The current account was close to balance in April 2017

The flash estimate1 put the Estonian current account at 9 million euros in deficit in April 2017. The surplus on the goods and services account was 21 million euros, which was 16 million euros less than a year earlier. Goods exports were down by 3% over the year and imports by 1%, meaning the deficit on the goods account widened by 22 million euros to 109 million euros. One cause of the decline in foreign trade in April 2017 was that there were two fewer working days than in the previous April. The surplus on the services account was 130 million euros, which was 6 million euros more than at the same time a year earlier. Services exports grew by 8% and imports by 9%. The net outflow on the primary and secondary income accounts increased by 10 million euros to 30 million euros.

The current and capital accounts were in surplus by a total of 5 million euros in April, meaning Estonia was again a net lender to the rest of the world.

The quarterly balance of payments is compiled from a combined system of representative primary data sources, including surveys of companies, while the monthly balance of payments draws from a considerably smaller database. Although the monthly report uses as much data available for the month reported as possible, including administrative data sources and reports on international payments, it is subjective to a certain degree, which is why it is called an estimate. Once the quarterly balance of payments is released, the monthly balances of payments are adjusted accordingly.

Source: Bank of Estonia

Current account remains in surplus with backing from strong exports

  • The current account was unusually in surplus in the first quarter
  • More was paid back in debt liabilities to investors than was received as new investment in the country
  • The threat of external imbalance in the economy receded and the economy is close to the limits set by the European Commission

The surplus on the current account was 99 million euros in the first quarter, or about 2% of GDP of the same quarter. The current account was in surplus in the first quarter for the first time since 1993. The balance was more positive than usual mainly because of fast and quite broadly based growth in services exports and an unusually small net outflow of income. Estonia’s trading partners are doing well and so the demand for Estonian goods and services has increased. Sectors like transport services and oil production that had earlier been a drag on export growth are either approaching the bottom or have already reached it and are now starting to grow again. On the income side, the outflow of investment income was reduced primarily in the banking sector, but an important role was also played by one-off factors like fines paid to the Estonian state.

New direct investment of 188 million euros was made in the first quarter into the equity capital of foreign-owned companies, which is double the average of the past five years. At the same time, earlier direct investment was reduced by 177 million euros, meaning that the net sum was a modest inflow of new money into the country. Overall the total amount of direct investment in Estonia still declined, as more was paid back in debt liabilities to investors than was received as new investment. Estonia’s direct investments abroad increased slightly, and also at the expense of debt investments.

Estonian assets abroad grew more in the first quarter overall than external liabilities, so Estonia was a net lender. The net international investment position, which is the difference between external assets and external liabilities, continued to improve and climbed to -36% of GDP. This means Estonia is very close to the minimum set by the European Commission of -35%1. The Estonian economy is currently in a position where external demand has recovered and so the confidence of companies is relatively high. As further economic growth can mainly be achieved through investment and increased productivity, it is probable that net lending to the rest of the world cannot continue to this extent.

The European Commission looks at the net international investment position as one of the indicators of possible imbalances in an economy, and it has set the threshold for where the threats appear at -35% of GDP.

Source: Bank of Estonia

Author: Kristo Aab, Economist at Eesti Pank

Jaak Aab becomes minister of public administration

President Kersti Kaljulaid appointed Jaak Aab (Center) Estonia’s new minister of public administration on Thursday. Aab replaces his party colleague, Mihhail Korb, who resigned after a remark that he didn’t support Estonian NATO membership caused unrest in the coalition.

Aab stressed that he considered it to be his task to work towards strong local governments everywhere in the country, saying that the office of minister of public administration was doubtlessly a very busy one now that the Administrative Reform Act was being implemented.

The Center Party had always stood for an equally good life for everyone in Estonia, no matter where, Aab said. “Over the years life in rural areas and in smaller towns has died away, people have left for the capital or moved abroad. This process needs to be stopped, and if possible reversed,” he added.

The efforts to move part of the state’s administration away from Tallinn needed to continue, Aab said. The government’s planned investment in roads, broadband access, and regional programs would help creating an even living quality across Estonia.

Aab also supports the investment program announced by the coalition for Ida-Viru County. Most recently his predecessor called for €20 million in annual investments over the next ten years, with the funds coming out of environmental fees paid by the local oil shale processing industry.

The state’s plan to abolish the county governments and reallocate their tasks to local municipalities as well as state authorities would also be a demanding job, the new minister added. All in all, the field of work facing him was certainly broad, Aab said. “The aim can only be to have more Estonia outside Harju County, so to say. Mihhail Korb worked towards that aim, and so will I,” Aab stressed.

Aab will be sworn in in the Riigikogu on Monday.

Source: ERR News

Estonian general government debt declined

According to the preliminary data of Statistics Estonia, in 2016, the Estonian general government surplus was 0.3% and the gross debt level was 9.5% of the gross domestic product.

At the end of 2016, the total revenues of the general government exceeded the expenditures by 56.7 million euros, accounted as the Maastricht deficit criteria, and all sub-sectors ended the year positively. By the end of 2016, the surplus of revenues of the central government sub-sector was 13.8 million euros and the consolidated budget of the local government sector was 35.8 million euros in surplus. The budget surplus of social security funds decreased to 7.1 million euros, continuing the declining trend for the fifth year in a row.

The consolidated debt of the general government (Maastricht debt) amounted to nearly 2 billion euros by the end of 2016, having fallen 3% compared to 2015. The local governments as well as the central government contributed to the fall of the debt level. At the end of 2016, the debt of the central government sub-sector totalled 2.2 billion euros of which 822 million euros were liabilities towards other sub-sectors. The local governments’ debt accounted for 0.7 billion euros. Social security funds did not contribute to the debt of the general government sector.

The loan liabilities of the central government decreased by 3% and the volume of long-term securities issued by the public-legal institutions and foundations belonging to the central government decreased by 7%. The share of foreign debt in the central government’s loan liabilities was 52%.

The overall debt level of the local governments fell by 3% compared to 2015. The volume of long-term securities decreased by 2% over the year and the liabilities of loans decreased by 3%. Liabilities towards the rest of the world accounted for 21% of the local governments’ debt.

Surplus/deficit of the general government in Estonia by sub-sectors, 2008–2016

In Estonia, the general government sector comprises three sub-sectors: 1) central government (state budget units and extra-budgetary funds, foundations, legal persons in public law); 2) local governments (city and rural municipality governments with their subsidiary units, foundations); 3) social security funds (Estonian Health Insurance Fund, Estonian Unemployment Insurance Fund).

Source: Statistics Estonia

Transferring public-sector jobs out of Tallinn

During the March 23rd Cabinet meeting, the government discussed a plan for moving 1 000 public sector jobs out of Tallinn, which would affect approximately 40 state authorities. Each ministry presented proposals for its own area of administration, which would coordinate the organizational activities for the transfer of jobs. The exact action plans will be submitted by the ministries, to the Government, in May.

“The Government’s objective is to increase the state’s presence all over Estonia and to make the labour market of the country’s regions more diverse. We have become accustomed to the fact that, outside Tallinn, there are state employees who provide direct services to residents. Developments in technology and e-services also allow so-called backroom officers to work and live in their preferred areas all over Estonia,” said Minister of State Administration, Mihhail Korb.

In the movement of jobs to county centres, the focus is particularly on central government authorities, of which about 55,000 people were employed as of last year; of these, 45 percent are in Tallinn. In particular, the jobs that can be moved to these regions involve day-to-day operations that do not depend on location. The plan isn’t to take the constitutional institutions and ministries, or the agencies providing services to residents and businesses of the capital and of nearby areas, out of the capital. An analysis, taking into account the broader plan, was carried out in 2016 within the framework of the preparation of the analysis of state tasks.

“The plan was drawn up taking into account three important points: the quality of public services must be maintained, restructuring costs should remain within reasonable limits, and particular areas should have the prerequisites needed in order to find the necessary employees,” said Mihhail Korb.

The job functionalities that are most likely to be moved to the various regions are those where a state authority is expanding a branch, or where an entire work unit can be moved, or a partial unit can be located in another city. An example of the branch expansion solution was the State Shared Service Centre, which in addition to Tallinn, has added offices in Tartu and Viljandi.

First, the State Real Estate Ltd (RKAS), together with every Ministry, will map and analyse the real estate opportunities in county centres and cities of particular regions, taking into consideration the necessary conditions for job creation. Then, the RKAS will make proposals for the placement of jobs in the regions in order to have as little impact on operations as possible, or while not inhibiting the activity of the authority at all. At the same time, methods will be used for the placement of various state authorities in one building in order to create synergies between the institutions and provide easier access to public services. After that, the authorities will be able to start preparing the job transfer processes, which are planned to be completed by 2019.

During the debate over moving jobs out of Tallinn, Cabinet members highlighted the need to analyse telework job creation opportunities. The Minister of Public Administration was assigned to analyse, in cooperation with other ministries, the existing practices of the organization of telework, and to provide proposals for opportunities for expanding telework.

The Ministry of Finance will further analyse, in cooperation with the relevant ministries, the options for moving state enterprises and foundations out of the capital. A relevant analysis will be presented to the Cabinet in the autumn of 2017.

Source: Estonian Ministry of Finance

County governments’ activities are terminated

The Government decided on Jan.12, 2017 that all county government activities shall be terminated on 1 January 2018. The local tasks of the county governments shall be transferred to the local authorities and the state tasks shall be transferred to ministries and existing departments.

Minister of Public Administration Mihhail Korb is of the opinion that the current regional administration arrangements need changing. The county governments today have very few tasks remaining and that volume of tasks is set to be reduced further when after the administrative reform the larger and stronger local authorities are to receive more tasks. “The county government reform will enhance the decision-making rights on the local authority level, establish clarity regarding task distribution between state bodies and remove agency duplicity,” said Minister of Public Administration Mihhail Korb. “At the same time the counties will continue to exist as state administrative units, with the state providing the necessary services to the population. No required state service will disappear, but the service provision quality and availability at county centres will be streamlined. The local authorities will be providing the locally needed services.”

As a result of the reform, the local authorities will be able to engage in planning of county developmental activities, coordination of county cooperation, vital statistics, additional cultural undertakings and regional public transport improvements.

The ministries will be responsible primarily for organisation of supervision in different spheres, land actions, implementation of regional development programmes and compilation of state planning documents.

Preparation for the termination of county government activities has been entrusted to the Ministry of Finance, with March 2017 set as the date for submitting the plan to the Government.

Source: Estonian Ministry of Finance

State revenue was 7.6 pct higher than in 2015

According to the Ministry of Finance, a total of € 8.58 billion of revenue was received by the state in 2016, which is € 603.1 million, or 7.6%, more than the previous year.

“Last year, the state received tax revenue in the amount anticipated in the budget. I am also pleased to note that the expenditures of public authorities were within the budget as usual,” said Sven Sester, the Minister of Finance. “For the future, we hope to increase growth enhancing public investments.”

Tax revenues, including the taxes to be transferred to local authorities, the Unemployment Insurance Fund, the Health Insurance Fund, were received in the amount of € 7.53 billion, which is 5.7% or € 404.1 million more than the previous year.

Social tax receipts increased 6.5% (to € 2.55 billion) and VAT collection improved 5.7% (to € 1.96 billion). Excise duties were collected 11.2% more than a year ago, i.e. a total of € 970.5 million. The revenue from excise duties was affected by the stocking up of alcohol and fuels in anticipation of increases in tax rates in 2017.

The taxes to be transferred to local authorities, the Unemployment Insurance Fund, the Health Insurance Fund, and others were received in the amount of € 1.26 billion, which is 6.5% more than the previous year.

Non-fiscal revenues were received in the amount of € 1.1 billion – € 198.9 million more than in 2015. Of this, € 168.2 million came from the sales of goods and services; the rest of the revenue received was € 127.1 million.

The amount of aid received was € 616.4 million, including € 601.7 million of EU and other external aid, and € 14.6 million of domestic support. In 2016, we received external financing 62.2%, or € 230.8 million, more than in the previous year. The biggest part (298.4 million) or nearly 50% of external financing came from EU structural funds. Furthermore, € 119.7 million came from the European Agricultural Fund for Rural Development (EAFRD). Other agricultural payments received amounted to € 134.4 million, of this, € 35.5 million constituted of the instruments of the financial period 2007-2013 received in December.

Overall spending in 2016 came to € 8.56 billion, including € 575.8 million of external financing. Aid payments in the amount of € 4.05 billion, including € 410 million paid from external financing, constituted the bulk of expenditure. Other operating expenses constituted a total of € 2.71 billion, the major share being tax revenue, payments and other charges paid to local authorities, the Health Insurance Fund, the Unemployment Insurance Fund and other relevant authorities.

Labour and administration costs constituted 98.9% of the planned budget. Labour costs increased by 3.4% compared to 2015, constituting € 747.2 million. Administration costs increased 3.5%, constituting € 737.7 million at the end of December.

Last year, € 330.4 million was allocated to investment, which is € 116.1 million less than in the previous year. Public authorities invested, € 299.3 million, i.e. € 38.1 million less than in the previous year. Investment aid was paid in the amount of € 31.1 million. The level of investment was the lowest it had been in the last six years, mainly due to the investments made on account of external financing.

In the previous financial period, in 2007-2013, significantly more external financing was allocated to investments, such as: infrastructure, roads, transport, and real estate. In the current financial period, 2014-2020, more support has been given to services, the labour market, and education measures, cooperation and development programmes, and other development and mentoring programmes targeted to people.

Public authorities planned € 322.9 million in investments during 2016; nearly half of this amount, i.e. € 142.8 million, was invested by the Ministry of Economic Affairs and Communications into the construction and improvement of public roads. Investments have followed a similar trend every year – the spending levels are low in the first five months of the year and payments increase in the second half of the year due to large-scale subcontracting.

External aid was paid in the form of expenses and prepayments, in the amount of € 575.8 million, of which structural aid constituted € 293.2 million. Most disbursements made, were made in the area of government of the Ministry of Rural Affairs: € 228.6 million, the bulk of which constituted payments from the European Agricultural Guarantee Fund in the amount of € 127.2 million. The payments in the area of government of the Ministry of Economic Affairs and Communications amounted to € 159.9 million, including support to the strengthening of entrepreneurship and the development of transport.

In the current financial period 2014-2020, € 4.4 billion is available to Estonia from the structural and investment funds; additional funding can be obtained under various programmes and from different funds. If Estonian applicants continue to apply successfully, it is estimated that nearly two billion euros could be obtained for the implementation of various projects.

As of the end of December, the treasury held liquid financial assets, i.e. deposits and bonds, in the value of € 1.19 billion, which is € 44.5 million or 3.9% more than in December 2015. The liquidity reserve held € 765.3 million and the stabilisation reserve € 405.9 million.

At the end of November, the nominal general government deficit was € 24.4 million or 0.12% of the GDP. The deficit of the budgets of local authorities amounted to € 65.4 million. The central public deficit was € 86.8 million and the deficit of social security funds was € 3 million.

Source: Estonian Ministry of Finance