Bank of Estonia allocated 25 pct of its profit to the state budget

The Supervisory Board of Eesti Pank decided on May 7, 2013 to transfer three quarters of the 34.1 million euros it made in profit last year to strengthen its capital. One quarter of last year’s profit, or 8.5 million euros, is to go to the state budget.

“The Supervisory Board of Eesti Pank confirms the long-standing strategy for profit distribution that the central bank gives the state up to 25% of its profit. The Supervisory Board decided today to give the maximum permitted under this strategy. Eesti Pank will cover part of the profit distribution from its share of the income that the central banks of the euro area earned last year from the Greek government bonds bought within the framework of the bond purchase programme” said Chairman of the Supervisory Board of Eesti Pank, Jaan Männik.

The ratio of Eesti Pank’s capital to the risk assets used for monetary policy is the lowest of any of the central banks of the euro area. Last year the Supervisory Board set a long-term goal of increasing its capital to 3.5 times its then level, meaning an increase in capital of around one billion euros to 1.3 billion euros.

The Supervisory Board decided that the relative level of Eesti Pank’s capital should increase to the average level of the central banks of the euro area, as the balance of risks to the capital of the Eurosystem as a whole is considered when joint monetary policy decisions are made.

Last year, Eesti Pank received 51.6 million euros in income from the joint monetary policy and currency issuance activities of the Eurosystem, which is made up of the national central banks of the euro area and the European Central Bank. In 2011 income from this source was 20.2 million euros. Earnings from investment activities were 8.1 million euros last year, and 14.7 million in the previous year. Eesti Pank’s operating expenses fell last year to 16.2 million euros from the 19.4 million of 2011.

Since 1992 Eesti Pank has allocated a total of 123 million euros to the state budget.

Background Risks to Eesti Pank in monetary policy The risks to Eesti Pank under the currency board came from the investments of the central bank and from the banking system. When Eesti Pank became a euro area central bank, it also took on the risks of the euro area as a whole, which are mainly related to monetary policy operations.

The Eurosystem is made up of the central banks of the euro area countries and the European Central Bank. The Eurosystem divides the income and costs of the single monetary policy, so that the income earned from monetary policy loans to euro area banks is divided among the central banks to match their participation in the Eurosystem, and the same is done with risks. Eesti Pank’s participation in the Eurosystem is 0.26 per cent.

The Eurosystem’s monetary policy operations currently fall into two groups, monetary policy loans to commercial banks, which stood at 852 billion euros at the end of April, and the Securities Markets Programme, SMP, which stood at 203 billion euros.

Hedging of monetary policy risks To hedge against the risks of the monetary policy loans, the central banks of the Eurosystem have the right of claim against banks that have taken loans. The content of the collateral is the equity of the bank that has taken the loan. The euro area central banks only give out loans if collateral is provided, meaning that if the bank cannot pay back its loan to the central banks, then the central banks can instead take the collateral. If even this is not enough, the credit risk for the central banks is reduced by the national authorities and their desire to recapitalise their insolvent banks.

The SMP is backed by the promises of governments to meet all their obligations in full, meaning that if governments fail to meet their obligations fully or partially, including their obligations to the central banks of the euro area, then the euro area central banks suffer the loss.

The capital of central banks and its importance In this case, the capital of Eesti Pank and the other central banks is taken in the wider sense to mean the part of the reserves and capital that the bank can use to cover losses.

The level of capital of the central bank is important because a central bank that has little or negative capital can cause two sorts of public concern. The first is the question of the central bank’s independence if the bank needs to ask the government for additional capital. The second is the question of how much the central bank really wants to meet its inflation targets, which will then cause increased public expectations of inflation. The result of both these concerns is a loss of trust and of public faith that the central bank will be able to keep inflation under control successfully.

Source: Bank of Estonia

Estonian Air to get 40 MEUR for bailout

The Estonian government announced yesterday that it had approved Estonian Air’s restructuring plan and planned to give the airline a 40.7-million-euro bailout, reports Äripäev.

Most of the money would be used by Estonian Air to pay back earlier government loans with interest. Before giving the money to the airline, the government must request permission from the European Commission.

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Minister gets threat calls

Estonian Minister of Economic Affairs Juhan Parts said yesterday at a press conference that he has received a tsunami of angry phone calls since his phone number was handed out at the most recent demonstration on Monday.

“There have been quite a lot of calls, to be frank,” Parts said at a government press conference yesterday.

“I have answered a few of them as well, but they were quite appalling and I don’t want to publicly disclose their content,” the minister said.

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Estonia had lowest government debt in EU

Estonia had the lowest government debt measured as a ratio to gross domestic product (GDP) in the European Union last year, standing at 10.1% of GDP as of the end of the year, Eurostat said on Monday.

The next smallest ratios were those of Bulgaria, 18.5%, Luxembourg, 20.8%, Romania, 37.8%, Sweden, 38.2%, and Latvia and Lithuania, both 40.7%.

Estonia also had the lowest government deficit in percentage of GDP, measuring 0.3% of GDP and putting the country second only to Germany, which had a government surplus of 0.2%. Sweden had a deficit of 0.5%, Bulgaria and Luxembourg both of 0.8%, and Latvia 1.2%. The ratio for Lithuania was 3.2%.

In the euro area the government deficit to GDP ratio decreased from 4.2% in 2011 to 3.7% in 2012, and in the EU27 from 4.4% to 4.0%. The government debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012 in the euro area and from 82.5% to 85.3% in the EU27.

Fourteen member states had government debt ratios higher than 60% of GDP: Greece, 156.9%, Italy, 127.0%, Portugal, 123.6%, Ireland, 117.6%, Belgium, 99.6%, France, 90.2%, the United Kingdom, 90.0%, Cyprus, 85.8%, Spain, 84.2%, Germany, 81.9%, Hungary, 79.2%, Austria, 73.4%, Malta, 72.1%, and the Netherlands, 71.2%.

Source: Estonian Review

City of Tallinn sues government over street repair

Tallinn City Government has gone to court, seeking to annul the government regulation on distribution of funds for maintenance of local streets and roads void, reports ERR.

“The law requires that the state allocates 75% of the fuel excise duty proceeds for street repair, but the government hands to local governments less than 10 percent,” said Deputy Mayor of Tallinn Kalle Klandorf, adding that Tallinn should spend between EUR 30m and 35m a year for at least five years.

The government has accused the City of Tallinn of wasting its funds on maintaining free public transport system and creating a 20 million euro hole in its budget.

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Estonia’s general government debt leaped up in 2012

According to preliminary data of Statistics Estonia, in 2012 the Estonian general government sector deficit was 0.3% and the gross debt level was 10.1% of the Gross Domestic Product (GDP).

At the end of 2012, the total expenditures of the general government exceeded the revenues by 54.3 million euros, accounted as the Maastricht deficit criteria. The deficit of central government amounted to 135 million euros and in local governments’ sector, after ending in surplus in two previous years; in 2012 the expenditures amounted to 38.4 million euros more than revenues earned. The surplus of social security funds was 119.1 million euros, slightly less than in 2011 (-19%).

The level of central government’s expenditures was influenced the most by the expenses made in the account of proceeds from assigned amount units received in previous years (199 million euros) and the investments on the construction of roads: built roads worth 96 million euros were counted as state’s fixed assets in 2012.

The general government consolidated debt (Maastricht debt) rose nearly two times by the end of 2012: from 996.2 million euros to 1.7 billion euros. The lion’s share of the increase resulted from the rapid growth in volume of central government’s long-term debt. Considerable role in this was played both by the loan from the European Investment Bank in amount of 385 million euros, taken for the construction of roads and co-financing the foreign projects, as well as by the involvement in the European temporary rescue mechanism, EFSF (European Financial Stability Facility). In 2012, the total liabilities towards the EFSF comprised 355 million euros, the biggest share of which (84%) constituted the participation in rescue package for Greece. In 2011, the share in EFSF, meant for the assistance of Ireland and Portugal was 13.7 million euros.

The overall debt level of local governments grew by 5% compared to the previous year. The volume of both short-term and long-term loans increased by 8.4% in total, at the same time the volume of the securities other than shares decreased by 4%. At the end of 2012, the social security funds did not contribute to the general government sector debt at all, as both the Unemployment Fund and the Health Insurance Fund did not use loanable money for financing their activities.

Since spring 2013, the calculations of Maastricht debt and deficit levels include also the estimations of SA KredEx, as the unit is reclassified to the general government sector after the consultations with Eurostat, because the unit is acting as the non-market producer. Statistics Estonia will conduct further calculations concerning all government finance statistics by the time of publication of relevant statistics in September.

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Estonia records EU’s lowest government debt in Q3

Estonia had the lowest government debt to gross domestic product (GDP) ratio at 9.6% at the end of the third quarter, according to the latest data from the EU’s statistical office Eurostat.

Estonia was followed by Bulgaria (18.7%) and Luxembourg (20.9%).

Latvia’s figure stood at 40.4% and was the sixth lowest government debt across the European Union, while Lithuania’s government debt amounted to 40.6%, the seventh lowest in the EU.

The highest ratios of government debt to GDP were recorded in Greece – 152.6%, Italy – 127.3%, Portugal – 120.3%, and Ireland – 117%.

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Current account surplus 58 MEUR in November

The current account of Estonia’s balance of payments had a surplus of 58.2 million euros in November, according to a flash estimate by the Bank of Estonia. In October the current account was in deficit by 135.2 million euros, revised figures by the central bank show.

In November exports of goods totaled 1.157 billion euros and imports 1.106 billion euros, resulting in a surplus of 51.4 million euros. In the services account exports totaled 325.2 million and imports 261.2 million euros, producing a surplus of 64 million euros.

In the income account the net result was outflow in the amount of 86.4 million euros and in the current transfers account the result was inflow in the amount of 29.2 million euros.

The capital account had a surplus of 58 million euros in November, whereas the financial account inclusive of reserve assets ran a deficit of 48.4 million euros.

In direct investments, 55.2 million euros left Estonia and 48 million euros was invested abroad in November. The balance of portfolio investments was positive by 55.9 million euros, whereas 2.6 million euros left Estonia as other investments during the month.

Source: Estonian Review

Estonia is one of the freest countries

Freedom House, an organisation based in New York in the United States, has once again placed Estonia among the most free countries in its list of world political and human liberties. Freedom House gives out points from one to seven regarding political rights and civil liberties. The countries that were given one point in each category are the freest and those that were given seven points have the smallest liberties.

Estonia, along with most countries of the European Union, received one point for both political rights and civil liberties. Estonia received exactly the same assessment last year.

There were 195 countries on the list this year. In the opinion of Freedom House there were 90 free, 58 partly free, and 47 non-free countries in the world last year. Freedom House finds that 43% of the world population live in free countries; 23% live in partly free and 34% of the world population live in non-free countries.

Compared with last year’s table Lesotho, Senegal, Sierra Leone and Tonga have risen from among partly free countries into the list of free countries. The Ivory Coast, Egypt and Libya climbed from among non-free countries to among partly free countries. Mali made the biggest fall from among free countries into the list of non-free countries. Guinea-Bissau fell from a partly free country into a non-free country.

In accordance with Freedom House a free country has open political competition, an atmosphere of the respect of human rights, significantly independent civil life and independent media.

In a partly free country respect of political rights and civil liberties is limited, a partly free country often has a high level of corruption, weak respect for laws, an atmosphere of ethnic and religious hatred, and one force dominates on the political landscape despite the existence of several parties. In a non-free country there are no basic political rights and civil liberties are violated widely and systematically.

Source: Esatonian Review

Social Democrats call for extraordinary elections

Opposition party Social Democrats say that extraordinary elections are the only way out from the political crisis that Estonia is in today.

The party made a statement on Monday in which it called other parliamentary parties to hold extraordinary elections.

„The government’s long-term unwillingness and inability to communicate with the third sector and social partners, the inability of ruling parties to see the society’s expectations for a more honest and open government, the Reform Party’s financing scandal and the public perception that the members of the government and the parliament are deliberately lying to the voters have pushed Estonia into one of its deepest political crises after the restoration of independence,” the party said in its statement.

Other parties announced it was a bad timing for such a move because the parliament was currently deciding the next year’s draft budget.

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