State Budget and Economy

The purpose of the state’s fiscal and economic policy is to create conditions for sustainable economic growth that improves the welfare and standard of living of the people.

Estonia mainly focusses on three areas: guaranteeing a stable economic environment; allocating budgetary funds for the improvement of economic growth and employment; and guaranteeing long-term sustainability.

The speed of Estonia’s real convergence has been fast and we are getting closer to the EU average. The risks and imbalance that increased during the period of rapid economic growth, which was based on the inflow of credit, have decreased quickly in the adaptation process that followed the financial crisis and reduced the further vulnerability of our economy.

Fiscal Policy of Estonia

Irrespective of the changes in the economic situation caused by the global credit crisis, the fiscal policy of Estonia has maintained its trustworthiness, and its support for the economy has allowed the state to recover from the crisis without any significant increase in government debt. Increasing economic flexibility, supporting the business environment and improving the efficiency of the labour market have become the key issues that will help guarantee sustainable economic development in the future.

The government is continuing to pursue a conservative fiscal policy, which means that the general government budget will be kept in structural surplus. A strict fiscal policy will ensure that a low level of government debt is maintained, which is a prerequisite for ensuring the long-term sustainability of public finances. This in turn reassures people that the services and support provided by the state will be guaranteed at all times.

Fiscal policy is linked to all state agencies, but the role of the Ministry of Finance is to coordinate and carry out fiscal policy planning. The Ministry of Finance plans the resources required for state agencies and coordinates their use within the scope of this role.

The area of fiscal policy covers:

  • designing and implementing the government’s fiscal policy, giving related advice;
  • designing and implementing the government’s macroeconomic policy, giving related advice;
  • designing and implementing the EU support and foreign aid policy, giving related advice;
  • protecting the state’s financial interests;
  • developing the financial framework of other general government institutions, incl. local authorities;
  • taking part in designing the EU budget.
The main partners of the Ministry of Finance in the area of fiscal policy are the Bank of Estonia, Statistics Estonia, the European Commission, the International Monetary Fund, the OECD and other state agencies. Activities in the area are closely connected with tax and administrative policy.

Every year the Ministry of Finance prepares the following in cooperation with other ministries and constitutional institutions:
  • the state budget for the following year, i.e. the state’s plan of incoming and outgoing money and other financial assets for one year;
  • the state’s budget strategy for the next four years, i.e. the medium-term view of the development of the state and sectors;
  • the stability programme, i.e. compliance of the government’s policy with the requirements arising from the Stability and Growth Pact.
The Ministry of Finance also prepares an economic forecast twice a year (in spring and summer), which is the basis on which the aforementioned documents are prepared.