{
  "title": "IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Estonia",
  "publication": "IMF News, January 13, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/01/13/pr1710-republic-of-estonia-imf-executive-board-concludes-2016-article-iv-consultation",
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  "summary": "On January 9, 2017, the Executive Board concluded the Article IV consultation with the Republic of Estonia.",
  "publishDate": "2017-01-13",
  "sections": [
    {
      "heading": "Overview and recent performance",
      "content": "- On January 9, 2017, the Executive Board concluded the Article IV consultation with the Republic of Estonia.\n- Notwithstanding sound economic and institutional fundamentals, including “one of the strongest public finances in Europe” and a business friendly environment, Estonia’s recent growth has been subdued.\n- Growth in 2016 is estimated at only 1.3 percent, driven mainly by private consumption on the back of strong wage growth in a tightening labor market.\n- Labor productivity and external competitiveness have weakened.\n- Exports are gradually recovering, but investment continues to contract.\n- Import growth is low, keeping the current account in small surplus in 2016.\n- Inflation rose moderately to around 1 percent in 2016."
    },
    {
      "heading": "Outlook and projections",
      "content": "- The economy is expected to gradually strengthen as the external environment improves and existing pro-growth policies come to fruition.\n- Growth projections:\n  - 2017: 2.3 percent\n  - 2018: 2.8 percent\n- Inflation projection:\n  - 2017: 2.5 percent (reflecting rising energy prices, sizable contributions from excise tax hikes, and a moderate pickup in underlying price dynamics)\n- Current account: expected to swing into mild deficit as investment gathers steam and consumption remains strong.\n- Primary downside risks: failure of external demand to pick up and continued rapid wage growth denting competitiveness."
    },
    {
      "heading": "Executive Board assessment and key messages",
      "content": "- Directors commended Estonia for strong institutions and determined reforms that delivered solid growth and substantial gains in living standards over two decades.\n- Directors concurred on an outlook for a pick‑up in growth but cautioned that downside risks dominate.\n- Rapid wage growth together with stagnant productivity has started to reduce competitiveness.\n- Fiscal space from strong public finances provides room to support supply-side strengthening while preserving strong fiscal institutions.\n- Financial sector is in a strong position and adequately supports the economy, but Directors cautioned about spillover risks from potential vulnerabilities in Nordic parent banks."
    },
    {
      "heading": "Policy recommendations (three‑pronged approach to enhance productivity and preserve competitiveness)",
      "content": "- (i) Improve effectiveness, scale, and take‑up of existing pro‑growth programs, including by establishing a dedicated productivity unit.\n- (ii) Re-anchor wage growth in fundamentals:\n  - Ensure increases in public wages and minimum wages do not front‑run private‑sector wage growth.\n  - Promote greater female labor force participation.\n  - Further streamline government employment to boost labor supply.\n- (iii) Enhance competitiveness through tax reforms.\n- Support planned further increase in public investment, ensuring high rates of return for both new and existing projects.\n- Continue steps to tackle income inequality and consider income tax reform to help achieve distributional objectives.\n- Mitigate financial spillover risks from Nordic parent banks by strengthening cooperation with home‑country and European authorities in a revamped Nordic‑Baltic Stability Group."
    },
    {
      "heading": "Selected macroeconomic and social indicators, 2013–18 (highlights)",
      "content": "- GDP (billions of Euro): 2013: 18.9; 2014: 19.8; 2015: 20.3; 2016: 20.8; 2017: 21.8; 2018: 22.9\n- Real GDP growth (year-on-year in percent): 2013: 1.4; 2014: 2.8; 2015: 1.3; 2016: 2.3 (table formatting in source indicates 2016 and projection years)\n- Private consumption (year-on-year in percent): 2013: 3.7; 2014: 3.2; 2015: 4.6; 2016: 3.8; 2017: 2.6\n- Gross fixed capital formation (year-on-year in percent): 2013: -2.9; 2014: -8.1; 2015: -3.4; 2016: -0.9; 2017: 5.3\n- Exports of goods and services (year-on-year in percent): 2013: 3.0; 2014: -0.6; 2015: 4.1; 2016: 5.2\n- Imports of goods and services (year-on-year in percent): 2013: 3.3; 2014: 2.2; 2015: -1.4; 2016: 5.7; 2017: 5.6\n- Average HICP (year-on-year change in percent): 2013: 0.5; 2014: 0.1; 2015: 0.9; 2016: 2.5; 2017: 2.4\n- GDP deflator (year-on-year change in percent): 2013: 3.9; 2014: 1.7; 2015: 1.0; 2016: 1.6; 2017: 2.1\n- Average monthly wage (year-on-year growth in percent): 2013: 7.8; 2014: 5.9; 2015: 6.5; 2016: 5.5; 2017: 5.0\n- Unemployment rate (ILO definition, percent, pa): 2013: 8.6; 2014: 7.4; 2015: 6.1; 2016: 7.6; 2017: 8.3\n- Average nominal ULC (year-on-year growth in percent): 2013: 6.8; 2014: 3.6; 2015: 6.7; 2016: 4.8\n- General government (ESA10 basis; percent of GDP) — Revenue: 2013: 38.4; 2014: 39.1; 2015: 40.5; 2016: 41.4; 2017: 42.2\n- General government (ESA10 basis; percent of GDP) — Expenditure: 2013: 38.5; 2014: 40.3; 2015: 40.7; 2016: 41.9; 2017: 42.5\n- Financial surplus (+) / deficit (-): 2013: -0.2; 2014: 0.7; 2015: 0.8; 2016: 0.3\n- Structural balance: 2013: 1.1; 2014: 1.5; 2015: 0.0\n- Total general government debt: 2013: 10.2; 2014: 10.7; 2015: 10.0; 2016: 9.7; 2017: 9.3; 2018: 9.1\n- External sector (percent of GDP) — Trade balance: 2013: -4.8; 2014: -5.1; 2015: -4.3; 2016: -4.6; 2017: -5.4; 2018: -6.3\n- Service balance: 2013: 7.0; 2014: 8.5; 2015: 8.4; 2016: 8.2; 2017: 8.0\n- Income balance: 2013: -2.4; 2014: -2.5; 2015: -2.1; 2016: -2.6\n- Current account: 2013: -0.1; 2014: 1.2; 2015: 0.2; 2016: -0.7\n- Gross external debt/GDP (percent) 1/: 2013: 92.4; 2014: 96.7; 2015: 94.8; 2016: 89.5; 2017: 83.1; 2018: 76.8\n- Net external debt/GDP (percent) 2/: 2013: -10.2; 2014: -10.3\n- General government external debt/GDP (percent) — Including government assets held abroad 3/: 2013: -1.5; 2014: -1.3; 2015: -1.7; 2016: -1.6; 2017: -1.2\n- Money and credit (year-on-year growth in percent) — Credit to the economy 4/: 2013: 6.2\n- Output gap (in percent of potential output): 2013: -0.8; 2014: -0.3\n- Growth rate of potential output (in percent): 2013: 1.8"
    },
    {
      "heading": "Social indicators (reference years)",
      "content": "- Population (2014, pa): 1.32 million\n- Per capita GDP (2014): $20,126\n- Life expectancy at birth (2013): 81.1 (female) and 71.2 (male)\n- Poverty rate (share of the population below the established risk-of-poverty line, 2013): 21.7 percent\n- Main exports: machinery and appliances\n\nSource: IMF Executive Board summary of the 2016 Article IV consultation with the Republic of Estonia (Press Release No. 17/10).\n\n---\n\n\n References\n\n- The Executive Board\n- Republic of Estonia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/news/articles/2017/01/13/1\n- 2\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/01/13/pr1710-republic-of-estonia-imf-executive-board-concludes-2016-article-iv-consultation"
    }
  ],
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    "Published: January 13, 2017",
    "On January 9, 2017, the Executive Board concluded the Article IV consultation with the Republic of Estonia.",
    "Notwithstanding sound economic and institutional fundamentals, including “one of the strongest public finances in Europe” and a business friendly environment, Estonia’s recent growth has been subdued.",
    "Growth in 2016 is estimated at only 1.3 percent, driven mainly by private consumption on the back of strong wage growth in a tightening labor market.",
    "Labor productivity and external competitiveness have weakened.",
    "Exports are gradually recovering, but investment continues to contract.",
    "Import growth is low, keeping the current account in small surplus in 2016.",
    "Inflation rose moderately to around 1 percent in 2016.",
    "The economy is expected to gradually strengthen as the external environment improves and existing pro-growth policies come to fruition.",
    "Growth projections:",
    "Inflation projection:",
    "Current account: expected to swing into mild deficit as investment gathers steam and consumption remains strong.",
    "Primary downside risks: failure of external demand to pick up and continued rapid wage growth denting competitiveness.",
    "Directors commended Estonia for strong institutions and determined reforms that delivered solid growth and substantial gains in living standards over two decades.",
    "Directors concurred on an outlook for a pick‑up in growth but cautioned that downside risks dominate.",
    "Rapid wage growth together with stagnant productivity has started to reduce competitiveness.",
    "Fiscal space from strong public finances provides room to support supply-side strengthening while preserving strong fiscal institutions.",
    "Financial sector is in a strong position and adequately supports the economy, but Directors cautioned about spillover risks from potential vulnerabilities in Nordic parent banks.",
    "(i) Improve effectiveness, scale, and take‑up of existing pro‑growth programs, including by establishing a dedicated productivity unit.",
    "(ii) Re-anchor wage growth in fundamentals:",
    "(iii) Enhance competitiveness through tax reforms.",
    "Support planned further increase in public investment, ensuring high rates of return for both new and existing projects.",
    "Continue steps to tackle income inequality and consider income tax reform to help achieve distributional objectives.",
    "Mitigate financial spillover risks from Nordic parent banks by strengthening cooperation with home‑country and European authorities in a revamped Nordic‑Baltic Stability Group.",
    "GDP (billions of Euro): 2013: 18.9; 2014: 19.8; 2015: 20.3; 2016: 20.8; 2017: 21.8; 2018: 22.9",
    "Real GDP growth (year-on-year in percent): 2013: 1.4; 2014: 2.8; 2015: 1.3; 2016: 2.3 (table formatting in source indicates 2016 and projection years)",
    "Private consumption (year-on-year in percent): 2013: 3.7; 2014: 3.2; 2015: 4.6; 2016: 3.8; 2017: 2.6",
    "Gross fixed capital formation (year-on-year in percent): 2013: -2.9; 2014: -8.1; 2015: -3.4; 2016: -0.9; 2017: 5.3",
    "Exports of goods and services (year-on-year in percent): 2013: 3.0; 2014: -0.6; 2015: 4.1; 2016: 5.2",
    "Imports of goods and services (year-on-year in percent): 2013: 3.3; 2014: 2.2; 2015: -1.4; 2016: 5.7; 2017: 5.6",
    "Average HICP (year-on-year change in percent): 2013: 0.5; 2014: 0.1; 2015: 0.9; 2016: 2.5; 2017: 2.4",
    "GDP deflator (year-on-year change in percent): 2013: 3.9; 2014: 1.7; 2015: 1.0; 2016: 1.6; 2017: 2.1",
    "Average monthly wage (year-on-year growth in percent): 2013: 7.8; 2014: 5.9; 2015: 6.5; 2016: 5.5; 2017: 5.0",
    "Unemployment rate (ILO definition, percent, pa): 2013: 8.6; 2014: 7.4; 2015: 6.1; 2016: 7.6; 2017: 8.3",
    "Average nominal ULC (year-on-year growth in percent): 2013: 6.8; 2014: 3.6; 2015: 6.7; 2016: 4.8",
    "General government (ESA10 basis; percent of GDP) — Revenue: 2013: 38.4; 2014: 39.1; 2015: 40.5; 2016: 41.4; 2017: 42.2",
    "General government (ESA10 basis; percent of GDP) — Expenditure: 2013: 38.5; 2014: 40.3; 2015: 40.7; 2016: 41.9; 2017: 42.5",
    "Financial surplus (+) / deficit (-): 2013: -0.2; 2014: 0.7; 2015: 0.8; 2016: 0.3",
    "Structural balance: 2013: 1.1; 2014: 1.5; 2015: 0.0",
    "Total general government debt: 2013: 10.2; 2014: 10.7; 2015: 10.0; 2016: 9.7; 2017: 9.3; 2018: 9.1",
    "External sector (percent of GDP) — Trade balance: 2013: -4.8; 2014: -5.1; 2015: -4.3; 2016: -4.6; 2017: -5.4; 2018: -6.3",
    "Service balance: 2013: 7.0; 2014: 8.5; 2015: 8.4; 2016: 8.2; 2017: 8.0",
    "Income balance: 2013: -2.4; 2014: -2.5; 2015: -2.1; 2016: -2.6",
    "Current account: 2013: -0.1; 2014: 1.2; 2015: 0.2; 2016: -0.7",
    "Gross external debt/GDP (percent) 1/: 2013: 92.4; 2014: 96.7; 2015: 94.8; 2016: 89.5; 2017: 83.1; 2018: 76.8",
    "Net external debt/GDP (percent) 2/: 2013: -10.2; 2014: -10.3",
    "General government external debt/GDP (percent) — Including government assets held abroad 3/: 2013: -1.5; 2014: -1.3; 2015: -1.7; 2016: -1.6; 2017: -1.2",
    "Money and credit (year-on-year growth in percent) — Credit to the economy 4/: 2013: 6.2",
    "Output gap (in percent of potential output): 2013: -0.8; 2014: -0.3",
    "Growth rate of potential output (in percent): 2013: 1.8",
    "Population (2014, pa): 1.32 million",
    "Per capita GDP (2014): $20,126",
    "Life expectancy at birth (2013): 81.1 (female) and 71.2 (male)",
    "Poverty rate (share of the population below the established risk-of-poverty line, 2013): 21.7 percent",
    "Main exports: machinery and appliances",
    "[The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Republic of Estonia and the IMF](http://www.imf.org/external/country/EST/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
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    "[2](https://www.imf.org/en/news/articles/2017/01/13/2)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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