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© 2010 International Monetary Fund
January 2010
IMF Country Report No. 10/4
Republic of Estonia: Staff Report for the 2009 Article IV Consultation
The following documents have been released and are included in this package:
The staff report, prepared by a staff team of the IMF, following discussions that ended on October 26, 2009, with the officials of the Republic of Estonia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 10, 2009. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
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A Public Information Notice (PIN).
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INTERNATIONAL MONETARY FUND
REPUBLIC OF ESTONIA
Staff Report for the 2009 Article IV Consultation
Prepared by the Staff Representatives for the 2009 Consultation with the Republic of Estonia
Approved by Anne-Marie Gulde-Wolf and Tessa van der Willigen
December 10, 2009
Consultation discussions were held in Tallinn October 14–26, 2009. The staff team—Messrs. Rosenberg (head) and Lutz, Ms. Herzberg (EUR), Mr. Rodriguez (SPR), Messrs. Kisinbay and Seelig (MCM), Ms. Eble and Mr. Grote (FAD), and Mr. Kangur (EUR Warsaw Office)—met with President Ilves, Prime Minister Ansip, Minister of Finance Ligi, Eesti Pank Governor Lipstok, and other senior officials. It also met with members of Parliament and private sector representatives, social partners, and academics. Given Estonia’s close financial sector ties with Sweden, discussions were held in Stockholm with Riksbank Governor Ingves, Financial Services Authority Director General Andersson, senior officials of the Finance Ministry and banking officials. Mr. Sutt (OED) participated in numerous meetings. The mission organized a seminar on topical issues, and presented its conclusions in a press conference.
Fund relations and exchange rate regime: The previous Article IV consultation was concluded by the Executive Board on March 2, 2009 and an FSAP update was completed in February 2009. Since June 20, 1992, Estonia operates a currency board arrangement, with a fixed rate of exchange of EEK 15.6466 per euro. Estonia has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the Fund’s Articles of Agreement and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, with some EU-wide exceptions.
Political background: Since the Social Democrats quit the ruling coalition in May 2009, a center-right coalition under Prime Minister Ansip has been operating as a minority government. Opposition parties gained in local elections held in October 2009. Parliamentary elections are scheduled for early 2011.
Contents
I. Summary and Appraisal
II. The Crisis and Policy Responses
III. Outlook and Risks
IV. Policy Challenges
A. Consolidating Public Finances
B. Boosting Competitiveness
C. Addressing Private Sector Indebtedness
D. Improving Financial Sector Resilience
Boxes
1. Implications of Fund Policy Advice
2. How Meaningful is the Ration of Estonia’s External Short-Term Debt to Reserves for Vulnerability Analysis?
3. What Explains Differences in Fiscal Performance Among the Baltic Countries?
4. Revenue-Raising Options in Support of Fiscal Consolidation
5. Exchange Rate Assessment
Figures
1. The Boom, 2000–08
2. Effects of the Bust
3. Stock Legacies
4. The Impact of the Recent Global Financial Turmoil, 2007–09
5. External Competitiveness
6. External Debt Sustainability: Bound Tests, 2003–14
Tables
1. Selected Macroeconomic and Social Indicators, 2007–10
2. Summary of General Government Operations, 2001–10
3. Summary Balance of Payments, 2002–14
4. Macroeconomic Framework, 2001–14
5. Indicators of External Vulnerability, 2005–09
6. Monetary Survey, 2003–10
7. External Debt Sustainability Framework, 2003–14
8. Financial Soundness Indicators of the Banking Sector
Annex
Debt of Non-Financial Corporates and Households in Estonia
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INTERNATIONAL MONETARY FUND
REPUBLIC OF ESTONIA
Staff Report for the 2009 Article IV Consultation—Informational Annex
Prepared by the European Department
December 10, 2009
Contents
Appendices
I. Fund Relations
II. Statistical Issues
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Public Information Notice (PIN) No. 10/03
FOR IMMEDIATE RELEASE
January 8, 2010
International Monetary Fund
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IMF Executive Board Concludes the 2009 Article IV Consultation with the Republic of Estonia
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Statement by the IMF Staff Representative January 6, 2010
