Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Estonia and delivering a Council opinion on the 2022 Stability Programme of Estonia
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Estonia, economic policy, economic recovery, economic reform, energy policy, fiscal policy, organisation of health care, social security, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2022  COM(2022) 608 final  Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Estonia and delivering a Council opinion on the 2022 Stability Programme of Estonia {SWD(2022) 608 final} - {SWD(2022) 640 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2022 National Reform Programme of Estonia and delivering a Council opinion on 
the 2022 Stability Programme of Estonia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021.  The  Recovery  and  Resilience  Facility  provides  financial  support  for  the 
implementation of reforms and investment, entailing a fiscal impulse financed by the 
Union.  It  contributes  to  the  economic  recovery  and  to  the  implementation  of 
sustainable and growth-enhancing reforms and investment, in particular to promote the 
green and digital transition, while strengthening the resilience and potential growth of 
the Member States’ economies. It also helps strengthen sustainable public finances and 
boost growth and job creation in the medium and long term. The maximum financial 
contribution  per  Member  State  under  the  Recovery  and  Resilience  Facility  [was] 
updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.  

On  24  November  2021,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Survey,  marking  the  start  of  the  2022  European  Semester  for  economic  policy 
coordination.  It  took  due  account  of  the  reaffirmed  joint  commitment  of  the  Porto 
Social Summit of May 2021 to further implement the European Pillar of Social Rights, 
proclaimed  by  the  European  Parliament,  the  Council  and  the  Commission  on  17 
November  2017.  The  European  Council  endorsed  the  priorities  of  the  2022  Annual 

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2 

OJ L 209, 2.8.1997, p. 1. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
stablishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of 
Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted  the  Alert  Mechanism 
Report, in which it did not identify Estonia as one of the Member States for which an 
in-depth review3 would be needed. On the same date, the Commission also adopted a 
recommendation  for  a  Council  recommendation  on  the  economic  policy  of  the  euro 
area, which was adopted on 5 April 2022 by the Council, as well as the proposal for 
the 2022 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  was 
adopted by the Council on 14 March 2022. 

Russia’s  invasion  of  Ukraine,  in  the  wake  of  the  global  pandemic,  has  significantly 
altered the geopolitical and economic context. The impact of the invasion on Member 
States’ economies has been felt for example through higher energy and food prices and 
weaker  growth  prospects.  The  higher  energy  prices  weigh  particularly  on  the  most 
vulnerable households experiencing or at risk of energy poverty. The EU is also seeing 
an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, 
the  Temporary  Protection  Directive  was  triggered4    for  the  first  time,  granting 
displaced persons from Ukraine the right to legally stay in the EU, as well as access to 
education  and  training,  labour  market,  healthcare,  housing  and  social  welfare. 
Exceptional  support  is  made  available  to  Estonia  under  the  Cohesion’s  Action  for 
Refugees in Europe (CARE) initiative and through additional pre-financing under the 
Recovery  Assistance  for  Cohesion  and  the  Territories  of  Europe  (REACT-EU) 
programme  to  urgently  address  reception  and  integration  needs  for  those  fleeing 
Ukraine.  

Taking  account  of  the  rapidly  changing  economic  and  geopolitical  situation,  the 
European Semester resumes its broad economic and employment policy coordination 
in 2022, while evolving in line with the implementation requirements of the Recovery 
and  Resilience  Facility,  as  outlined  in  the  2022  Annual  Sustainable  Growth  Survey. 
The  implementation  of  the  adopted  recovery  and  resilience  plans  is  essential  for  the 
delivery of the policy priorities under the European Semester, as the plans address all 
or a significant subset of the relevant country-specific recommendations issued in the 
2019  and  2020  Semester  cycles.  The  2019  and  2020  country-specific 
recommendations  remain  equally  relevant  also  for  recovery  and  resilience  plans 
revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation 
(EU) 2021/241, in addition to any country-specific recommendations issued up to the 
date of submission of the modified plan.  
The General Escape Clause has been active since March 20205. In its Communication 
of  3  March  20216,  the  Commission  set  out  its  view  that  the  decision  on  the 
deactivation or continued application of the general escape clause should be taken as 
an overall assessment of the state of the economy, with the level of economic activity 
in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative 

Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 
on the prevention and correction of macroeconomic imbalances, OJ L 306, 23.11.2011, p. 25. 
Council Implementing Decision (EU) 2022/382 of 4 March 2022 establishing the existence of a mass 
influx of displaced persons from Ukraine within the meaning of Article 5 of Directive 2001/55/EC, and 
having the effect of introducing temporary protection, OJ L 71, 4.3.2022, p. 1. 
Communication from the Commission to the Council on the activation of the general escape clause of 
the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final. 
Communication  from  the  Commission  to  the  Council  on  one  year  since  the  outbreak  of  COVID-19: 
fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final. 

(3) 

(4) 

(5) 

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(6) 

(7) 

criterion. Heightened uncertainty and strong downside risks to  the economic outlook 
in  the  context  of  war  in  Europe,  unprecedented  energy  price  hikes  and  continued 
supply  chain  disturbances  warrant  the  extension  of  the  general  escape  clause  of  the 
Stability and Growth Pact through 2023. 

Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability 
Programme,  the  fiscal  stance  is  currently  best  measured  as  the  change  in  primary 
expenditure  (net  of  discretionary  revenue  measures),  excluding  COVID-19  crisis-
related  temporary  emergency  measures  but  including  expenditure  financed  by  non-
repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds,  relative  to  medium-term  potential  growth7.  Going  beyond  the  overall  fiscal 
stance, in order to assess whether national fiscal policy is prudent and its composition 
is conducive to a sustainable recovery consistent with the green and digital transitions, 
attention  is  also  paid  to  the  evolution  of  nationally-financed8  primary  current 
expenditure  (net  of  discretionary  revenue  measures  and  excluding  COVID-19  crisis-
related temporary emergency measures) and investment. 

On  2  March  2022,  the  Commission  adopted  a  Communication  providing  broad 
guidance  for  fiscal  policy  in  2023,  aiming  at  supporting  the  preparation  of  Member 
States’  Stability  and  Convergence  Programmes  and  thereby  strengthening  policy 
coordination9.  The  Commission  noted  that,  based  on  the  macroeconomic  outlook  of 
the  2022  winter  forecast,  transitioning  from  an  aggregate  supportive  fiscal  stance  in 
2020-2022  to  a  broadly  neutral  aggregate  fiscal  stance  would  appear  appropriate  in 
2023,  while  standing  ready  to  react  to  the  evolving  economic  situation.  The 
Commission announced that the fiscal recommendations for 2023 should continue to 
differentiate  across  Member  States  and  take  into  account  possible  cross-country 
spillovers. The Commission invited the Member States to reflect the guidance in their 
Stability  and  Convergence  Programmes.  The  Commission  committed  to  closely 
monitor  the  economic  developments  and  adjust  its  policy  guidance  as  needed  and  at 
the latest its Semester spring package of late May 2022. 

(8)  With  respect  to  the  fiscal  guidance  provided  on  2  March  2022,  the  fiscal 
recommendations  for  2023  take  into  account  the  worsened  economic  outlook,  the 
heightened uncertainty and further downside risks, and the higher inflation compared 
to the Winter forecast. Against these considerations, the fiscal response has to expand 
public investment for the green and digital transition and energy security, and sustain 
the purchasing power of the most vulnerable households so as to cushion the impact of 
the energy price hike and help limit inflationary pressures from second round effects 
via targeted and temporary measures; fiscal policy has to remain agile so as to adjust 
to the rapidly evolving circumstances, and be differentiated across countries depending 
on their fiscal and economic situation, including as regards the exposure to the crisis 
and the inflow of displaced persons from Ukraine. 

(9) 

On  18  June  2021,  Estonia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 

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The  estimates  on  the  fiscal  stance  and  its  components  in  this  recommendation  are  Commission 
estimates  based  on  the  assumptions  underlying  the  Commission  2022  spring  forecast.  The 
Commission’s estimates of medium-term potential growth do not include the positive impact of reforms 
that are part of the Recovery and Resilience Plan and can boost potential growth.  
Not financed by grants from the Recovery and Resilience Facility and other EU funds. 
Communication  from  the  Commission  to  the  Council:  Fiscal  policy  guidance  for  2023,  Brussels, 
2.3.2022, COM(2022) 85 final. 

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to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  29 
October 2021, the Council adopted its Decision on the approval of the assessment of 
the recovery and resilience plan for Estonia10. The release of instalments is conditional 
on  a  decision  by  the  Commission,  taken  in  accordance  with  Article  24(5)  of 
Regulation  (EU)  2021/241,  that  Estonia  has  satisfactorily  fulfilled  the  relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

(10)  On  29  April  2022,  Estonia  submitted  its  2022  National  Reform  Programme  and  its 
2022  Stability  Programme,  in  line  with  the  deadline  established  in  Article  4  of 
Regulation  (EC)  No  1466/97.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed together. In accordance with Article 27 of Regulation 
(EU)  2021/241,  the  2022  National  Reform  Programme  also  reflects  Estonia’s  bi-
annual reporting on the progress made in achieving of its recovery and resilience plan.  
(11)  The Commission published the 2022 country report for Estonia11 on 23 May 2022. It 
assessed  Estonia’s  progress 
country-specific 
recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of 
Estonia’s  implementation  of  the  recovery  and  resilience  plan,  building  on  the 
Recovery  and  Resilience  Scoreboard.  Based  on  this  analysis,  the  country  report 
identified gaps with respect to those challenges that are not addressed or only partially 
addressed  by  the  recovery  and  resilience  plan,  as  well  as  new  and  emerging 
challenges,  including  those  emerging  from  Russia’s  invasion  of  Ukraine.  It  also 
assessed Estonia’s progress on implementing the European Pillar of Social Rights and 
on achieving the EU headline targets on employment, skills and poverty reduction, as 
well as progress in achieving the UN’s Sustainable Development Goals.  

addressing 

relevant 

the 

in 

(12)  On  23  May  2022,  the  Commission  issued  a  report  under  Article  126(3)  TFEU.  This 
report discussed the budgetary situation of Estonia, as its general government deficit in 
2022  is  planned  to  exceed  the  3%  of  GDP  Treaty  reference  value.  The  report 
concluded that the deficit criterion was not fulfilled. In line with the Communication 
of  2  March  2022,  the  Commission  did  not  propose  to  open  new  excessive  deficit 
procedures  in  spring  2022  and  it  will  reassess  the  relevance  of  proposing  to  open 
excessive deficit procedures in autumn 2022. 

the economy  and  support 

(13)  On  20  July  2020,  the  Council  recommended  Estonia  to  take  in  2020  and  2021  all 
necessary  measures, in  line with  the general  escape clause, to  effectively  address  the 
It  also 
pandemic,  sustain 
recommended  Estonia  to  pursue,  when  economic  conditions  allow,  fiscal  policies 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt 
sustainability,  while  enhancing  investment.  In  2021,  based  on  data  validated  by 
Eurostat, Estonia’s general government deficit fell from 5.6% of GDP in 2020 to 2.4% 
in  2021.  The  fiscal  policy  response  by  Estonia  supported  the  economic  recovery  in 
2021, while temporary emergency support measures  increased from 2.3% of GDP in 

the  ensuing  recovery. 

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11 

Council Implementing Decision of 29 October 2021 on the approval of the assessment of the recovery 
and resilience plan for Estonia (ST 12532/21; ST 12532/21 ADD 1; ST 12532/21 ADD 1 COR 1 REV 
1) 
SWD(2022) 608 final. 

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2020 to 2.7% in 2021. The measures taken by Estonia in 2021 have been in line with 
the Council Recommendation of 20 July 2020. The discretionary budgetary measures 
adopted by the government in 2020 and 2021 were  mostly temporary or matched by 
offsetting measures. At the same time, some of the discretionary measures adopted by 
the  government  over  the  period  2020  to  2021  were  not  temporary  or  matched  by 
offsetting  measures,  mainly  consisting  of  increases  to  pensions,  targeted  salary 
increases (teachers, medical, cultural and police staff) and expenditure programmes for 
healthcare, R&D, the military and ICT. Based on data validated by Eurostat, general 
government debt stood at 18.1% of GDP in 2021. 

(14)  The  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  2022 
Stability  Programme  is  cautious.  The  government  projects  real  GDP  to  decline  by 
1.0%  in  2022  and  grow  by  1.2%  in  2023.  By  comparison,  the  Commission’s  2022 
spring  forecast  projects  real  GDP  growth  of  1.0%  in  2022  and  2.4%  in  2023.  The 
Commission forecasts stronger private consumption growth backed by a high level of 
accumulated  savings  and  by  robust  expected  wage  dynamics.  In  its  2022  Stability 
Programme, the government expects that the headline deficit will increase to 5.3% of 
GDP in 2022 and decrease to 4.8% in 2023. The increase in 2022 mainly reflects the 
new expenditure measures to mitigate energy prices and additional social and security 
related spending as well as the costs to offer temporary protection to displaced persons 
from  Ukraine.  According  to  the  Programme,  the  general  government  debt-to-GDP 
ratio is expected to increase to 20.7% in 2022, and thereafter to rise to 24.1% in 2023. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
2022 spring forecast projects a government deficit for 2022 and 2023 of 4.4% of GDP 
and  3.7%  respectively.  This  is  lower  than  the  deficit  projected  in  the  2022  Stability 
Programme,  mainly  due  to  the  stronger  GDP  forecast  underlying  the  Commission’s 
projections  and  more  moderate  growth  of  investment  expenditure  projected  by  the 
Commission.  The  Commission  2022  spring  forecast  projects  a  general  government 
debt-to-GDP ratio of 20.9% in 2022 and 23.5% in 2023, similar to the Programme’s 
projections.  

(15) 

Based  on  the  Commission  spring  2022  forecast,  the  medium-term  (10-year  average) 
potential output growth is estimated at 3.1%. However, this estimate does not include 
the  impact  of  the  reforms  that  are  part  of  the  Recovery  and  Resilience  Plan  and  can 
boost Estonia’s potential growth. 

In 2022, the government phased out the majority of measures taken in response to the 
COVID-19 crisis, such that the temporary emergency support measures  are projected 
to  decline  from  2.7%  of  GDP  in  2021  to  0.8%  in  2022.  The  government  deficit  is 
impacted  by  the  measures  adopted  to  counter  the  economic  and  social  impact  of  the 
increase in energy prices, which in the Commission spring 2022 forecast are estimated 
at 0.7% of GDP in 2022 and are expected to be phased out in 2023.12 These measures 
mainly  consist  of  social  transfers  to  poorer  households,  price  caps  on  electricity  and 
heating prices and lowering electricity and gas network charges for consumers. These 
measures have been announced as temporary. However, in case energy prices remain 
elevated  also  in  2023,  some  of  these  measures  could  be  maintained.  Some  of  these 
measures  are  not  targeted,  notably  the  general  price  cap  on  energy  prices  for 
households,  lowering  network  charges  and  across  the  board  cuts  in  excise  duties 
(effective  from  2020).  The  government  deficit  is  also  impacted  by  the  costs  to  offer 

12 

The figures represent the level of annual budgetary costs of those measures taken since autumn 2021, 
including current revenue and expenditure as well as – where relevant – capital expenditure measures. 

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temporary  protection  to  displaced  persons  from  Ukraine,  which  in  the  Commission 
2022 spring forecast are projected at 0.4% of GDP in 2022 and 0.6% in 202313, as well 
as the increased cost of defence expenditure by 0.6 % of GDP in 2023.  

(16)  On  18  June  2021,  the  Council  recommended  that  in  2022  Estonia14  maintains  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience  Facility,  and  preserves  nationally-financed 
It  also 
recommended  Estonia  to  pursue,  when  economic  conditions  allow,  a  fiscal  policy 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  fiscal 
sustainability  in  the  medium  term,  and  at  the  same  time,  to  enhance  investment  to 
boost growth potential. 

investment. 

(17) 

In  2022,  based  on  the  Commission’s  2022  spring  forecast  and  including  the 
information  incorporated  in  Estonia’s  2022  Stability  Programme,  the  fiscal  stance  is 
projected  to  be  supportive,  at  -2.4%  of  GDP,  as  recommended  by  the  Council.15 
Estonia  plans  to  provide  continued  support  to  the  recovery  by  making  use  of  the 
Recovery and Resilience Facility to finance additional investment as recommended by 
the Council. The positive contribution to economic activity of expenditure financed by 
Recovery and Resilience Facility grants and other EU funds is projected to increase by 
0.1 percentage point compared to 2021. Nationally-financed investment is projected to 
provide  an  expansionary  contribution  to  the  fiscal  stance  of  0.6  percentage  points  in 
2022.16  Therefore,  Estonia  plans  to  preserve  nationally  financed  investment,  as 
recommended  by  the  Council.  At  the  same  time,  the  growth  in  nationally-financed 
primary  current  expenditure  (net  of  new  revenue  measures)  in  2022  is  projected  to 
provide  an  expansionary  contribution  of  1.4  percentage  points  to  the  overall  fiscal 
stance. This significant expansionary contribution includes, amongst others, increases 
in  wages  and  social  transfers  as  well  as  the  additional  impact  of  the  measures  to 
address  the  economic  and  social  impact  of  the  increase  in  energy  prices  (0.5%  of 
GDP) and of the costs to offer temporary protection to displaced persons from Ukraine 
(0.4% of GDP).  

(18) 

In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at 0.2% 
of GDP on a no-policy change assumption.17 Estonia is projected to continue using the 
grants  from  the  Recovery  and  Resilience  Facility  in  2023  to  finance  additional 

13 

14 

15 

16 

17 

The total number of displaced persons from Ukraine to the EU is assumed to gradually reach 6 million 
by  the  end  of  2022,  and  their  geographical  distribution  is  estimated  based  on  the  size  of  the  existing 
diaspora, the relative population of the receiving Member State, and the actual distribution of displaced 
persons from Ukraine across the EU as of March 2022. For budgetary costs per person, estimates are 
based on the Euromod microsimulation model of the Commission’s Joint Research Centre, taking into 
account both cash transfers people may be eligible for as well as in-kind benefits such as education and 
healthcare. 
Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Estonia, OJ C 304, 29.7.2021, p. 23.  
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 
Other nationally-financed capital expenditure is projected to provide a expansionary contribution of 0.4 
percentage  points  of  GDP.  This  reflects  the  planned  increase  of  gas  and  liquid  fuels  reserves  by  the 
government.  

A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 

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(19) 

(20) 

investment in support of the recovery. The positive contribution  to economic activity 
of  expenditure  financed  by  Recovery  and  Resilience  Facility  grants  and  other  EU 
funds  is  projected  to  increase  by  0.4  percentage  points  of  GDP  compared  to  2022. 
Nationally-financed investment is projected to provide an expansionary contribution to 
the fiscal  stance of 0.3 percentage points in  2023.18 At  the same time, the  growth in 
nationally-financed  primary  current  expenditure  (net  of  new  revenue  measures)  in 
2023 is projected to provide a contractionary contribution of 0.4 percentage points to 
the overall fiscal stance. This includes the impact from the phasing out of the measures 
addressing  the  increased  energy  prices  (0.7%  of  GDP)  and  additional  costs  to  offer 
temporary protection to displaced persons from Ukraine (0.1% of GDP). 

In  the  2022  Stability  Programme,  the  general  government  deficit  is  expected  to 
gradually decline to 3.8% of GDP in 2024 and to 2.9% by 2025. Therefore, the general 
government  deficit  is  planned  to  go  below  3%  of  GDP  by  2025.  These  projections 
assume  some  additional  fiscal  consolidation  measures  that  are  not  yet  specified.  
According to the Programme, the general government debt-to-GDP ratio is expected to 
increase by 2025, specifically with an increase to 27.7% in 2024, and arise to 29.2% in 
2025. Based on the Commission’s analysis, debt  sustainability risks appear  low over 
the medium term. 

in  2019  and  2020, 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These help address 
all  or  a  significant  subset  of  the  economic  and  social  challenges  outlined  in  the 
country-specific  recommendations  addressed  to  Estonia  by  the  Council  in  the 
European  Semester 
in  addition  any  country-specific 
recommendations  issued  up  to  the  date  of  adoption  of  a  plan.  In  particular,  the  plan 
focuses on the green and digital transition, with measures to improve energy efficiency 
and  develop  renewable  energy;  increase  the  sustainability  of  transport  and  mobility; 
support companies in the twin transition, in particular start-ups and small and medium-
sized  enterprises;  further  digitalise  public  services;  and  increase  the  labour  market 
relevance of the education and training system, notably on green and digital skills. The 
plan  also  contains  measures  to  improve  the  accessibility  and  resilience  of  the  health 
system and envisages some improvements to the social safety net and access to social 
services.  

(21)  The  implementation  of  the  recovery  and  resilience  plan  of  Estonia  is  expected  to 
contribute  to  making  further  progress  on  the  green  and  digital  transition.  Measures 
supporting  the  climate  objectives  in  Estonia  account  for  41.5%  of  the  plan’s  total 
allocation,  while  measures  supporting  digital  objectives  account  for  21.5%  of  the 
plan’s total allocation. The fully-fledged implementation of the recovery and resilience 
plan, in line with the relevant milestones and targets, will help Estonia swiftly recover 
from  the  fallout  of  the  COVID-19  crisis,  while  strengthening  its  resilience.  The 
systematic  involvement  of  social  partners  and  other  relevant  stakeholders  remains 
important  for  the  successful  implementation  of  the  recovery  and  resilience  plan,  as 
well  as  other  economic  and  employment  policies  going  beyond  the  plan,  to  ensure 
broad ownership of the overall policy agenda. 

18 

Other  nationally-financed  capital  expenditure  is  projected  to  provide  a  contractionary  contribution  of 
0.5 percentage points of GDP. This reflects the base effect from the government purchases of gas and 
liquid fuel reserves in 2022. 

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(22)  Estonia submitted the Partnership Agreement on 18 April 2022 but the other cohesion 
policy programming documents19 have not yet been submitted. In line with Regulation 
(EU)  2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021, 
Estonia  shall  take  into  account  the  relevant  country-specific  recommendations  in  the 
programming  of  the  2021-2027  cohesion  policy  funds.  This  is  a  prerequisite  for 
improving the effectiveness  and maximising the added value of the financial support 
to  be  received  from  cohesion  policy  funds,  while  promoting  the  coordination, 
complementarity and coherence between these funds and other Union instruments and 
funds.  The  successful  implementation  of  the  Recovery  and  Resilience  Facility  and 
cohesion policy programmes also depends on the removal of bottlenecks to investment 
to support the green and digital transition and balanced territorial development.  

(23)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan, Estonia faces a number of additional challenges related to long-term care and the 
adequacy of the social safety net, particularly for the unemployed.  

(24)  The  adequacy  of  the  social  safety  net  has  improved  in  Estonia  but  the  at  risk  of 
poverty  and  social  exclusion  rate  remains  high  for  older  persons,  people  with 
disabilities  and  unemployed  people.  Unemployed  people  are  less  protected  from 
falling into poverty due to the restrictive criteria for receiving unemployment benefits, 
notably the thresholds for employment and income before unemployment. As a result, 
in 2021 only around 50% of all registered unemployed people received unemployment 
benefits,  37%  of  newly  registered  unemployed  received  unemployment  insurance 
benefits  and  only  26%  received  the  fixed  unemployment  allowance.  Extending  the 
unemployment  benefits  coverage  and  relaxing  the  minimum  criteria  to  access 
unemployment benefits can be effective to increase social protection, in particular of 
those with short work spells and in non-standard forms of work. 

(25)  The Estonian population is ageing but the provision of long-term care is inadequate to 
meet demand due to deficiencies in the organisation and financing of long-term care. 
Fragmentation in the organisation and financing of long-term care between the social 
and healthcare sector and the state and local governments leads to an uneven provision 
of home and community services. Furthermore, the share of expenditure paid by those 
who need care (‘out of pocket payments’), was the second highest in the EU in 2019. 
Public expenditure on long-term care was only 0.4% of GDP in 2019 (compared to the 
EU average of 1.7%). A lack of common standards for long-term care and a shortage 
of care workers undermine the quality of service provision. Reforming long-term care 
by focusing on efficient and sustainable funding, access to integrated health and social 
services,  setting  quality  standards,  and  ensuring  a  sufficiently  large  and  skilled  care 
workforce would increase the quality of life of those in need for care and reduce the 
high care burden on family members. 

(26) 

19 

In  response  to  the  mandate  by  the  EU  Heads  of  State  or  Government,  set  out  in  the 
Versailles Declaration, the REPowerEU plan aims to phase out the European Union's 
dependence  on  fossil  fuel  imports  from  Russia as  soon  as  possible.  For  this  purpose 
the most suitable projects, investments and reforms, at national, regional and EU level, 

Regulation  (EU)  2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021  laying 
down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund 
Plus,  the  Cohesion  Fund,  the  Just  Transition  Fund  and  the  European  Maritime,  Fisheries  and 
Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the 
Internal  Security  Fund  and  the  Instrument  for  Financial  Support  for  Border  Management  and  Visa 
Policy. OJ L 231, 30.6.2021, p. 159. 

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are being identified in dialogue with the Member States. These measures aim to reduce 
overall reliance on fossil fuels and shift fossil fuel imports away from Russia. 

(27)  Estonia currently imports a limited share of its energy supply for electricity and heat 
production, but remains largely dependent on imports from Russia for the small share 
of gas (8%) and for refined oil products in its energy mix.20 Alongside the continued 
phase  out  of  the  use  of  oil  shale  as  an  energy  source,  Estonia  would  benefit  from 
increasing  energy  efficiency,  upgrading  its  energy  infrastructure  (including  the 
electricity  grid),  and  ensuring  energy  interconnections  with  sufficient  capacity, 
including cross-border ones with neighbouring Member States. New infrastructure and 
network  investments  related  to  gas  are  recommended  to  be  future-proof  where 
possible, in order to facilitate their long-term sustainability, through future repurposing 
for sustainable fuels. Completing the ongoing synchronisation with the EU continental 
power  grid,  ensuring  sufficient  capacity  for  the  interconnections  with  neighbouring 
Member  States  and  joint  renewable  energy  projects  should  remain  a  policy  priority. 
Further diversification of energy sources – including in transport – and acceleration of 
renewable energy production could be achieved through lifting non-financial barriers 
to  the  planning  and  permitting  of  renewable  energy  installations,  increasing  the 
capacity  of  sustainable  biomethane  production  and  accelerating  the  deployment  of 
renewable  hydrogen-based  solutions  while  ensuring  sustainable  valorisation  of 
biomass. Electrification of the main railway lines, supported by EU funds, is already 
ongoing  or  planned,  but  electrifying  the  whole  network  would  contribute  to  faster 
decarbonisation  of  transport.  The  already  high  greenhouse  gas  emissions  from  road 
transport have continued to rise in recent years, due to the intensive use of mainly fuel-
inefficient vehicles. Estonia is one of the few Member States that do not levy annual 
taxes on road vehicles such as passenger cars and light trucks. Increasing incentives to 
encourage the renewal of the stock of vehicles towards less polluting ones would help 
the transition to greener transport modes. Where needed, appropriate safeguards could 
mitigate the impact on low-income car owners. Energy consumption could be reduced 
by  efficient  building  renovations  with  an  integrated  approach,  including  renewable 
energy  installations  and  combined  heating  and  power  systems.  A  further  increase  in 
ambition for reducing greenhouse gas emissions and increasing renewable energy and 
energy efficiency will be needed to achieve the ‘Fit for 55’ objectives. 

(28)  While the acceleration of the transition toward climate neutrality and away from fossil 
fuels will create significant restructuring costs in several sectors, Estonia can make use 
of  the  Just  Transition  Mechanism  in  the  context  of  cohesion  policy  to  alleviate  the 
socio-economic  impact  of  the  transition  in  the  most  affected  regions.  In  addition, 
Estonia  can  make  use  of  the  European  Social  Fund  Plus  to  improve  employment 
opportunities and strengthen social cohesion. 

(29) 

(30) 

20 

21 

In  the  light  of  the  Commission’s  assessment,  the  Council  has  examined  the  2022 
Stability Programme and its opinion21 is reflected in recommendation (1) below. 

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union,  the  Council  recommended  that  the  euro  area  Member  States  take  action, 

Eurostat  (2020),  share  of  Russian  imports  over  total  imports  of  natural  gas  and  refined  oil  products 
respectively.  Estonia  has  an  indirect  dependency  on  Russian  imports  of  natural  gas  through  intra-EU 
trade; accounting for this would lead to the estimation that Estonia is almost exclusively dependent on 
Russia for its natural gas imports.  
Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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through 

including 
the 
recommendation on the economic policy of the euro area. For Estonia, this is reflected 
in particular in recommendations (1), (2) and (3) below. 

resilience  plans, 

recovery  and 

implement 

their 

to 

HEREBY RECOMMENDS that Estonia take action in 2022 and 2023 to:  

1. 

2. 

3. 

4. 

In 2023, ensure that the growth of nationally-financed current expenditure is in line 
with  an  overall  neutral  policy  stance,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and 
to  people  fleeing  Ukraine.  Stand  ready  to  adjust  current  spending  to  the  evolving 
situation.  Expand  public  investment  for  the  green  and  digital  transition  and  for 
energy  security,  including  by  making  use  of  the  RRF,  RePowerEU  and  other  EU 
funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent 
medium-term fiscal positions.  

Proceed with the implementation of its recovery and resilience plan, in line with the 
milestones and targets included in the Council Implementing Decision of 29 October 
2021. Submit the 2021-2027 cohesion policy programming documents with a view to 
finalising  their  negotiations  with  the  Commission  and  subsequently  starting  their 
implementation.  

Strengthen social protection, including by extending the coverage of unemployment 
benefits,  in  particular  to  those  with  short  work  spells  and  in  non-standard  forms  of 
work.  Improve  the  affordability  and  quality  of  long-term  care,  in  particular  by 
ensuring its sustainable funding and integrating health and social services. 

Reduce  overall  reliance  on  fossil  fuels  and  diversify  imports  of  fossil  fuels  by 
accelerating the deployment of renewables, including through further streamlining of 
permitting  procedures,  ensuring  sufficient  capacity  of 
interconnections  and 
strengthening  the  domestic  electricity  grid.  Increase  energy  efficiency,  including  of 
buildings,  to  reduce  energy  consumption.  Intensify  efforts  to  improve  the 
sustainability  of  the  transport  system,  including  through  electrification  of  the  rail 
network  and  by  increasing  incentives  to  encourage  sustainable  and  less  polluting 
transport, including the renewal of the road vehicle stock. 

Done at Brussels, 

For the Council 
The President 

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