Republic of Estonia · Disclaimer (I/II) 1 The following applies to this document, the oral...

Republic of EstoniaInvestor presentation

25 May 2020

Disclaimer (I/II)

1

The following applies to this document, the oral presentation of the information in this document by the Republic of Estonia (“Estonia”) or any

person on behalf of Estonia, and any question-and-answer session that follows the oral presentation (collectively, the “Information”).

In accessing the Information, you agree to be bound by the following terms and conditions. This document is not intended for distribution to, or

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The Information does not constitute or form part of, and should not be construed as an offer or the solicitation of an offer to subscribe for or

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Disclaimer (II/II)

2

The Information which relates to countries other than Estonia has not been independently verified and no responsibility is accepted, and no

representation, undertaking or warranty is made or given, in either case, expressly or impliedly, by Estonia or any of its officers or advisers as

to the accuracy, reliability or completeness of the Information or as to the reasonableness of any assumptions on which any of the same is

based or the use of any of the same. Accordingly, no such person will be liable for any direct, indirect or consequential loss or damage

suggested by any person resulting from the use of the Information which relates to countries other than Estonia or for any opinions expressed

by any such person, or any errors, omissions or misstatements made by any of them. The statements contained in this presentation are made

as at the date of this presentation, unless another time is specified in relation to them, and delivery of this presentation shall not give rise to

any implication that there has been no change in the facts set forth in this document since that date. Save as otherwise expressly agreed,

none of Estonia, its officers or its advisers should be treated as being under any obligation to update or correct any inaccuracy contained

herein or be otherwise liable to you or any other person in respect of any such information. Market data used in the Information not attributed

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This presentation may contain statements, statistics and projections that include words such as "intends", "expects", "anticipates", "estimates"

and words of similar import. All statements included in this presentation other than statements of historical facts, including, without limitation,

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PROSPECTUS OR OFFERING CIRCULAR FOR ANY SECURITIES.

Table of contents

3

I

II

III

IV

V

VI

VII

VIII

Introduction p. 4

Economic Developments p. 10

Banking Sector p. 22

Fiscal Discipline p. 26

Educated and Competitive Estonia p. 32

COVID-19 Response p. 36

Debt Management p. 40

Contemplated Transaction p. 43

Introduction

4

Republic of Estonia in a nutshell

5

Estonia

Estonia

Tartu

Tallinn Narva

Pärnu

Republic of Estonia

Population (1) 1,328,976

Territory 45,227 km2

Capital Tallinn

Currency Euro

Nominal GDP (2) EUR 28,037 million

GDP per capita (2) EUR 21,163

GDP growth in 2019 (2) 4.3%

Unemployment rate 2019 (2) 4.4%

Credit ratingsS&P: AA- positiveMoody's: A1(u) stableFitch: AA-(u) stable

Largest export destinations (2)

Finland: 16.30%Sweden 10.50%Latvia: 9.09%USA: 6.78%Germany: 6.30%

Euro area membership 1 January 2011

OECD membership 9 December 2010

EU membership 1 May 2004

NATO membership 29 March 2004

UN membership 17 September 1991

Independence restored 20 August 1991

Declaration of independence 24 February 1918

(1) Statistics Estonia, as of 1.1.2020

(2) Statistics Estonia, 2019 full year

Small, fast-growing and dynamic Northern European country

1991 1999 2004 2010 2011 2017 2019

Regains

Independence

EU

membership

Joins the

WTO

UN membership

In 1993 first local bond issued, 300m Estonian

kroons (EUR 19.2m)

In 2002 first Eurobond issued, EUR 100m

Joins NATO Joins EMU, and

adopts Euro currency

OECD

membershipEU presidency

Latest parliamentary

elections

2020

Non-permanent

member of UN

Security Council

Estonia’s credit rating on a positive track

6

Estonia is firmly in the AA category of European countries with low debt-to-GDP ratio

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

S & P Fitch Moody's

A1AA-

Estonia became a member of the EU

Estonia joined theeuro area

AA-

AAA/Aaa

AA+/Aa1

AA/Aa2

AA-/Aa3

A+/A1

A/A2

A-/A3

BBB+/Baa1

BBB/Baa2

BBB-/Baa3

Estonia’s credit rating development

Credit rating comparison

Source: Standard & Poor’s, Fitch Ratings, Moody’s, all as of 15 May 2020

Development of general government gross debt as % of GDP

• Estonia has been able to improve its credit

rating firmly into the AA category over the

years, and the trajectory is still upwards

• As the latest development, S&P assigned a

positive outlook to Estonia’s AA- rating at

the end of February 2020

• Estonia credit rating is approaching (and

sometimes above) that of its western

European peers

• General government debt has remained

extremely low even in times of economic

distress during the financial crisis and the

euro crisis

Country S & P Outlook Moody's Outlook Fitch Outlook

Estonia AA- positive A1 stable AA- stable

Austria AA+ stable Aa1 stable AA+ positive

Finland AA+ stable Aa1 stable AA+ stable

France AA stable Aa2 stable AA negative

Belgium AA stable Aa3 stable AA- negative

Ireland AA- stable A2 stable A+ stable

Lithuania A+ stable A3 positive A stable

Latvia A+ stable A3 stable A- negative

0%

20%

40%

60%

80%

100%

120%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Estonia Ireland Finland Germany

Austria Euro area France Belgium

Source: EurostatSource: Standard & Poor’s, Fitch Ratings, Moody’s, as of 15 May 2020

Key credit highlights of Estonia

7

Strong growth and dynamic economy

• Estonia has a robustly growing economy with annual GDP growth averaging 4.9% from 2017 to 2019(1)

• With a flexible, dynamic and diversified economy, Estonia has a history of recovering swiftly from economic downturns

Strong external performance

• Estonia is a small open economy, and the export sector represented 72.6% of GDP in 2019(1)

• The export base has expanded significantly with growth driven by high value-added Information, Communications and Technology andprofessional services sectors and the country has competitive and large electronics manufacturing sector

Fiscal prudence

• Estonia has the lowest general government debt level of any EU country at 8.4% of GDP in 2019(1)

• Fiscal prudence has been tight over the economic cycles, and the government does not seek to diverge from the established track record

• Taxes are low, providing competitiveness and a buffer for fiscal balancing, and tax structure is growth-boosting with low deadweight losses

Sustainable economic policies

• Estonia’s economic policies have supported future growth and competitiveness by investing in education and research and development

• Estonia’s investments in education have resulted in the best scores of any western country in latest PISA student assessments – evidence that the country is nurturing a future generation of experts and increased competitiveness

Strong institutions and governance

• Stable and strong institutional and governance landscape characterise Estonia with continuity in key policies and high ranking in Worldwide Governance Indicators

• Estonia is a free society with open debate of policy issues, freedom of information and low corruption

Dynamic labour market

• Unemployment rate in Estonia was only 4.4% in 2019(1) and the country has the second-highest employment rate in the EU at 68.7% in 2019(1)

• Competitiveness has remained strong despite substantial wage increases due to robust productivity growth, and Estonia has a proven track record of being able to adjust wages in an economic downturn

Stability from international cooperation

• International cooperation is the base for sustained stability for Estonia, with the country having joined both the EU and NATO in 2004

• Estonia joined the EMU and eurozone in 2011, and has benefited from the ECB’s proven track record of clear policy goals, monetary policy independence and a wide arsenal of monetary policy tools at its disposal

Stability of the banking sector

• Estonian banks have on average the highest CET1 ratios in the EU(2), and one of the lowest NPL ratios in the EU at 0.4% at the end of Q1 2020(3)

• Deposits have grown by nearly twice as much as private sector credit, and banks have expanded their funding mix by starting to issue bonds

• The banking sector is dominated by Nordic-owned banks, whose parent companies have historically supported their subsidiaries, but also the local banking sector is growing

Timely COVID-19 response

• Estonia was quick to react to the COVID-19 pandemic, declaring emergency on 12 March 2020 and implementing various restrictions

• EUR 2.8 billion Supplementary Budget (10.8% of GDP) has been approved to support businesses, individuals and the healthcare sector

• COVID-19 will lead to a substantial government budget deficit, and Estonia expects its total funding requirement for 2020 to be EUR 3.78 billion, with additional EUR 1.2 billion needed in 2021(4)

Estonia‘s strengths range from its dynamic economy to its strong institutions

Source: (1) Eurostat; (2) ECB; (3) Bank of Estonia; (4) Ministry of Finance

Estonian Centre Party, 25 seats

Conservative People's Party of Estonia, 19 seats

Isamaa ("Fatherland"),

12 seats

Estonian Reform Party, 34 seats

Social Democratic Party, 10 seats

Unaffiliated MPs, 1seat

Government56 seats

Opposition45 seats

0 101

Estonia has a stable government

8

Estonia is renowned for good governance and effective political system

Current Estonian Parliament composition – strong government

8.3 10.0

16.7 16.7 16.720.0 20.0 21.4 21.4

25.0 25.0 25.028.6 30.0 31.3 31.4

40.0 40.0 40.0 41.7 41.7 41.7 41.7 41.7 42.9

50.0 50.0

58.3

0

10

20

30

40

50

60

SVK ISL AUS BEL PRT EU FIN ITA GBR ESP CHE SVN LUX HUN NLD OECD CZE DNK NOR AUT DEU IRL POL SWE LVA FRA GRC EST

20

17

-20

18

Res

po

nsi

ven

ess

Rat

e In

dic

ato

r

Estonia is an agile country in making reforms – top performer as measured by OECD’s reform responsiveness rate indicator

• Governance in Estonia is renowned for its efficiency

• OECD assigned Estonia the highest score in its

reform responsiveness rate indicator in its 2019

study

• Estonia has a strong majority government made of a

centre-right coalition

• The latest parliamentary election was conducted in March

2019 and the parliament has a 4-year term

• Record number of women were elected to the

parliament in the election, and Estonia has a female

president

• The state budget strategy for the years 2020-2023 has

five priorities: 1) family-friendly Estonia; 2) cohesive

society; 3) knowledge-based economy; 4) efficient

governance; 5) free and protected state

Source: Economic Policy Reforms 2019: Going for Growth, OECD

Source: Riigikogu

Key policy measures

9

The basic principles of the Government coalition are forward-looking

Government’s five priorities Main measures to achieve the targets

▪ Investments to the digitalisation of the economy and increases in state R&D financing. IT, robotics

and programming expanded in the national curriculum. Lifelong learning for adults.Knowledge-based economy

Higher productivity and

employment ▪ Investments into infrastructure – roads, railways, incl. Rail Baltic. Development of public transport

and importance of having a high-quality international air connection with Estonia.

▪ Efficiency of current family policy measures will be increased, support for multi-child and young

families. Measures to support the housing stock investments of local governments.Family-friendly Estonia

Lower poverty of children▪ Reform of the second pillar of pension system, which will allow people to opt out of the second

pillar pension scheme if they so wish.

▪ Extraordinary pension increase according to the possibilities of the state budget. More child welfare

workers and investments to detect children’s problems, including mental health.Cohesive society

Lower absolute and relative

poverty ▪ Investments in research and development – the goal is to increase private sector R&D expenditure

to 2% and public sector R&D expenditure to at least 1% of GDP.

▪ In order to stimulate both domestic and foreign trade, the excise duty on alcohol will be reduced by

25% and the increase in tobacco excise duty will be lower than previously agreed.

Efficient governance

Expenditure and employment of

the general government will not

increase

▪ Steps to reduce bureaucracy and administrative burden. Further development of e-state, enabling

electronic communication with the state in all fields.

▪ A broad-based audit of the state budget will be carried out, in the course of which all sources of

state revenue and expenditure will be reviewed and their purposefulness will be assessed.Free and protected state

Defence expenditure at least

2% of GDP ▪ Cybersecurity capabilities will be strengthened. Independent and consistent foreign and security

policy implemented, mainly through involvement in the European Union and NATO.

Economic Developments

10

-2%

0%

2%

4%

6%

8%

2011 2012 2013 2014 2015 2016 2017 2018 2019

Estonia Euro area

Belgium France

Latvia Finland

Private consumption expenditure

47%

Gross fixed capital formation and valuables

26%

General government final

consumption expenditure

20%

Net exports4%

Change in inventories

2%

Final consumption expenditure of non-profit institutions serving

households1%

Estonia – the growth story

11

Estonia’s economy has grown strongly for many years, outpacing peers

Source: Eurostat

Real GDP Growth

Source: Statistics Estonia

GDP by expenditure, 2019

• Robust domestic demand and strong exports have been key drivers for the strong GDP growth of around 5% in real terms

from 2017 to 2019

• Estonia has been one of the fastest growing economies in the EU during the 2010s as it rebounded quickly from the financial

crisis and avoided the stagnation many EU countries suffered from

• Supported by strong institutions and with increased focus on high value-added sectors like ICT, Estonia’s relatively small

and dynamic economy has a solid basis for future growth

• With a diverse sectoral split, GDP growth is not overly dependent on the contribution of just one sector

Estonia’s GDP – sectoral split

12

Service sectors playing an ever larger role whereas construction has slowed down

Composition of gross value added by sector, 2019

Source: Statistics EstoniaSource: Statistics Estonia

Annual growth in selected sectors of the economy

-5%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016 2017 2018 2019

Manufacturing

Wholesale and retail trade; repair of motor vehicles and motorcycles

Information and communication

Real estate activities

Professional, scientific and technical activities

Manufacturing14%

Wholesale and retail trade; repair of motor vehicles and

motorcycles11%

Real estate activities

10%

Information and communication

7%Transportation

and storage7%

Construction7%

Public administration and defence; compulsory social

security7%

Professional, scientific and technical activities

6%

Education5%

Financial and insurance activities

4%

Human health and social work activities

4%

Others18%

-2

-1

0

1

2

3

4

5

6

7

2012 2013 2014 2015 2016 2017 2018 2019

Co

ntr

ibu

tio

n t

o V

A g

row

th,

per

cen

tage

po

ints

Agri Energy, mining Manufacturing Construcion

Trade Transportation ICT Finance

Prof.services Other


Contribution of different sectors to value added growth

Agriculture

Trade

Construction

FinanceICT

ManufacturingEnergy, mining

Transportation

OtherProf. services

Strong and dynamic labour market

13

Both low unemployment and high employment ratio drive the dynamic labour market

4.4 4.55.0

5.4

6.36.7 6.8

7.5

8.5

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Un

emp

loym

ent

rate

, % o

f ac

tive

15

-74

-ye

ar p

op

ula

tio

n, 2

01

9

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

2013 2014 2015 2016 2017 2018 2019

Long-t

erm

unem

plo

ym

ent,

share

of

tota

l unem

plo

ym

ent

Estonia Euro area Belgium

France Latvia Finland

-4%

0%

4%

8%

12%

16%

-1%

0%

1%

2%

3%

4%

2016 2017 2018 2019

Real pro

ductivity g

row

th,

% c

hange

on p

revio

us y

ear

Estonia wage growth (rhs) Estonia Euro area

Belgium Germany France

Finland

68.8 68.7 68.3

66.065.3 65.0

63.7

62.4

60.659.7

57.0 56.5

54%

56%

58%

60%

62%

64%

66%

68%

70%

Emp

loym

ent

rate

of

15

-74

yea

r-o

ld

peo

ple

, 20

19

Second highest employment rate in the EUSubstantial reduction in long-term unemployment

Source: Eurostat

Source: Eurostat

Source: Eurostat

Source: Eurostat

Very low unemployment rate Fast real productivity growth despite rising wages

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Work

ing p

erm

its g

rante

d t

o p

ers

ons fro

m

outs

ide E

U

Short-term working permits (up to 1 year)

Temporary residence permit for working(up to 5 years)

0% 10% 20% 30% 40%

0-14 years

15-24 years

25-49 years

50-64 years

65-79 years

80 years +

Estonia

Finland

Euro area

Migration has increased the workforce size

14

Estonia has experienced positive migration in recent years

Population by age groups 2019 - large working age populationIncrease in short-term foreign labour


Source: EurostatSource: Ministry of the Interior

Estonia has a positive net migration inflow

• At the end of 2019, Estonia’s economy had an unemployment

rate of only 4.4% and the employment rate had increased to

68.7%, second highest in the EU(1)

• The labour market conditions are tight, which has also

provided grounds for wage increases but productivity growth

has been robust

• Net migration has turned significantly positive both due to

Estonians returning to their homeland and foreign workforce

being imported

• Estonia’s working age population is also proportionately

larger than in many comparable countries

Source: (1) Eurostat

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2015 2016 2017 2018 2019

Net m

igra

tio

n, pers

ons

Estonian citizens EU citizens Russian citizens

Ukrainian citizens Others Net migration

Inflation at healthy levels

15

The fast-growing services sector and tight labour market are the main drivers of inflation

Source: Eurostat Source: Eurostat

Annual HICP* inflation rate in Estonia

Annual HICP by components in Estonia

Source: Eurostat

-2

0

2

4

6

8

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

% Food Goods Services

0

1

2

3

4

5

6

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

%HICP HICP excl. energy, food, alcohol and tobacco

0.0

0.5

1.0

1.5

2.0

2.5

3.0

% 2010-2018 avg 2019

HICP inflation rates in different countries

* The Harmonised Indices of Consumer Prices (HICP) measure the changes over time in the prices of consumer goods and services acquired by households.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

% o

f G

DP

Current account balance Goods Services

Primary income Secondary income

Balance of payments

16

Current account surplus shows that Estonia is a balanced and export-oriented economy

Current account balance peer group comparison, 2019

Source: Eurostat

Source: Eurostat


Development of current account balance as % of GDP

Exports development of high value-added sectors Net foreign direct investment inflow as % of GDP, 2019

0%

5%

10%

15%

20%

25%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

% o

f se

rvic

es e

xpo

rts

ICT services Business services

-9.4

-2.9

-1.2 -0.8 -0.8 -0.7 -0.5 -0.4

2.2 2.63.9

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

% o

f G

DP

in 2

01

9

Source: Bank of Estonia

3.4

1.5 1.3

0.5

-0.4

-1.4 -1.6 -1.9

-4.1

-5.5-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Net F

DI in

flo

w a

s %

of G

DP

in

2019

Active export sector and stable growth

17

Estonia is an export-driven economy - proven track record in recovering from shocks



Development of exports as % of GDP

62 6158 57

6166 63 63

6661

74

86 86 84 8177 78 76 74 73

0

10

20

30

40

50

60

70

80

90

100

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19Exports of goods and services, %

of GDP

-7

6.32.8

10.2

17.319.9

9.512.6

0.9

-20.3

24.2 24.2

4.82.8 2.6

-1.5

5.1 3.8 4.3 4.9

-30

-20

-10

0

10

20

30

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

% change YoY

Source: Eurostat

Export of goods and services

82.5

81.7

72.6

59.9

55.9

55.7

48

47.4

46.9

40

36.8

31.4

20% 30% 40% 50% 60% 70% 80% 90%

Netherlands

Belgium

Estonia

Latvia

Denmark

Austria

Euro area

Sweden

Germany

Finland

Norway

France

Exports of goods and services as % of GDP, 2019

• The volume of exports has grown at 4-5% annual rate over the

past 4 years. The growth can be attributed to the swift expansion

in the exports, especially in high value-added services exports

• Estonia also has a very good track record of recovering from

economic shocks such as the financial crisis or Russian sanctions

• Estonia has a high trade surplus and exports form a significant

part of the GDP

• The trade surplus arises from the high net export rate of

services whereas Estonia is a net importer of goods

• Downward trending share of exports in GDP is balanced by

increasing domestic demand due to increased domestic wealth

Export of goods and services, volume change YoY

28%

29%

30%

31%

32%

33%

34%

35%

0%

5%

10%

15%

20%

25%

30%

35%

2013 2014 2015 2016 2017 2018 2019

Shar

e o

f se

rvic

es e

xpo

rts

as %

of

tota

l exp

ort

s

% o

f to

tal s

ervi

ces

exp

ort

s

Transportation, storage Information & communicationManufacturing Professional, scientific & technicalConstruction Administrative & support servicesWholesale & retail trade Financial & insurance activitiesServices exports (rhs)

16.3%

10.5%

9.1%

6.8% 6.3% 6.1% 6.0%

4.1%3.8% 3.3%

2.6% 2.1% 2.0% 1.9% 1.5% 1.2% 1.1%0.4%

0.0

0.5

1.0

1.5

2.0

2.5

EU

R b

illio

ns

Exports of goods of Estonian origin, 2019

Re-exports, 2019

Estonia’s exports – sectoral split

18

Diversified exports with strong growth in high value-adding sectors



Composition of export of goods by country Composition of export of goods by sector


1

2

3

4

EUR

bill

ion

s

Exports of goods of Estonian origin, 2019

Re-exports, 2019

• The share of services in total exports has grown steadily

and was almost 35% in 2019. Information and communication

services are driving the development

• Goods continue to form the bulk of the exports and there the

stable Nordic countries are the biggest market, with the

other important markets being principally EU countries

• Estonia has an advanced electronics manufacturing sector

coupled with robust ICT exports, and also general

manufacturing sector plays an important role in goods exports

Development of services exports by sector

19

Imports increasing in nominal terms but slightly decreasing as a % of GDP

Import of goods and services, volume change YoY

Source: Statistics Estonia Source: Statistics Estonia


Import of goods and services, share in GDP

Composition of import of goods by country, 2019 Composition of import of goods by sector, 2019


65 65 65 6669 71 73 71 70

56

68

8084 81

7873 74 72 71 69

0

10

20

30

40

50

60

70

80

90

100

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

% o

f G

DP

-6.2

-30.6

21.3

27.2

9.7

2.4 3

-1.9

6 4.2 5.7 3.7

-35

-25

-15

-5

5

15

25

35

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

% c

han

ge Y

oY

12.6%

10.2%10.2%

9.4% 9.1%8.1%

6.3%

4.2%3.4%

2.5% 2.3% 2.2% 2.1% 2.0%1.5% 1.4% 1.1% 0.7%

0.0

0.5

1.0

1.5

2.0

2.5

EUR

bill

ion

s

1

2

3

4

EUR

bill

ion

s

Imports play a large role for a small economy

-6.2

-30.6

21.3

27.2

9.7

2.4 3

-1.9

6 4.2 5.7 3.7

-35

-25

-15

-5

5

15

25

35

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

% c

han

ge Y

oY

Household finances

20

Households have healthy finances backed by rising dwelling prices

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

EUR million%

Household debt as % of income, lhs

Disposable income, gross, rhs

Financial liabilities, rhs60

80

100

120

140

160

180

200

220

240Index, 2010=100

Total Apartments Houses

Dwelling price indices

Source: Statistics Estonia, Bank of Estonia Source: Statistics Estonia

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EUR million

Source: Pensionikeskus

Household debt relative to disposable income

60

65

70

75

80

85

90

95

100

105

110

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Index

Economic sentiment indicator

COVID-19 affects economic sentiment

Source: Estonian Institute of Economic Research

Net pension assets

Climate policy and energy sector

21

Estonia is largely self-sufficient in energy production and moving towards renewables

• Estonia has already met its 2020 renewable energy target of 25% in gross

final energy consumption and is on good track to meet the 2030 target of 42%

• Estonia is among the least dependent EU countries on energy imports thanks

to the oil shale reserves in Estonia and increasing renewable energy capacity

• Due to environment and climate policies, the share of the oil shale energy is

diminishing (production of oil shale electricity fell by half in 2019), and renewable

energy production is increasing

• Renewable energy made up 51% of total Estonian power output in the first

three months of 2020 (1)

• Of the renewable energy 49% was wind power, 47% biomass, biogas and

waste, and the rest hydroelectric and solar energy (1)

• In 2019, the renewables totalled 30% of electricity production (1)

• Renewable energy accounted for 24% of the total electricity consumption in

Q1 2020 (1)

• In 2019, the share of renewable energy was 21% (1)

• By 2030, the goal is to achieve a share of at least 30%

• Estonia aims to reduce greenhouse gas emissions by almost 80% by 2050

compared to 1990 emission levels

• This entails reduction of 70% by 2030 and 72% by 2040

• The objectives are in line with those of the Paris Agreement

• Estonia will also meet the EU’s 2020 renewable energy target, and supports

the EU’s long-term climate neutrality target by 2050

• Estonia’s strategy to reach emission reduction targets is based on:

➢ Increasing the share of renewables in the energy sector

➢ Reducing burning of oil shale and refining it into higher value-added products

such as shale oil and using the by-product gas for electricity

➢ Modernisation of the vehicle fleet and public transport

➢ Supporting the reconstruction of the building stock

30

40

50

60

70

80

90

100

CO

2 e

mis

sio

ns, In

dex,

1990 =

100

Estonia European Union - 28 countries

0%

5%

10%

15%

20%

25%

30%

35%

Share

of

renew

able

energ

y in

gro

ss

fin

al energ

y c

onsum

ptio

n

Estonia EU - 28 countries

Source: Eurostat

Source: International Energy Agency

Renewables play a large role in Estonia

Total emissions have come down drastically

Source: (1) Elering

Banking Sector

22

0%

1%

2%

3%

4%

5%

6%

7%

Interest rate on loans to households

Interest rate on loans to non-financial corporations

Interest rate on EUR deposits of households

Interest rate on EUR deposits of non-financial corporations

Interest rate on loans and deposits

Stable and profitable banking sector

23

Well-capitalised banking system with solid interest rate margins

Ownership structure of Estonian banking sector

Source: (1) Estonian Financial Supervision Authority; (2) ECB


Strong capital adequacy position

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2011 2012 2013 2014 2015 2016 2017 2018 2019

Total ratio Estonia CET1 ratio Estonia

CET1 ratio eurozone SIFIs Minimum total capital requirement

Sweden, 56.7%

USA, 14.6%

Finland, 6.5%

Norway, 6.5%

Estonia, 9.0%

Others, 6.7%

By owner’s residency as of 5 May 2020

• Estonia’s banking sector predominantly comprises subsidiaries of

larger, well-capitalised Nordic banks

• As of 5 May 2020, nearly 70% of the banking sector was Nordic-

controlled. The US share arises from Blackstone’s ownership share

of Luminor Bank

• The parent banks have a proven propensity to support their

subsidiaries if needed

• Estonian banks have on average the highest CET1 ratio of any

euro area country according to ECB’s Q4 2019 statistics

• Interest rate margins have been resilient and remain at

healthy levels, with the difference between interest on household

loans and deposits at 3.62% at the end of Q1 2020 (1)

(1) (1)

(1)(2)

Source: (1) Bank of Estonia Source: Estonian Financial Supervision Authority

0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

Dec-0

0

Dec-0

1

Dec-0

2

Dec-0

3

Dec-0

4

Dec-0

5

Dec-0

6

Dec-0

7

Dec-0

8

Dec-0

9

Dec-1

0

Dec-1

1

Dec-1

2

Dec-1

3

Dec-1

4

Dec-1

5

Dec-1

6

Dec-1

7

Dec-1

8

Dec-1

9

EUR billions Stock of non-residents' deposits, EURbn

Stock of residents' deposits, EURbn

Growth of deposits, % (rhs)

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Dec-0

0

Dec-0

1

Dec-0

2

Dec-0

3

Dec-0

4

Dec-0

5

Dec-0

6

Dec-0

7

Dec-0

8

Dec-0

9

Dec-1

0

Dec-1

1

Dec-1

2

Dec-1

3

Dec-1

4

Dec-1

5

Dec-1

6

Dec-1

7

Dec-1

8

Dec-1

9

Total growth of loan stock, %

Growth of loan stock to resident non-fin.corporations, %

Growth of loan stock to residenthouseholds, %

Sustained growth in loans and low NPLs

24

Non-performing loans have decreased substantially and lending growth is conservative

Development of non-performing loans Loan growth in the banking system

Source: Bank of Estonia Source: Bank of Estonia

Loan-to-deposit ratio


Growth of deposits


0%

1%

2%

3%

4%

5%

6%

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-19

Overdue loans, over 90days, share in loanportfolio, %

0%

50%

100%

150%

200%

250%

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-19

Loan to deposit ratio, %

Loan to deposit ratio ofresidents, %Loan to deposit ratio of non-residents, %

63.2

50.9

41.4 39.1 37.6

35.0 31.2

20.1

11.2 8.8

5.1 3.8

0

10

20

30

40

50

60

70

2014 2015 2016 2017 2018 2019

Outg

oin

g p

aym

ents

, E

UR

bill

ion

TOTAL USD

8.5%

6.6%

4.3%

1.3% 0.5% 0.3%

0.5%1.2%

3.6%

10.6%

9.6%

8.4%

10.0%

6.2%6.1%

19.1%

16.2%

12.7%

11.8%

7.9% 10.0%11.4%

9.2%

6.6%

2.8%

1.5% 1.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Share

of

tota

l deposits

Off-shore deposits Deposits from platform holders

Other non-resident deposis Non-resident total

All non-residents outside EU

Money laundering risks have declined

25

Estonia has taken multiple measures to tackle money laundering

Dynamics of non-resident deposits

Source: Estonian Financial Supervision Authority

Source: Estonian Financial Supervision Authority

• In recent years, Estonia has taken multiple steps to reduce the risks

of misuse of the banking system

• Combating money laundering has been a strategic priority

for Estonian FSA since 2016 and an area of focus since 2014

• Legislative changes to Money Laundering and Terrorist

Financing Act are currently before Parliament

• Forced and guided closures of high-risk business lines of

multiple credit institutions and total closure of Danske Bank’s

operations in Estonia

• The share of non-resident deposits in the banking system has

declined sharply and the non-resident composition has changed

with non-residents outside EU being only 1% of the total in 2019

• Outgoing payments, especially in USD, have diminished greatly

Outgoing payments per year, EUR billion

Fiscal Discipline

26

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e

Esto

nia

, EU

R m

illio

n

Forecast: Government revenue

Total government revenue

Forecast: Government spending

Estonia – Model for fiscal prudence

27

Prudent fiscal policy in long-term and low tax relative to GDP

-0.3

0.2 0.7 0.1

-0.5 -0.8 -0.6 -0.3

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

2012 2013 2014 2015 2016 2017 2018 2019

Govern

ment budget

deficit /

surp

lus, %

of G

DP

Estonia Euro area BelgiumIreland France Finland

22.6

32.8

38.7 40.1 40.542.2 42.3

44.8 45.1 46.5

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Ta

x-t

o-G

DP

ratio

in 2

018, %

Gross Debt-to-GDP ratio Tax-to-GDP ratio

Budget surplus/deficit Total general government spending and tax revenue

Total general government spending

Source: European Commission

Source: (1) Eurostat; (2) Estonian Ministry of Finance, forecasts as of 15 April 2020

(The forecasts on revenue and expenditure are subject to change)

Source: Eurostat

Source: Eurostat

8.4

35.1

48.6

58.8 59.4 59.8

70.4

84.1

98.1 98.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Genera

l govern

ment gro

ss D

ebt-

to-

GD

P r

atio

in

2019, %

(1)

(2)

(1)

(2)

Low tax rates boost competitiveness

28

Low tax rates provide competitiveness and buffer for fiscal balancing

12.5

20.0 20.021.4 22.0

25.0 25.0 25.0

29.932.0

10%

15%

20%

25%

30%

35%

Top

sta

tuto

ry c

orp

ora

te in

com

e ta

x ra

te in

20

20

, %

10.714.7 14.8 15.1

26.6 28.3 29.3 30.632.9

39.8

55.1

0%

10%

20%

30%

40%

50%

60%

Overa

ll im

plic

it tax r

ate

on c

apital in

2018, %

20.0

32.0

40.0

47.5 49.5 50.0 51.1 51.5 52.3 53.155.9

0%

10%

20%

30%

40%

50%

60%

Max

imu

m p

erso

nal

inco

me

tax

rate

in 2

02

0, %

33.237.2 37.3

41.9 42.6 42.746.7 47.9 49.4

52.2

0%

10%

20%

30%

40%

50%

60%

Tax w

edge o

n labour

in 2

019,

100%

of

earn

ings,

%

Tax on capital Tax wedge on labour

Corporate income tax Personal income tax maximum rate





The main principles of Estonian tax policy are (1) simple tax system and (2) broad tax base and low rates. The structure of the tax

system is growth-enhancing with relatively small deadweight losses, and the tax collection system is efficient. Taxes are divided into

state taxes and local taxes to ensure sustainable and socially and regionally balanced growth. CIT, PIT and VAT are all state taxes.

Social protection34.1%

Education14.9%

Health14.6%

Economic affairs 13.6%

General public services

8.1%

Defense5.6%

Public order and safety4.8%

Recreation, culture and religion3.8%

Housing and community amenities

0.5%

Government spending – future growth

29

Government spending aims to fuel future growth, with ageing not a serious problem

Education15%

Transport13%

Entrepreneurship and innovation

12%

Research and development

12%

Energy7%

Regional development

7%

Environment6%

Labour market6%

Other sectors22%

19.3

22.1

23.6

27.628.5

29.8 30.2 31.0

16

18

20

22

24

26

28

30

32

Perc

enta

ge p

oin

ts o

f G

DP

-0.8

2.12.6

3.03.6

4.1

5.0

6.3

-1

0

1

2

3

4

5

6

7

Perc

enta

ge p

oin

ts o

f G

DP

Estimated change in age-related spending 2016-2070

Change in age-related spending 2016-2070Age-related spending in 2016

Estonia’s age-related spending is at low levels

Source: The 2018 Ageing Report, European Commission Source: The 2018 Ageing Report, European Commission

Total sectoral EU contribution + own contribution: EUR 3.72bn


Distribution of the original state budget for 2020

Total state expenditure was approved at EUR 11.7bn

Source: Ministry of Finance

Distribution of European Structural Funds 2014-2020

Government invests in the future

30

Government spending in education and R&D aims to fuel sustainable future growth

Consistently high education expenditure

Government sector R&D expenditure comparison

Source: Eurostat

Source: Eurostat Source: Eurostat

7%

9%

11%

13%

15%

17%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Edu

cati

on

exp

end

itu

re, %

of

tota

lge

ner

al g

ove

rnm

ent

exp

end

itu

re

Estonia Ireland Belgium Finland

Austria Euro area Germany France

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Go

vern

men

t se

cto

r R

&D

exp

edit

ure

as

% o

f G

DP

Estonia Netherlands Denmark Ireland

• Education and R&D have been at the core of the government

policies during the past years

• Spending on education relative to total government

expenditure is the highest in the European Union at 15.8%

in 2018(1)

• Although government R&D expenditure relative to GDP is not a

high absolute figure, it compares well to peers

• The current government (elected in 2019) has a priority policy

objective to increase state financing of R&D to at least 1% of

GDP – more than six-fold increase from 2018

• Furthermore, the recent COVID-19 response package

includes support for domestic research and development of

tracking and tackling the coronavirus

Government investments are at a robust level in Estonia

4.9

4.2

3.63.4

3.1 3.02.8

2.6 2.52.3

2%

3%

3%

4%

4%

5%

5%

6%

Gro

ss fix

ed c

apital fo

rmatio

n, %

of

GD

P in

2019

Source: (1) Eurostat

14.2

12.010.9

10.1 9.89.1

8.57.8

6.55.5

4.63.3 2.9

0%

2%

4%

6%

8%

10%

12%

14%

16%

Pension system and social security

31

Pension system and social security funds deliver financial security to Estonians

Estonians stay in employment until an older age than peers

Source: EurostatSource: Pensionikeskus

I pillar: State pension

• Retirement age is ~64 years. By 2026, the retirement age will be

increased to 65

• The state pension operates on a PAYG basis

• The state pension is paid by the state mainly from social tax receipts.

II pillar: Mandatory funded pension

• Employees pay a monthly 2% of their gross salary to their selected

pension fund from an approved list, with the state adding 4%

• II pillar pension funds are privately managed

• The parliament aims to make II pillar voluntary

III pillar: Supplementary funded pension

• Voluntary contributions to a pension fund, with some tax benefits

• III pillar pension funds are privately managed

The Health Insurance Fund

• Receives the majority of its revenue from the Government, namely a

defined share of social tax collected

• Organizes national health insurance to provide insured people (over

90% of the population) with access to necessary healthcare services,

medicines, medical equipment and cash benefits

The Unemployment Insurance Fund

• Administers the social insurance provisions related to unemployment,

and organizes labor market services that help unemployed persons

find new employment

• Funded by insurance premiums (1.6% + 0.8% of gross salary)

The Estonian pension system consists of three pillars: There are two social security funds in Estonia

Employers pay 33% social tax based on the salaries of their employees, part of which is directly transferred to the health

insurance fund, with the remainder nominally allocated to the payment of the state pension

III Pillar

II

Pillar

I

Pillar

40%

65-70%

Expected pension, % of last salary

Pension system structure

Employment rate, persons 65 years or older, 2019The pillars I and II combined

provide about 40% of pre-

retirement income. The

additional saving of pillar III

should rise the total to

around 65-70%.

Educated and Competitive Estonia

32

17.4

21.6

25.9

28.7

31.1 31.433.1 33.7

34.836.0 36.5

38.540.7

15%

20%

25%

30%

35%

40%

45%

Lower secondary education or lower, % share of total 15-64 year population in 2019

The leading European country in education

33

Deep penetration and high quality of education – building blocks for future growth

Few people with only lower secondary education or lower

Source: Eurostat

High attainment of tertiary education

Source: Eurostat

Tertiary Education, % share of total 15-64-year population in 2019

15.816.9

18.719.5

20.8 21.0

23.4 23.7

25.5 25.9 26.1

28.0

10%

15%

20%

25%

30%Mean score in PISA 2018

Reading Mathematics ScienceAverage of Reading,

Mathematics, Science

Estonia 523 523 530 526

Finland 520 507 522 516

Poland 512 516 511 513

Ireland 518 500 496 505

Slovenia 495 509 507 504

United Kingdom 504 502 505 503

Sweden 506 502 499 503

Netherlands 485 519 503 502

Denmark 501 509 493 501

Germany 498 500 503 500

Belgium 493 508 499 500

Czech Republic 490 499 497 495

United States 505 478 502 495

France 493 495 493 494

Portugal 492 492 492 492

Austria 484 499 490 491

OECD average 487 489 489 488

Latvia 479 496 487 487

Spain - 481 483 482

Lithuania 476 481 482 480

Hungary 476 481 481 479

Italy 476 487 468 477

Luxembourg 470 483 477 477

Croatia 479 464 472 472

Slovak Republic 458 486 464 469

Malta 448 472 457 459

Greece 457 451 452 453

Cyprus 424 451 439 438

Romania 428 430 426 428

Bulgaria 420 436 424 427

Estonia is the top European country in PISA tests

Source: OECD, Programme for International Student Assessment, PISA 2018 results

0

10

20

30

40

50

60

70

80

90

100

Institutions

Infrastructure

ICT adoption

Macroeconomicstability

Health

Skills

Product market

Labour market

Financial system

Market size

Businessdynamism

Innovationcapability

Estonia CEE peer group average* Nordic peer group average**

Global Competitiveness Report

34

Estonia is characterised by dynamism, strong institutions and lead on ICT

Source: World Economic Forum, The Global Competitiveness Report 2019

* CEE peer group: Latvia, Lithuania, Slovenia, Slovakia, Poland, Czech Republic, Croatia, Hungary

** Nordic peer group: Finland, Sweden, Denmark, Norway, Iceland

Highlights for Estonia

• Despite being a small economy, Estonia ranks well in World

Economic Forum’s Global Competitiveness Report 2019

with the overall rank of 31

• Estonia’s strengths are firmly based on strong institutions,

adoption of ICT, macroeconomic stability, healthy and

skilled population, flexible labour market and dynamic

business environment

• Market size is an obvious drawback but at the same time

Estonia is an export-oriented economy, and World Economic

Forum sees room for improvement in infrastructure

compared to the peer group

Estonia ranked top 10 worldwide in sub-categories:

Category Estonia's rank

Banks' regulatory capital ratio 2

Competition in services 4

Credit gap 1

Debt dynamics 1

Digital skills among active population 8

Efficiency of seaport services 8

Electricity access 2

Flexibility of wage determination 1

Inflation 1

Mean years of schooling 4

Mobile-broadband subscriptions 5

Non-performing loans 7

Organised crime 5

Quality of land administration 6

Time to start a business 8

Trade tariffs 7

Trademark applications 9

Estonia’s performance by category

2

9

11

13

15

16

32

35

43

0 20 40

Finland

Belgium

Estonia

Germany

Ireland

Austria

France

Slovakia

Italy

2019 World Press Freedom Index rank

Stability and competitiveness

35

Estonia is a free and sustainably competitive society with effective governance

2

7

11

14

15

20

22

23

29

0 10 20 30

Finland

Estonia

Austria

Ireland

Germany

France

Slovakia

Belgium

Netherlands

6

10

14

20

22

27

29

48

64

0 20 40 60

Ireland

Estonia

Netherlands

Finland

Sweden

Germany

Austria

Belgium

France

Global Sustainable Competitiveness Index 2019 rank 2020 Index of Economic Freedom rank

Source: 2020 Index of Economic Freedom,

The Heritage Foundation

Source: 2019 World Press Freedom Index,

Reporters Without Borders

Source: The Global Sustainable Competitiveness Index 2019,

SolAbility

Press freedom Sustainable competitiveness Economic freedom

90

66

85

92

8790

94

60

8486

8890

88

52

92

84

89 88

75

61

80

86

79

64

50

55

60

65

70

75

80

85

90

95

100

Voice andAccountability

Political Stability andAbsence of Violence

GovernmentEffectiveness

Regulatory Quality Rule of Law Control ofCorruption

Perc

entile

rank

Estonia 2018 Belgium 2018 France 2018 Latvia 2018

Source: 2018 Worldwide Governance Indicators, World Bank

• Estonia has a strong, stable and well-

functioning governance system

• The country compares well to its Western

European peers in Worldwide Governance

Indicators

• Stable governance aids growth and

encourages investments into the country

• Business-friendliness is a key competitive

advantage for Estonia, and it ranks highly in

World Bank’s Ease of Business index, and is

also judged sustainably competitive

• Estonia is a free society with high rankings in

both press freedom and economic freedom

Strong governance framework in Worldwide Governance Indicators

Ease of doing business

10

18

20

22

24

27

32

42

46

0 20 40

Sweden

Estonia

Finland

Germany

Ireland

Austria

France

Netherlands

Belgium

Source: Doing Business 2020,

World Bank

2019 Ease of Doing Business index rank

COVID-19 Response

36

COVID-19 response and effects

37

Rapid response to the COVID-19 pandemic

▪ Self isolation of people with COVID-19 and their families

▪ All public gatherings banned. Museums, theatres, cinemas, spas, swimming pools etc. were closed

▪ Schools and universities closed. Individual local governments to decide on opening of the kindergartens

▪ Border controls introduced on March 17th prohibiting entry of all but Estonian citizens, permanent residents and their relatives,

and workers involved in freight transport. People arriving in Estonia must self-isolate for 14 days

▪ Internal travel restrictions to Estonian islands

▪ No visitors allowed in hospitals, social and elderly care houses and prisons

▪ Shops, bank branches and cafes need to follow social distancing rules

▪ The state of emergency was not renewed and came to an end on 17 May 2020

▪ However, the Government decided on 16 May 2020 that health care emergency measures should stay in place, including the

requirement for people with COVID-19 and their families to self-isolate for 14 days, and that schools could start to re-open

▪ In addition, restrictions on other activities are to be gradually relaxed: for sports events, public meetings and entertainment from

1 June, and for restaurants, cafes, theatres and cinemas from 1 July 2020. Restrictions on border controls with Finland, Latvia

and Lithuania were also relaxed from 16 May 2020

▪ The Ministry of Finance at the end of March forecasted a 8% fall in GDP in 2020, taking into account the impact of the lockdown

and the rapid slowdown in economic activity. At the same time GDP growth forecast for 2021 was set at 8%.

▪ Unemployment in Estonia will increase, and registered unemployment rate reached 7.5% at the end of April 2020, up from

5.7% at the end of February 2020 (1)

▪ Since the forecast in March, the Supplementary Budget has been approved by the parliament with measures totalling EUR

2.8bn, or 10.8% of the GDP (est. EUR 25.9bn in 2020)

▪ The Supplementary Budget is to balance the economic impact of the lockdown and economic slowdown and likely to result in a

smaller fall in GDP than forecasted in March 2020. New forecasts will be prepared over the summer

▪ Special governmental committee formed to manage, supervise and make decisions regarding the COVID-19 pandemic.

▪ The committee is led by the Prime Minister and includes ministers from relevant areas – finance, economy, social affairs,

internal affairs etc.

Declaration of

Emergency,

12 March 2020

State of emergency

lapsed, 17 May 2020

Governance and

supervision

Expected Economic

Impact

Source: (1) Estonian Unemployment Insurance Fund

Fiscal and financial budgeting

38

COVID-19 and response measures will lead to budget deficit – funding secured

The government’s 2020 Supplementary Budget in April 2020

to tackle the spread of the virus and to develop measures to

support the economy going forward:• To cover the direct expenditure for the health care system and

other areas stemming from the COVID-19

• To preserve salaries for citizens

• To support SMEs and large businesses

• To provide economic stimulus to facilitate exiting the current

economic slowdown

The 2020 Supplementary Budget measures total EUR 2.8bn

(10.8% of GDP)

The Ministry of Finance forecasts a EUR 1.3bn (5.1% of GDP)

decrease in tax collections in 2020 compared to the budget

approved in December 2019

• - EUR 461 million collection of social insurance taxes

• - EUR 328 million of VAT collection

• - EUR 310 million of income tax collection

• - EUR 142 million of excise duties collection

COVID-19 response measures Fiscal impact of the pandemic

As a result of the 2020 Supplementary Budget, the general

government budget deficit is projected to be EUR 2.62 bn

(10.1% of GDP) in 2020

The projected general government budget deficit will result to

Central Government funding requirement of EUR 3.78 bn

(14.6% of GDP) in 2020 and EUR 1.2 bn (4.3% of GDP) in 2021

The general government debt is expected to increase to 22%

of GDP by end-2020 from 8.4% in 2019

The Government is temporarily halting its contributions to second

pillar pension funds from 1 July 2020 to 31 August 2021

• Will increase revenue by EUR 142 million

On 13 March 2020 the Estonian State Treasury increased its T-

Bill programme amount from EUR 400mn to EUR 1bn

On 27 March 2020 the Republic of Estonia signed a EUR

750mn 15-year loan agreement with the Nordic Investment

Bank (NIB) and has secured a EUR 200mn financing facility

loan from the Council of Europe Development Bank

On 13 April 2020, the Parliament decided to deploy the full

balance of the Stabilisation Reserve Fund (EUR 430 million)

to cover costs stemming from the COVID-19 pandemic and to

reduce related economic risks during 2020 and 2021

Estonia is contemplating raising additional longer-term funding

through capital markets in the form of EUR bonds

Securing the fundingImpact on public finances

April Supplementary Budget

39

EUR 2.8bn (10.8% of GDP) supplementary budget

Measure EUR millions % GDP

Share of

total

package

On-lending to businesses

- EUR 550mn support for SMEs and large businesses (Direct lending via Kredex SA)

- EUR 200mn support for Agricultural Business via direct lending by Rural Development Foundation and for expected

losses on guarantees given to third-parties guaranteed by the Foundation

750 2.9%

Additional expenditure and investments

- EUR 230mn for Special reserves to cover expected and unforeseen expenditure from COVID-19 pandemic

- EUR 80mn for direct expenditure for purchases of PPE, testing, ventilators etc

- EUR 150mn for unforeseen expenditure reserve

- EUR 222mn grants for support of i) the transport sector ii) tourism, iii) construction sector and iv) development of fast

internet connection to remote areas

- EUR 130mn for local governments

- EUR 30mn for direct costs from COVID-19 and compensation for the loss in revenues

- EUR 100mn for support investments and road maintenance

- EUR 27mn for supporting artists and athletes for cancellations of sports and culture events and compensation for the loss

in revenues of churches

- EUR 19mn for schools, universities and R&D for covering the costs of exiting the state of emergency and to finance

analysis of the spread of COVID-19, to develop testing etc.

628 2.4%

Additional expenditure by social security funds

- EUR 224mn for increased expenditure by the Health Insurance Fund

- EUR 250mn for increased expenditure by the unemployment benefit funds

474 1.8%

Changes to tax and interest rates

- EUR 269mn for excise duties on electricity, gas and diesel have been reduced from 1 May 2020 to 30 April 2022

- EUR 88mn for lowering tax interest rates and other tax rates

357 1.4%

Provisions for losses from guarantees

- EUR 300mn for losses from guarantees given to third parties by Kredex300 1.2%

Increase in share capital of state-owned companies 300 1.2%

TOTAL ~EUR 2,800mn 10.8%

Debt Management

40

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

200

400

600

800

1,000

1,200

1,400

1,600

EU

R m

illio

n

Liquidity Reserve Stabilisation Reserve Fund

MoF's debt portfolio % of GDP (rhs)

Republic of Estonia funding

41

0

500

1,000

1,500

2,000

2,500

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20*

20

21*

20

22*

20

23*

20

24*

20

25*

20

26*

20

27*

20

28*

20

29*

20

30*

20

31*

20

32*

20

33*

20

34*

20

35*

EUR

mill

ion

New borrowing Redemptions MoF's debt

Borrowing and redemption projection *

Financial reserves

Source: State Treasury of Estonia


* Assuming a EUR 1bn 10-year bond transaction in 2020

• The Republic of Estonia set up a EUR 400 million domestic T-

bill programme in March 2019 in order to diversify its funding

sources

• In March 2020, the programme size was increased to EUR 1bn

• Since the launch of the programme, Estonia has conducted

three EUR 100mn-400mn auctions of 6-and 12-month bills

• On 7 May 2020 the outstanding amount of T-bills was EUR

675mn

• The plan is to have auctions 2-4 times a year depending on

maturity profile and funding needs

• Balanced budget policies have kept Estonia’s borrowing needs

at very low levels

• At the end of 2019, the MoF’s financial reserves (EUR 1.4bn)

were twice as large as the amount of the MoF’s outstanding

debt obligations (EUR 700mn)

• The MoF has had a positive net financial position (where

financial reserves exceeded debt) at least since 2004

• The current funding consists of:

• European Investment Bank: EUR 570mn

• Nordic Investment Bank: EUR 750mn

• T-Bills: EUR 675mn

T-Bill programme launched in May 2019

Historically, funding needs have been fully met by long-term loans from IFIs

0

1

2

3

4

5

6

7

8

9

Years

Average maturity

Funding outlook and strategy

42

Funding is well-diversified between IFI loans, T-bills and, going forward, bonds

Planned debt portfolio composition – 30 June 2020

Total planned debt 30 June 2020: ~EUR 2,700 million

Average maturity of debt



• As a result of the 2020 Supplementary Budget the general

government budget deficit is projected to be EUR 2.62 bn

in 2020, and the Central Government funding requirement

to total EUR 3.78 bn in 2020 and EUR 1.2bn in 2021

• With these increased nominal funding needs of Estonia, the

Debt to GDP ratio is expected to increase to 22% by end-

2020 from 8.4% in end-2019

• The Republic of Estonia has already secured a EUR 750mn

bilateral loan facility from the Nordic Investment Bank and a

EUR 200mn financing facility loan from the Council of Europe

Development Bank, with the rest of the funding need in 2020 to

be covered by an increase in the outstanding T-bill stock and

with EUR benchmark Government bond borrowing

• After the planned EUR 1bn 10-year transaction, Estonia

plans to issue 1-2 more benchmark bonds in 2020-2021

• In terms of refinancing risk, the average term-to-maturity will

increase markedly from 4 years as of end-2019 to 7 years

as of end-2020 - close to the average term-to-maturity of 8

years for OECD countries*

• Going forward, the MoF’s plan is to build up the stock of T-

bills and then use a combination of capital markets

issuances and loans from European supranationals to

cover funding needs

* Source: OECD Sovereign Borrowing Outlook 2020

IFIs45%

Eurobonds35%

T-bills20%

* Assuming a EUR 1bn 10-year bond transaction in 2020

Contemplated Transaction

43

Indicative key terms

44

Key terms of the contemplated EUR sovereign bond transaction

Issuer: Republic of Estonia

Issuer Ratings: S&P: AA- (positive) / Moody’s: A1 (stable) / Fitch: AA- (stable)

Format of the Notes: Regulation S Registered note offering under standalone documentation

Status of the Notes: Senior unsecured

Tenor: 10 years

Currency: Euro

Size: Benchmark

Maturity Date: [ ] 2030

Coupon: Fixed, annual, ACT/ACT (ICMA)

Denominations: EUR 1,000 / EUR 1,000

Listing: Irish Stock Exchange's Regulated Market

Governing Law: English law

Target Market: Eligible counterparties, professional clients and retail clients (all distribution channels)

Joint Lead Managers: Citi, Nordea, Societe Generale

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