Estonia Power Market Outlook to 2030 - Business Propensity Indicator (BPI), Market Trends, Regulation and Competitive Landscape
- Published: February 2012
- Region: Estonia
Estonia continues to show a remarkable determination in policy making. It has established a business friendly regulation, avoided fiscal deterioration during the crisis and made it into the euro area, despite being hit by an accumulation of negative external shocks. Helped by strengthening foreign demand and increased competitiveness the Estonian economy is recovering from a deep recession, which drove the unemployment rate up to nearly 20% and left an overhang of private-sector debt. The main policy challenges are now to: avoid cyclical unemployment becoming structural; strengthen the fiscal framework; improve the framework of bankruptcy procedures to deal with non-performing loans; reap efficiency gains in government operations; and make more out of globalisation as a sustainable driver of growth.
The large increase in unemployment generates additional workload for the recently reformed public employment service. It is important that adequate, appropriately-skilled resources are available for this task. In terms of active labour market policies, greater emphasis on training measures is necessary to support the reallocation of workers.
Current procedures to deal with bad loans are too costly and cumbersome. Personal bankruptcy procedures should allow more flexible and out-of-court restructuring plans. Corporate bankruptcy procedures require very specific expertise, which could be provided by a specialised court.
Owing to government policies, the fiscal deficit and public debt have remained low. However, the pro-cyclical bias of fiscal policy should be addressed by introducing multi-year public expenditure ceilings. An independent fiscal institution should provide expert input for fiscal policy decisions and assess outcomes. The sustainability of old-age income replacement relies on low replacement rates, which risk providing insufficient protection against poverty.
Estonia has a large network of very small municipalities, making the provision of government services inefficient and of variable quality. Therefore it should follow the example of other countries in the region and establish a more efficient municipal network through mergers and joint provision of services.
Relatively high out-of-pocket payments for healthcare, especially for pharmaceuticals and dental care, risk excluding low-income households from appropriate healthcare. Additional spending will become necessary because remuneration in the healthcare sector is relatively low. Fiscal room for dealing with these spending pressures could be created by further rationalising the hospital network and improving its cost efficiency. Strengthening incentives for wider use of cheaper pharmaceuticals would reduce the burden of private health care expenditures.
Estonia is an open economy with a business friendly regulatory environment. Nevertheless it has not fully reaped the benefits of globalisation. Enterprise support should therefore focus more on making firms more productive and overcoming size constraints. Furthermore, an active approach to better market the advantages of Estonia as a location for export-oriented foreign investors appears warranted
The 2011 edition of OECD's periodic economic survey of Estonia's economy. This edition includes chapters covering emerging from the recessions, fiscal policy, public sector spending efficiency, and making the most of globalisation. SHOW LESS READ MORE >
Basic statistics of Estonia, 2009
Assessment and recommendations
Chapter 1. Emerging from the recession
The boom-bust cycle has left Estonia with serious challenges
Dealing with the consequences of the boom-bust cycle
Annex 1.A1. Characteristics of the unemployed in Estonia
Annex 1.A2. Prospects for labour market recovery in Estonia
Annex 1.A3. Progress in structural reform
Chapter 2. Fiscal policy: Avoiding pro-cyclicality and safeguarding sustainability
Regaining fiscal sustainability after the crisis
Improving the fiscal framework
Enhancing the tax system to support fiscal consolidation and economic growth
Annex 2.A1.Fiscal consolidation measures adopted during 2008-10
Chapter 3. Public sector spending efficiency: Healthcare and local government
Healthcare is particularly susceptible to spending acceleration
Fragmented local government in need of reform
Chapter 4. Estonia: Making the most of globalisation
Characteristics and dynamics of Estonian convergence
Framework policies for reaping more benefits of globalisation