News Brief No. 00/115

News Brief: IMF Completes Second Estonia Review

December 13, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the second, and last, review of Estonia's performance under a 18-month, SDR 29.34 million (about US$37.8 million) stand-by arrangement. This opens the way for release of a further SDR 4.2 million (about US$5.5 million) from the arrangement, which the authorities, however, are not expected to request as they have treated stand-by arrangements as precautionary for a number of years already.

In commenting on the Executive Board's decision to complete the review of Estonia's economic program, Shigemitsu Sugisaki, Deputy Managing Director, stated:

"The Estonian authorities are to be commended for the successful implementation of their macroeconomic and structural policies. Despite the sizable fiscal correction this year, the economy is recovering faster than expected, led by strong export growth and the increase in private sector demand. For the first nine months of 2000, the budget showed a deficit of only ½ percent of GDP, entailing a reduction by over 4 percentage points of GDP compared to 1999. Confidence in the currency board is high, the current account deficit remains moderate, the banking system has strengthened, and the unemployment rate has started to decline albeit from high levels. The privatization program of the few remaining public enterprises continues as planned. Preparation for EU accession is well advanced.

"The submission to parliament of a balanced budget for 2001 is a welcome step, as is the commitment to protect the balance of payments by aiming for a fiscal surplus next year, should economic activity turn out to be stronger than expected. The authorities also need to remain vigilant against a recurrence of excessive credit growth. The strengthening of financial supervision, particularly through the speedy implementation of the new securities market law and the unified financial supervision agency is, rightly, accorded high priority. The careful crafting of a voluntary fully funded second pillar of the pension system is appropriate. Further reforms of the first pillar, including a further increase in retirement age, will also be required in order to ensure the financial viability of the pension system," Mr. Sugisaki said.