order and safety Housing and community
Other sectors Education
4,8% amenities
22% 15%
0,5%
Defense
5,6% Social protection Transport
34,1% 13%
General public Labour market
services 6%
8,1% Economic Environment
affairs Entrepreneurship
13,6% 6% and innovation
Regional 12%
Health Education development Energy Research and
14,6% 14,9% 7% 7% development
12%
Source: Ministry of Finance Source: Statistics Estonia
Estonia’s age-related spending is at low levels Estimated change in age-related spending 2016-2070
32 Age-related spending in 2016 31,0 7 Change in age-related spending 2016-2070 6,3
29,8 30,2
30 28,5 6
Percentage points of GDP
Percentage points of GDP
27,6 5,0
28 5
4,1
26 4 3,6
23,6 3,0
24 3 2,6
22,1 2,1
22 2
20 19,3 1
-0,8
18 0
16 -1
Source: The 2018 Ageing Report, European Commission Source: The 2018 Ageing Report, European Commission
29Government invests in the future
Government spending in education and R&D aims to fuel sustainable future growth
• Education and R&D have been at the core of the government policies
Consistently high education expenditure
during the past years 17%
Education expenditure, % of total
general government expenditure
• Spending on education relative to total government expenditure is the
15%
highest in the European Union at 15.8% in 2018(1)
• Although government R&D expenditure relative to GDP is not a high 13%
absolute figure, it compares well to peers
• The current government (elected in 2019) has a priority policy objective 11%
to increase state financing of R&D to at least 1% of GDP – more than
9%
six-fold increase from 2018
• Furthermore, the recent COVID-19 response package includes 7%
support for domestic research and development of tracking and 2010 2011 2012 2013 2014 2015 2016 2017 2018
Estonia Ireland Belgium Finland
tackling the coronavirus
Austria Euro area Germany France
Source: Eurostat
Source: (1) Eurostat
Government sector R&D expenditure comparison Government investments are at a robust level in Estonia
0,30% 6%
Gross fixed capital formation, % of GDP in
Government sector R&D expediture as
4,9
5%
0,25%
5% 4,2
0,20%
4%
% of GDP
3,6
0,15% 3,4
2019
4%
3,1 3,0
0,10% 3% 2,8
2,6 2,5
0,05% 3% 2,3
0,00% 2%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Estonia Netherlands Denmark Ireland
Source: Eurostat Source: Eurostat
30Pension system and social security
Pension system and social security funds deliver financial security to Estonians
The Estonian pension system consists of three pillars: There are two social security funds in Estonia
I pillar: State pension The Health Insurance Fund
• Retirement age is ~64 years. By 2026, the retirement age will be • Receives the majority of its revenue from the Government, namely a
increased to 65 defined share of social tax collected
• The state pension operates on a PAYG basis • Organizes national health insurance to provide insured people (over
• The state pension is paid by the state mainly from social tax receipts. 90% of the population) with access to necessary healthcare services,
II pillar: Mandatory funded pension medicines, medical equipment and cash benefits
• Employees pay a monthly 2% of their gross salary to their selected The Unemployment Insurance Fund
pension fund from an approved list, with the state adding 4% • Administers the social insurance provisions related to unemployment,
• II pillar pension funds are privately managed and organizes labor market services that help unemployed persons
• The parliament aims to make II pillar voluntary find new employment
III pillar: Supplementary funded pension • Funded by insurance premiums (1.6% + 0.8% of gross salary)
• Voluntary contributions to a pension fund, with some tax benefits
• III pillar pension funds are privately managed
Employers pay 33% social tax based on the salaries of their employees, part of which is directly transferred to the health
insurance fund, with the remainder nominally allocated to the payment of the state pension
Pension system structure Estonians stay in employment until an older age than peers
Expected pension, % of last salary 16% 14,2 Employment rate, persons 65 years or older, 2019
The pillars I and II combined 14%
12,0
provide about 40% of pre- 65-70% 12% 10,9
retirement income. The 10,1 9,8
10% 9,1 8,5
additional saving of pillar III III Pillar 7,8
should rise the total to 8% 6,5
around 65-70%. 5,5
6% 4,6
40% 3,3
4% 2,9
II
2%
Pillar
0%
I
Pillar
Source: Pensionikeskus Source: Eurostat
31Educated and
Competitive Estonia
32The leading European country in education
Deep penetration and high quality of education – building blocks for future growth
Estonia is the top European country in PISA tests Few people with only lower secondary education or lower
30% 28,0
Mean score in PISA 2018 26,1
25,5 25,9
Average of Reading, 25% 23,4 23,7
Reading Mathematics Science
Mathematics, Science 21,0
20,8
19,5
Estonia 523 523 530 526 20% 18,7
520 507 522 516 16,9
Finland 15,8
Poland 512 516 511 513
15%
Ireland 518 500 496 505
Slovenia 495 509 507 504
United Kingdom 504 502 505 503 10%
Sweden 506 502 499 503
Netherlands 485 519 503 502
Denmark 501 509 493 501
Germany 498 500 503 500 Lower secondary education or lower, % share of total 15-64 year population in 2019
Belgium 493 508 499 500
Source: Eurostat
Czech Republic 490 499 497 495
United States 505 478 502 495
France 493 495 493 494 High attainment of tertiary education
Portugal 492 492 492 492
45%
Austria 484 499 490 491 40,7
OECD average 487 489 489 488 40% 38,5
36,0 36,5
Latvia 479 496 487 487 34,8
33,1 33,7
Spain - 481 483 482 35%
31,1 31,4
Lithuania 476 481 482 480 28,7
30%
Hungary 476 481 481 479 25,9
Italy 476 487 468 477 25% 21,6
Luxembourg 470 483 477 477
Croatia 479 464 472 472 20% 17,4
Slovak Republic 458 486 464 469
15%
Malta 448 472 457 459
Greece 457 451 452 453
Cyprus 424 451 439 438
Romania 428 430 426 428
Bulgaria 420 436 424 427 Tertiary Education, % share of total 15-64-year population in 2019
Source: OECD, Programme for International Student Assessment, PISA 2018 results Source: Eurostat
33Global Competitiveness Report
Estonia is characterised by dynamism, strong institutions and lead on ICT
Highlights for Estonia Estonia’s performance by category
• Despite being a small economy, Estonia ranks well in World Economic
Forum’s Global Competitiveness Report 2019 with the overall rank of
31 Institutions
100
• Estonia’s strengths are firmly based on strong institutions, adoption of Innovation capability 90
Infrastructure
ICT, macroeconomic stability, healthy and skilled population, flexible 80
labour market and dynamic business environment 70
60
• Market size is an obvious drawback but at the same time Estonia is an Business dynamism 50 ICT adoption
export-oriented economy, and World Economic Forum sees room for 40
improvement in infrastructure compared to the peer group 30
20
10
Macroeconomic
Market size 0
stability
Estonia ranked top 10 worldwide in sub-categories:
Category Estonia's rank
Banks' regulatory capital ratio 2
Competition in services 4 Financial system Health
Credit gap 1
Debt dynamics 1
Digital skills among active population 8
Efficiency of seaport services 8 Labour market Skills
Electricity access 2
Flexibility of wage determination 1 Product market
Inflation 1
Mean years of schooling 4
Mobile-broadband subscriptions 5 Estonia CEE peer group average* Nordic peer group average**
Non-performing loans 7
Organised crime 5
Quality of land administration 6 * CEE peer group: Latvia, Lithuania, Slovenia, Slovakia, Poland, Czech Republic, Croatia, Hungary
Time to start a business 8 ** Nordic peer group: Finland, Sweden, Denmark, Norway, Iceland
Trade tariffs 7
Trademark applications 9
Source: World Economic Forum, The Global Competitiveness Report 2019
34Stability and competitiveness
Estonia is a free and sustainably competitive society with effective governance
• Estonia has a strong, stable and well-functioning
Strong governance framework in Worldwide Governance Indicators
governance system 100
94
• The country compares well to its Western 95 92 92
90 89 90 90
88 87 88 88
European peers in Worldwide Governance 90 85 84 86 86
84
Indicators 85 80
Percentile rank
79
80 75
• Stable governance aids growth and encourages
75
investments into the country
70 66
• Business-friendliness is a key competitive 64
65 60 61
advantage for Estonia, and it ranks highly in World 60
Bank’s Ease of Business index, and is also judged 55 52
sustainably competitive 50
• Estonia is a free society with high rankings in both Voice and Political Stability and Government Regulatory Quality Rule of Law Control of Corruption
Accountability Absence of Violence Effectiveness
press freedom and economic freedom
Estonia 2018 Belgium 2018 France 2018 Latvia 2018
Source: 2018 Worldwide Governance Indicators, World Bank
Press freedom Sustainable competitiveness Economic freedom Ease of doing business
0 20 40 0 10 20 30 0 20 40 60 0 20 40
Finland 2 Finland 2 Ireland 6 Sweden 10
Belgium 9 Estonia 7 Estonia 10 Estonia 18
Estonia 11 Austria 11 Netherlands 14 Finland 20
Germany 13 Ireland 14 Finland 20 Germany 22
Ireland 15 Germany 15 Sweden 22 Ireland 24
Austria 16 France 20 Germany 27 Austria 27
France 32 Slovakia 22 Austria 29 France 32
Slovakia 35 Belgium 23 Belgium 48 Netherlands 42
Italy 43 Netherlands 29 France 64 Belgium 46
2019 World Press Freedom Index rank Global Sustainable Competitiveness Index 2019 rank 2020 Index of Economic Freedom rank 2019 Ease of Doing Business index rank
Source: 2019 World Press Freedom Index, Source: The Global Sustainable Competitiveness Index 2019, Source: 2020 Index of Economic Freedom, Source: Doing Business 2020,
Reporters Without Borders SolAbility The Heritage Foundation World Bank
35COVID-19 Response 36
COVID-19 response and effects
Rapid response to the COVID-19 pandemic
Self isolation of people with COVID-19 and their families
All public gatherings banned. Museums, theatres, cinemas, spas, swimming pools etc. were closed
Schools and universities closed. Individual local governments to decide on opening of the kindergartens
Declaration of
Border controls introduced on March 17th prohibiting entry of all but Estonian citizens, permanent residents and their relatives,
Emergency,
and workers involved in freight transport. People arriving in Estonia must self-isolate for 14 days
12 March 2020
Internal travel restrictions to Estonian islands
No visitors allowed in hospitals, social and elderly care houses and prisons
Shops, bank branches and cafes need to follow social distancing rules
Special governmental committee formed to manage, supervise and make decisions regarding the COVID-19 pandemic.
Governance and
supervision The committee is led by the Prime Minister and includes ministers from relevant areas – finance, economy, social affairs,
internal affairs etc.
The state of emergency was not renewed and came to an end on 17 May 2020
However, the Government decided on 16 May 2020 that health care emergency measures should stay in place, including the requirement for
State of emergency people with COVID-19 and their families to self-isolate for 14 days, and that schools could start to re-open
lapsed, 17 May 2020 In addition, restrictions on other activities are to be gradually relaxed: for sports events, public meetings and entertainment from 1 June, and for
restaurants, cafes, theatres and cinemas from 1 July 2020. Restrictions on border controls with Finland, Latvia and Lithuania were also relaxed
from 16 May 2020
The Ministry of Finance at the end of March forecasted a 8% fall in GDP in 2020, taking into account the impact of the lockdown
and the rapid slowdown in economic activity. At the same time GDP growth forecast for 2021 was set at 8%.
Unemployment in Estonia will increase, and registered unemployment rate reached 7.5% at the end of April 2020, up from
Expected Economic 5.7% at the end of February 2020 (1)
Impact Since the forecast in March, the Supplementary Budget has been approved by the parliament with measures totalling EUR
2.8bn, or 10.8% of the GDP (est. EUR 25.9bn in 2020)
The Supplementary Budget is to balance the economic impact of the lockdown and economic slowdown and likely to result in a
smaller fall in GDP than forecasted in March 2020. New forecasts will be prepared over the summer
Source: (1) Estonian Unemployment Insurance Fund
37Fiscal and financial budgeting
COVID-19 and response measures will lead to budget deficit – funding secured
COVID-19 response measures Fiscal impact of the pandemic
The government’s 2020 Supplementary Budget in April 2020 to tackle the The Ministry of Finance forecasts a EUR 1.3bn (5.1% of GDP) decrease
spread of the virus and to develop measures to support the economy in tax collections in 2020 compared to the budget approved in
going forward: December 2019
• To cover the direct expenditure for the health care system and other areas • - EUR 461 million collection of social insurance taxes
stemming from the COVID-19 • - EUR 328 million of VAT collection
• To preserve salaries for citizens • - EUR 310 million of income tax collection
• To support SMEs and large businesses
• - EUR 142 million of excise duties collection
• To provide economic stimulus to facilitate exiting the current economic
slowdown
The 2020 Supplementary Budget measures total EUR 2.8bn (10.8% of
GDP)
Impact on public finances Securing the funding
As a result of the 2020 Supplementary Budget, the general government On 13 March 2020 the Estonian State Treasury increased its T-Bill
budget deficit is projected to be EUR 2.62 bn (10.1% of GDP) in 2020 programme amount from EUR 400mn to EUR 1bn
The projected general government budget deficit will result to Central On 27 March 2020 the Republic of Estonia signed a EUR 750mn 15-year
Government funding requirement of EUR 3.78 bn (14.6% of GDP) in 2020 loan agreement with the Nordic Investment Bank (NIB) and has secured a
and EUR 1.2 bn (4.3% of GDP) in 2021 EUR 200mn financing facility loan from the Council of Europe
Development Bank
The general government debt is expected to increase to 22% of GDP by
end-2020 from 8.4% in 2019 On 13 April 2020, the Parliament decided to deploy the full balance of the
The Government is temporarily halting its contributions to second pillar Stabilisation Reserve Fund (EUR 430 million) to cover costs stemming
pension funds from 1 July 2020 to 31 August 2021 from the COVID-19 pandemic and to reduce related economic risks during
• Will increase revenue by EUR 142 million 2020 and 2021
Estonia is contemplating raising additional longer-term funding through
capital markets in the form of EUR bonds
38April Supplementary Budget
EUR 2.8bn (10.8% of GDP) supplementary budget
Share of
Measure EUR millions % GDP total
package
On-lending to businesses
- EUR 550mn support for SMEs and large businesses (Direct lending via Kredex SA) 750 2.9%
- EUR 200mn support for Agricultural Business via direct lending by Rural Development Foundation and for expected
losses on guarantees given to third-parties guaranteed by the Foundation
Additional expenditure and investments
- EUR 230mn for Special reserves to cover expected and unforeseen expenditure from COVID-19 pandemic
- EUR 80mn for direct expenditure for purchases of PPE, testing, ventilators etc
- EUR 150mn for unforeseen expenditure reserve
- EUR 222mn grants for support of i) the transport sector ii) tourism, iii) construction sector and iv) development of fast
internet connection to remote areas
- EUR 130mn for local governments 628 2.4%
- EUR 30mn for direct costs from COVID-19 and compensation for the loss in revenues
- EUR 100mn for support investments and road maintenance
- EUR 27mn for supporting artists and athletes for cancellations of sports and culture events and compensation for the loss
in revenues of churches
- EUR 19mn for schools, universities and R&D for covering the costs of exiting the state of emergency and to finance
analysis of the spread of COVID-19, to develop testing etc.
Additional expenditure by social security funds
- EUR 224mn for increased expenditure by the Health Insurance Fund 474 1.8%
- EUR 250mn for increased expenditure by the unemployment benefit funds
Changes to tax and interest rates
- EUR 269mn for excise duties on electricity, gas and diesel have been reduced from 1 May 2020 to 30 April 2022 357 1.4%
- EUR 88mn for lowering tax interest rates and other tax rates
Provisions for losses from guarantees
300 1.2%
- EUR 300mn for losses from guarantees given to third parties by Kredex
Increase in share capital of state-owned companies 300 1.2%
TOTAL ~EUR 2,800mn 10.8%
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