IMF: Estonia needs to raise its competitiveness

On 5 May the Executive Board of the International Monetary Fund (IMF) approved the 2014 report on Estonia’s economic situation and outlook. In the report, the IMF highlighted the development of Estonia’s competitiveness, but also noted that it is threatened by rising wages and prices. For the first time, the report on Estonia was released simultaneously with a joint report covering all three Baltic states, which emphasized that Estonia, Latvia and Lithuania all need to work to improve their competitiveness in future.

The IMF assessment was that the slowdown in Estonian economic growth last year was partly caused by one-off factors, and the expectation is that growth will accelerate in 2014 and 2015 with support from both external and domestic demand. Estonian competitiveness indicators are generally good, but rising wages and prices could have a negative impact on them in future. The IMF finds that the main challenge for Estonia, Latvia and Lithuania is to maintain their competitiveness and to continue to improve it. Raising competitiveness will require the Baltic states to keep their labour cost growth in line with productivity, address the problems of high structural unemployment, focus on exports of knowledge-intensive products and services, and jointly contribute to making infrastructure connections to the EU better and more varied.

“We completely share the IMF opinion that it is most important for the economic development of the Baltic states that the three countries increase their competitiveness”, said Ardo Hansson, Governor of Eesti Pank. “Estonia will benefit more from the recovery in the European economy if the wage pressure that has increased in recent years does not limit the competitiveness of companies in export markets. This makes it important for Estonian labour to match the needs of companies and for labour market measures to ensure this happens”.

The IMF highlighted in its report the significance of Estonian fiscal policy in supporting economic development. “Eesti Pank also believes it is important that Estonian fiscal policy maintain and strengthen confidence in the local economic environment in the years ahead”, said Mr Hansson.

The IMF finds that Estonia has taken a great stride forward in creating a more comprehensive and stronger framework for macro-financial supervision. The IMF welcomes Estonia’s commitment to maintaining a strong financial system despite the major changes taking place in Europe, and it believes that the Estonian authorities should continue to work closely with the Nordic banking supervision bodies when implementing the banking union, in order to ensure financial stability.

The report approved by the IMF Executive Board is based on the thorough article IV consultation report on Estonia from March this year, for which IMF representatives spent almost two weeks meeting figures from the public and private sectors in Estonia.

Source: Bank of Estonia

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