Front Matter Page
IMF Country Report No. 13/114
REPUBLIC OF ESTONIA
2013 ARTICLE IV CONSULTATION
May 2013
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2013 Article IV consultation with Estonia, the following documents have been released and are included in this package:
Staff Report for the 2013 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on March 18, 2013, with the officials of Estonia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 17, 2013. 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.
Informational Annex prepared by the European Department, IMF.
Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its May 03, 2013 discussion of the staff report that concluded the Article IV consultation.
Statement by the Executive Director for Estonia.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
REPUBLIC OF ESTONIA
STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION
Key Issues
Context: Despite global financial uncertainty, Estonia’s strong macroeconomic policies and the economy’s Nordic ties have underpinned the economic recovery, which has also been supported by euro adoption. With exports booming, output growth has exceeded the euro area average since 2010. Price pressures have eased in line with global fuel and food prices, but Estonia’s inflation remains among the highest in the euro area. In the near term, growth is likely to slow and downside risks stem primarily from a prolonged period of slow euro area growth. Financial spillovers could also increase should the euro area crisis re-intensify.
Fiscal policy: 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 materialize however, automatic stabilizers should be allowed to operate while maintaining fiscal credibility. Establishing a full-fledged medium-term budgetary framework with multiyear expenditure ceilings can help prioritize expenditure and avoid pro-cyclical policies.
Financial sector policy: The banking sector has remained profitable, liquid, and well capitalized, 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.
Approved By Elliot Harris and Mahmood Pradhan
Discussions took place in Tallinn on March 6–18, 2013. The staff team comprised Messrs. Hoffmaister (head), Abdoun, and Srour (all EUR), and Ms. Hashimoto (STA), and it was assisted by Ms. Adu and Mr. Augustyniak (all EUR). The team met with President Ilves, Prime Minister Ansip, Finance Minister Ligi, Bank of Estonia Governor Hansson, and other senior officials, members of Parliament, and private sector and civil society representatives. Mr. Lindpere (OED) participated in the discussions. Estonia is an Article VIII country (Information Annex, Appendix I). Data provision is adequate for surveillance (Information Annex, Appendix II).
Contents
CONTEXT
OUTLOOK
POLICY CHALLENGES
A. Enshrining Fiscal Stability
B. Advancing Financial Sector Robustness
C. Broadening Estonia’s Sustainable Growth
STAFF APPRAISAL
Boxes
1. Inflation Trends
2. Competiveness Developments
3. Implications of Fund Advice
4. Estonia and the Fiscal Compact
5. Europe’s Banking Union
Figures
1. Balance Sheet Stress, 2007–12
2. Towards Full Economic Recovery, 2008-12
3. Inflation, 2011–12
4. Labor Market Competitiveness, 2005–12
5. Tacking the Crisis
6. External Developments, 2002–12
7. External Competitiveness, 2008–12
8. Fiscal Developments and Structure
9. Financial Sector Developments
10. External Debt Sustainability: Bound Tests
Tables
1. Selected Macroeconomic and Social Indicators, 2008–14
2. General Government Accounts, 2008–12
3. Summary of General Government Operations, 2008–13
4. Summary of Balance of Payments, 2008–13
5. Macroeconomic Framework, 2008–18
6. Indicators of External Vulnerability, 2008–12
7. External Debt Sustainability Framework, 2008–18
Annexes
I. Inflation
II. Economic Volatility
III: Risk Assessment Matrix
IV. Labor Market Developments: Skill Mismatches and Unemployment
Front Matter Page
REPUBLIC OF ESTONIA
STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
April 17, 2013
Prepared By
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Public Information Notice (PIN) No. 13/47
FOR IMMEDIATE RELEASE
May 13, 2013
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
