Fitch affirms Estonia’s sovereign rating at its current level

According to the press release published on 31 January 2008, Fitch Ratings affirmed the Republic of Estonia’s long-term foreign currency and local currency Issuer Default Ratings at A and A+, respectively. The outlook was changed to negative from stable.

“In Fitch’s opinion, risks caused by the global financial market turbulences have increased in Eastern Europe as a whole. The fact that Estonia’s outlook was changed to negative means the likelihood of the country’s rating being downgraded over the next year or two has increased,” commented Deputy Governor of Eesti Pank Märten Ross.

In Ross’ opinion, affirming the country’s ratings at their current A/A+ level is the most important for Estonia. “Fitch believes that a soft landing is the principal economic development scenario for us,” he said.

At the same time, the agency’s decision reflects the risks that accompanied previous years’ rapid economic expansion. “Fitch’s analysis refers to Estonia’s fast credit growth and current account deficit, as well as to increased inflation. Still, the main reason why the outlook was changed is the global financial market turbulences of the past six months,” commented Deputy Governor Ross.

According to Märten Ross, Estonia’s economic indicators clearly show the risks characteristic of the previous year have started to withdraw. “The domestic demand growth rate is inhibiting and the growth of bank loans is also slowing rapidly, whereas our exports growth remains strong and the current account and trade deficits are decreasing vigorously. Estonia’s further growth in the changed economic environment will be supported by the strong financial sector and the budget planned with a surplus. The uncertainties apparent in the global financial market have not had a considerable impact on the Estonian banking sector,” he added.

The last time Fitch provided its assessment to Estonia was in July 2007, when the country’s rating was affirmed at A1 with a stable outlook. On 22 January 2008, the rating agency Standard & Poor’s affirmed Estonia’s sovereign rating at level A, leaving the outlook negative. In July 2007, Moody’s affirmed our sovereign rating at A, changing the outlook to stable form positive.

The translation of the Fitch press release will be published on the web site of Eesti Pank.

More money was spent on Christmas presents

According to Statistics Estonia, in December 2007 the retail sales of retail trade enterprises were 5.4 billion kroons, which is 630 million kroons more compared to December 2006.

In December 2007 compared to December of the previous year, the retail sales of goods of retail trade enterprises increased by 4% in constant prices. The growth in retail sales that had stayed around 20% at the beginning of 2007, slowed down significantly at the end of the year. The deceleration of the growth rate of retail sales has been influenced by a high comparison basis of the previous year, as well as by rapid growth in the prices of food products. In December 2007, compared to December of the previous year, retail sales increased in most economic activities. The biggest growth (21%) was in other specialized stores, such as stores selling computers and their accessories, books, photographic supplies, games, toys, etc. Stores selling textiles, clothing and footwear were also successful, where the sales increased by 18% compared to December 2006. Compared to November 2007, in December the retail sales in retail trade enterprises increased by a fifth in constant prices.In December the revenues from sales of retail trade enterprises were 6.4 billion kroons, out of which the retail sales of goods accounted for 85%. Compared to December 2006, the revenues from sales increased 9% in current prices, and compared to November 2007 — 18%.According to the preliminary data the retail sales of retail trade enterprises were 53.6 billion kroons in 2007, compared to 2006 the retail sales increased 14% in constant prices.

Retail trade enterprises retail sales volume index, January–December, 2006–2007
(corresponding period of previous year = 100)


Mining and use of oil shale to be based on interests of state

For the first time in Estonia, the draft development plan for the use of oil shale produced on the initiative of the Ministry of the Environment deals with the mining and use of one of the country’s most nationally significant resources, taking into account its effects and bearing in mind the state’s interests.

“Oil shale is Estonia’s national wealth, thanks to which we are able to supply ourselves with the electricity we need,” said Minister of the Environment Jaanus Tamkivi. “In other words, oil shale is a resource of strategic importance to the state, but until recently the state’s interests in its mining and use had not been set out.”


This led to a situation in which permits for the mining of almost 24 million tonnes of oil shale per year had been issued by 2005, with applications for the mining of an additional 26 million tonnes also being received. All valid applications had to be processed, and there was practically no legal basis for refusing to issue permits.


In March 2006 the Estonian parliament, the Riigikogu, approved an amendment to the Earth’s Crust Act calling a halt to the processing of applications for permits to mine oil shale until the endorsement of the national development plan for the use of the resource. Work on the development plan was then delegated by the government to the Ministry of the Environment.


“The plan is now complete and states quite clearly that oil shale must be used as efficiently and in as environmentally friendly a way as possible, with the state’s primary interest being the uninterrupted supply of electricity and heating energy to Estonia’s consumers,” Tamkivi explained.


This means that the best possible technology must be applied in the mining and processing of oil shale, and that both it and the natural resources that accompany it must be used in an economical way, producing as little negative environmental and social impact as possible. “We have to do everything we can to make sure that our oil shale lasts, because if it does it will ensure our energy security and sustainable development,” the minister said. “That is why we are also moving towards a gradual reduction in the amount being mined.”


The draft plan prescribes an annual mining limit of 20 million tonnes. As the permits that have been issued allow larger amounts of oil shale to be mined, the ministry reached an agreement with mining companies for the reduction of these amounts. In order for the maximum mining volume and the justifications for refusing to issue mining permits to be legal, the Ministry of the Environment produced a draft amendment to the Earth’s Crust and Sustainable Development Acts alongside the draft of the development plan.


The draft version of the National Development Plan for the Use of Oil Shale 2008-2015, its implementation plan, the strategic assessment reports on environmental impact and the amendments to the Earth’s Crust Act have been submitted for approval through the e-law channel. The Riigikogu will have the final word on both the development plan and the amendments to the act.


Source: Estonian Ministry of the Environment

Developments in line with central bank’s forecast

According to Deputy Governor of Eesti Pank, MÄRTEN ROSS, who gave a presentation at a business lunch of American Chamber of Commerce Estonia on 25 January, Estonia’s economy is adjusting as expected.

“While Estonia’s domestic demand has decreased, the exports growth has remained strong and external balance is showing signs of improvement. Although price pressures are decreasing in some sectors, the agenda of indirect tax increases and the rise in global food prices will have an impact on the inflation indicator in the near future. Price growth will slow down in the second half of 2008,” said Ross. “The external economic environment is somewhat more complicated as well. It is yet uncertain to what extent the global financial turbulences will influence this year’s European economic developments,” said Ross, adding that in the changed economic conditions, Estonia’s further economic growth will be supported by the strong financial sector and the surplus-orientated budget.

“One of the key factors in maintaining Estonia’s competitiveness is our labour market flexibility which, if necessary, would contribute to a rapid relocation from less efficient companies to those that are more competitive and all this together with a relevant training,” commented Ross.

For the presentation of Märten Ross, see the web site of Eesti Pank:

Loan market in line with the soft landing of the economy

In December 2007, the total volume of loans and leasing issued to Estonia’s private persons and companies grew by 1.4% and the annual growth rate declined from 51.5% in 2006 to 30.2%. The cooling of loan market reflects the soft landing of the economy to a more balanced growth path where changes take place primarily due to slower domestic demand growth. In December 2007, the number of issued housing loans decreased approximately 60% compared to the same period a year ago. The uncertainty in global financial markets has not had a substantial impact on the Estonian banking sector.

The high level of competitiveness of and positive outlooks for exporting companies are supported by the fact that the growth rate of loans issued to them increased to 25% by December 2007.

The quality of loan portfolios of Estonian banks is good and banks’ loan losses are small in international comparison, although a certain increase in the share of loans overdue is inevitable in the context of economic slowdown. At the end of December 2007, the volume of loans overdue more than 60 days was 1.6 billion kroons, i.e. 0.7% of the loan portfolio. The quality of housing loans which account for the largest share in the portfolio is better than average.

In 2007, the net profit of the banking sector was 7.4 billion kroons which is more than half as much as in the same period a year ago. The growth was largely driven by the increasing profits earned by subsidiaries on other markets. The return on equity of banks rose almost to 30% and their efficiency improved as well, as evidenced by the 35.3% decline of the cost-income ratio.

In December, the average interest rates on long-term corporate loans and housing loans were 6.2% and 5.8% respectively. In recent months, the interest rates on new loans have continued to reflect the changes in the Euribor and the average margins have not changed considerably against the Euribor.

Since January 2008 Eesti Pank publishes once a month a comment on the key indicators of the financial sector. The relevant statistics and its publication schedule is available on the web site of Eesti Pank at

Mobile Communication Penetration in Estonia at 136 Percent

The penetration of mobile communication services in Estonia was 136.4 percent at the end of last year, data by the technical watchdog show.

“According to our data there are 136.4 SIM cards per 100 people in Estonia,” deputy director general of the Technical Surveillance Authority Priit Soom said.

Mobile penetration crossed the 100 percent mark in 2005.

Mobile communication operators traditionally release their customer numbers together with economic results.

Source: Ministry of Foreign Affairs

EU Planning Free Market of Emission Quantities as of 2013

The European Union’s executive Commission has unveiled plans for combating climate change, according to which national energy sector pollution quotas would be eliminated as of 2013 and companies would have to start buying quantities of greenhouse gases on the EU’s common market.

“Regarding (emissions) trade, the new plan does not embrace our sore point, oil shale, and since around 90 percent of the pollution in Estonia is generated in the energy sector it puts us in a very difficult position,” deputy secretary general of the Environment Ministry Allan Gromov said.

In his words, energy companies would under the European Commission’s present plan have to buy pollution quantities from the bloc’s common pot from 2013 onwards.

Gromov said the ceiling of emission quantities in Estonia could be raised in agriculture and transport. “However, it will certainly take another two to three years before these proposals materialize as concrete decisions and directives,” Gromov added.

The Commission’s proposals have to be approved both by EU member states and by the European Parliament before coming into effect.

Source: Ministry of Foreign Affairs

Number of Births Increased Significantly in 2007

kaisa-and-vika.jpgThe decrease in the size of Estonia’s population slowed down last year as a result of an increase in the number of births, the Statistical Office said.

Estonia’s population numbered 1,340,600 as of Jan. 1, 2008, according to a preliminary estimate by the office.

The difference between the number of registered deaths and births in 2007 was roughly 1,800 and the size of the population decreased by 0.13 percent due to negative natural growth, compared with a reduction of 0.2 percent in 2006.

Natural increase remained negative, that is, the number of deaths still exceeded the number of births.

However, 864 more births were registered in 2007 than in 2006. A total of 15,741 live births were registered at registry offices in Estonia last year. The number of deaths was 17,548 and their number increased by 232 compared to the previous year.

In the course of the year 7,057 marriages were contracted, which is about 100 marriages more than in the previous year. The number of divorces was 3,810 and their number remained on the same level as the previous year.

Source: Ministry of Foreign Affairs

Standard & Poor’s left Estonia’s sovereign rating unchanged

On 21 January 2008 Standard & Poor’s Ratings Services affirmed its ‘A’ long-term foreign currency rating on the Republic of Estonia. The outlook remained negative.

“The decision by Standard & Poor’s to affirm Estonia’s credit rating on the current level ‘A’ is in line with the assessment of Eesti Pank according to which Estonia’s economic growth is moderating. Standard & Poor’s has taken into consideration the deceleration of domestic demand growth, stabilisation of current account deficit and the slowdown of credit growth in Estonia in 2007. In particular, the Ratings Services stresses the critical importance of strong fiscal policy,” commented Andres Sutt, Deputy Governor of Eesti Pank.

“The assessment by Standard & Poor’s expresses vividly how the decrease in trade deficit that has accompanied the decelerating pace of domestic demand growth and the sizable budget surpluses contribute to maintaining Estonia’s economic credibility. It is of equal importance that banks show responsibility in credit lending and continue financing worthy investment projects,” said Sutt and added that according to Eesti Pank’s estimates, the loan quality does not cause problems for banks in the context of current economic development.

On 2 July 2007, Standard & Poor’s affirmed Estonia’s sovereign rating at the level ‘A’, but revised its outlook from stable to negative. In July 2007 Moody’s affirmed its rating at the level ‘A1’ revising its outlook from positive to stable. Also in July 2007, Fitch Ratings affirmed Estonia’s sovereign rating at the level ‘A’ stable.

The Estonian translation of Standard & Poor’s press release is published on the web site of Eesti Pank at

Estonian Funds May Get Right to Invest on Alternative Market

The finance committee of the Estonian parliament has initiated a bill on amendments to the investment funds bill so it would permit funds to invest money also on the alternative market.

The alternative market is an analogue of the securities’ market where it is possible to substantially trade with securities in the same way, but at the same time the requirements to the issuers of these securities are lower than on the securities exchange, as one of its main aims is to make it possible for small companies to get access to additional capital.

Besides, according to the European Union’s investment funds directive, investment funds can invest their assets into securities traded on the alternative market in case such a market is recognized by the member country, regularly organized, and it is possible for the public to obtain or expropriate securities through its medium.

The Financial Supervisory Authority has also given its endorsement to the amendment.
In Estonia preconditions for the establishment of an alternative market at the Tallinn stock exchange have been created, but until the present no company has listed its shares on it.

Source: Ministry of Foreign Affairs