<p>The main achievement in the Estonian economy in 1995 was the acceleration of economic growth. A precondition for the development was the keeping to the economic and political principles established in Estonia. These principles are <strong>the strict budget policy, the objective of which is to keep the budget balanced, observation of the currency board principles, maintenance of the fixed exchange rate policy and liberal trade regime, development of financial sector reform </strong>and <strong>continuation of structural reforms and fiscal reform. </strong>The above principles were fixed also in the memorandum signed by the Republic of Estonia and the IMF at the beginning of 1995.</p>
<p><strong>In July Estonia signed the Association Agreement with the European Union. </strong>One component of the Association Agreement <strong>is the Free Trade Agreement </strong>that took effect at the beginning of 1995. <strong>In order to improve access to the European markets Estonia also signed a Free Trade Agreement with the European Free Trade Association. </strong>However, an attempt to sign the Free Trade Agreement on agriculture between the Baltic states in 1995 was unsuccessful. The Free Trade Agreement signed with Russia in 1992 was never put into effect. In fact, from July 1994 Russia doubled import tariffs on Estonian goods.</p>
<p>One of the aims of the Estonian economic policy legislation is to raise the credibility and responsibility of Estonian businesses. The Business Code that came into force in September established stricter requirements as to their share capital and reports for joint-stock companies than for other businesses. The Government started to elaborate laws regulating the raising of share capital for insurance companies.</p>
<p>In 1995, the <strong>Law on the Land Cadastre </strong>and the <strong>Law on the Organisation of Land Exploitation </strong>were adopted and brought into effect. The <strong>tax reform </strong>which began in 1994 continues. Tax organisation and the implementation instructions are now almost in accordance with the principles laid down by the European Union.</p>
<h4><strong>ECONOMIC GROWTH</strong></h4>
<p><strong>According to the preliminary data, the real growth of the economy in 1995 was 3%.</strong> Using a quarterly breakdown, the growth was more stable than compared with the two previous years (see Figure 1). Compared to the first half of 1994, the value added increased in the first half of 1995 by 4.3% in the processing industry, by 7% in construction, by 7.9% in wholesale and retail trade, by 26.3% in real estate, rent and business services. <strong>After a long period of decline, the industrial output increased in 1995.</strong></p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image1.gif" style="width: 576px; height: 253px;" /></p>
<p><strong>Figure 1. Base and chain indices of economic growth between the 1st quarter of 1993 and the 4th quarter of 1995</strong></p>
<p>Although, the growth was somewhat smaller than expected at the beginning of the year, several important changes for the future took place in 1995: <strong>exports increased, inflation slowed down, interest rates on loans were lowered and the real income of the population increased. At </strong>the same time, <strong>the level of unemployment remained low. </strong>Most of the largest manufacturing enterprises have been privatised, although privatisation of infrastructure is yet to come. <strong>The capital market expanded considerably and became more open to foreign investors.</strong></p>
<p>Real exports increased by approximately 10% and real imports by 19%. Domestic demand increased due to public consumption and investments. The growth of public consumption was, first of all, connected with the real growth of indirect tax receipts, of which a large part came from as increase of tax revenue arising from the rapid growth in real imports. Excise taxes receipts increased especially sharply (in the evaluation of the real growth of the economy, excise taxes received are adjusted by the change of tax rates). Here, the principle of the Government&#39;s economic policy <strong>to impose more taxes on consumption rather than on production</strong> was realised.</p>
<p>External competition stabilised the level of prices in the open sector and pushed out a number of local non-competitive producers from the market. Regardless of the fact that competition intensified, only 135 enterprises went bankrupt in 1995 which out of a total of more than 60 thousand businesses is not a huge figure.</p>
<p>Potential foreign investors were put off by the complicated and time-consuming procedures in purchasing land. A Free Trade Agreement signed with the European Union and the conclusion of the Association Agreement with the European Union have helped investors feel more secure.</p>
<p><strong>DOMESTIC SAVINGS </strong>in 1995 calculated as a difference between current income and expenditure in different sectors of economy in fixed prices almost equalled those of 1994 because the public sector savings decreased considerably due to a more stringent budget. Household (in 1994 11% of household income, in 1995 14%) and business savings increased<a href="#_ftn1" name="_ftnref1"><u>[1]</u> </a></p>
<p>Economic growth was financed mainly at the expense of <strong>household and public sector savings</strong>, because savings of businesses were mainly reinvested for the replacement of depreciated fixed assets.</p>
<p>In the structure of investment sources, the share of own funds invested into fixed assets decreased and the share of loans increased. In 1994, 66% of investments into fixed assets came from own funds, while in 1995 the same indicator was 58%.</p>
<p><strong>IN FOREIGN FINANCING long-term capital as direct investments and loans </strong>dominated in 1995. In comparison to 1994, the share of direct investments diminished and that of loans increased. Investments into the equity capital of businesses currently pursuing their activities increased. Investments into new businesses with foreign capital participation decreased to one third of the 1994 level. The fact that investors have concentrated on financing existing businesses is also testified by the considerable increase in short- and long-term loans made to businesses by direct investors in 1995.</p>
<p>Whereas in earlier times long-term loan resources received from abroad without the state mediation came mainly through Eesti Investeerimispank (Estonian Investment Bank), in 1995 other commercial banks also started to mediate money from abroad actively. For example, Eesti Hoiupank (Estonian Savings Bank), Hansapank and Eesti Ühispank (Union Bank of Estonia) obtained direct credit lines from the European Bank for Reconstruction and Development. These loans are not as long-term as those received by the state, but are adequate enough to finance long-term projects.</p>
<p>As to financing the economy, the selling of securities abroad became a further form of attracting foreign capital to Estonia, in addition to direct investments and loans.</p>
<h4><strong>EMPLOYMENT</strong></h4>
<p>Economic reforms that started at the beginning of 1990s brought about a decrease in employment and growth in the number of the unemployed. According to the EMOR Public Opinion Polling Service data, in the first half of 1995, 74 out of 100 people of working-age worked, while in the second half this figure was 76. According to the Labour Market Board, in the course of 1995, people registering as unemployed formed 1.5 to 2.2% of people of working-age. Earlier, only those receiving unemployment benefit were officially recognised as the unemployed in Estonia, whereas according to the Law on the Social Security of the Unemployed which took effect at the beginning of 1995, those to whom the 60-day waiting period prior to receiving the unemployment benefit is applied will also be considered officially unemployed. In 1995, there were 2.5 to 3 times more non-working job-seekers who applied to Employment Offices than those who were officially registered as unemployed (see Table 4. Estonian labour market in 1994 and 1995).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="5">
<p><strong>Table 4. Estonian labour market in 1994 and 1995 (monthly average indices)*</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1st half of<br />
1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>2nd half of<br />
1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>1st half of<br />
1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>2nd half of<br />
1995</strong></p>
</td>
</tr>
<tr>
<td>
<p>Number of registered unemployed (end of month)</p>
</td>
<td align="RIGHT">
<p>18,190</p>
</td>
<td align="RIGHT">
<p>13,007</p>
</td>
<td align="RIGHT">
<p>16,177</p>
</td>
<td align="RIGHT">
<p>14,199</p>
</td>
</tr>
<tr>
<td>
<p>Total number of unemployed job-seekers</p>
</td>
<td align="RIGHT">
<p>40,565</p>
</td>
<td align="RIGHT">
<p>34,656</p>
</td>
<td align="RIGHT">
<p>36,394</p>
</td>
<td align="RIGHT">
<p>33,403</p>
</td>
</tr>
<tr>
<td>
<p>Registered unemployed (% of the working-age population)</p>
</td>
<td align="RIGHT">
<p>2.2</p>
</td>
<td align="RIGHT">
<p>1.5</p>
</td>
<td align="RIGHT">
<p>1.9</p>
</td>
<td align="RIGHT">
<p>1.7</p>
</td>
</tr>
<tr>
<td>
<p>Unemployed job-seekers (% of the working-age population)</p>
</td>
<td align="RIGHT">
<p>4.8</p>
</td>
<td align="RIGHT">
<p>4.1</p>
</td>
<td align="RIGHT">
<p>4.3</p>
</td>
<td align="RIGHT">
<p>3.9</p>
</td>
</tr>
<tr>
<td>
<p>Unemployed job-seekers (% of the employed and job-seekers)</p>
</td>
<td align="RIGHT">
<p>5.9</p>
</td>
<td align="RIGHT">
<p>5.1</p>
</td>
<td align="RIGHT">
<p>5.3</p>
</td>
<td align="RIGHT">
<p>4.9</p>
</td>
</tr>
<tr>
<td>
<p>Retrainees</p>
</td>
<td align="RIGHT">
<p>1,908</p>
</td>
<td align="RIGHT">
<p>1,473</p>
</td>
<td align="RIGHT">
<p>957</p>
</td>
<td align="RIGHT">
<p>678</p>
</td>
</tr>
<tr>
<td>
<p>Job offers during a month</p>
</td>
<td align="RIGHT">
<p>1,903</p>
</td>
<td align="RIGHT">
<p>1,490</p>
</td>
<td align="RIGHT">
<p>1,285</p>
</td>
<td align="RIGHT">
<p>1,134</p>
</td>
</tr>
<tr>
<td>
<p>Job offers at the end of month</p>
</td>
<td align="RIGHT">
<p>1,090</p>
</td>
<td align="RIGHT">
<p>1,228</p>
</td>
<td align="RIGHT">
<p>1,026</p>
</td>
<td align="RIGHT">
<p>966</p>
</td>
</tr>
<tr>
<td>
<p>Job offers per 100 job-seekers</p>
</td>
<td align="RIGHT">
<p>7</p>
</td>
<td align="RIGHT">
<p>8</p>
</td>
<td align="RIGHT">
<p>6</p>
</td>
<td align="RIGHT">
<p>7</p>
</td>
</tr>
<tr>
<td>
<p>Those having received a job</p>
</td>
<td align="RIGHT">
<p>1,230</p>
</td>
<td align="RIGHT">
<p>1,334</p>
</td>
<td align="RIGHT">
<p>1,385</p>
</td>
<td align="RIGHT">
<p>1,110</p>
</td>
</tr>
<tr>
<td>
<p>Those having received a job per 100 job-seekers</p>
</td>
<td align="RIGHT">
<p>3</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>3</p>
</td>
</tr>
<tr>
<td colspan="5">
<p>* According to the Labour Market Board</p>
</td>
</tr>
</tbody>
</table>
<p>Employment statistics is also influenced by the fact that due to emigration and negative natural population growth, population in Estonia in 1995 decreased by 1.1 to 1.2% (as of 1 January 1995, there were 1,491,583 people in Estonia, in the course of one year their number had decreased by 17 to 18 thousand people).</p>
<p>From 1991 when Estonia first started to register the unemployed, the number of the officially recognised unemployed increased up to May 1993. Then followed a decline in the number of the unemployed (without considering seasonal changes, i.e., growth in winter and decline in summer) which slowed down only in summer 1995 (see Figure 2). The main reasons for the decline in the unemployment rate were the intensified development of the entrepreneurial activities in 1994 and the population&#39;s adaptation to the new situation in the labour market.</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image2.gif" style="width: 576px; height: 222px;" /></p>
<p><em>Source: Labour Market Board</em></p>
<p><strong>Figure 2. Number of registered unemployed between January 1993 and December 1995 (end of month)</strong></p>
<p>A new rise in unemployment began in autumn 1995, especially in Tallinn where big enterprises (Ookean, Dvigatel) under privatisation cut their labour forces as part of restructuring. In rural areas unemployment remained more or less stable, although there were considerable regional variations. The highest levels of unemployment were in Võru, Põlva and Ida-Viru county, the lowest in Pärnu county and in Tallinn.</p>
<p>The unemployed have several social guarantees, such as health insurance, housing benefit and subsistence support. With the help of state subsidies, the unemployed can ensure for themselves more or less the same income as a low-paid worker for half a year, and a further 90 days. However, in order to regain the status of an unemployed, one has to work for at least 180 days in the course of the next 12 months. Only after that period one can officially apply for unemployed status.</p>
<p>In Estonia, hidden unemployment also exists, because not all the unemployed go to the Employment Offices. According to a public poll, the rate of unemployment in Estonia in 1995 was 2 to 3 percentage points higher than the official statistics indicated (see Table 5. Unemployment in 1995 by quarters).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="5">
<p><strong>Table 5. Unemployment in 1995 by quarters (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>Q1</strong></p>
</td>
<td align="RIGHT">
<p><strong>Q2</strong></p>
</td>
<td align="RIGHT">
<p><strong>Q3</strong></p>
</td>
<td align="RIGHT">
<p><strong>Q4</strong></p>
</td>
</tr>
<tr>
<td colspan="5">
<p>Unemployed job-seekers of the working-age population</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;data by EMOR</p>
</td>
<td align="RIGHT">
<p>6.2</p>
</td>
<td align="RIGHT">
<p>6.3</p>
</td>
<td align="RIGHT">
<p>5.6</p>
</td>
<td align="RIGHT">
<p>5.8</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;data by Labour Market Board</p>
</td>
<td align="RIGHT">
<p>4.4</p>
</td>
<td align="RIGHT">
<p>4.2</p>
</td>
<td align="RIGHT">
<p>3.8</p>
</td>
<td align="RIGHT">
<p>4.0</p>
</td>
</tr>
<tr>
<td colspan="5">
<p>Unemployed job-seekers of the employed and job-seekers</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;data by EMOR</p>
</td>
<td align="RIGHT">
<p>7.9</p>
</td>
<td align="RIGHT">
<p>8.0</p>
</td>
<td align="RIGHT">
<p>7.0</p>
</td>
<td align="RIGHT">
<p>7.2</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;data by the Eesti Pank<br />
&nbsp;&nbsp;&nbsp;Macroeconomic Research Department</p>
</td>
<td align="RIGHT">
<p>5.4</p>
</td>
<td align="RIGHT">
<p>5.2</p>
</td>
<td align="RIGHT">
<p>4.8</p>
</td>
<td align="RIGHT">
<p>5.0</p>
</td>
</tr>
</tbody>
</table>
<h4><strong>INFLATION</strong></h4>
<p><strong>The inflation rate continued to fall in 1995 </strong>(see Table 6. Inflation against the previous year). <strong>The rise in producer prices slowed down by 30% and that of consumer prices by 39%.</strong> The openness of the Estonian economy has facilitated the transfer of the Western price level and structure to Estonia which in its turn has caused the rise in the kroon real rate.This transition has continued to operate in 1995. The process in question has an impact on the formation of export and import prices.</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="5">
<p><strong>Table 6. Inflation against the previous year (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1992/1991</strong></p>
</td>
<td align="RIGHT">
<p><strong>1993/1992</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994/1993</strong></p>
</td>
<td align="RIGHT">
<p><strong>1995/1994</strong></p>
</td>
</tr>
<tr>
<td>
<p><strong>Growth in producer prices</strong></p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p><strong>99.9</strong></p>
</td>
<td align="RIGHT">
<p><strong>36.8</strong></p>
</td>
<td align="RIGHT">
<p><strong>25.6</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;o/w processing industry</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>36.0</p>
</td>
<td align="RIGHT">
<p>19.0</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;energy and mining industry</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>37.3</p>
</td>
<td align="RIGHT">
<p>56.5</p>
</td>
</tr>
<tr>
<td>
<p><strong>Growth in consumer prices</strong></p>
</td>
<td align="RIGHT">
<p><strong>1,076.5</strong></p>
</td>
<td align="RIGHT">
<p><strong>89.7</strong></p>
</td>
<td align="RIGHT">
<p><strong>47.7</strong></p>
</td>
<td align="RIGHT">
<p><strong>29.0</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;o/w in the open sector</p>
</td>
<td align="RIGHT">
<p>991.6</p>
</td>
<td align="RIGHT">
<p>84.9</p>
</td>
<td align="RIGHT">
<p>33.9</p>
</td>
<td align="RIGHT">
<p>17.5</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;&nbsp;&nbsp;in the sheltered sector</p>
</td>
<td align="RIGHT">
<p>1,702.7</p>
</td>
<td align="RIGHT">
<p>149.3</p>
</td>
<td align="RIGHT">
<p>89.2</p>
</td>
<td align="RIGHT">
<p>52.1</p>
</td>
</tr>
<tr>
<td>
<p><strong>Growth in export prices</strong></p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p><strong>15.1</strong></p>
</td>
</tr>
<tr>
<td>
<p><strong>Growth in construction prices</strong></p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p>*</p>
</td>
<td align="RIGHT">
<p><strong>38.7</strong></p>
</td>
<td align="RIGHT">
<p><strong>34.7</strong></p>
</td>
</tr>
<tr>
<td colspan="5">
<p>* No statistically comparable data</p>
</td>
</tr>
</tbody>
</table>
<p>Compared to other inflation indicators, the rise in <strong>construction prices </strong>in 1995 was almost as great as in 1994. The rapid rise in construction prices was caused by high demand due to the active re-structuration of economy and the intensive implementation of real investments. A further reason for the rapid rise in construction prices was indexation. While in general the Estonian economy is free from indexation induced inflation, in construction indexation is applied to projects with a duration of more than three months. In these cases, a clause is included in the contract that allows the construction costs to be adjusted either in line with construction or consumer price indices. Indexation, to a great extent, makes the rise of construction prices autogenerative.</p>
<h4><strong>CONSUMER PRICE</strong></h4>
<p><u>The Open Sector as the Main Cause for the Price Rise in the Sheltered Sector of the Economy</u></p>
<p>International competition in the open sector of the economy is hindering the more rapid rise of salaries and wages than factors relating to labour productivity. Therefore, the rise in salaries and wages in the open sector is not the direct source of inflation. However, the rise of salaries and wages in the sheltered sector as a result of changes in the open sector can bring about inflation if the growth of labour productivity is slower than the rise of salaries and wages in the sheltered sector.</p>
<p>An important factor effecting price rises in the sheltered sector is the pressure of demand arising from the open sector. The more rapid the development of the open sector (especially production for export) compared to that of the sheltered sector, the higher is the demand for the open sector production inputs originating from the sheltered sector. Growth in demand causes prices to rise due to the temporary limited potential of resources and production. In the event of a market without restrictions, the inflation pressure will last for a limited time, i.e., the period it takes for demand and supply adjustment.</p>
<p>Though, the same process has a long-term component which is connected with insufficient competition on the market. The sheltered sector is not directly influenced by international competition and there are areas where there is no domestic competition either. Due to the lack of competition, monopolies in the sheltered sector find it easier to raise prices rather than increase labour productivity, given that businesses are interested in maintaining profitability and the respective mark-up prices. In addition to the administrative price rise, higher prices in the open sector led to 27% price rise in the sheltered sector.</p>
<p>The difference between increase in labour productivity and salaries and wages in the sheltered sector is reflected in the different price changes by sectors (see Table 7. Price rise in the open and sheltered sector and their share in the consumer prices growth in 1995).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="6">
<p><strong>Table 7. Price rise in the open and sheltered sector and their share in the consumer prices growth in 1995 (%)*</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>CPI</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change in<br />
the open<br />
sector prices</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change in<br />
the sheltered<br />
sector prices</strong></p>
</td>
<td align="RIGHT">
<p><strong>Share of<br />
the open<br />
sector</strong></p>
</td>
<td align="RIGHT">
<p><strong>Share of<br />
the sheltered<br />
sector</strong></p>
</td>
</tr>
<tr>
<td>
<p>01.95</p>
</td>
<td align="RIGHT">
<p>3.5</p>
</td>
<td align="RIGHT">
<p>2.9</p>
</td>
<td align="RIGHT">
<p>4.5</p>
</td>
<td align="RIGHT">
<p>62.0</p>
</td>
<td align="RIGHT">
<p>38.0</p>
</td>
</tr>
<tr>
<td>
<p>02.95</p>
</td>
<td align="RIGHT">
<p>2.9</p>
</td>
<td align="RIGHT">
<p>2.9</p>
</td>
<td align="RIGHT">
<p>2.7</p>
</td>
<td align="RIGHT">
<p>72.9</p>
</td>
<td align="RIGHT">
<p>27.1</p>
</td>
</tr>
<tr>
<td>
<p>03.95</p>
</td>
<td align="RIGHT">
<p>2.4</p>
</td>
<td align="RIGHT">
<p>2.0</p>
</td>
<td align="RIGHT">
<p>3.4</p>
</td>
<td align="RIGHT">
<p>59.6</p>
</td>
<td align="RIGHT">
<p>40.4</p>
</td>
</tr>
<tr>
<td>
<p>04.95</p>
</td>
<td align="RIGHT">
<p>1.0</p>
</td>
<td align="RIGHT">
<p>0.8</p>
</td>
<td align="RIGHT">
<p>1.6</p>
</td>
<td align="RIGHT">
<p>55.1</p>
</td>
<td align="RIGHT">
<p>44.9</p>
</td>
</tr>
<tr>
<td>
<p>05.95</p>
</td>
<td align="RIGHT">
<p>2.6</p>
</td>
<td align="RIGHT">
<p>-0.3</p>
</td>
<td align="RIGHT">
<p>7.1</p>
</td>
<td align="RIGHT">
<p>-13.7</p>
</td>
<td align="RIGHT">
<p>113.7</p>
</td>
</tr>
<tr>
<td>
<p>06.95</p>
</td>
<td align="RIGHT">
<p>2.3</p>
</td>
<td align="RIGHT">
<p>0.0</p>
</td>
<td align="RIGHT">
<p>5.5</p>
</td>
<td align="RIGHT">
<p>0.2</p>
</td>
<td align="RIGHT">
<p>99.8</p>
</td>
</tr>
<tr>
<td>
<p>07.95</p>
</td>
<td align="RIGHT">
<p>1.7</p>
</td>
<td align="RIGHT">
<p>0.1</p>
</td>
<td align="RIGHT">
<p>4.0</p>
</td>
<td align="RIGHT">
<p>5.0</p>
</td>
<td align="RIGHT">
<p>95.0</p>
</td>
</tr>
<tr>
<td>
<p>08.95</p>
</td>
<td align="RIGHT">
<p>0.6</p>
</td>
<td align="RIGHT">
<p>0.7</p>
</td>
<td align="RIGHT">
<p>0.4</p>
</td>
<td align="RIGHT">
<p>80.4</p>
</td>
<td align="RIGHT">
<p>19.6</p>
</td>
</tr>
<tr>
<td>
<p>09.95</p>
</td>
<td align="RIGHT">
<p>2.1</p>
</td>
<td align="RIGHT">
<p>1.8</p>
</td>
<td align="RIGHT">
<p>2.6</p>
</td>
<td align="RIGHT">
<p>63.5</p>
</td>
<td align="RIGHT">
<p>36.5</p>
</td>
</tr>
<tr>
<td>
<p>10.95</p>
</td>
<td align="RIGHT">
<p>3.1</p>
</td>
<td align="RIGHT">
<p>1.9</p>
</td>
<td align="RIGHT">
<p>5.3</p>
</td>
<td align="RIGHT">
<p>46.8</p>
</td>
<td align="RIGHT">
<p>53.2</p>
</td>
</tr>
<tr>
<td>
<p>11.95</p>
</td>
<td align="RIGHT">
<p>1.4</p>
</td>
<td align="RIGHT">
<p>2.0</p>
</td>
<td align="RIGHT">
<p>0.3</p>
</td>
<td align="RIGHT">
<p>94.0</p>
</td>
<td align="RIGHT">
<p>6.0</p>
</td>
</tr>
<tr>
<td>
<p>12.95</p>
</td>
<td align="RIGHT">
<p>2.0</p>
</td>
<td align="RIGHT">
<p>2.9</p>
</td>
<td align="RIGHT">
<p>1.1</p>
</td>
<td align="RIGHT">
<p>86.8</p>
</td>
<td align="RIGHT">
<p>13.2</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total</strong></p>
</td>
<td align="RIGHT">
<p><strong>28.9</strong></p>
</td>
<td align="RIGHT">
<p><strong>19.2</strong></p>
</td>
<td align="RIGHT">
<p><strong>45.9</strong></p>
</td>
<td align="RIGHT">
<p><strong>51.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>49.0</strong></p>
</td>
</tr>
<tr>
<td colspan="6">
<p>* The share of the open sector goods and services in the CPI consumer basket is 71.4%, that of the sheltered sector ones 28.6%</p>
</td>
</tr>
</tbody>
</table>
<p>In the course of 1994 prices in the open sector rose by 23.8%, in 1995 by 19.2%. Prices in the sheltered sector rose by 85.2 % and 45.9%, respectively. Although, the price rises in the sheltered sector in 1995 slowed down more than in the open sector, the prices in the sheltered sector increased 2.4 times more than the prices of the open sector (see Figure 3).</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image3.gif" style="width: 576px; height: 253px;" /></p>
<p><strong>Figure 3. Price rise in the open and sheltered sector against the respective month of the previous year between January 1994 and December 1995</strong></p>
<p><u>Impact of Administrative Price Rise</u></p>
<p>In 1995, administrative price rises caused 58% of the price rises in the sheltered sector. Thus, the rapid rise of prices in the sheltered sector was directly connected with the freeing of prices from the state control.</p>
<p>Liberalisation of prices had already started in 1988. By the Government decree of 21 December 1993, a limited number of goods and services were subordinated to the administrative price control: price of land, oil shale, electricity, standing forest, medicine, health insurance services, postal and harbour services as well as rates for air transport fares. Control over prices of strong alcoholic beverages was given up in December 1995. Ministries control prices of heating, natural gas, water supply and sewage. Local administrations fix the prices of tickets for public transport and tariffs of other public utilities. The Competition Board has to monitor the prices established by monopolies.</p>
<p>Regardless of the fact that the list of goods and services subject to price control is not long, they form <em>25.1% </em>of the consumer price index consumer basket. Their effect on the inflation rate in 1995 was higher due to the fact that oil shale and electricity are production inputs which permeate the whole economy. Secondly, goods and services subject to price control have and will become dearer more rapidly than other goods also in the near future.</p>
<p>Since, for the public, inflation finds expression first of all in the price rise of consumer goods and services of final consumption, the effect of price liberalisation and administrative price increases on economic agents is rather high. Deregulated prices in the sheltered sector, i.e., those prices of the sheltered sector that are not subject to administrative price regulation, rose by 38% in 1995 (see Figure 4). Administrative price rises significantly changed the prices in the sheltered sector (see Figure 5).</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image4.gif" style="width: 639px; height: 272px;" /><br />
<em>Decisions conserning the rise in regulated prices:<br />
01.94 - price rise in tickets of city buses (53.0%), water (19.5%), communications (14.7%) and rent (10.9%);<br />
02.94 - price rise in tickets of public transport (15.2%) and rent (13.9%);<br />
02.94 - price rise in tickets of public transport (15.2%) and rent (13.9%);<br />
04.94 - price rice in rent (18.8%) and city buses (18.1%);<br />
07.94 - price rise in rent 20.9%;<br />
09.94 - price rise in electricity 66.7%;<br />
01.95 - price rise in electricity (20.7%) and heating (5.9%);<br />
05.95 - price rise in public utilities (22.5%) and rent (14.1%);<br />
06.95 - price rise in city buses (24.6%) and rent (7.2%);<br />
07.95 - price rise in gas (24.1%), rent (6.0%) and public utilities (5.7%);<br />
10.95 - price rise in electricity (11.4%) and heating (11.3%).<br />
<br />
Major rises in deregulated prices:<br />
09.94 - rise in expenses related to leisure 22.9%;<br />
09.95 - rise in expenses related to leisure 12.6%;<br />
10.95 - rise in expenses related to leisure 13.3%.</em></p>
<p><strong>Figure 4. Rise in regulated and deregulated prices in the sheltered sector between December 1993 and December 1995</strong></p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image5.gif" style="width: 576px; height: 288px;" /><br />
<strong>Figure 5. Rise in the administratively regulated and deregulated prices in the sheltered sector against the respective month of the previous year between January 1994 and December 1995</strong></p>
<p>Administrative price rises were also applied to monopolies which in the sheltered sector render, first of all, services connected with housing and transport. In 1995, price rises of the above services led to a 46.4% increase in the consumer prices. The aim of officially accepted tariffs or coordination of prices is to turn the earlier administratively established prices into the equilibrium prices regulating demand and supply which would cover all production costs, including repairs and investment needs. Inclusion of capital costs into the price of goods or services, together with the termination of producer&#39;s subsidies, appears to be the main engine of inflation. For example, after the completion of the reform, total costs should be included in rents so that there is no need to subsidise enterprises managing dwelling-houses in order to cover the cost of repairs. The idea is, these enterprises themselves should be able to make investments. Regrettably, the actual results differ from those aimed at, because lack of effective price constraint does not encourage the monopolies of the sheltered sector to rationalise their work. Neither are they forced to invest the returns received from the price rises, although, investments can be a motive for increasing prices.</p>
<p><u>Rise of Indirect Taxes and Consumer Price</u></p>
<p>The change in excise rates in 1995 caused a direct 1.9% rise in consumer prices, regardless of interim consumption.</p>
<p>The rise in excise taxes in July did not have an impact on the prices of alcohol, however, in December, when the control over prices of strong alcohol was abolished, it caused a 30% rise of prices of alcohol and a 0.7 percentage points rise in consumer price.</p>
<p>A two-fold increase in the motor vehicle fuel excise tax on 15 November caused a 30% price rise in motor vehicle fuel and a consumer price rise by 0.6 percentage points.</p>
<p>Establishment of local taxes did not accelerate the growth of consumer prices because local taxes were introduced either on 1 January 1996 or only in small towns and rural municipalities where they have no significant impact on the average prices in Estonia.</p>
<p>Although the introduction of tax labels on tobacco products did not change tax rates, it enabled the collection of taxes which otherwise would have remained unpaid. Therefore, tax labelling of tobacco products and the strengthening of control over imports, raised the prices of tobacco products by 33.9% in March and caused a consumer price rise by 0.6 percentage points.</p>
<p>In 1995, looking at the full range of goods and services, the highest increases occurred <strong>in housing costs </strong>and in the prices of <strong>alcohol and tobacco. Housing costs, food, transport and communication services </strong>were the main reason for the growth in consumer prices. These price increases accounted for 72.6% of the total consumer price rise (see Table 8. Price indices of groups of goods and services and their share in the total consumer price rise in 1995).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="3">
<p><strong>Table 8. Price indices of groups of goods and services and their share in the total consumer price rise in 1995</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>Price<br />
indices</strong></p>
</td>
<td align="RIGHT">
<p><strong>Share in<br />
the consumer<br />
price rise (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>Food</p>
</td>
<td align="RIGHT">
<p>1.187</p>
</td>
<td align="RIGHT">
<p>26.2</p>
</td>
</tr>
<tr>
<td>
<p>Alcoholic beverages and tobacco</p>
</td>
<td align="RIGHT">
<p>1.394</p>
</td>
<td align="RIGHT">
<p>6.3</p>
</td>
</tr>
<tr>
<td>
<p>Clothing, footwear and headgear</p>
</td>
<td align="RIGHT">
<p>1.146</p>
</td>
<td align="RIGHT">
<p>4.1</p>
</td>
</tr>
<tr>
<td>
<p>Housing</p>
</td>
<td align="RIGHT">
<p>1.450</p>
</td>
<td align="RIGHT">
<p>32.8</p>
</td>
</tr>
<tr>
<td>
<p>Household</p>
</td>
<td align="RIGHT">
<p>1.145</p>
</td>
<td align="RIGHT">
<p>1.7</p>
</td>
</tr>
<tr>
<td>
<p>Health care</p>
</td>
<td align="RIGHT">
<p>1.300</p>
</td>
<td align="RIGHT">
<p>2.2</p>
</td>
</tr>
<tr>
<td>
<p>Transport and communication</p>
</td>
<td align="RIGHT">
<p>1.282</p>
</td>
<td align="RIGHT">
<p>13.6</p>
</td>
</tr>
<tr>
<td>
<p>Leisure</p>
</td>
<td align="RIGHT">
<p>1.309</p>
</td>
<td align="RIGHT">
<p>7.5</p>
</td>
</tr>
<tr>
<td>
<p>Other</p>
</td>
<td align="RIGHT">
<p>1.267</p>
</td>
<td align="RIGHT">
<p>5.6</p>
</td>
</tr>
</tbody>
</table>
<h4><strong>INCOME AND CONSUMPTION OF THE POPULATION</strong></h4>
<p><strong>Nominal and Real Income</strong></p>
<p>According to the EMOR data, nominal income of families in 1995 increased by 34.5% which is more than the CPI, amounting to 1243 kroons on average a month per family member. The structure of gross income remained relatively stable (see Table 9. Structure of gross income). <strong>Real income increased by </strong>4.7% (see Figure 6).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="4">
<p><strong>Table 9. Structure of gross income (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change (in<br />
percentage<br />
points)</strong></p>
</td>
</tr>
<tr>
<td>
<p>Net wages</p>
</td>
<td align="RIGHT">
<p>55.0</p>
</td>
<td align="RIGHT">
<p>54.4</p>
</td>
<td align="RIGHT">
<p>0.6</p>
</td>
</tr>
<tr>
<td>
<p>Income from production activities</p>
</td>
<td align="RIGHT">
<p>3.7</p>
</td>
<td align="RIGHT">
<p>5.7</p>
</td>
<td align="RIGHT">
<p>-2.0</p>
</td>
</tr>
<tr>
<td>
<p>Income from social insurance</p>
</td>
<td align="RIGHT">
<p>12.9</p>
</td>
<td align="RIGHT">
<p>12.8</p>
</td>
<td align="RIGHT">
<p>0.1</p>
</td>
</tr>
<tr>
<td>
<p>Income from financial resources applied</p>
</td>
<td align="RIGHT">
<p>7.5</p>
</td>
<td align="RIGHT">
<p>5.8</p>
</td>
<td align="RIGHT">
<p>1.7</p>
</td>
</tr>
<tr>
<td>
<p>Other income</p>
</td>
<td align="RIGHT">
<p>5.4</p>
</td>
<td align="RIGHT">
<p>5.2</p>
</td>
<td align="RIGHT">
<p>0.2</p>
</td>
</tr>
<tr>
<td>
<p>Foreign currency income</p>
</td>
<td align="RIGHT">
<p>0.8</p>
</td>
<td align="RIGHT">
<p>1.2</p>
</td>
<td align="RIGHT">
<p>-0.4</p>
</td>
</tr>
<tr>
<td>
<p>Taxes</p>
</td>
<td align="RIGHT">
<p>14.7</p>
</td>
<td align="RIGHT">
<p>14.9</p>
</td>
<td align="RIGHT">
<p>-0.2</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>-</strong></p>
</td>
</tr>
</tbody>
</table>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image6.gif" style="width: 576px; height: 274px;" /></p>
<p><strong>Figure 6. Family income between January 1994 and December 1995 (EEK per family member)</strong></p>
<p>In 1995, the growth of income depended mostly on the increase of net wages. Income from social insurance payments (35.2%) increased almost as quickly as net salaries, pensions forming the bulk of these payments. The biggest growth of income (73.2%) occurred in financial resources applied. The income received from production activities actually suffered a nominal decrease (12%). This was mostly due to the fact that the share of income received from farming considerably diminished in families&#39; budgets.</p>
<p>The differentiation of income after the upward trend of 1994 diminished during most of the course of 1995 (see Figure 7) and were smaller than in the two previous years (see Table 10. Economic inequality in the distribution of family income). Income received from social insurance had a levelling impact on families&#39; gross income. The percentage of families whose income per family member remained below the minimum salary (450 kroons) was 6-8% by the end of the year.</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image7.gif" style="width: 576px; height: 222px;" /></p>
<p><em>0 shows maximum equality and 1 maximum inequality</em></p>
<p><strong>Figure 7. Change in the Gini coefficient smoothed by the sliding average of the previous 12 months between January 1994 and December 1995.</strong></p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="4">
<p><strong>Table 10. Economic inequality in the distribution of family income</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>1993</strong></p>
</td>
</tr>
<tr>
<td>
<p>Gini coefficient</p>
</td>
<td align="RIGHT">
<p>0.359</p>
</td>
<td align="RIGHT">
<p>0.379</p>
</td>
<td align="RIGHT">
<p>0.371</p>
</td>
</tr>
<tr>
<td>
<p>Ratio of income of the 10th and 1st decile</p>
</td>
<td align="RIGHT">
<p>11.9</p>
</td>
<td align="RIGHT">
<p>12.8</p>
</td>
<td align="RIGHT">
<p>12.3</p>
</td>
</tr>
<tr>
<td>
<p>Share of income of the poorer 40% of families (%)</p>
</td>
<td align="RIGHT">
<p>18.4</p>
</td>
<td align="RIGHT">
<p>17.4</p>
</td>
<td align="RIGHT">
<p>18.0</p>
</td>
</tr>
<tr>
<td>
<p>Share of income of the richer 20% of families (%)</p>
</td>
<td align="RIGHT">
<p>44.1</p>
</td>
<td align="RIGHT">
<p>45.9</p>
</td>
<td align="RIGHT">
<p>45.4</p>
</td>
</tr>
</tbody>
</table>
<p><strong>Nominal and Real Wage</strong></p>
<p>Incomes and salaries and wages in Estonia in 1995 are set out by Figure 8, Page 21). In 1995 the average gross wage increased 1.37 times and was 2375 kroons, in 1994 it was 1734 kroons. <strong>The increment of real wage (the average of monthly increments of real wages compared to the same months the previous year) was 7% in 1995.</strong></p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image8.gif" style="width: 576px; height: 372px;" /></p>
<p><strong>Figure 8. Income, wages and salaries in Estonia in 1995 according to the EMOR and the Ministry of Social Affairs (EEK a month per wage earner on the average)</strong></p>
<p>The highest wages after the monetary reform in 1992 were in finance, the lowest in agriculture. The wages were also low in establishments financed from the state budget (e.g., education, public health care, etc.). Since approximately 1/6 of the employed population work there, it has been difficult to liquidate the lag due to the strict state budget.</p>
<p>Compared to the fourth quarter of 1994, the average gross wage in the fourth quarter of 1995 was 1.29 times bigger. In the course of the same period of time and by areas of activities, the growth of gross wages was bigger than the average in public health care and social maintenance (growth 1.47 fold), in education (growth 1.45 fold), forestry (growth 1.36 fold), in real estate, rent and business services (growth 1.34 fold).</p>
<p>The average wage also changes seasonally. After high salaries in December (due to extra pay at the end of the year), those in January fall to the level of October and November. After that a new rise takes place which has its culmination in June with holiday pay (see Figure 9).</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image9.gif" style="width: 599px; height: 222px;" /></p>
<p><strong>Figure 9. Wages in Estonia between January 1993 and December 1995 (%)</strong></p>
<p><strong>Private Consumption</strong></p>
<p>Gross private consumption increased 27.3% in 1995 and formed 1054 kroons per family member a month on average. <strong>Regardless of the growth of real income and real wages, real consumption based on January 1993 prices decreased by 0.8%. The reason for this was the rise in consumer prices and increased savings. </strong>At the beginning of the year, real consumption was higher than in the respective period of 1994, whereas at the end of the year it had decreased.</p>
<p>With regard to the structure of consumption, the share of foodstuffs continued decrease (see Table 11. Structure of consumption).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="6">
<p><strong>Table 11. Structure of consumption (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>1993</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1994<br />
(in percentage<br />
points)</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1993<br />
(in percentage<br />
points)</strong></p>
</td>
</tr>
<tr>
<td>
<p>Food</p>
</td>
<td align="RIGHT">
<p>37.8</p>
</td>
<td align="RIGHT">
<p>39.0</p>
</td>
<td align="RIGHT">
<p>40.8</p>
</td>
<td align="RIGHT">
<p>-1.3</p>
</td>
<td align="RIGHT">
<p>-3.0</p>
</td>
</tr>
<tr>
<td>
<p>Alcoholic beverages and tobacco</p>
</td>
<td align="RIGHT">
<p>3.7</p>
</td>
<td align="RIGHT">
<p>3.2</p>
</td>
<td align="RIGHT">
<p>3.4</p>
</td>
<td align="RIGHT">
<p>+0.5</p>
</td>
<td align="RIGHT">
<p>+0.3</p>
</td>
</tr>
<tr>
<td>
<p>Clothing, footwear and headgear</p>
</td>
<td align="RIGHT">
<p>8.5</p>
</td>
<td align="RIGHT">
<p>8.4</p>
</td>
<td align="RIGHT">
<p>8.1</p>
</td>
<td align="RIGHT">
<p>+0.1</p>
</td>
<td align="RIGHT">
<p>+0.4</p>
</td>
</tr>
<tr>
<td>
<p>Housing</p>
</td>
<td align="RIGHT">
<p>17.3</p>
</td>
<td align="RIGHT">
<p>16.0</p>
</td>
<td align="RIGHT">
<p>15.9</p>
</td>
<td align="RIGHT">
<p>+1.3</p>
</td>
<td align="RIGHT">
<p>+1.4</p>
</td>
</tr>
<tr>
<td>
<p>Transport</p>
</td>
<td align="RIGHT">
<p>8.5</p>
</td>
<td align="RIGHT">
<p>9.2</p>
</td>
<td align="RIGHT">
<p>9.1</p>
</td>
<td align="RIGHT">
<p>-0.7</p>
</td>
<td align="RIGHT">
<p>-0.6</p>
</td>
</tr>
<tr>
<td>
<p>Other goods and services</p>
</td>
<td align="RIGHT">
<p>24.2</p>
</td>
<td align="RIGHT">
<p>24.2</p>
</td>
<td align="RIGHT">
<p>22.7</p>
</td>
<td align="RIGHT">
<p>0.0</p>
</td>
<td align="RIGHT">
<p>+1.5</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>-</strong></p>
</td>
<td align="RIGHT">
<p><strong>-</strong></p>
</td>
</tr>
</tbody>
</table>
<p>The most rapid expenditure increases were on alcohol and tobacco followed by food, clothes, footwear and headgear. The rapidity of the expenditure increases actually outpaced the rate of price increases for these goods. The share of housing expenses grew more rapidly in 1995 than in 1994, but the growth of expenses related to housing was still considerably lower than the price rise during 1995. A certain role was played by housing benefits. In 1995, 80 mn and 259 mn kroons, respectively, was allocated for subsistence support and housing benefit payments in Estonia. Subsistence support was given to 3.6% and housing benefits to 16.4% of families.</p>
<p>Family savings in 1995 have increased: in 1994, savings formed 10.6% of families&#39; net income, whereas in 1995 savings formed 14% and gross consumption 84.4%. According to the EMOR data, investments into real estate formed 1.6% of net income.</p>
<h4><strong>GOVERNMENT SECTOR</strong></h4>
<p><strong>Fiscal Policy</strong></p>
<p>In 1995, the earlier established aims, such as maintaining a stable tax burden and covering expenditures (excluding foreign loans being on-lent) with current revenue, were followed by the central government. The Law on Taking Foreign Loans and Giving State Guarantees to Foreign Loan Agreements also complies with these principles. According to this law, the total sum of foreign loans being taken and guaranteed by the Government in the current financial year is not permitted to exceed 15% and the total sum of all foreign loans 75% of state revenue fixed for the current fiscal year by Riigikogu (the Parliament). Bearing in mind the above criteria, the Republic of Estonia has, up to the present moment, taken foreign loans modestly.</p>
<p>According to the Estonian privatisation model, 50% of revenue received from privatisation was transferred to the Compensation Fond to cover the expenses incurred in the compensation for illegally expropriated property and 30% to the privatisation reserve fund for reorganising the enterprises being privatised. The money received from privatisation was relatively modest and made up 3% of the total revenue of the fiscal system.</p>
<p>In 1995 in order to cover costs, local administrations took more loans and issued an increased number of securities compared to 1994. These securities formed approximately one third of all debt securities issued. The share of local administrations in the claims of Estonian commercial banks to the government sector formed 99% as of end of year.</p>
<p>In 1995, preliminary work for partial establishment of the Treasury was completed. This institution will also create preconditions for rational distribution of costs in the short perspective.</p>
<p><strong>Fiscal System</strong></p>
<p>The most important element in the fiscal system in 1995 was the <strong>state budget</strong>, from the revenue of which allocations to local administrations and the social fund were made because the revenue of the latter are not sufficient for carrying out the functions imposed upon them. Compared to 1994, the share of state budget in the revenue diminished from 59 to 52%. The reason for that was the more rapid growth of personal income tax and social tax collected than that of the received indirect taxes and corporate income tax (see Table 12. Revenue and expenditures of the Estonian fiscal system in 1995).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="8">
<p><strong>Table 12. Revenue and expenditures of the Estonian fiscal system in 1995 (EEK mn)</strong></p>
</td>
</tr>
<tr>
<td rowspan="2">
<p>&nbsp;</p>
</td>
<td align="RIGHT" rowspan="2">
<p><strong>State<br />
budget</strong></p>
</td>
<td align="RIGHT" rowspan="2">
<p><strong>Local<br />
budgets</strong></p>
</td>
<td align="RIGHT" rowspan="2">
<p><strong>Social<br />
insurance</strong></p>
</td>
<td align="RIGHT" rowspan="2">
<p><strong>Health<br />
insurance</strong></p>
</td>
<td align="RIGHT" rowspan="2">
<p><strong>Total</strong></p>
</td>
<td align="CENTER" colspan="2">
<p><strong>Share in current<br />
revenue (%)</strong></p>
</td>
</tr>
<tr>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
</tr>
<tr>
<td>
<p>Corporate income tax</p>
</td>
<td align="RIGHT">
<p>1,049.65</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>1,049.65</p>
</td>
<td align="RIGHT">
<p>6.26</p>
</td>
<td align="RIGHT">
<p>8.70</p>
</td>
</tr>
<tr>
<td>
<p>Personal income tax</p>
</td>
<td align="RIGHT">
<p>1,721.66</p>
</td>
<td align="RIGHT">
<p>1,871.34</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>3,593.00</p>
</td>
<td align="RIGHT">
<p>21.43</p>
</td>
<td align="RIGHT">
<p>20.00</p>
</td>
</tr>
<tr>
<td>
<p>VAT</p>
</td>
<td align="RIGHT">
<p>4,112.46</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>4,112.46</p>
</td>
<td align="RIGHT">
<p>24.53</p>
</td>
<td align="RIGHT">
<p>27.70</p>
</td>
</tr>
<tr>
<td>
<p>Excise taxes</p>
</td>
<td align="RIGHT">
<p>1,137.40</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>1,137.40</p>
</td>
<td align="RIGHT">
<p>6.78</p>
</td>
<td align="RIGHT">
<p>5.10</p>
</td>
</tr>
<tr>
<td>
<p>Social tax</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>2,917.05</p>
</td>
<td align="RIGHT">
<p>2,164.67</p>
</td>
<td align="RIGHT">
<p>5,081.72</p>
</td>
<td align="RIGHT">
<p>30.31</p>
</td>
<td align="RIGHT">
<p>28.70</p>
</td>
</tr>
<tr>
<td>
<p>Other taxes and revenues</p>
</td>
<td align="RIGHT">
<p>888.33</p>
</td>
<td align="RIGHT">
<p>364.42</p>
</td>
<td align="RIGHT">
<p>208.77</p>
</td>
<td align="RIGHT">
<p>332.03</p>
</td>
<td align="RIGHT">
<p>1,793.55</p>
</td>
<td align="RIGHT">
<p>10.70</p>
</td>
<td align="RIGHT">
<p>9.80</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total current revenue</strong></p>
</td>
<td align="RIGHT">
<p><strong>8,909.50</strong></p>
</td>
<td align="RIGHT">
<p><strong>2,235.76</strong></p>
</td>
<td align="RIGHT">
<p><strong>3,125.82</strong></p>
</td>
<td align="RIGHT">
<p><strong>2,496.70</strong></p>
</td>
<td align="RIGHT">
<p><strong>16,767.78</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.00</strong></p>
</td>
<td align="RIGHT">
<p><strong>100.00</strong></p>
</td>
</tr>
<tr>
<td>
<p>Distribution of revenue (%)</p>
</td>
<td align="RIGHT">
<p>53.13</p>
</td>
<td align="RIGHT">
<p>13.33</p>
</td>
<td align="RIGHT">
<p>18.64</p>
</td>
<td align="RIGHT">
<p>14.89</p>
</td>
<td align="RIGHT">
<p>100.00</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
</tr>
<tr>
<td>
<p>Unused sums of previous period</p>
</td>
<td align="RIGHT">
<p>98.00</p>
</td>
<td align="RIGHT">
<p>107.46</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>205.46</p>
</td>
<td align="RIGHT">
<p>1.23</p>
</td>
<td align="RIGHT">
<p>2.80</p>
</td>
</tr>
<tr>
<td>
<p><strong>Revenue (incl. savings)</strong></p>
</td>
<td align="RIGHT">
<p>9,007.50</p>
</td>
<td align="RIGHT">
<p>2,343.22</p>
</td>
<td align="RIGHT">
<p>3,125.82</p>
</td>
<td align="RIGHT">
<p>2,496.70</p>
</td>
<td align="RIGHT">
<p>16,973.24</p>
</td>
<td align="RIGHT">
<p>101.23</p>
</td>
<td align="RIGHT">
<p>102.80</p>
</td>
</tr>
<tr>
<td>
<p>Revenue subject to redistribution<br />
from the state budget</p>
</td>
<td align="RIGHT">
<p>-1,529.27</p>
</td>
<td align="RIGHT">
<p>760.29</p>
</td>
<td align="RIGHT">
<p>768.98</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>0.00</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
</tr>
<tr>
<td>
<p><strong>Revenue after redistribution</strong></p>
</td>
<td align="RIGHT">
<p><strong>7,478.23</strong></p>
</td>
<td align="RIGHT">
<p><strong>3,103.51</strong></p>
</td>
<td align="RIGHT">
<p><strong>3,894.80</strong></p>
</td>
<td align="RIGHT">
<p><strong>2,496.70</strong></p>
</td>
<td align="RIGHT">
<p><strong>16,973.24</strong></p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
</tr>
<tr>
<td>
<p>Distribution of revenue after<br />
redistributrion (%)</p>
</td>
<td align="RIGHT">
<p>44.06</p>
</td>
<td align="RIGHT">
<p>18.28</p>
</td>
<td align="RIGHT">
<p>22.95</p>
</td>
<td align="RIGHT">
<p>14.71</p>
</td>
<td align="RIGHT">
<p>100.00</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
</tr>
<tr>
<td>
<p>Loans</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>256.85</p>
</td>
<td align="RIGHT">
<p>76.44</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p>333.29</p>
</td>
<td align="RIGHT">
<p>1.99</p>
</td>
<td align="RIGHT">
<p>0.50</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total expenditures</strong></p>
</td>
<td align="RIGHT">
<p><strong>7,322.92</strong></p>
</td>
<td align="RIGHT">
<p><strong>3,269.43</strong></p>
</td>
<td align="RIGHT">
<p><strong>3,747.96</strong></p>
</td>
<td align="RIGHT">
<p><strong>2,131.39</strong></p>
</td>
<td align="RIGHT">
<p><strong>16,471.70</strong></p>
</td>
<td align="RIGHT">
<p><strong>98.23</strong></p>
</td>
<td align="RIGHT">
<p><strong>96.70</strong></p>
</td>
</tr>
<tr>
<td>
<p>Distribution of expenditures (%)</p>
</td>
<td align="RIGHT">
<p>44.46</p>
</td>
<td align="RIGHT">
<p>19.85</p>
</td>
<td align="RIGHT">
<p>22.75</p>
</td>
<td align="RIGHT">
<p>12.94</p>
</td>
<td align="RIGHT">
<p>100.00</p>
</td>
<td>
<p>&nbsp;</p>
</td>
<td>
<p>&nbsp;</p>
</td>
</tr>
</tbody>
</table>
<p>An accurately composed prognosis for the development of the economy for 1995 and the slowdown of inflation created a new situation where, compared to 1994, the surplus of current revenue was unusually small throughout the whole year (see Figure 10, Page 25). The volume of two additional budgets adopted in 1995 formed only 1.3% of the initial budget (22% in 1994). Contrary to previous years, the budget law was also changed for the redistribution of money.</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image10.gif" style="width: 576px; height: 222px;" /></p>
<p><strong>Figure 10. Surplus of state and local budget revenue between January 1994 and December 1995 (EEK mn)</strong></p>
<p>100.2% of the planned revenue was collected into the state budget (99.9% in 1994). Due to the more rapid than expected growth of the average wage, several local administrations were able to pass additional budgets based on surplus personal income tax revenue. In the form of an additional budget, it was possible to increase expenditure on health insurance.</p>
<p><strong>The Impact of Changes in the Tax System on State Revenue</strong></p>
<p>The reformation of indirect taxes continued. In the course of 1995, the range of VAT exempt goods and services was widened, mostly to include those consumed by state institutions or purchased with non-refundable foreign aid given by foreign institutions. Some school equipment were also made tax exempt. As before, an exceptional zero tax rate was applied to heating energy and fuel sold to the public and institutions financed from the state budget, as well as to religious organisations. Regardless of the above, the share of VAT in the GDP was still significant, reaching 10% in 1995.</p>
<p>1995 saw a rise in excise taxes (see Rise of Indirect Taxes and Consumer Price, p. 20). Earlier, the rise in excise taxes occurred after a general change in the price level rather than before it, whereas now it considerably anticipated the inflation rate. One of the reasons for the sharp rise in excise taxes was the Government&#39;s promise to lower the rate of personal income tax in 1996 by increasing the tax-free allowance of the personal income tax. In 1995, the excise tax on fur was abolished and new motor vehicle tax was introduced. Since according to the Estonian laws, no customs duties are payable on goods subject to excise tax, their share in the state revenue became smaller. From 1 April 1995 a stamp duty was established for officially registering goods at customs. Due to this, the government sector revenue entry &quot;Taxes from foreign trade&quot; fell to almost zero.</p>
<p>The reformation of indirect taxes also changed the structure of revenue of the fiscal system, because in the case of income taxes the earlier taxation procedures remained valid (see Figure 11).</p>
<p><img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image11.gif" style="width: 576px; height: 222px;" /><br />
<img alt="" src="/sites/default/files/publication/en/AnnualReport/1995/image11a.gif" style="width: 576px; height: 222px;" /><br />
<strong>Figure 11. Structure of revenue in the state budget in 1995 and 1994</strong></p>
<p>The Law on Local Taxes which took effect on 1 January 1995, gave local administrations the right to establish 9 taxes (the 1% sales tax on retail turnover, poll tax, local income tax for legal entities, advertisement tax, tax on closed roads and streets, motor vehicle tax, boat tax, tax on keeping animals and entertainment tax). In the fiscal year of 1995, the share of local taxes in the revenue of local budgets did not exceed 0.4%. The most widespread local taxes were the tax on closing roads and streets, advertisement and sales tax.</p>
<p>Compared to 1994, the ratio of the tax burden to the GDP increased from 37 to 38,5% in 1995. The reason for that was the rise in excise taxes and the unchanged tax-free allowance of the personal income tax which due to inflation means, in effect, a rise in tax rates.</p>
<p><strong>Structure of Expenditures</strong></p>
<p>Due to the strict fiscal policy, the structure of expenditures by spheres of activities, has remained relatively stable in recent years. The priority expenditures, in the case of a small country, are those made in the social sphere. The share of social expenditures accounted for 50% of state and local budgets in 1995, being even 2% higher than in 1994. This rise did not take place at the expense of resources allocated to the promotion of economic development, but at the expense of the relative decrease in administrative costs. The share of costs for the promotion of the economy is about to stabilise (see Table 13. Structure of expenditures of state and local budgets).</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="6">
<p><strong>Table 13. Structure of expenditures of state and local budgets (%)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>1993</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1994<br />
(in percentage<br />
points)</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1993<br />
(in percentage<br />
points)</strong></p>
</td>
</tr>
<tr>
<td>
<p>Social sphere</p>
</td>
<td align="RIGHT">
<p>50</p>
</td>
<td align="RIGHT">
<p>48</p>
</td>
<td align="RIGHT">
<p>48</p>
</td>
<td align="RIGHT">
<p>+2</p>
</td>
<td align="RIGHT">
<p>+2</p>
</td>
</tr>
<tr>
<td>
<p>Economy</p>
</td>
<td align="RIGHT">
<p>21</p>
</td>
<td align="RIGHT">
<p>21</p>
</td>
<td align="RIGHT">
<p>26</p>
</td>
<td align="RIGHT">
<p>0</p>
</td>
<td align="RIGHT">
<p>-5</p>
</td>
</tr>
<tr>
<td>
<p>Law enforcement</p>
</td>
<td align="RIGHT">
<p>11</p>
</td>
<td align="RIGHT">
<p>11</p>
</td>
<td align="RIGHT">
<p>9</p>
</td>
<td align="RIGHT">
<p>0</p>
</td>
<td align="RIGHT">
<p>+2</p>
</td>
</tr>
<tr>
<td>
<p>Administrative costs</p>
</td>
<td align="RIGHT">
<p>10</p>
</td>
<td align="RIGHT">
<p>11</p>
</td>
<td align="RIGHT">
<p>8</p>
</td>
<td align="RIGHT">
<p>-1</p>
</td>
<td align="RIGHT">
<p>+2</p>
</td>
</tr>
<tr>
<td>
<p>National defence</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>0</p>
</td>
<td align="RIGHT">
<p>0</p>
</td>
</tr>
<tr>
<td>
<p>Other</p>
</td>
<td align="RIGHT">
<p>4</p>
</td>
<td align="RIGHT">
<p>5</p>
</td>
<td align="RIGHT">
<p>5</p>
</td>
<td align="RIGHT">
<p>-1</p>
</td>
<td align="RIGHT">
<p>-1</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total</strong></p>
</td>
<td align="RIGHT">
<p><strong>100</strong></p>
</td>
<td align="RIGHT">
<p><strong>100</strong></p>
</td>
<td align="RIGHT">
<p><strong>100</strong></p>
</td>
<td align="RIGHT">
<p><strong>-</strong></p>
</td>
<td align="RIGHT">
<p><strong>-</strong></p>
</td>
</tr>
</tbody>
</table>
<p>Due to the strict budget, the structure of expenditures according to economic purposes has stabilised, too (see Table 14. Structure of expenditures of the fiscal system by economic purpose). The decrease in budgetary investments characteristic in the first years of independence has stopped and has been replaced by an increase. This is promoted by the state investment programmes which are formulated together with the compilation of the state budget. In 1995, a state investment programme for the years 1996 to 1998 was adopted, according to which investments are to be increased by 15% in 1996, compared to the previous year. The name of the programme is a bit overstated since it is planned to spend the majority of available sums on repairs and completion of unfinished buildings.</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="6">
<p><strong>Table 14. Structure of expenditures of the fiscal system by economic purposes (percentage of the GDP)</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
<td align="RIGHT">
<p><strong>1993</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1994<br />
(in percentage<br />
points)</strong></p>
</td>
<td align="RIGHT">
<p><strong>Change<br />
1995/1993<br />
(in percentage<br />
points)</strong></p>
</td>
</tr>
<tr>
<td>
<p>Wages</p>
</td>
<td align="RIGHT">
<p>11.5</p>
</td>
<td align="RIGHT">
<p>11.0</p>
</td>
<td align="RIGHT">
<p>7.7</p>
</td>
<td align="RIGHT">
<p>+0.5</p>
</td>
<td align="RIGHT">
<p>+3.8</p>
</td>
</tr>
<tr>
<td>
<p>Revenue transfers</p>
</td>
<td align="RIGHT">
<p>10.5</p>
</td>
<td align="RIGHT">
<p>9.9</p>
</td>
<td align="RIGHT">
<p>10.4</p>
</td>
<td align="RIGHT">
<p>+0.6</p>
</td>
<td align="RIGHT">
<p>+0.1</p>
</td>
</tr>
<tr>
<td>
<p>Investments</p>
</td>
<td align="RIGHT">
<p>2.9</p>
</td>
<td align="RIGHT">
<p>1.3</p>
</td>
<td align="RIGHT">
<p>1.6</p>
</td>
<td align="RIGHT">
<p>+1.6</p>
</td>
<td align="RIGHT">
<p>+1.3</p>
</td>
</tr>
<tr>
<td>
<p>Loan servicing</p>
</td>
<td align="RIGHT">
<p>0.3</p>
</td>
<td align="RIGHT">
<p>0.3</p>
</td>
<td align="RIGHT">
<p>0.1</p>
</td>
<td align="RIGHT">
<p>0.0</p>
</td>
<td align="RIGHT">
<p>+0.2</p>
</td>
</tr>
<tr>
<td>
<p>Subsidies</p>
</td>
<td align="RIGHT">
<p>0.5</p>
</td>
<td align="RIGHT">
<p>0.9</p>
</td>
<td align="RIGHT">
<p>1.5</p>
</td>
<td align="RIGHT">
<p>-0.4</p>
</td>
<td align="RIGHT">
<p>-1.0</p>
</td>
</tr>
<tr>
<td>
<p>Other</p>
</td>
<td align="RIGHT">
<p>14.0</p>
</td>
<td align="RIGHT">
<p>16.5</p>
</td>
<td align="RIGHT">
<p>18.7</p>
</td>
<td align="RIGHT">
<p>-2.5</p>
</td>
<td align="RIGHT">
<p>-4.7</p>
</td>
</tr>
<tr>
<td>
<p><strong>Total</strong></p>
</td>
<td align="RIGHT">
<p><strong>39.7</strong></p>
</td>
<td align="RIGHT">
<p><strong>39.9</strong></p>
</td>
<td align="RIGHT">
<p><strong>40.0</strong></p>
</td>
<td align="RIGHT">
<p><strong>-0.2</strong></p>
</td>
<td align="RIGHT">
<p><strong>-0.3</strong></p>
</td>
</tr>
</tbody>
</table>
<p>Local administrations made the greatest increases in infrastructure investments. In 1995, the share of investments in the expenditures of local administrations almost doubled. At the same time, 10% of the expenditures of local administrations were covered by loans. For local administrations the 1995 fiscal year was exceptional in the sense that it began on 1 April and lasted for only 9 months, because from 1996 the fiscal year will coincide with the calendar year.</p>
<p><strong>State Foreign Loans</strong></p>
<p>Compared to 1994, the total of foreign loans taken by the state in 1995 increased by USD 104.5 mn and the total of disbursed foreign loans by USD 90.7 mn (see Tables 15. Foreign loans in 1995 and 1994 as of end of year; and 16. Foreign loans in 1995 and 1994). Greatest attention was paid to investments into the infrastructure, which are important for future development. Priority was given to loans taken for the reorganisation of the energy sector and for the improvement of communication and roads.</p>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="3">
<p><strong>Table 15. Foreign loans in 1995 and 1994 as of end of year (USD mn)*</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
</tr>
<tr>
<td>
<p>Foreign dept</p>
</td>
<td align="RIGHT">
<p>444.8</p>
</td>
<td align="RIGHT">
<p>340.3</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;:&nbsp;&nbsp;o/w IMF</p>
</td>
<td align="RIGHT">
<p>93.1</p>
</td>
<td align="RIGHT">
<p>61.1</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;:&nbsp;&nbsp;other</p>
</td>
<td align="RIGHT">
<p>351.7</p>
</td>
<td align="RIGHT">
<p>279.2</p>
</td>
</tr>
<tr>
<td>
<p>Disbursements</p>
</td>
<td align="RIGHT">
<p>268.6</p>
</td>
<td align="RIGHT">
<p>177.9</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;:&nbsp;&nbsp;o/w from IMF funds</p>
</td>
<td align="RIGHT">
<p>93.1</p>
</td>
<td align="RIGHT">
<p>61.1</p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;:&nbsp;&nbsp;other funds</p>
</td>
<td align="RIGHT">
<p>175.5</p>
</td>
<td align="RIGHT">
<p>116.8</p>
</td>
</tr>
<tr>
<td>
<p>Actual indebtedness</p>
</td>
<td align="RIGHT">
<p>260.0</p>
</td>
<td align="RIGHT">
<p>174.9</p>
</td>
</tr>
<tr>
<td>
<p>Disbursements from the total of loans (excl. IMF, %)</p>
</td>
<td align="RIGHT">
<p>49.9</p>
</td>
<td align="RIGHT">
<p>41.8</p>
</td>
</tr>
<tr>
<td colspan="3">
<p>* In 1995 USD 1 = EEK 11.47<br />
&nbsp;&nbsp;&nbsp;In 1994 USD 1 = EEK 12.39</p>
</td>
</tr>
</tbody>
</table>
<table border="" cellpadding="2" cellspacing="1">
<tbody>
<tr>
<td colspan="3">
<p><strong>Table 16. Foreign loans in 1995 and 1994 (USD mn, by the annual average exchange rate)*</strong></p>
</td>
</tr>
<tr>
<td>
<p>&nbsp;</p>
</td>
<td align="RIGHT">
<p><strong>1995</strong></p>
</td>
<td align="RIGHT">
<p><strong>1994</strong></p>
</td>
</tr>
<tr>
<td>
<p>Disbursements (excl. IMF)</p>
</td>
<td align="RIGHT">
<p>56.4</p>
</td>
<td align="RIGHT">
<p>39.3</p>
</td>
</tr>
<tr>
<td>
<p>Disbursements from the IMF funds</p>
</td>
<td align="RIGHT">
<p>31.7</p>
</td>
<td align="RIGHT">
<p>0.0</p>
</td>
</tr>
<tr>
<td>
<p>Interest payments</p>
</td>
<td align="RIGHT">
<p>17.8</p>
</td>
<td align="RIGHT">
<p>6.7</p>
</td>
</tr>
<tr>
<td>
<p>Repayment of principal</p>
</td>
<td align="RIGHT">
<p>5.6</p>
</td>
<td align="RIGHT">
<p>3.7</p>
</td>
</tr>
<tr>
<td>
<p>Loan servicing costs</p>
</td>
<td align="RIGHT">
<p>23.4</p>
</td>
<td align="RIGHT">
<p>10.4</p>
</td>
</tr>
<tr>
<td colspan="3">
<p>* In 1995 USD 1 = EEK 11.46<br />
&nbsp;&nbsp;&nbsp;In 1994 USD 1 = EEK 12.97</p>
</td>
</tr>
</tbody>
</table>
<p>As of end of 1995, according to ratified loan agreements, the total of foreign loans taken and guaranteed by the state was USD 444.8 mn (in using the Eesti Pank daily exchange rate) of which USD 268.6 mn was actually disbursed. The difference between these two indices reflects the fact that in signing the agreements insufficient attention was paid to the conditions imposed on the usage of money. Therefore, after the conclusion of the agreements it became evident that there were not so many projects complying with the purpose of the loans than initially presumed.</p>
<p>Compared to many other transition economies <strong>Estonia&#39;s loan burden </strong>is relatively small - being approximately 7% of the GDP<a href="#_ftn2" name="_ftnref2"><u>[2]</u> </a>. The low loan burden was achieved due to the fact that the present loans have been taken in the course of the last 3 years and nearly 40% of them have not been disbursed. At the same time, the small loan burden testifies also to the vitality of the Estonian economy. The repayment of the majority of loans starts in 1998. Data on the size and purpose of loans taken and guaranteed by the state as of 1 January 1996 are given in <a href="http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/aast... 17</a>, Page 28.</p>
<p>To increase the loan resources of the commercial banks, 13% of disbursements of state foreign loans has been on-lent to the banks by the state. The loan received from the IMF has, via bigger commercial banks, gone into the development of entrepreneurial activities, trade, services and other sectors.</p>
<p><a href="#_ftnref1" name="_ftn1">[1] </a>The final data on savings of enterprises are available in the second half of 1996, after the analysis of audited balance sheets.<br />
<a href="#_ftnref2" name="_ftn2">[2] </a>All indices related to the Estonian GDP (hereinafter) are based on the preliminary estimates of Eesti Pank. Official data of the State Statistical Office will be available later.</p>