Comments of Eesti Pank's Deputy Governor Märten Ross at the press conference concluding the IMF Staff Visit to Estonia

IMF's statement on its Staff Visit to Estonia

1. We confirmed to the IMF representatives that Estonia has already undergone considerable economic adjustment.

2. As we have repeatedly stressed over the past months, Estonia's current account, i.e., the spread between savings and investment, is practically in balance. Thus, the financing of the economy's current expenditure is ensured by current income.

3. The rapid decline in inflation is just as important. The sharp increase in prices and wages following Estonia's accession to the EU is over. Price level in Estonia will decrease moderately both this and next year. According to the IMF, this is an important factor supporting productivity growth in the economy.

4. Compared to the previous year, Estonia's enterprises and households have thoroughly changed their behaviour and expectations, and the private sector is already undergoing adjustment. Companies and people in Estonia have taken serious steps to pave way for getting through the global crisis and recovering growth. Therefore, they are entitled to expect the contribution of the government and the financial sector in supporting long-term and stable economic growth.

5. The crisis is clearly not over, though stabilisation has been spoken about in the world over the past month. Estonia, too, is showing some signs referring to it: the decline in the growth rate of industrial production and exports is slower than at the beginning of the year. The total volume of services exports has not decreased substantially year-on-year. Confidence indicators have also slightly improved.

6. However, it has to be stressed that outlooks for this and next year are highly uncertain everywhere in the world. This is also reflected by the growth figures of the EU and single Member States published on Friday.

7. In addition to increasing the flexibility of the markets, the measures taken by the financial sector and the government are also very important against the backdrop of domestic and global factors.

8. Estonia's banking sector has enough capital and liquidity to support restructuring in the real economy. Also, the analysis performed in the course of the IMF Staff Visit confirmed that no short-term loans, which would make the economy vulnerable, are needed to finance the economy. The banks operating in Estonia have to clearly realise that the financing of the economy must continue also in more complicated times. The lending decisions of banks should be based on longer-term favourable outlooks.

9. But it is clear that now the primary goal is the adoption of the euro and the sustainability of public finances. Eesti Pank has emphasised that the budget grew too fast over the past years, largely due to increasing current expenditure. As a result, a large part of the corrections needs to be achieved by adjusting current expenditure. A further rise in the tax burden is a limited solution in the current economic situation.

10. The key issue of Estonia's fiscal policy is not so much the adoption of the euro, but ensuring sustainable public finances in the next years. Looking at longer-term growth potential, it would be advisable not to achieve this by excessive increases in the tax burden.

11. To sum up, I would like to stress that structural changes are taking place in the economy, with the private sector taking very serious steps. Estonia's fiscal policy and the financial sector are now obliged to maintain and support the first results of economic stabilisation. This is the only way to create and preserve confidence in the economic growth outlooks and to accelerate the start of a new investment based growth cycle.

Further information:
Viljar Rääsk
Public Relations Office
Telephone: +372 6680 745, +372 5275 055
viljar.raask [at]