## IMF Executive Board Concludes 2025 Article IV Consultation with Estonia _IMF News, July 14, 2025_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2025 Article IV Consultation with Estonia](https://www.imf.org/en/news/articles/2025/07/09/pr-25245-estonia-imf-executive-board-concludes-2025-article-iv-consultation) ## Other formats - [Markdown version](/en/news/articles/2025/07/09/pr-25245-estonia-imf-executive-board-concludes-2025-article-iv-consultation/index.md) - [Structured JSON version](/en/news/articles/2025/07/09/pr-25245-estonia-imf-executive-board-concludes-2025-article-iv-consultation/index.json) - [Bundle manifest](/en/news/articles/2025/07/09/pr-25245-estonia-imf-executive-board-concludes-2025-article-iv-consultation/bundle-manifest.json) ## Bibliographic details - Published: July 14, 2025 --- ### Overview and context - The Executive Board concluded the Article IV Consultation with the Republic of Estonia on a lapse of time basis on July 9, 2025. - The authorities consented to the publication of the Staff Report prepared for this consultation. - After a long downturn, the Estonian economy is experiencing a gradual recovery, but higher input costs, a legacy of earlier shocks, global policy uncertainty, and trade barriers are preventing a more vigorous rebound. - In response to fast-rising defense spending needs, a further fiscal adjustment is needed to stabilize the debt ratio and preserve critical buffers against future shocks. ### Economic outlook and projections - GDP is projected to expand by 0.5 percent in 2025 and accelerate to 1.5 percent in 2026. - Inflation projections: - HICP headline period average: 3.7 (2024), 5.1 (2025), 4.4 (2026) - HICP headline end-period: 3.9 (2024), 5.3 (2025) - HICP core: 5.2 (2024), 6.8 (2025), 5.9 (2026) - Alternate core row: 5.7 (2024), 8.0 (2025), 4.1 (2026) - Growth drivers and constraints: - Exports of goods expanded in 2024, led by stronger demand from main trading partners. - Investment rebounded in 2024. - A short-lived surge in consumption occurred as car sales jumped in anticipation of a new motor vehicle tax and then dropped sharply once the tax came into effect in January. - Higher taxes and services prices are keeping inflation elevated; staff estimates the new motor vehicle tax added 1.2 percentage points to annual inflation. - Global policy uncertainty and trade barriers are expected to hinder a stronger recovery. - Selected indicators (annual percent change, unless otherwise indicated; values shown by year): - Real GDP growth: -0.3 (2024), 0.5 (2025), 1.5 (2026) - Private consumption: -0.2 (2024), 1.8 (2025) - Gross fixed capital formation: -6.9 (2024), 2.6 (2025), 2.2 (2026) - Exports of goods and services: -1.2 (2024), 4.6 (2025), 1.2 (2026) - Imports of goods and services: 0.4 (2024), 4.3 (2025), 1.0 (2026) - GDP (nominal; billions of Euros): 39.5 (2024), 41.5 (2025), 43.9 (2026) - Average monthly wage (year-on-year growth in percent): 8.1 (2024), 8.4 (2025) - Unemployment rate (ILO definition, percent, pa): 7.5 (2024), 7.9 (2025) ### Fiscal assessment and recommendations - Executive Board view: Fiscal policy is appropriately calibrated in 2025, but further growth-friendly consolidation is needed starting from 2026. - Recommended adjustment: - Staff recommends an adjustment of 0.5 percentage point of GDP per year relative to baseline during 2026-30. - Objective: secure convergence towards a sustained structural deficit of less than 1 percent of GDP by 2032 and stabilize the debt ratio at around 32 percent. - In adverse growth scenarios: - Automatic stabilizers should be allowed to provide economic support, with the debt ratio stabilizing a bit later and at a slightly higher level. - Composition of adjustment: - Rely predominantly on revenue-based mobilization but also identify specific spending measures. - Staff sees merits in a comprehensive review of Estonia’s tax system considering alternative options and potential implications for revenue mobilization and long-run growth. - On the spending side: commitment to contain growth of the public sector wage bill is welcome; staff recommends limiting the discretion of line ministries and other agencies in setting up wages. - Additional spending containment options: introducing means-testing of existing social benefits and reviewing current indexation mechanisms for pensions. - General government finances (Percent of GDP): - Revenue: 42.5 (2024), 43.1 (2025), 42.9 (2026) - Expenditure: 44.0 (2024), 45.7 (2025), 46.6 (2026) - Fiscal balance: -1.5 (2024), -2.6 (2025), -3.7 (2026) - Structural balance: -0.9 (2024), -1.9 (2025), -3.2 (2026) - General government gross debt: 23.6 (2024), 25.4 (2025), 28.1 (2026) ### Financial stability and macroprudential policy - Risks and vulnerabilities: - Financial stability risks warrant vigilance, especially developments in commercial and residential real estate given high bank exposures to this loan segment. - Bank capital remains adequate, but new large dividend payouts should be discouraged as they divert potential sources of equity and reduce banks’ ability to absorb future shocks. - Cyber risk should be monitored closely and reflected in supervisory assessments. - Risk-based supervision of virtual asset service providers should be further enhanced. - Macroprudential stance: - Current macroprudential stance remains appropriate. - Decision to maintain the CCyB at 1.5 percent is welcome given rapid credit growth and real estate risks; caution is advised in considering a return to the 1 percent positive neutral rate. - Staff recommends continued review of bank exposures and ensuring credit risk is properly reflected in risk weights across the banking system, especially for IRB banks. - Balance of payment and external indicators: - Current account: -1.1 (2024), -2.3 (2025), -2.1 (2026) - Trade balance: 0.6 (2024), 0.2 (2025), -0.1 (2026) - Net FDI: 3.3 (2024), 3.2 (2025) - NIIP: -9.5 (2024), -9.6 (2025) - REER (percent change): 1.4 (2024) ### Structural reforms and productivity enhancements - Areas needing decisive action: - Address skill shortages. - Deepen capital markets. - Reduce regulatory burden. - Foster innovation. - Positive ongoing initiatives: - Efforts to ease quotas for immigrants, cut red tape, and incentivize R&D spending. - Commitment to facilitate development of renewables and ensure energy security. - Additional recommendations: - Improve targeting of active labor market policies. - Further progress towards a EU single market combined with domestic policies facilitating investments by second-pillar pension funds would promote capital market deepening and enable young, innovative Estonian firms to access finance and grow. ### Executive Board assessment — summary - Estonia is recovering from a prolonged recession but faces challenges; a mild recovery is expected to continue, supported by a more expansionary policy mix. - The external position is broadly in line with fundamentals and desirable policies. - Inflation is projected to remain elevated before resuming a downward trend; near-term risks to growth remain skewed to the downside and could be exacerbated by higher-than-euro area inflation. - It is recommended that the next Article IV consultation be completed on the standard 12-month cycle. *IMF Executive Board Concludes 2025 Article IV Consultation with Estonia — Press Release No. 25/245, July 14, 2025. Sources: Estonian authorities; and IMF staff estimates and projections.* --- ## References - [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/) - [www.imf.org/[country]](http://www.imf.org/%5bcountry) - [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) _Source: https://www.imf.org/en/news/articles/2025/07/09/pr-25245-estonia-imf-executive-board-concludes-2025-article-iv-consultation_