Estonian state budget 2016

The planned expenditures of the draft state budget for 2016 are 8.9 billion euros, a growth of 4.2 percent or 358 million over the 2015 budget. The general government budget is projected to reach a structural surplus of 0.6 per cent of GDP.

Defense expenditures will reach 2.07 per cent of forecast GDP. This means an increase of 37.1 million euros, or 9 per cent over 2015. The national defense budget of 451 million euros will ensure the development of defense capabilities.

Read more from the report of the Estonian Ministry of Finance here

EC: government aid to Estonian Air was illegal

The Estonian national airline will fold following a decision by the European Commission that funding given to the company by the Estonian government was not in line with EU regulations. The company, founded in 1991, does not have the funds to pay back the state and will declare bankruptcy.

The Commission began an investigation into Estonian state aid to the company in 2013, with Estonian authorities waiting for a decision ever since.

Today, on November 7, the Commission ruled that the around 90 million euros given by the Estonian government to the company, gave the company an competitive advantage over others. This means the government must demand the full amount, plus interest, back from Estonian Air. The state had also earmarked a further 40 million euros, which would have been given to Estonian Air in case of a positive decision. That money will now go to the Nordic Aviation Group.

Commissioner Margrethe Vestager, in charge of competition policy, said: “Companies should compete based on a sustainable business model rather than relying on continued support by the State to stay in the market. Estonian Air has repeatedly received public subsidies over the past five years but did not carry out the necessary restructuring to become viable as a business. It would not be a good use of taxpayer money to keep Estonian Air in the market artificially – nor would it be fair to competitors, which have to compete without such support.”

The crunch question for the Commission was whether a private investor would have acted the same was as the Estonian state, pouring in as much money on the same conditions – if the state aid corresponded with market conditions.

The Commission ruled that Estonian Air received support three times, although EU regulations allow state aid to be given only once a decade. The Commission also ruled that the company did not have a credible restructuring plan and that measures aimed at limiting the distortions of competition were not sufficient.

The end

The government has set up two companies, which will begin to take over from Estonian Air. One (Nordic Aviation Group) will manage Estonian Air’s routes, while the other (Transpordi Varahaldus) will take on lease contracts.

Economy Minister Kristen Michal said on Friday that if a negative decision is made, then the Estonian Air fleet will be grounded from Sunday.

He said those at their destinations will be flown back home and those with tickets for future flights, will receive compensation. Those with an Estonian Air ticket have been asked to go to or call +372 605 8888 for more information.

The board of Estonian Air today decided to halt all business activity from Sunday, November 8.

The company serviced around 500,000 people annually in the last few years, giving employment to 200 people.


It is a sad ending for a company, which became a symbol for newly re-independent Estonia at the beginning of the 1990s.

The company was founded during turbulent times but helped Estonia establish connections with the West. In 1995, the company purchased two brand new Boeing aircraft, giving a boost to a nation trying to rebuild from over 50 years of occupation.

Between 1996 to 2010 the state relinquished controlling shares in the company, and only purchased the company back in 2010 to ensure it did not go bankrupt.

Since 2009, the government has handed around 135 million euros into the company in capital injections, state aid and restructuring aid. The last time the company earned a profit was in 2005.

In 2012, losses amounted to over 50 million euros, from a turnover of less than 100 million. Until then, and after, losses were far smaller. The reasons for 2012 losses were in the company’s drive to expand. In 2011 the state hired Tero Taskila, a Finnish expert who came with a much criticized 30,000 euros per month salary, to take the company to another level. Yet, the plans to expand the company failed. Estonian Air was also hit by higher fuel prices, troubles with aircraft and salary increases.

In 2013, the company embarked on a large-scale restructuring path, cutting its fleet and the number of destinations. Staff numbers were halved.

Source: ERR

Estonia rocked by corruption scandal

The Internal Security Service KAPO on Sept.22, 2015 detained Tallinn Mayor Edgar Savisaar as a suspect for repeatedly accepting bribes.

The Center Party chairman is suspected of repeatedly accepting bribes in 2014 and 2015 in assets and favors for himself as well as for a third party with a total value of several hundred thousand euros.

Read more from BBN

The increase in the current account surplus- reasons

The surplus on the current account of the balance of payments increased in the second quarter of this year to equal 6% of GDP. Corporate income tax was the cause of the large change, as it is calculated separately for large dividends. External sector statistics treat exceptionally large dividends as a reduction in a company’s equity, and so it is not the size of the dividend that affects the calculation of the current account, but rather the income tax applied to it. In technical terms this meant a reduction in the outflow of direct investment, and this in turn increased the current account surplus.

On top of corporate income tax receipts, the current account surplus increased due to a reduction in the outflow of investment income that stemmed from lower profitability for foreign owned companies and an increase in the surplus on the goods and services account. Unfortunately this increase came not from increased growth in the exporting sector, but from a reduction in imports of goods. This reflects the low level of investment activity and may prove an obstacle to GDP growth in the near term.

Given a current account surplus, it is to be expected that external assets grew faster than liabilities. This growth continued in the second quarter of this year, and by the end of June the Estonian net international investment position, which shows the gap between assets and liabilities, had dropped to -38% of GDP. Estonia’s external liabilities have not been so small in net terms in the past 15 years.

Source: Bank of Estonia

Author: Andres Saarniit, Economist at Eesti Pank

Estonia’s highest ever surplus – 5.9% of GDP

The current account of the Estonian balance of payment recorded its highest ever surplus in the second quarter of 2015 at 308 million euros, or 5.9% of GDP, which is more than two and a half times larger than in the same quarter of last year. The main contribution to the growth in the surplus came from the primary income account, which shows labour and investment income, and from the trade account. Having been in deficit to a large degree for years, the primary income account showed a small surplus in the second quarter, while the deficit on the goods account decreased1. Exports and imports of goods and services had a positive balance of 295 million euros on the current account, with exports 3% below their level of the same quarter in the previous year, and imports 4% below theirs.

The deficit in the export and import of goods fell by around one fifth over the year to 196 million euros as imports declined faster than exports did. Imports of goods crossing the Estonian border were 242 million euros larger than exports going the other way. The turnover of goods under merchanting, which are those bought abroad by Estonian merchants for sale in a third country, made up 14% of the turnover of exports and imports of goods, and sales of goods under merchanting exceeded purchases of such goods by 46 million euros.

Exports and imports of services were down by 1% and the surplus from exports and imports of services was the same size as in the second quarter of last year at 491 million euros. There was a decline in the surplus of travel services and transport services, two important services sectors, while the positive balance of other business services increased its share slightly. The surplus in construction services increased almost fourfold at the same time.

The investment and other income account recorded a net inflow in the second quarter2 as a sharp fall in the outflow of direct investment income meant that the inflow of income exceeded the outflow by 13 million euros. The outflow of direct investment more than halved as income tax on superdividends3 was paid to the Estonian state.

The net inflow of labour income and subsidies for production from European Union funds increased somewhat, but remained at about the same level as last year.

The surplus on the capital account increased in the second quarter mainly because of the 69 million euros received in investment support from the European Union Structural Funds.

The net total of the current and capital accounts, or net lending (+) or borrowing (-), saw a surplus of 376 million euros in the second quarter, meaning that the Estonian economy was a net lender to other countries. This was reflected as a net outflow of capital on the financial account of the balance of payments as foreign direct investors reduced the equity of their direct investment companies in Estonia. Credit institutions brought capital in from their external accounts, which was reflected on the cash and deposits account under other investments, with the result that the external assets of the central bank, reflecting the deposits of the banks at the central bank, increased.

Eesti Pank will release the statistics for the balance of payments and the external debt for the third quarter together with a comment on 9 December.

1 All comparisons have been drawn on an annual basis, if not indicated otherwise.

2 Net flow = inflow minus outflow. If the inflow exceeds the outflow, there is a net inflow, if the outflow exceeds the inflow there is a net outflow.

3 Superdividends are on-off dividend payments that are treated as a reduction in equity and shown in the financial account.

The structure of the current account

Net lending (+) and net borrowing (-) and the total current and capital account


Source: Bank of Estonia

The current account at 25 Meur in surplus in July

The flash estimate1 put the Estonian current account at 25 million euros in surplus in July 2015. Activity in the Estonian external economy has declined in recent months and the volumes of credit and debit on the current account have been smaller than a year earlier for four months. Exports of goods, services and investment income were all down in July and imports of goods, services and income were all less in July than they were a year previously.

Capital income was boosted by active use of grants from the European Union Structural Funds, and the surplus on the current and capital account stood at 56 million euros in July. The Estonian economy has been a net lender to the rest of the world throughout 2015, so the country as a whole invested more resources abroad than it received from there.


1 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 (see graph here)

Estonia with lowest public debt level

public debt


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