Press Release: IMF Approves Stand-By Credit for Estonia

April 12, 1995

The International Monetary Fund (IMF) today approved a 15-month stand-by credit for Estonia for an amount equivalent to SDR 13.95 million (about $22 million) in support of the Government's 1995 economic program.


Estonia has been highly successful during the past two years in achieving its main targets of macroeconomic stabilization, and the authorities' goals in this area were largely achieved last year. Economic recovery gathered momentum in 1994, when real economic growth of 6 percent was led by a rapid rise in export volumes and strong investment demand. Reflecting the economic recovery and buoyant foreign direct investment, the current account balance shifted into a Deficit of 6 1/2 percent of GDP in 1994 after a surplus of 3/4 percent in 1993. The annual rate of inflation was almost halved to 48 percent in 1994. On the structural front, the streamlining of the privatization law in 1993 laid the groundwork for a substantial acceleration in the sale of large state enterprises last year.

The 1995 Program

The program's overall objective for 1995 is to consolidate the progress made toward sustainable growth through a continuation of the macroeconomic policies pursued over the previous two years. For 1995, the program aims at real economic growth of 6 percent, led by exports and investment; a reduction in the inflation rate to 26 percent; and an improvement in the current account of the balance of payments. To these ends, policies will continue to be centered on the currency board arrangement, under which the Bank of Estonia cannot lend to the Government, and can lend a very limited amount to commercial banks in emergency situations only. Fiscal policy will generate a small financial surplus for the general government, while wage policy will be based on free wage determination by individual enterprises.

Structural Reform

The enterprise privatization program is to continue during 1995 and, by the end of the year, the aim is to have transferred half of the housing stock to private ownership. Efforts will also be made to accelerate and complete the land restitution process as quickly as possible. There will be accelerated reform of the financial sector, with the Bank of Estonia and the Government reducing their ownership and operation of Estonian commercial banks during the program period.

The Challenge Ahead

Estonia's stabilization efforts continue to be successful and, with few exceptions, the authorities have carried out the appropriate policies. The recovery in output is expected to continue, together with the consolidation of the progress towards financial stability, provided implementation of these policies continues.

Estonia joined the IMF on May 26, 1992, and its quota1 is SDR 46.5 million (about $73 million). Its outstanding use of IMF financing currently totals SDR 63 million (about $99 million).

Estonia: Selected Economic Indicators

  1992 1993 1994 1995*

(percent change)
Real GDP growth –21.6 6.6 6.0 6.0
Consumer prices 1,069.0 89.0 48.0 26.0
(percent of GDP)
Financial general government
     balance (deficit –)
0.8 1.4 0.9 1.0
External current account balance
     (deficit –)
7.6 0.7 –6.4 –5.2
Gross international reserves
     (in months of imports)
4.5 4.8 3.3 3.1

Sources: Estonian authorities and IMF staff estimates.

1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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