The annual discussion of Estonia's economic situation and outlook (the so-called discussions of Article IV consultations) resulted in the International Monetary Fund (IMF) acknowledging Estonia's economic progress and rapid convergence towards the average level of the European Union. However, the IMF also drew attention to significant economic policy risks, stressing the importance of strong fiscal policy as well as prudent financial supervision and banking analyses.

"The IMF's report is thorough as usual. The Fund stresses the effectiveness of the policies implemented in Estonia so far and gives important recommendations for balancing economic growth and reducing risks related to overheating," commented Andres Lipstok, Governor of Eesti Pank.

According to Lipstok, the Estonian Government and the central bank take the IMF's recommendations with utmost seriousness. Governor of Eesti Pank affirmed that Estonia's main economic policy priority is currently to support a soft landing, with the sizable budget surplus and the further cooling of the loan market playing the key role.

"The IMF also stresses the significance of cooperation between the Nordic and Baltic banking supervision authorities. This is only natural since in the single European market the risks related to the banking and financial system can only be hedged through direct and regular cooperation between the Member States," the Governor said.

In order to maintain economy's competitiveness, it is vital that wage growth and productivity growth level off. The robust wage increase and over-optimistic wage expectations should be curbed and productivity growth should pick up compared to last year," Lipstok added.

The Fund said that markets would accept a three or four year delay in the changeover to the euro. Any further indefinite postponement, though, would bring about uncertainties.
The report is based on the IMF mission's visit to Estonia from 2 to 14 May 2007, in the course of which annual economic policy discussions were held with representatives of the Estonian state and private sector. The concluding statement of the IMF is available on the Fund's web site at www.imf.org and on Eesti Pank's web site at http://www.eestipank.info/pub/en/majandus/IMF/hinnangud.html.