COMMISSION STAFF WORKING DOCUMENT 2022 Country Report – Estonia Accompanying the document 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 608 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report – Estonia    Accompanying the document 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 {COM(2022) 608 final} - {SWD(2022) 640 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Estonia’s  economy  was  performing  well 
prior  to  the  COVID-19  crisis.  The  average 
annual  growth  of  real  GDP  per  capita  was 
3.7% from 2010 to 2019, among the highest 
in the EU. GDP per capita in purchasing power 
standards  reached  84%  of  the  EU  average  in 
2020  (up  from  66%  in  2010),  indicating  the 
economy  is  catching  up  with  the  rest  of  the 
EU. 

system (1) 

temporarily 

in  2021.  The 

The impact of the COVID-19 pandemic on 
the Estonian economy has been moderate 
and  limited  in  time.  In  2020,  Estonia’s  real 
GDP  declined  by  3.0%  –  less  than  in  most 
Member States, followed by a strong rebound 
of  8.3% 
relatively  mild 
contraction  was  due  to  sustained  consumer 
spending  as  COVID-19 
restrictions  were 
limited and lifted swiftly. The government had 
also  supported  household incomes  during  this 
time.  In  addition,  the  2020  reform  of  the 
boosted 
pension 
consumer  spending.  This 
reform  enables 
workers  to  withdraw  their  savings  from  their 
individual  (second  pillar)  pension  accounts 
before  they  reach  retirement  age.  The  first 
round  of  withdrawals  in  2021  (equivalent  to 
around 4% of GDP) was partly used to pay off 
debt, but also to buy durable consumer goods. 
This boosted domestic demand further, at the 
expense  of  long-term  pension  savings.  By  the 
end  of  2021,  investments  and  exports  were 
level,  partly  because  of 
above  pre-crisis 
Estonia’s  strong  position 
information 
technology  for  which  global  demand  has 
investment  also 
increased.  Public  sector 
supported the economy throughout the COVID-
19 crisis, reflecting national support measures 
and  an  upturn  in  spending  EU  funds.  Most 

in 

industries  recovered  strongly  in  2021  except 
hospitality and other tourism services (2). 

invasion  of 
Going  forward,  Russia’s 
Ukraine 
is  expected  to  affect  some 
sectors  of  the  economy  more  seriously. 
Estonia’s trade links with Russia have declined 
over  time,  representing  7.6%  of  total  trade in 
2021. Estonia has a particular dependence on 
Russian construction materials (including wood 
and  steel),  fertilisers  and  natural  gas  (which 
accounted  for  8%  of  Estonia’s  total  energy 
supply  in  2020).  Estonia  also  has  strong  links 
with  Russia  when  it  comes  to  services  in 
transport  and  tourism.  Before  the  COVID-19 
pandemic,  Russia  accounted  for  over  11%  of 
all  foreign  tourists  in  Estonia.  This  and  other 
temporary  factors  are  set  to  slow  down  GDP 
growth  in  real  terms  to  1.0%  in  2022  and 
2.4% in 2023. Due to the invasion, Estonia has 
also seen a large inflow of people fleeing from 
Ukraine 
In 
response, the government earmarked EUR 232 
million  in  the  supplementary  budget  adopted 
in  April  to  support  their  accommodation,  the 
integration  of  children  in  education  and  of 
workers  in  the  labour  market  –  including 
through  unemployment  benefits  –  and  other 
healthcare and social expenditure. Estonia will 
benefit  from  the  exceptional  support  made 
available under the CARE initiative and through 
the  additional  pre-financing  under  REACT-EU 
to  urgently  address  reception  and  integration 
needs of those fleeing Ukraine.  

(around  2.5%  of  population). 

Estonia had strong public finances before 
the COVID-19 crisis but is emerging from 
it  somewhat  weaker.  Public  debt  went  up 
from 8.4% of GDP in 2019 to 18.1% in 2021 – 
still  the  lowest  ratio  in  the  EU.  The  general 
government balance fell sharply from 0.1% of 

(1)  2020 Country Report for Estonia, SWD(2020) 505 final. 

(2)  In 2019, before the pandemic, tourism in Estonia 
represented around 13% of total employment 
(JRC121262). 

2 

 
                                                 
                                                 
 
support 

GDP in  2019  to  -5.6%  in 2020,  driven by the 
decrease 
in  GDP  and  COVID-19  support 
measures. As the economic recovery has been 
fast  and 
for  businesses  and 
households  was  largely  phased  out  in  2021, 
the general government balance improved to -
-2.4%  in  2021.  However,  this  improvement 
the  second  pillar  pension 
also 
reflects 
temporarily  boosted 
withdrawals,  which 
income  tax  revenues  by  about  1%  of  GDP  in 
2021 (3).  The  Commission  2022 
spring 
forecast  projects  the  government  deficit  to 
again  increase  to  4.4%  of  GDP  in  2022  and 
then  decrease  to  3.7% 
in  2023,  mainly 
reflecting  the  new  expenditure  measures  to 
mitigate  energy  prices  and  additional  social 
and security related spending. 

labour  market 

EU-backed 
support 
measures  have  helped  reduce  the  social 
and  economic  fallout  from  the  COVID-19 
crisis. Estonia introduced effective short-time 
work schemes supported by a EUR 230 million 
loan  from  the  EU’s  Support  to  mitigate 
Unemployment  Risks  in  an  Emergency  (SURE) 
instrument.  The unemployment  rate increased 
from  4%  at  the  beginning  of  the  COVID-19 
crisis to almost 7% in 2020, but it fell back to 
6.2%  in  2021.  The  employment  rate  only 
slightly decreased in 2020 and then recovered 
in  2021  to  79.3%,  remaining  above  the  EU 
long-term 
average  of  73.1%.  Although 
unemployment  increased  to  1.6%  in  2021,  it 
remained well below the EU average.  

Estonia  faces  skills  shortages.  Although 
the country's education and training system is 
good,  it  cannot  meet  all  the  labour  market's 
skills needs – including digital and green skills. 
The  trend  of  positive  net  migration  continued 

in  2021 (4),  and  this  may  help  with  the  skills 
supply. 

in  certain  groups, 

The  Social  Scoreboard  supporting  the 
European  Pillar  of  Social  Rights  also 
points  to  some  social  challenges.  While 
poverty  has  been  gradually  decreasing,  it 
remains  high 
including 
unemployed  people,  older  people  and  people 
with  disabilities.  The  reported  unmet  need  for 
medical  care  is  one  of  the  highest  in  the  EU, 
pointing to gaps in access to and coverage of 
is 
healthcare  services.  Population  ageing 
putting pressure on the long-term care system, 
which  is  already  unable  to  meet  the  current 
demand. Public expenditure on long-term care 
is  projected  to  increase  from  0.4%  of  GDP  in 
2019  to  0.7% 
in  2060,  under  baseline 
assumptions; the respective values for the EU 
are 1.7% and 2.7% (5). 

than 

Regional 
disparities 
socio-economic 
continue.  Several  economic  and  social  well-
being  indicators  show  large  and  continuing 
disparities  between  Northern  Estonia  (Põhja-
Eesti) around the national capital and the four 
other  regions.  The  regional  differences  in 
employment rates are significant. In the north-
east,  employment  is  10  percentage  points 
lower 
the  national  average,  which 
contributes  to  widening  the  income  gap  (see 
Graph  1.1).  In  2019,  GDP  per  capita  (in 
purchasing  power  standards) 
in  Northern 
Estonia was 120% of the EU average, while it 
ranged  between  48%  and  59%  in  the  other 
regions (see Annex 15). Labour productivity in 
Põhja-Eesti in 2020 was 170% of the average 
of 
Internal  migration 
towards  urban  areas,  and  particularly  to 
Tallinn, has not changed over the last decade. 
Targeted development programmes could help 
unlock  innovation  and  business  development, 
address  skills  gaps,  and  ensure  integrated 
social and healthcare services. Programmes in 
Ida-Viru  County  (Ida-Virumaa)  and  South  East 

the  other 

regions. 

(3)  Cashed out pension savings are subject to 20% income 
tax (or 10% if the savings are withdrawn at pension 
age). For people exiting the second pillar, the 
compulsory 4% pension contribution (known as ’social 
tax‘) is redirected from the second to the first pillar (the 
state pension). This raised revenue of the first pillar, 
making it possible for the government to increase 
current pensions above the usual pension indexation in 
2021. 

(4)  According to registered migration data, in 2021, 12 280 
people immigrated to Estonia and 8 602 emigrated 
from the country. This is 15% more for both figures 
than in 2020. 

(5)  The 2021 Ageing Report: Economic and Budgetary 

Projections for the EU Member States (2019-2070), 
European Commission, Institutional Paper 148. 

3 

 
                                                 
                                                 
in 
to 

capacity 

response 
transition 

2020), oil shale still makes up around 60% of 
the total. Russia’s invasion of Ukraine calls for 
terms  of 
a  prompt  policy 
accelerating 
renewable 
the 
domestic  energy  sources  (including  boosting 
increasing 
local  bio-methane  production), 
interconnection 
(including 
synchronisation  with 
the  EU  continental 
electricity  grid),  reducing  energy  consumption 
and  diversifying  import  and  export  markets. 
More  efficient  power  generation,  heating  of 
buildings  and  transport  can  also  increase 
resource  productivity,  which  is  one  of  the 
lowest 
in  the  EU.  Emissions  from  road 
transport  are  also  high  due  to  comparatively 
old  and  fuel-intensive  vehicles  on  Estonian 
roads.  The  government  can  address  this  by 
creating  appropriate  incentives  and  measures 
supporting  the  development  of  sustainable 
and energy efficient transport. 

of 

business 

environment 

competitiveness 

The 
Estonia’s 
economy  benefits  from  sound  structural 
features.  These  include  a  flexible  labour 
market,  effective  e-government  and  a 
favourable 
that 
facilitates  investment.  Estonia  is  a  front-
runner  in  the  EU  for  digital  public  services, 
with all central government services accessible 
online.  Recently,  Estonia’s  digital  innovations 
have  helped  to  increase  production,  exports 
and  employment  more  than  the  EU  average 
(see graph 1.2). Estonia has made progress in 
infrastructure,  for  example,  by 
its  digital 
expanding  physical  access 
to  high-speed 
broadband.  However,  progress  on  digital 
transformation  and economic  competitiveness 
requires  further  improvements  in  connectivity 
and  integrating  digital  technologies  in  all 
businesses, including traditional sectors. 

Estonia  (Kagu-Eesti)  are  good  examples  of 
such initiatives. The broadband connection and 
transport  measures 
in  the  recovery  and 
resilience  plan  (RRP)  and  the  programmes 
under the European Structural and Investment 
Funds will help the situation (see Annex 3). 

Graph 1.1: Employment rate (15-74 years old) 

Source: Statistics Estonia 

Like  most  of  the  EU,  rising  energy  prices 
impact  on 
have  had  a  noticeable 
inflation.  In  Estonia,  energy  prices  grew 
rapidly in the last quarter of 2021, mainly due 
to  the  electricity  price  increases  being  passed 
quite  quickly  on  to  retail.  Electricity  prices 
reached  record  highs  in  December  2021.  The 
industrial  price  index  for  electricity  and  gas 
combined  at  the  end  of  March  was  184% 
higher  than  a  year  before.  These  rising  prices 
increased 
indirectly 
inflation  directly  and 
(through the cost of other goods and services) 
and this effect has amplified in 2022, with the 
harmonised index  of consumer prices growing 
by 12.5% in the first quarter of the year. The 
government  introduced  substantial  temporary 
measures  to  alleviate  electricity,  gas  and 
rises  for  households.  This 
heating  price 
notwithstanding, inflation is forecast to rise to 
11.2% in 2022, but revert to 2.5% in 2023. 

Estonia  is  one  of  the  most  carbon-  and 
energy-intensive  economies  in  the  EU.  In 
2020,  greenhouse  gas  emissions  were  8.8 
tonnes per capita in CO2 equivalent (compared 
to  the  EU  average  of  7.6)  due  to  Estonia’s 
dependence  on  oil  shale  and  the  high  energy 
intensity  of  its  transport  (see  Annex  5)  and 
buildings. Despite the considerable increase of 
renewables in Estonia’s energy consumption in 
past  years  (from  17%  in  2005  to  30%  in 

4 

4050607080NorthWestNorth-EastCentreSouth20192020% 
  
and 

people 

long-term 

education,  high  employment,  and  relatively 
low 
unemployment.  While 
performance  on  ‘no  poverty’  (SDG  1)  is  close 
to the EU average, it could be further improved 
with  better  protection  of  older  people, 
unemployed 
people  with 
disabilities.  Performance  on  ‘good  health  and 
well-being’  (SDG3)  could 
improve  through 
better access to healthcare and increasing the 
share  of  people  with  good  health.  Renewable 
energy  accounted  for  a  sizeable  portion  of 
total  energy  consumption,  but  reducing  CO₂ 
emissions from fuel combustion for electricity 
and 
Estonia’s 
performance on ‘affordable and clean energy’ 
(SDG 7) and on ‘climate action’ (SDG 13). 

heating  would 

improve 

Graph 1.2: Share of IT services in total 
economy 

Source: Eurostat, National accounts (table 
nama_10_a64_e, NACE J62+J63) 

to 

increase 

in  funding 

increase  public 

Despite  the 
in 
Estonian  research  and  innovation  (R&I), 
the  research-based  innovation  capacity 
of  businesses  remains  limited.  In  2021, 
Estonia  fulfilled  its  overarching  2019  political 
commitment 
sector 
investment in R&D to 1% of GDP. This level is 
expected to be maintained and remain slightly 
above the EU average. The business sector has 
also  rapidly  increased  investment  in  R&D  to 
above  1%  of  GDP,  but  remains  below  the  EU 
average (6)  and  far  from  the  expected  two 
percentage  points  needed  to  meet  the  3% 
overall  target  of  the  European  Research 
Area (7).  Collaboration  between  public  science 
(concentrated  in  a  few  independent  state-
funded universities) and business may benefit 
from better innovation support that Estonia is 
is  scope  for 
developing.  Moreover,  there 
boosting 
innovation 
capacity  and  R&D  function  in  companies  (See 
Annex 9). 

research-based 

the 

UN 

the 

Overall,  Estonia  performs  well 
in 
Sustainable 
achieving 
Development  Goals  (SDGs),  but  it  could 
do  more  to  progress  on  green  goals  and 
fairness  (see  Annex  1).  Estonia  performs 
generally  well  on  ‘quality  education’  (SDG4) 
and 
‘decent  work  and  economic  growth’ 
(SDG8)  due  to  accessible  and  good  quality 

(6)  See European Innovation Scoreboard 2021. 

(7)  Target reaffirmed in the Recommendation adopted by 

the Council on 26 November 2021: 
https://ec.europa.eu/commission/presscorner/detail/en/IP
_21_6270. 

5 

0.51.01.52.02.53.03.54.04.55.05.5EE Value AddedEU Value AddedEE EmploymentEU Employment% of total 
  
                                                 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

Estonia’s  recovery  and  resilience  plan 
(RRP)  addresses  many  of  the  main 
challenges the  country is  facing.  The  plan 
pursues  a  significant  reform  and  investment 
agenda  facilitating  the  green  and  digital 
transitions of the economy  and improving the 
social  dimension.  The  Estonian  plan,  with 
EUR 969.5 million in grants and about 3.4% of 
GDP, 
reforms  and 
significant 
investments  to  help  the  Estonian  economy 
become  more  sustainable  and  promote  a 
strong  recovery  (see  Annex  2). Overall,  41.5% 
of the RRP will support climate objectives and 
21.5% will foster the digital transition. 

includes 

developing 

The  plan’s  main  green  transition  priority 
will  be  encouraging  the  production  of 
renewable  energy  and  development  of 
green  technologies.  Estonia  aims  to  reduce 
the  carbon  and  energy 
intensity  of  the 
improving  energy  efficiency, 
economy  by 
further 
energy 
renewable 
production  capabilities,  and  making  transport 
and  mobility  more  sustainable.  Another  major 
challenge  for  Estonia  is  strengthening  the 
productivity  and  innovation  capability  of  the 
business  sector.  Several  measures  address 
this  and  aim  to  support  companies  in  their 
green  and  digital  transitions,  while  applying 
principles  of 
the  circular  economy  and 
improving their access to finance. The planned 
measures to develop workers’ green skills will 
better align employers’ needs and skills supply 
with  each  other.  In  the  foreseeable  future, 
measures  in  the  RRP  focus  on  removing 
supporting 
administrative 
investments  in  renewable  energy  production. 
Setting  up  the  Green  Fund  aims  to  support 
developing  innovative  green  technologies  in 
the  business  sector.  A  support  scheme  for 
energy-efficient renovations in residential  and 
apartment  buildings  will  also  be  launched. 
Estonia  has  been  working  to  remove  other 
non-financial  barriers  to  develop  wind  parks, 
which  should  contribute  to  producing  more 
renewable  energy  over  time.  Furthermore, 

barriers 

and 

work  will  soon  start  on  constructing  the  Rail 
Baltic  terminal  and  the  Tallinn  Old  Port 
tramline, and on electrifying railway lines. This 
will  improve  access  to  rail  transport  for  both 
passengers and freight customers.  

Digital  transition  policies  will  focus  on 
upgrading  digital  government  services  to 
improve  their  resilience,  security  and 
efficiency  and  reduce  the  administrative 
burden  for  people  and  businesses.  By 
using  the 
latest  digital  technologies,  the 
delivery  of  digital  public  services  will  become 
more  efficient.  The  plan  will  also  help  reduce 
the  digital  divide  between  urban  and  rural 
areas  by  deploying  very  high  capacity 
networks.  In  the  foreseeable  future,  Estonia 
will also design and launch dedicated schemes 
to support digitalisation of small and medium-
sized companies and microenterprises. Another 
relevant  priority  will  be  to  set  up  support 
schemes to provide digital skills training to the 
labour  force.  This  will  contribute  to  making 
education  and  training  more  relevant  to  the 
labour market and to reducing the skills gap. 

focuses 

improving 
resilience  of 

In  the  social  and  healthcare  areas,  the 
plan 
the 
on 
the 
accessibility  and 
healthcare  system  and  improving  social 
protection,  thus  contributing  to  the 
implementation of the European Pillar of 
Social Rights. The RRP contains measures to 
make healthcare more accessible and resilient 
by  addressing  shortage  in  healthcare  workers 
The 
and 
construction  of the Northern  Estonian  Medical 
Campus should improve access to health care 
in 
in 
Estonia. 
multifunctional  helicopters  should  give  better 
access to those who live in remote regions and 
on  islands.  Social  protection  will  be  improved 
by  extending  the  duration  of  unemployment 
benefits  and  reducing  the  gender  pay  gap  - 
both are long-standing challenges for Estonia. 
To improve long-term care, steps will be taken 

strengthening 

Investment 

Northern 

primary 

care. 

6 

 
 
 
to  improve  care  for  children  with  high-care 
needs  and  help  people  live  independently.  To 
encourage youth employment, the priority  will 
be  the  reinforced  “My  First  Job”  scheme  that 
combines wage and training support. 

Box 2.1: 

 Key deliverables under the Recovery and Resilience Plan in 2022-2023. 

  Green transition: creation of the Green Transition Task Force to monitor the green transition 

in companies and setting up the Green Fund supporting innovative green technologies 

  Green transition: removing administrative barriers to renewable energy production 

  Digital transition: launch of the first digital public services delivered proactively based on the 
life  or  business  events  (such  as  a  marriage,  the  birth  of  a  child  or  the  creation  of  an 
enterprise) 

  Digital  transition:  launch  of  the  support  scheme  for  the  digital  transition  of  small  and 

medium-sized companies and microenterprises 

  Health care: award the design contract for the Northern Estonia Medical Campus, marking the 

first phase of its construction  

  Youth employment: Entry into force of the legislation to strengthen the “My First Job” scheme 

and adoption of the Youth Guarantee Action Plan  

  Long-term  care:  Entry  into  force  of  the  amendments  to  the  Social  Welfare  Act  to  improve 

independent living and adoption of an action plan on integrated care 

7 

 
 
 
 
FURTHER PRIORITIES AHEAD 
FURTHER PRIORITIES AHEAD 

growth 

sustainable 

Beyond  the  challenges  addressed  by  the 
RRP,  as  outlined  above,  Estonia  faces 
additional key challenges not sufficiently 
covered  in  the  plan.  There  are  bottlenecks 
that need to be addressed to ensure Estonia’s 
and 
long-term 
competitiveness,  notably  to  increase  energy 
security while reducing the energy intensity of 
resource 
the 
productivity, improve the social safety net and 
close the skills gaps. These objectives are also 
identified  in  the  national  strategy  ‘Estonia 
2035’.  Addressing  these  challenges  will  also 
help to make further progress in achieving the 
relevant  SDG  indicators 
in  the  respective 
underlying areas. 

economy 

increase 

and 

Strengthening social protection, 
including unemployed people  

in  2020 

(21.9%).  The 

The adequacy of the social safety net has 
slightly improved, but the risk of poverty 
or social exclusion remains high for older 
people,  people  with  disabilities  and 
unemployed people. In general, the share of 
people  at  risk  of  poverty  or  social  exclusion 
continued  to  decrease 
(22.8%), 
although  it  remained  higher  than  the  EU 
impact  of  social 
average 
transfers on poverty reduction improved, and it 
is  now  close  to  the  EU  average.  However,  the 
adequacy of the minimum income is low, and 
the  at  risk  of  poverty  or  social  exclusion  rate 
for  older  people  and 
for  people  with 
disabilities is one of the highest in the EU (see 
Annex  12).  Risks  of  poverty  for  older  people 
linked  to  the  recent  pension  reform,  which 
made  the  statutory  funded  scheme  voluntary 
should  be  monitored.  Currently,  5%  of  the 
population  have  no  health  insurance,  and 
those  most  likely  to  be  in  this  situation  work 
part-time  and  have  unstable  jobs.  Tackling 
to 
these  challenges 

is  key  for  Estonia 

8 

contribute  to  reaching  the  2030  EU  headline 
target on poverty reduction. 

income 

The 
low  coverage  of  unemployment 
benefits  contributes  to income  inequality 
In  Estonia,  the 
and  increased  poverty. 
criteria  to  receive  unemployment  benefits  are 
restrictive.  Qualifying 
for  unemployment 
insurance benefits depends on the individual’s 
before 
and 
employment 
unemployment.  The  amount  of  the 
less 
generous unemployment allowance – given to 
those  who  do  not  qualify  for  unemployment 
insurance  benefits  –  is  not  based  on  the 
individual’s income but the minimum wage. In 
addition, the self-employed are excluded from 
contributory  schemes.  Currently,  around  half 
of  all  registered  unemployed  people  receive 
unemployment benefits. In 2021, only 37% of 
registered  unemployed  people 
the  newly 
insurance  benefits 
received  unemployment 
and  26%  received  the  fixed  unemployment 
allowance of EUR 292 a month, which is below 
the  poverty  threshold.  This  means  that  more 
than  half  of  unemployed  people  lived  in 
relative  poverty  and  one  fifth  in  absolute 
poverty (Praxis 2021).  

by 

pensions 

increasing 

The  risk  of  poverty  or  social  exclusion 
could  be  reduced  by  improving  social 
protection and labour market  integration 
of  the  unemployed  people.  Estonia  has 
taken some steps to improve social protection 
of  older  people  and  people  with  disabilities, 
notably 
and 
unemployment benefits. However, gaps remain 
as 
regards  unemployed  people.  Helping 
unemployed  people  find  a  job  (e.g.  through 
training and matching) and finding solutions in 
the  benefit  system  can  prevent  people  from 
falling 
trap.  Extending 
unemployment benefits coverage and relaxing 
the  minimum  criteria  to  qualify  for  these 
benefits  can  be  effective  to  ensure  the 
coverage  of  more  people,  in  particular  those 

the  poverty 

into 

 
 
 
with  short  work  spells  and  in  non-standard 
forms of work. 

Affordable and quality long-term 
care    

in 

to  deficiencies 

The Estonian population is ageing but the 
provision of long-term care is inadequate 
to meet the current and growing demand. 
Life expectancy in Estonia is increasing, driving 
up  the  number  of  those  who  need  care. 
However,  due 
the 
organisation  and  financing  of  long-term  care, 
a high share of the 65+ population in need of 
long-term  care  already  lacks  assistance  in 
personal  care  or  household  activities  today 
(58.4%  in  Estonia  compared  to  46.5%  on 
average  in  the  EU  in  2019) (8).  The  demand 
will further increase because the share of the 
65+  population  is  expected  to  grow  from 
19.8% to 28.5% by 2050, and so the old -age 
dependency ratio will also increase. 

in 

The  financing  and  organisation  of  long-
term  care  is  fragmented,  with  a  high 
share  of  costs  paid  by  those  who  need 
care.  The  responsibility  for  long-term  care  is 
divided  between  the  state,  local  government 
and family of the people who need assistance. 
Fragmentation 
the  organisation  and 
financing of long-term care between the social 
and  healthcare  sector,  and  between  the  state 
and the local governments leads to an uneven 
supply  of  similar  home  and  community 
services.  Local  governments  have 
legal 
obligations  when  providing  long-term  care 
services  but  they  have  a  high  degree  of 
autonomy in defining their policies. The lack of 
common  national  standards  for  services  and 
the  shortage  of  workers  make  it  difficult  to 
ensure  quality  care.  Therefore,  along  with 
availability,  the  quality  and  affordability  of 
out-of-pocket 
services  may 

vary. 

The 

(8)  According to the Ministry of Social Affairs, in 2019, 

long-term care services and assistance were provided 
approximately in 71 100 service places, but the actual 
need is around 120 500 service places. The greatest 
unmet need around 13 000 was for home services in 
2019. 

9 

for 

long-term  care  are  high 
payments 
accounting for 45% of disposable income (the 
second  highest  in  the  EU  in  2019).  Public 
sector  spending  on  long-term  care  was  only 
0.4% of GDP in 2019 (1.7% EU). This places a 
high  burden  on  family  members  who  may 
need  to  quit  their  jobs,  aggravating  existing 
labour and skills shortages even more.  

A  comprehensive  reform  of  long-term 
care can ensure access to affordable and 
quality  formal  long-term  care.  While  the 
Estonian  RRP  contains  some  measures  (see 
section on RRP), it lacks a comprehensive long-
term  care  reform.  Such  reform  could  help 
those  in  need  by  focusing  on  efficient  and 
sustainable funding for long-term care, access 
to  integrated  care  services,  setting  quality 
standards,  and  ensuring  sufficient  and  skilled 
workforce.  

Matching skills with employers’ 
needs  

While Estonia performs well in education 
and  training,  employers’  needs  are  not 
fully met due to a shortage and mismatch 
of  skills.  The  Estonian  education  system 
already  provides  very  good  basic  skills  in 
schools and a high number of higher education 
graduates. However, companies in technology, 
manufacturing, 
construction,  science  and 
agriculture  in  Estonia  repeatedly  report  a  lack 
of  skilled  workers,  especially  in  rural  areas. 
Similarly, skills shortages continue in the care 
and  education  sectors.  The  main  reasons  are 
that the education system cannot keep up with 
the  rapidly  changing 
labour  market  and 
technological  developments  and  companies 
provide 
training.  The  number  of 
vocational  education  and  training  and  higher 
education graduates with relevant skills is too 
low  to  fill  job  vacancies.  In  2020  the  rate  of 
early  leavers  from  education  and  training  fell 
below  the  EU  average.  However,  this  hides 
significant  differences:  there  is  a  higher  rate 
for  men,  those  in  rural  areas  and  amongst 
youth  with  disabilities.  Estonia  has  the  third 
highest  gender  gap 
in  higher  education 
graduates  in  the  EU,  with  significantly  more 

limited 

 
                                                 
young  women  than  young  men  graduating 
(see  Annex  13).  Furthermore,  ageing  of 
teachers and a high number of dropouts from 
the  profession  at the  start  of  their  career  are 
key  challenges  to  the  education  and  training 
system in the years to come (see Annex 13).  

needs 

employers’ 

Improving  workers’  skills  and  solving 
teacher  shortages  can  contribute  to 
meeting 
and 
maintaining  a  good  education  system. 
Since the measures in the RRP concentrate on 
digital  and  green  skills,  more  comprehensive 
solutions  will  be  needed  to  meet  all  skills 
needs.  In  addition  to  tackling  the  challenges 
above  in  higher  education  and  in  vocational 
education  and  training,  effective  measures  to 
address skills shortages could be to encourage 
employers to provide more training and to re-
the  skills  forecasting  system  by 
design 
transferring  skills  surveys  to  existing  registry 
data  relevant  for  the  education  and  training 
system  to  help  better  anticipate  skills  needs. 
The  Education  Strategy  2021-2035  and  the 
action  plan  for  ensuring  a  new  generation  of 
teachers  are  steps  in  the  right  direction  to 
address teacher shortages.  

Making the use of energy and 
natural resources more efficient 
and decreasing reliance on fossil 
fuels, including from Russia 

it  with 

transition, 

the  green 

Fostering 
the 
efficient  use  of  natural  resources  and 
embracing  circular  economy  principles 
are instrumental for the sustainability of 
the  Estonian  economy.  Reducing  the  share 
of  oil  shale  in  electricity  production  and 
low-  and  zero-carbon 
replacing 
electricity  sources  will  help  to  achieve  the 
greenhouse 
objectives. 
gas  mitigation 
Estonia’s  own  objective  is  to  reduce  CO2 
emissions by 70% by 2030 compared to 1990 
levels and achieve climate neutrality by 2050. 
In 2020, emissions excluding the land use and 
land-use change and forestry (LULUCF) sector 
had  decreased  by  72%  compared  to  1990 
levels.  In  the  transition  from  oil  shale  to 
is 
renewable  sources,  particular  attention 

being  paid  to  alleviating  the  socio-economic 
impact in the Ida-Viru county in the context of 
the Just Transition Plan. 

Estonia’s  energy  mix  in  2020  was  made 
up  of  32%  renewable  sources  and  68% 
fossil  ones  (domestic  consumption  of 
local  oil  shale  32%,  fossil  fuels 
in 
transportation  16%  and  other  fossil 
sources  19%,  including  8%  of  gas).  An 
increase  in  the  renewable  share  is  envisaged, 
thanks  mainly  to  more  wind  power,  a  greater 
use of biomass, and an associated decrease in 
the  share  of  fossil  fuels.  Although  gas 
accounts  for  just  8%  of  the  energy  mix,  it  is 
supplied  mostly  by  Russia (9).  However, 
reducing Estonia’s dependence on Russian gas 
is already well advanced and will speed up as 
a  result  of  the  implementation  of  the  EU 
and 
unbundling 
infrastructure 
underway  with 
neighbouring countries. Investments should be 
future-proof  where  possible  to  avoid  lock-in 
effects. 

projects 

pipeline 

rules 

and 

Estonia  has 
increased  financing  for 
renewable  energy  projects,  but  some 
regulatory  barriers  remain,  such  as  the 
slow planning process, height restrictions 
to  windmills  for  defence  reasons  and 
local 
resistance.  National  measures, 
including  those in  the  Estonian  RRP,  have  laid 
the  groundwork  for  expanding  renewable 
energy. To accelerate the transition, advancing 
planning  and  permitting  quickly  for  new 
onshore  and  offshore  wind  farms  would 
enable  a  faster  roll-out  of  investments.  This 
includes 
removing  more  defence-related 
constraints,  which  restrict  the  availability  of 
sites 
energy. 
Corresponding  investments  in  the  electricity 
grid infrastructure will make a larger share of 
Increased 
renewable 
transparency  on  the  grid  capacity  available 
and  on  the  conditions  to  access  it  would  also 

developing 

possible. 

sources 

wind 

for 

(9)  Eurostat (2020), share of Russian imports over total 

imports of natural gas, including intra-EU trade. While 
Eurostat 2020 data report a 46% import gas 
dependency on Russia for Estonia, accounting for the 
secondary dependence on Russian gas through intra-EU 
imports would lead to the estimation that Estonia has a 
98% Russian import dependency on gas. 

10 

 
                                                 
biodiversity.  Estonia  has  a  larger  share  of 
species  and  habitats  in  good  conservation 
condition than many other EU Member States, 
and  this  share  is  growing.  Nevertheless,  the 
in  bad 
number  of  species  and  habitats 
conservation  status  has  also 
increased. 
Forests cover 58.4% of Estonia and only 20% 
of  protected  forest  habitats  are  in  favourable 
(see  Annex  5).  The 
conservation  status 
adoption  of  Estonia’s  national  forest  strategy 
post-2020  has  been  delayed,  but  its  quick 
adoption  would  be  beneficial  with  a  view  to 
the  sustainable  management  of  forests  and 
strengthening  their protection,  restoration  and 
resilience. Also, most of mire and semi-natural 
grassland  habitats  remain  in  unfavourable 
status. 

Reducing transport’s carbon 
footprint 

Road  transport  contributes  significantly 
to  total  pollution  in  Estonia,  especially 
because 
it  has  very  carbon-intensive 
passenger  cars.  Road  transport  represents 
nearly one third of Estonia’s total final energy 
consumption, as it relies almost entirely on oil-
derived fuels. Greenhouse gas emissions from 
increased  for  several  decades 
cars  have 
(Graph 3.1), along with the number of cars and 
distance 
travelled.  Estonia  has  the  EU’s 
second-oldest stock of vehicles, which are less 
fuel-efficient and more polluting. 

the 

and 

to  use 

contribute  to  the  market  flexibility.  Expanding 
the  ongoing  projects  on  renewable  hydrogen 
and  other  energy  storage  solutions  and 
developing 
local 
capacity 
sustainable bio-methane will help diversify the 
energy  mix  and  increase  the  flexibility  of 
supply.  Moreover,  cross-border  cooperation  on 
renewables 
timely 
synchronisation with the EU continental power 
grid would further enhance energy flexibility in 
the 
region.  Estonia  would  benefit  from 
integrated  building  renovations  to  improve 
installations 
energy  efficiency  based  on 
combining  heat  production  and  the  use  of 
renewable 
energy 
consumption  and  in  parallel  the  dependence 
on Russia. 

ensuring 

energy, 

reduce 

the 

to 

and 

is  25th 

Estonia’s resource efficiency remains low 
because  it  uses  a  lot  of  material  and 
generates  a  lot  of  waste,  dragging  down 
competitiveness (10). 
productivity 
Estonia 
in  the  EU  for  resource 
productivity,  one  third  of  the  EU  average  of 
2.23  (measured  in  euro  at  purchasing  power 
standards  per  kilogram).  Material  intensity  is 
more  than  twice  the  EU  average  (see  Annex 
11).  For  the  circular  material  usage  rate 
(17.3%), Estonia performed better than the EU 
average  (12.8%)  in  2020,  but  missed  the 
municipal  waste  recycling  target  of  50% 
(Estonia:  28.9%;  EU  average:  47.8%).  Estonia 
will  greatly  benefit  from  implementing  a 
national  strategy  and  action  plan  on  the 
circular economy targeting the entire life cycle 
of  products,  which  are  set  to  be  adopted 
towards the end of 2022. 

Sustainable  use  of  natural  resources  is 
key  to  resilience,  and  although  Estonia 
has  generally  performed  well  in  nature 
conservation,  further  efforts  are  needed 
to restore and reduce the degradation of 
natural  habitats  and  halt  the  loss  of 

(10)  The green dimension of the Resilience Dashboards 

shows that Estonia displays high vulnerabilities in the 
areas ‘sustainable use of resources’ and ‘ecosystems, 
biodiversity and sustainable agriculture’ both of which 
are crucial for the successful management of the green 
transition. (https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en#heatmap) 

11 

 
                                                 
Graph 3.1: CO2 emissions from cars (mTon) 

Source: Eurostat 

in 

lowest  shares  of  electrified 
the  EU 

The transport sector has a crucial role to 
play in decarbonisation. Estonia has one of 
the 
railway 
kilometres 
(see  Annex  5). 
lines, 
Electrification  of  the  main  railway 
supported  by  EU  funds,  is  already  ongoing  or 
planned,  but  electrifying  the  whole  network 
would  contribute  to  faster  decarbonisation  of 
transport. Building on the implementation of a 
recently  adopted  transport  and  mobility  plan 
for  2035,  some  small-scale  initiatives  are 
planned  to  boost  the  sustainability  of  public 
transport and promote more charging stations 
for electric vehicles. 

There  is  currently  no  recurrent  tax  on 
road  vehicles.  Estonia  is  one  of  the  few 
Member States without an annual road vehicle 
tax,  although  it  applies  relatively  high  excise 
duties on road fuels (the highest in the EU  at 
2.3%  of  GDP,  against  an  average  of  1.2%,  in 
2019,  see  Annex  17).  Road  tolls  are  time-
based  and  only  for  heavy-duty  commercial 
there  are  no  congestion 
vehicles,  while 
charges  in  urban  areas.  A  graduated  tax  on 
passenger  cars  and  light  commercial  vehicles 
could be designed in line with the polluter pays 
principle.  This  would  make  car  ownership 
costlier, thus taking older vehicles off the road 
and  encouraging  people  to  use  less  polluting 
transport modes. To reduce the adverse social 
impact  of  such  a  tax,  measures  could  be 
introduced to support low-income car owners. 

12 

1001502002503003504004505000.40.81.21.62.0EE (lhs)EU (rhs) 
  
  Extending  the  coverage  of  unemployment 
benefits,  in  particular  to  those  with  short 
work  spells  and  in  non-standard  form  of 
work. 

  Reforming  the  long-term  care  system  to 
improve  affordability  and  quality  of  the 
service. 

  Addressing 

skills 

shortages 

and 
mismatches,  including  by  improving  the 
labour  market  relevance  of  the  education 
and  training  system  and  easing  teacher 
shortages. 

  Strengthening  the  protection,  restoration, 
resilience  and  sustainable  use  of  natural 
resources,  including  forests,  and  increasing 
the circular material use rate. 

  Diversifying  the  energy  mix,  including  by 
streamlining  of  permitting  procedures  for 
the  installation  of  renewables,  ensuring 
interconnections, 
sufficient  capacity  of 
internal  domestic 
strengthening  of  the 
electricity  grid  and  reducing  the  overall 
energy  consumption,  and  by  enhancing 
energy efficiency,  

the 
system, 

sustainability  of 
including 

  Improving 
the 
transport 
through 
electrification  of  the  rail  network  and 
incentives  to  renew  the  road 
through 
vehicle stock. 

KEY FINDINGS 
KEY FINDINGS 

Estonia’s recovery and resilience plan includes 
measures  to  address  a  series  of  structural 
challenges, through: 

  Removing 

the 

productivity 

administrative 

barriers, 
and 
strengthening 
innovation capability of the business sector, 
and  setting  up  the  Green  Fund  to  support 
access to finance for developing innovative 
green and digital technologies. 

  Upgrading  digital  government  services 
using  the  latest  technologies  to  improve 
their  resilience,  security  and  efficiency, 
improving digital skills to support the digital 
transition  as  well  as 
the 
administrative  burden  for  both  people  and 
businesses. 

reducing 

  Reducing the economy’s energy intensity by 
improving  energy  efficiency  of  buildings, 
further  developing 
energy 
production capacity, and developing support 
schemes for workers’ green skills to reduce 
the skills gap. 

renewable 

  Making 

and 

transport 

travel  more 
sustainable  and  improving  access  to  rail 
transport  for  passengers  and  freight  with 
the  construction  of  the  Rail  Baltic  terminal 
and  the  Tallinn  Old  Port  tramline,  and  the 
electrification of railway lines. 

  Improving the accessibility and resilience of 
the  health  system,  including  by  increasing 
the  number  of  health  workers  and 
strengthening primary care.  

the 

social 

duration 

protection, 

  Strengthening 
by 
extending 
the 
unemployment benefit, reducing the gender 
pay  gap,  improving  long-term  care,  and 
encouraging  youth  employment  through 
the “My First Job” scheme. 

of 

Beyond  the  reforms  and  investments  in 
the RRP, Estonia would benefit from: 

13 

 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience Plan - implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Resource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic stability 

Annex 16: Key financial sector developments 

Annex 17: Taxation 

Annex 18: Key economic and financial indicators 

Annex 19: Debt sustainability analysis 

LIST OF TABLES 

Table A2.1: 
Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 
Table A9.1: 
Table A10.1: 

Key elements of the Estonian RRP 
Summary table on 2019, 2020 and 2021 CSRs 
Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 
Selected resource efficiency indicators 
Key Digital Economy and Society Index Indicators 
Key research, development and innovation indicators 
Key Single Market and Industry Indicators 

17 

19 

19 

21 

22 

24 

27 

27 

30 

32 

32 

33 

35 

37 

40 

42 

42 

44 

46 

48 

50 

50 

52 

54 

55 

21 
25 
29 
32 
34 
36 
38 

 
 
 
Table A11.1: 
Table A12.1: 
Table A13.1: 
Table A14.1: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A19.2: 

Public administration indicators – Estonia 
Social Scoreboard for Estonia 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
Estonia, selected indicators at regional level 
Financial soundness indicators 
Indicators on taxation 
Key economic and financial indicators 
Debt sustainability analysis for Estonia 
Heat map of fiscal sustainability risks for Estonia 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Estonia in the last five years 

Graph A2.1: 

Share of RRF funds contributing to each policy pillar 

Graph A3.1: 

ESIF 2014-2020 Total budget by fund (EUR billion, %) 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Estonia’s progress on the 2019-2020 CSRs (2022 European Semester cycle) 

Graph A5.1: 

Fiscal aspects of the green transition Taxation and government expenditure on environmental protection 

Graph A5.2: 

Thematic – Energy Share in energy mix (solids, oil, gas, nuclear, renewables) 

Graph A5.3: 

Thematic – Biodiversity  Terrestrial protected areas and organic farming 

Graph A5.4: 

Thematic – Mobility  Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A11.1: 

Performance on the single market public procurement indicator 

Graph A13.1: 

Age of school teachers (primary and secondary education) by age group, 2019 

Graph A14.1: 

Life expectancy at birth, years 

Graph A14.2: 

Projected increase in public expenditure on health care over 2019-2070 (AWG reference scenario) 

Graph A15.1: 

GDP per head (in PPS) in Estonia, NUTS3, 2019 

Graph A15.2: 

Territories most affected by the climate transition in Estonia 

Graph A17.1: 

Indicators on tax wedge 

41 
42 
45 
47 
48 
50 
53 
54 
55 
56 

20 

21 

22 

23 

24 

27 

27 

28 

28 

30 

31 

40 

44 

46 

46 

48 

49 

53 

18 

 
 
 
 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

below  the  EU  average  (8.2%  in  2020).  While 
improvements  have  been  made  on  some 
indicators,  the  self-reported  unmet  needs  for 
medical care (13% in 2020) are far above the EU 
average  of  1.7%,  and  the  healthy  life  years  at 
birth  (55.8  in  2019)  are  almost  9  years  shorter 
than  the  EU  average  (64.6  in  2019).  The  gender 
pay gap decreased from 26.7% in 2015 to 21.1% 
in  2020,  but  it  is  still  well  above  the  EU  average 
(13%  in  2020).  The  RRP  contains  measures  to 
improve access to healthcare and long-term care, 
reduce the gender pay gap and increase the social 
protection  of  unemployed  people in  times  of  very 
high unemployment. 

Estonia  performs  well  or  is  improving  on  all 
SDG  indicators  related  to  productivity  (SDG 
4,  8,  9).  Estonia  performs  very  well  on  ‘quality 
education’  (SDG  4)  with  a  tertiary  education 
attainment  and  adult  participation  in  learning 
higher  than  EU  average,  and  early  school  leaving 
in line with EU average. Performance on ‘industry, 
innovation, and infrastructure' (SDG 9) is below the 
EU  average  but  is  improving.  Notably,  a  growing 
share  of  GDP  (1.79%)  was  allocated  to  R&D  in 
2020, still less than the 2.32% average in the EU. 
The  share  of  households  with  very  high  capacity 
network (VHCN) coverage increased from 48.5% in 
2016 to 73.4% in 2021 (EU: 70.2% in 2021). The 
RRP  will  address  bottlenecks,  especially  the 
digitalisation  of  companies  and  digital  skills,  to 
further progress on these SDGs. 

This  Annex  assesses  Estonia’s  progress  on 
the  Sustainable  Development  Goals  (SDGs) 
along  the  four  dimensions  of  competitive 
sustainability.  The  17  SDGs  and  their  related 
indicators  provide  a  policy  framework  under  the 
UN’s  2030  Agenda  for  Sustainable  Development. 
The  aim  is  to  end  all  forms  of  poverty,  fight 
inequalities  and  tackle  climate  change,  while 
ensuring that no one is left behind. The EU and its 
Member  States  are  committed  to  this  historic 
global  framework  agreement  and  to  playing  an 
active  role  in  maximising  progress  on  the  SDGs. 
The graph below is based on the EU SDG indicator 
set  developed  to  monitor  progress  on  SDGs  in  an 
EU context. 

and 

building 

transport 

Estonia  performs  very  well  or  well  on  some 
environmental  sustainability  indicators  (SDG 
2,  6,  7,  11,  15),  and  is  improving  on  others 
(SDG  9,  12,  13).  Estonia  progressed  further  in 
2020  to  ensure  that  the  whole  population  has 
clear  water  and  sanitation,  as  well  as  affordable 
and  sustainable  energy.  Estonia  performs  below 
the  EU  average  but  is  improving  on  resource 
consumption  and  production  and  climate  action. 
Estonia’s dependence on oil  shale  and its energy-
intensive 
sectors 
contributes  greatly  to  its  carbon  emissions  and 
slows  down  progress  towards  the  Paris  targets. 
is 
However,  the  share  of  renewable  energy 
increasing, and Estonia intends to cover 42% of its 
energy  needs  with  renewables  by  2030.  The 
resource  productivity  of  the  Estonian  economy  is 
quite low, at EUR-PPS 0.74/kg in 2020 (EU average 
is  EUR-PPS 2.2/kg),  but 
improvements  are 
becoming  more  visible  (0.58/kg  in  2017).  The 
recovery  and 
includes 
resilience  plan 
measures  to  incentivise  the  uptake  of  renewable 
energy,  pilot  hydrogen  and  energy  storage,  help 
introduce  green  business  models  in  companies, 
improve energy efficiency of buildings, and invest 
in sustainable transport. 

(RRP) 

Estonia  is  performing  very  well  or  well  on 
several  SDG  indicators  related  to  fairness 
(SDG  1,  2,  4,  8,  10)  and  is  improving  on 
others (SDG, 3, 5). Estonia has made progress in 
reducing  the  rate  of  risk  at  poverty  or  social 
exclusion  and  has  improved  the  impact  of  social 
transfers  on  poverty,  getting  closer  to  the  EU 
average.  Estonia  performs  well  in  terms  of  the 
percentage  of  people  living  in  households  with 
very  low  work  intensity  (4.8%  in  2020),  which  is 

19 

 
 
 
 
Graph A1.1: Progress towards SDGs in Estonia in the last five years 

For detailed datasets on the various SDGs see the annual ESTAT report ‘Sustainable development in the European Union’, : 
https://ec.europa.eu/eurostat/product?code=KS-09-22-019; Extensive country specific data on the short-term progress of Member 
States can be found here: Key findings - Sustainable development indicators - Eurostat (europa.eu) 
Source: Eurostat, latest update of 28 April 2022. Data mainly refer to 2015-2020 and 2016-2021. 

in  2021). 

Estonia  is  performing  well  or  very  well  on 
SDG  indicators  related  to  macroeconomic 
stability  (8,  16).  Estonia  performs  very  well  on 
‘decent  work  and  economic  growth’  (SDG  8)  and 
notably  increased  its  investment  share  of  GDP 
from 24.5% in 2015 to 30.7% in 2020 (EU: 22.3% 
in  2020).  The  employment  rate  increased  from 
77.0%  in  2016  to  79.3%  in  2021  (EU:  73.1%  in 
2021),  and  the  long-term  unemployment  rate 
declined  from  2.2%  to  1.6%  in  the  same  period 
(EU:  2.8% 
is 
improving  on  indicators  measuring  ‘peace,  justice, 
and strong institutions’ (SDG 16), showing a stable 
and  secure  environment  for  pursuing  economic 
activities.  The  percentage  of  people  reporting 
crime,  violence  or  vandalism 
their  area 
decreased  from  11.8%  in  2015  to  5.5%  in  2020 
(EU: 10.9% in 2020). The RRP provides a direct and 
indirect  boost  to  Estonia’s  long-term  economic 
through  directly  supported 
growth  potential 
investments 
infrastructural 
increase 
that 
endowment and extend its productive capacity and 
reforms  that  improve  the  business  environment 
and economic resilience. 

In  addition,  Estonia 

its 

in 

20 

 
 
 
 
 
 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece  of  the  EU’s  efforts  to 
support  its  recovery  from  the  COVID-19 
pandemic,  fast  forward  the  twin  transition 
and  strengthen  resilience  against  future 
shocks.  Estonia  submitted 
its  recovery  and 
resilience  plan  (RRP)  on  18  June  2021.  The 
Commission’s  positive  assessment  on  5  October 
2021 and Council’s approval  on 29 October 2021 
paved the way for disbursing EUR 969.5 million in 
grants under the RRF in 2021-2026. The financing 
agreement  and  operational  arrangements  were 
signed on 10 December 2021 and 22 March 2022 
respectively. The key elements of the Estonian RRP 
are set out in Table A2.1. 

The  share  of  funds  contributing  to  each  of  the 
RRF’s six policy pillars is shown in Graph A2.1. 

Table A2.1: Key elements of the Estonian RRP 

(1) See Pfeiffer P., Varga J. and in ’t Veld J. (2021), 
“Quantifying Spillovers of NGEU investment”, European 
Economy Discussion Papers, No. 144 and Afman et al. (2021), 
“An overview of the economics of the Recovery and Resilience 
Facility”, Quarterly Report on the Euro Area (QREA), Vol. 20, 
No. 3 pp. 7-16. 
Source: European Commission 2022 

by 

Estonia 

progress  made 

The 
in 
implementing  its  plan  is  published  in  the 
Recovery  and  Resilience  Scoreboard.  The 
Scoreboard  also  gives  a  clear  overview  of  the 
progress  made  in  implementing  the  RRF  as  a 
whole. 

Graph A2.1: Share of RRF funds contributing to each policy pillar 

Each measure contributes towards two policy areas of the six pillars, therefore the total contribution to all pillars displayed on this 
chart amounts to 200% of the estimated cost of the Estonia RRP approved in 2021. The bottom part represents the primary pillar, 
the top part the secondary pillar.  

Source: RRF Scoreboard  
https://ec.europa.eu/economy_finance/recovery-and-resilience-scoreboard/country_overview.html 

21 

Total allocation EUR 969.5 million in grants (3.4% of 2019 GDP) Investments and Reforms 25 investments and 17 reforms Total number of Milestones and Targets124Estimated macroeconomic impact (1) Raise GDP by 0.9%-1.3% by 2026 (0.5% in spillover effects)Pre-financing disbursed EUR 126 million (December 2021)First instalment Estonia has not yet submitted a first payment request0%10%20%30%40%50%60%70%80%Green transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic,social andinstitutionalresiliencePolicies for thenext generation 
 
 
 
   
 
 
 
     
  
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The EU’s budget of more than EUR 1.2 trillion 
for  2021-2027  is  the  investment  lever  to 
help  implement  EU  priorities.  Underpinned  by 
an  additional  amount  of  about  EUR 800  billion 
largest 
through  Next  Generation  EU  and 
instrument,  the  RRF,  it  represents  a  significant 
firepower to support the recovery and sustainable 
growth. 

its 

Graph A3.1: ESIF 2014-2020 Total budget by fund 
(EUR billion, %) 

Bln EUR in current prices, % of total. The data for the EAFRD 
and REACT-EU refer to the period 2014-2022. 
Source: European Commission, Cohesion Open Data  

support 

In  2021-2027,  EU  cohesion  policy  funds (11) 
will 
development 
long-term 
objectives  in  Estonia  by  investing  EUR 3.68 
billion (12).  This  includes  EUR 353.9  million  from 
the  Just  Transition  Fund  to  alleviate  the  socio-
economic  impacts  of  the  green  transition  in  Ida-
Virumaa,  the  most  vulnerable  region.  The  2021-
2027 cohesion policy funds partnership agreement 
and programme take into account the 2019-2020 
country-specific recommendations and investment 
guidance  provided  as  part  of  the  European 
Semester, ensuring this money fully complements 
other  EU  funding.  In  addition,  Estonia  will  benefit 
from  EUR 1.4  billion  support  for  the  2023-27 
period from the Common Agricultural Policy, which 
supports  social,  environmental,  and  economic 
sustainability  and  innovation  in  agriculture  and 
rural  areas,  contributing  to  the  European  Green 
Deal, and ensuring long-term food security. 

In  2014-2020,  the  European  Structural  and 
Estonia 
Investment 

Funds 

(ESIF) 

for 

(11)  European Regional Development Fund (ERDF), European 

Social Fund+ (ESF+), Cohesion Fund (CF), Just Transition Fund 
(JTF), Interreg. 

(12)  Current prices, source: Cohesion Open Data 

22 

allocated  EUR 4.86  billion (13)  from  the  EU 
budget and another 1.44 billion was added as 
national  financing  (Graph  3.1),  representing 
around  3.8%  of  GDP  on  average  for  2014-2020 
investment (14).  By  31 
and  61.1%  of  public 
December 2021, 97% of the total was allocated to 
specific  projects  and  66%  was  reported  as  spent, 
leaving EUR 2.17 billion to be spent by the end of 
2023 (15). Among the 11 ESIF objectives, the most 
relevant  ones  for  Estonia  are  R&D,  low-carbon 
economy,  transport  and  social  inclusion.  By  the 
end  of  2020,  cohesion  policy 
investments 
supported  17 793  businesses,  created  3 538  new 
jobs,  reconstructed  199  km  of  TEN-T  railway 
tracks,  reduced  96 127  tonnes  of  CO2  equivalent 
emissions, 
supported  30 914  disadvantaged 
people  in  joining  the  labour  market,  and  enabled 
56 758  people  gain  a  qualification.  Estonia  is 
investing  the  2014-2020  European  Social  Fund 
(ESF)  in  education  and  training  to  reform  its 
education  system  and  improve  study  materials 
and  career  advice  to  cut  the  number  of  early 
school 
is  also 
promoting  social  inclusion  through  better  welfare 
and  social  services,  such  as  affordable  childcare 
and care services for older people and people with 
disabilities 
(EUR 169  million).  The  ESF  also 
invested  EUR 241  million  for  a  more  cohesive 
labour  market,  including  EUR 157.5  million  to 
reform  the  work  ability  system  that  helps  people 
with disabilities join the labour market. By the end 
of  2020,  ESF  investments  had  supported  the 
participation  of  more  than  194 000  people  in 
funded  projects,  from  which  more  than  45 000 
gained  a  qualification.  Over  69 000  people  with 
reduced  work  ability  have  received  help  to 
participate in the labour market, and active labour 
market  measures  have  assisted  over  25 000 
participants.  The  ESF  has  helped  12 790  young 
people  neither in  employment  nor  in  education  or 

(EUR 227  million). 

leavers 

It 

(13)  ESIF includes cohesion policy funds (ERDF, ESF+, CF, Interreg) 
and European Agricultural Fund for Rural Development 
(EAFRD) and European Maritime and Fisheries Fund (EMFF). 
According to the ‘N+3 rule’, the funds committed for the 
years 2014-2020 must be spent by 2023 at latest (by 2025 
for EAFRD). Data source: Cohesion Open data, cut-off date 
31.12.2021 for ERDF, ESF+, CF, Interreg; cut-off date 
31.12.2020 for EAFRD and EMFF 

(14)  Public investment is the sum of general government‘s gross 

fixed capital formation and capital transfers. 

(15)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/ES 
https://cohesiondata.ec.europa.eu/countries/EE 

1.5324%1.3021%0.132%2.6542%0.6911%CFEAFRDEMFFERDFESF 
 
  
                                                 
                                                 
 
training;  career  and  study  counselling  have  also 
been offered over 173 000 times.    

Graph A3.2: Cohesion policy contribution to the 
SDGs (EUR billion) 

Source: European Commission, DG REGIO 

information 

2021  aimed,  for  example,  to  strengthen  the 
system, 
financial  management 
improve  active  labour  market  policies,  promote 
professional  development  of  teachers  and  school 
leaders, and develop a draft transport and mobility 
plan.  New  projects  started  in  2021  included 
implementing specific reforms and investments in 
the  RRP,  for  instance  for  e-health,  and  the 
development  of  an  integrated  hospital  master 
plan, digital public administration, decarbonisation, 
and anti-money laundering. In 2022, new projects 
will focus, among others, primary health-care and 
the renovation of buildings. 

also 

from 

other 

benefits 

Estonia 
EU 
programmes,  such  as  the  Connecting  Europe 
Facility,  which  allocated  EUR 253  million  to 
specific  projects  on  strategic  transport  networks 
(from  CEF1,  CEF2  projects  to  be  added  in  the 
coming  weeks),  and  Horizon  2020,  which 
allocated EUR 274.3 million in funding. 

are 

funds 

policy 

Cohesion 
already 
substantially contributing to the Sustainable 
Development Goals (SDGs) objectives. In Estonia, 
they  are  supporting  9  of  the  17  SDGs  with  up  to 
94% of spending contributing to reach the goals. 

REACT-EU 

instrument 

(Recovery 
The 
Assistance  for  Cohesion  and  Territories  of 
the  EU)  under  NextGenerationEU  provided 
EUR  226.4  million  additional  funding  to 
2014-2020  cohesion  policy  allocations  for 
Estonia  to  ensure  a  balanced  recovery,  boost 
convergence  and  provide  vital  support  to  regions 
following  the  COVID-19  pandemic.  REACT-EU 
supported  Estonia 
vaccines, 
strengthening  primary  healthcare,  businesses  and 
preserving 
jobs  youth  employment  measures, 
promoting energy efficiency, and reducing material 
deprivation. 

in  purchasing 

for 

risks 

temporary 

unemployment 

support 
in 

Estonia received support under the European 
to 
instrument 
mitigate 
an 
emergency  (SURE)  to  finance  short-time 
work  schemes,  similar  measures  and  as  an 
health-related  measures. The 
ancillary, 
Council  granted 
the  country  SURE  financial 
assistance  up  to  EUR 230  million  in  March  2021, 
which  was  disbursed  by  25  May  2021.  SURE 
supported an estimated 20% of workers and 13% 
of firms for at least one month in 2020, primarily 
in  manufacturing,  wholesale  and  retail  trade,  and 
accommodation and food services.  

Estonia  benefits  from  tailored  expert  advice 
through  the  Technical  Support  Instrument  to 
design  and  implement  growth-enhancing  reforms, 
including  carrying  out  the  RRP.  Since  2017,  the 
country  has  received  assistance  through  42 
technical  support  projects.  Projects  delivered  in 

23 

0.020.070.110.130.150.240.340.570.590.611.490.00.40.81.21.6SDG 11 Sustainable cities and communitiesSDG 12 Responsible consumption and productionSDG 13 Climate actionSDG 15 Life on landSDG 6 Clean water and sanitationSDG 1 No povertySDG 3 Good health and well beingSDG 7 Affordable and clean energySDG 8 Decent work and economic growthSDG 4 Quality educationSDG 9 Industry, innovation, infrastructure 
  
 
 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS  
RECOMMENDATIONS  

Graph A4.1: Estonia’s progress on the 2019-2020 
CSRs (2022 European Semester cycle) 

The  Commission  assessed  the  2019-2021 
country-specific  recommendations  (CSRs) (16) 
addressed  to  Estonia  in  the  context  of  the 
European  Semester.  The  assessment  takes  into 
account  the  policy  action  taken  by  Estonia  to 
date (17),  as  well  as  the  commitments  in  the 
Recovery  and  Resilience  Plan  (RRP) (18).  At  this 
early  stage  of  the  RRP  implementation,  overall 
94%  of  the  CSRs  focusing  on  structural  issues  in 
2019  and  2020  have  recorded  at  least  “some 
progress”,  while  6%  recorded  “limited” (see  Graph 
in 
A4.1).  Considerable  additional  progress 
addressing structural CSRs is expected in the years 
to  come  with  the  further  implementation  of  the 
RRP. 

Source: European Commission 

(16)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32021H0729%2806%29&qi
d=1627675454457  

      2020 CSRs: EUR-Lex - 32020H0826(06) - EN - EUR-Lex 

(europa.eu) 

      2019 CSRs: EUR-Lex - 32019H0905(06) - EN - EUR-Lex 

(europa.eu) 

(17)  Incl. policy action reported in the National Reform 

Programme, as well as in the RRF reporting (bi-annual 
reporting on the progress with implementation of milestones 
and targets and resulting from the payment request 
assessment). 

(18)  Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here takes into 
account the degree of implementation of the measures 
included in the RRP and of those done outside of the RRP at 
the time of assessment.  Measures foreseen in the annex of 
the adopted Council Implementing Decision on the approval 
of the assessment of the RRP which are not yet adopted nor 
implemented but considered as credibly announced, in line 
with the CSR assessment methodology, warrant “limited 
progress”. Once implemented, these measures can lead to 
“some/substantial progress” or “full implementation”, 
depending on their relevance. 

24 

Limited Progress6%Some Progress94% 
 
 
 
 
 
 
 
                                                 
 
 
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A4.1: Summary table on 2019, 2020 and 2021 CSRs 

(Continued on the next page) 

25 

EstoniaAssessment in May 2022*RRP coverage of CSRs until 20262019 CSR1Some ProgressEnsure that the nominal growth rate of net primary government expenditure does not exceed 4.1% in 2020, corresponding to an annual structural adjustment of 0.6% of GDP.Not relevant anymoreNot applicableEnsureeffectivesupervisionandtheenforcementoftheanti-moneylaundering framework.Some ProgressRelevant RRP measures planned as of 2024 and 20262019 CSR 2Some ProgressAddress skills shortages and foster innovation by improving the capacity and labour market relevance of the education and training system. Some ProgressRelevant RRP measures planned as of 2022Improve the adequacy of the social safety net and access to affordable and integrated social services. Some ProgressRelevant RRP measures planned as of 2022 and 2023Take measures to reduce the gender pay gap, including by improving wage transparency.Some ProgressRelevant RRP measures planned as of 20222019 CSR 3Some progressFocus investment-related economic policy on sustainable transport and energy infrastructure, including interconnections, on fostering research and innovation, and on resource and energy efficiency, taking into account regional disparities.Some progressRelevant RRP measures planned as of 2021, 2022, 2023 and 20242020 CSR1Some ProgressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment. Not relevant anymoreNot applicableImprovetheaccessibilityandresilienceofthehealthsystem,includingbyaddressingtheshortagesofhealthworkers,strengtheningprimarycareandensuringthesupplyofcriticalmedical products. Some ProgressRelevant RRP measures planned as of 2020, 2021, 2022 and 20232020 CSR2Some progressStrengthen the adequacy of the social safety net, including by broadening the coverage of unemployment benefits.Some progressRelevant RRP measures planned as of 2022 and 20232020 CSR 3Some ProgressFront-load mature public investment projects Some Progressand promote private investment to foster the economic recovery. Some ProgressRelevant RRP measures planned as of 2021Focusinvestmentonthegreenanddigitaltransition,inparticularondigitalisation of companies, Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024research and innovation,Some ProgressRelevant RRP measures planned as of 2021 and 2022clean and efficient production and use of energy,Some ProgressRelevant RRP measures planned as of 2021 and 2022resource efficiency, and Some ProgressRelevant RRP measures planned as of 2021 and 2022sustainabletransport,contributingtoaprogressivedecarbonisationof the economy. Limited ProgressRelevant RRP measures planned as of 2021 and 2022Supporttheinnovationcapacityofsmallandmedium-sizedenterprises,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024and ensure sufficient access to finance.Some ProgressRelevant RRP measures planned as of 20212020 CSR 4Some progressStepuptheeffortstoensureeffectivesupervisionandenforcementof the anti-money laundering framework. Some ProgressRelevant RRP measures planned as of 2024 and 2026 
 
 
 
  
 
Table (continued) 

* See footnote 18 

Source: European Commission 

26 

2021 CSR1Substantial ProgressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Full ImplementationNot applicableWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term. Some ProgressNot applicableAt the same time, enhance investment to boost growth potential.(cid:13)(cid:13)Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition.Full ImplementationNot applicableGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Substantial ProgressNot applicable 
 
 
 
  
 
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

intends 

The  European  Green  Deal 
to 
transform the  EU  into a  fair and prosperous 
society,  with  a  modern,  resource-efficient 
and competitive economy where there are no 
net  emissions  of  greenhouse  gases  in  2050 
and  where  economic  growth  is  decoupled 
from resource use. This Annex offers a snapshot 
of  the  most  significant  and  economically  relevant 
developments in Estonia in the respective building 
blocks  of 
is 
complemented by Annex 6 on the employment and 
social impact of the green transition and Annex 7 
for circular economy aspects of the Green Deal.  

the  European  Green  Deal. 

It 

Graph A5.1: Fiscal aspects of the green transition 
Taxation and government expenditure on 
environmental protection 

Source: Eurostat 

Estonia  remains  a  greenhouse  gas  (GHG) 
intensive  economy  due  to  its  reliance  on  oil 
shale. It is on the right track to significantly 
though 
reducing  GHG  emissions  even 
additional  efforts  are  needed  in  specific 
sectors.  Estonia’s  national  energy  and  climate 
plan  aims  to  reduce  GHG  emissions  by  70%  by 
2030  and  by  80%  by  2050,  compared  to  1990 
levels.  The  national  strategy  “Estonia  2035”  aims 
at  climate  neutrality  and  climate  neutral  energy 
production by 2050. In 2020, emissions had been 
levels, 
reduced  by  72%  compared  to  1990 
excluding  those  from  the  land  use  and  land-use 
change  and  forestry  (LULUCF)  sector.  From  the 
sectors  not  covered  by  the  EU  emission  trading 
system  (ETS)  in  2020,  emissions  were  still  10% 
higher  compared  to  2005  levels,  mainly  due  to 
increased  emissions 
in  the  agriculture,  road 
transport  and 
international  aviation  sectors. 
Removals by Estonia’s carbon sinks in the LULUCF 
sector have decreased significantly, from -4,742 kt 
CO2  equivalent  in  2011  to  -716  in  2019.  Estonia 
will  need  to  put  in  place  more  climate  mitigation 

and  adaptation  measures  to  reach  the  agreed 
legally  binding  2030  target  and  efforts  will  have 
to  increase  further  in  the  light  of  the  more 
ambitious 2030 targets under the EU Climate Law, 
the Commission’s proposed fit for 55 package and 
Estonia’s own domestic GHG reduction target. In its 
RRP,  Estonia  allocates  41.5%  of  the  budget  to 
climate  measures,  or  to  addressing  climate 
challenges (19). 

Graph A5.2: Thematic – Energy 
Share in energy mix (solids, oil, gas, nuclear, 
renewables) 

The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste.  
Source: Eurostat 

tax 

is  performing 

rather  well  on 
Estonia 
and 
collection 
environmental 
environmental protection expenditure. Despite 
the  absence  of  annual  taxes  on  cars,  Estonia’s 
environmental  tax  revenues  are  above  the  EU 
average  both  as  a  percentage  of  total  tax 
revenues  and  of GDP  (graph  A5.1).  Environmental 
tax revenues are increasing, except in 2020 when 
Estonia  was  hit  most  by  the  COVID-19  crisis 
(graph  A5.2) (20).  The  share  of  expenditure  on 
environmental  protection 
in  total  government 
expenditure is in line with the EU average. Estonia 
shows  a  low  budgetary  risk  from  climate  hazards 
due  to  a  high  insurance  penetration,  with  a 
noticeable exception for wildfires. 

Estonia’s  energy  mix  is  dominated  by  fossil 
fuels,  especially  oil  shale  but  the  share  of 
fossil  fuels  has  been  rapidly  decreasing 

(19)  The share of financial allocation contributing to climate 

objectives has been calculated using Annex VI to the RRF 
Regulation. 

(20)  For more information on taxation, see Annex 18. 

27 

0.01.02.03.04.05.06.07.08.0Environmental taxes (%of GDP)Environmental taxes (%of total taxation)Government expenditureon environmentalprotection (% of totalexpenditure)EE (2020)EU27 (2020)-20020406080100200520102015201820192020Solid fossil fuels, peat and oil shaleOilGasNuclearRenewables 
 
 
     
   
                                                 
 
 
years  due  to  the  energy  transition  away  from  oil 
shale  burning. In 2020, no exceedances above EU 
air quality standards were registered. Groundwater 
quality  is  overall  good,  with  tolerable  amounts  of 
nitrates  pollution.  However,  a  high  number  of 
surface  waters  are  eutrophic,  and  there  are 
hotspots  where  nitrates  pollution  is  too  high. 
Eutrophication  is  a  shared  problem  with  other 
Member States around the Baltic Sea. A very high 
number  of  water  bodies  in  the  region  have  been 
assessed to be below good eutrophication status. 

Graph A5.4: Thematic – Mobility  
Share of zero emission vehicles (% of new 
registrations) 

Zero emission vehicles (passenger cars) include battery and 
fuel cell electric vehicles (BEV, FCEV). 
Source: European Alternative Fuels Observatory.  

has 

room 

Sustainable  mobility 
for 
improvement in Estonia. The country has one of 
the lowest shares of electrified railway kilometres 
in the EU. Electric passenger cars only make up a 
very  small  share  of  new  registrations,  but  the 
density of electric charging points is adequate. 

renewables 

(including  biofuels) 

during the last few years. Estonia ranks 20th in 
the  World  Energy  Trilemma  index (21).  The  current 
share  of 
in 
Estonia’s  energy  mix  is  32%  (2020).  Projections 
indicate  that  this  share  would  increase  by  2030, 
for  when  Estonia  has  set  a  goal  of  at  least  42%. 
To increase the share of electricity produced from 
renewables, 
of 
administrative procedures is required. 

simplification 

further 

in 

On  biodiversity  and  ecosystem  health, 
Estonia  presents  a  mixed  picture.  Estonia 
achieved  the  10th  position  in  SDG  Index  in  2021, 
and  best  results  in  life  on  land (22).  Its  share  of 
protected 
good 
species  and  habitats 
conservation status shows an improving trend, and 
the share of organic farming (22%) is not far from 
the  EU  2030  target  of  25%.  At  the  same  time, 
with  21%  share  of  terrestrial  protected  area,  the 
country  is  below  the  EU  average  and  most  of  its 
mire,  forest  and  semi-natural  grassland  habitats 
remain  in  unfavourable  status.  Despite  efforts  to 
halt  deterioration,  farmland  and  forest  bird 
numbers  are  decreasing  due  to  pressure  from 
agriculture and forestry. 

Graph A5.3: Thematic – Biodiversity  
Terrestrial protected areas and organic farming 

For terrestrial protected areas data for 2018, and data for the 
EU average (2016, 2017) is lacking. 
Source: EEA (terrestrial protected areas) and Eurostat 
(organic farming). 

Regarding pollution and air and groundwater 
quality, Estonia performs well, but with some 
exceptions.  Emissions  of  air  pollutants  have 
decreased  significantly  in  Estonia  over  the  last 

(21)  https://www.worldenergy.org/publications/entry/world-energy-

trilemma-index-2021 

(22)  https://www.sdgindex.org/reports/sustainable-development-

report-2021/ 

28 

0510152025302016201720192020Terrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0246810201620172018201920202021% of new registrationsEEEU27 
   
                                                 
  
Table A5.1: Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The FF55 targets are based on the COM proposal to 
increase EU's climate ambition by 2030. Renewables and Energy Efficiency targets and national contributions under the 
Governance Regulation (Regulation (EU) 2018/1999). (2) Distance to target is the gap between Member States’ 2030 target under 
the Effort Sharing Regulation and projected emissions, with existing measures (WEM) and with additional measures (WAM) 
respectively, as a percentage of 2005 base year emissions. (3) Percentage of total revenues from taxes and social contributions 
(excluding imputed social contributions). Revenues from the ETS are included in environmental tax revenues (in 2017 they 
amounted to 1.5% of total environmental tax revenues at the EU level). (4) Covers expenditure on gross fixed capital formation to 
be used for the production of environmental protection services (i.e. abatement and prevention of pollution) covering all sectors, 
i.e. government, industry and specialised providers. (5) The climate protection gap indicator is part of the European adaptation 
strategy (February 2021), and is defined as the share of non-insured economic losses caused by climate-related disasters. 
(6) Sulphur oxides (SO2 equivalent), Ammonia, Particulates < 10µm, Nitrogen oxides in total economy (divided by GDP). 
(7) Transportation and storage (NACE Section H). (8) Zero emission vehicles include battery electric vehicles (BEV) and fuel cell 
electric vehicles (FCEV). (9) European Commission Report (2019) 'Benchmarking smart metering deployment in the EU-28'. 
(10) European Commission (2021). Each year the DESI is re-calculated for all countries for previous years to reflect any possible 
change in the choice of indicators and corrections to the underlying data. Country scores and rankings may thus differ compared 
with previous publications. 
Source: Eurostat, JRC, European Commission, EEA, EAFO. 

29 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (2)6.214%10%-13%-11-24%-12-10200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%17%29%30%30%32%30%42%Energy efficiency: primary energy consumption (1)Mtoe5.36.05.85.64.74.35.4Energy efficiency: final energy consumption (1)Mtoe2.92.82.93.02.92.82.9201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP2.73.02.92.83.22.52.42.42.2Environmental taxes (% of total taxation)% of taxation (3)8.28.98.78.39.67.26.05.95.6Government expenditure on environmental protection% of total exp.1.831.501.871.901.711.491.661.701.61Investment in environmental protection% of GDP (4) 1.140.480.530.70--0.420.380.41Fossil fuel subsidiesEUR2020bn0.080.050.050.040.05-56.8755.70-Climate protection gap (5)score 1-4Net GHG emissions1990 = 100454952503628797669GHG emissions intensity of the economykg/EUR'101.101.151.151.050.740.600.320.310.30Energy intensity of the economykgoe/EUR'100.280.340.310.290.230.230.120.110.11Final energy consumption (FEC)2015=100100.0101.4102.4105.6103.398.2103.5102.994.6FEC in residential building sector2015=100100.0108.5109.7109.7111.0110.2101.9101.3101.3FEC in services building sector2015=100100.0107.1100.3105.3100.4101.3102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)4.394.233.803.212.31-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.479410433531423-863762-Years of life lost due to air pollution by NO2per 100.000 inh.3< 1< 1< 1< 1-12099-Nitrate in ground watermg NO3/litre4.54.64.24.85.0-21.720.7-Terrestrial protected areas% of total-16.220.1-20.820.8-25.725.7Marine protected areas% of total-18.5--18.6--10.7-Organic farming% of total utilised agricultural area15.718.020.021.022.322.48.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'101.421.231.251.100.911.090.890.870.83Share of zero emission vehicles (8)% in new registrations0.20.20.10.40.31.91.01.95.47334558812Share of electrified railways%14.414.412.812.813.4-55.656.0-20.519.219.418.118.0-28.928.8-YearEEEUShare of smart meters in total metering points (9) - electricity% of total201898.935.8Share of smart meters in total metering points (9) - gas% of total201811.613.1ICT used for environmental sustainability (10)%202162.265.9ESTONIAEU'Fit for 55'DistanceDistanceProgress to policy targetsNational contribution to 2030 EU targetDigitalFiscal and financialindicators1.1 out of 4 (increase from historical level of 0.5). This is a low risk category (4 being a high risk).ClimateEnergyPollutionBiodiversity2000-20062006-20122012-20187.59.75.9MobilityNumber of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver) 
 
  
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social  dimension. While  measures  in this  regard 
include the opportunity for sustainable growth and 
job creation, it must also be ensured that no one is 
left  behind  and  all groups  in  society  benefit  from 
the  transition.  Estonia’s  green  transition  can 
benefit  from  positive  trends  and  some  recent 
policy  measures.  However, 
energy-intensive 
sectors are sizeable and lower-income groups are 
likely to be particularly affected by the transition. 

Estonia’s  recovery  and  resilience  plan  (RRP) 
and national energy and climate plan (NECP) 
outlines  some  reforms  and 
investments 
contributing  to  a  fair  green  transition.  The 
RRP supports the green transition of companies by 
encouraging  the  uptake  of  green  technologies 
through  knowledge  transfer,  the  organisation  of 
in  higher 
training  programmes 
proficiency 
education  and  vocational  education  and  training, 
and  upskilling  and  reskilling.  The  RRP  also 
contributes  to  developing  and  piloting  more 
flexible  training  programmes  that  offer  micro 
credentials  and  take  into  account  the  green 
economy’s  future  needs.  Estonia’s  NECP  of  19 
December  2019  includes  grants  for  improving 
living  conditions  and  energy  efficiency  and  the 
possibility  for  local  governments,  to  cover  some 
housing  costs  for  people  in  need,  in  addition  to 
subsistence benefits. 

footprint 

economy’s 

The 
has 
carbon 
significantly  decreased  and  although  key 
energy-intensive sectors remain sizeable, the 
green  economy  and  quality  job  creation 
potential  is  relatively  large.  The  greenhouse 
gas  (GHG)  emissions  intensity  of  the  Estonian 
economy  halved  between  2015  and  2020  (in 
terms  of  gross  value  added),  however,  it  remains 
double  the  EU  average.  The  average  carbon 
footprint  per  worker  is  17.04  tonnes  of  GHG 
emissions  (against  13.61  in  the  EU)  (see  Graph 
A6.1).  The  average  carbon  footprint  of  the  top 
10%  of  emitters  is  about  5.6  times  higher  than 
that of the bottom 50% of the population (against 
5.3 times in the EU). The transition away from oil 
shale creates a risk for the jobs of around 20,000 
people.  The  territorial  just  transition  plan  includes 
measures  to  mitigate  the  social  and  employment 
impact  of  this  transition,  including  retraining  and 
upskilling programmes for workers in the oil shale 
industry and effective job transition measures (see 

Annex  15).  At  the  same  time,  the  environmental 
goods  and  services  sector  provides  jobs  to  a 
comparatively 
the  employed 
large  share  of 
population  (4.6%  versus  2.1%  in  the  EU) (23),  and 
wind and solar energy has the potential for further 
green job opportunities (24). 

Graph A6.1: Fair green transition challenges 

Source: Eurostat, World Inequality Database 

households 

Ensuring  access  to  affordable  energy  for 
lower-income 
remains 
challenging. According to 2020 data, a relatively 
high  share  of  the  population  living  in  rural  areas 
(24.5%) is still at risk of poverty compared to the 
EU average (18.7%), despite falling from a peak of 
26.5%  in  2018 (25).  The  share  of  the  population 
unable  to  keep  their  homes  adequately  warm 
increased from 2.0% in 2015 to 2.7% in 2020, still 
well  below  the  EU  average  (8.0%).  Lower-income 
groups  are  affected  most  by  energy  poverty  (see 
Graph  A6.2),  and  consumption  patterns  vary 
across the population. 

Tax  systems  are  key  to  ensuring  a  fair 
transition  towards  climate  neutrality (26). 
Estonia’s revenues from total environmental taxes 
were  2.5%  of  GDP  in  2020  (against  2.2%  in  the 
EU, see also Annex 5) and the tax burden on low-
income  earners  saw  a  significant  decrease  from 

(23)  There is currently no common EU-wide definition of green 
jobs. The environmental goods and services sector (EGSS) 
accounts only report on an economic sector that generates 
environmental products, i.e. goods and services produced for 
environmental protection or resource management.  

(24)  https://publications.jrc.ec.europa.eu/repository/handle/ 

JRC126047 

(25)  As a proxy for potential transport challenges in the context of 

the green transition (see COM(2021) 568 final). 

(26)  COM(2021) 801 final. 

30 

0.001.002.003.004.005.00GHG tonnes per Euroof gross added value(MS/EU)GHG tonnes perworker (MS/EU)Employment share inenergy-intensiveindustries (MS/EU)Share of population inrural areas at risk ofpoverty (MS/EU)Energy poverty(MS/EU)Carbon inequality(MS/EU)EstoniaEU 2020Estonia 2015 
 
  
 
                                                 
 
36.9% in 2015 to 30.8% in 2020, which is close to 
the EU average of 31.6% (see Annex 17). 

road  vehicle 

Estonia  is  one  of  the  few  Member  States 
without  an  annual 
tax. 
Introducing  a  tax  on  passenger  cars  and  light 
commercial  vehicles  would, 
line  with  the 
polluter-pays  principle,  make  car  ownership  more 
costly  and  thus  promote  a  faster  renewal  of  the 
existing stock of vehicles and a shift towards less 
polluting 
the 
adverse  social  impact  of  such  a  tax,  safeguards 
could apply to low-income car owners. 

transport  modes.  To  minimise 

in 

Graph A6.2: Energy poverty by income decile 

Source: Eurostat EU-SILC survey (2020) 

31 

0%5%10%15%20%25%12345678910Unable to keep home adequately warm (per income decile)Income decileEstoniaEuropean Union 
  
 
 
 
 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY  
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY  

falls behind its re-use and recycling targets. 
Estonia’s  GDP  has  grown  steadily  while  waste 
generation  per  capita  has  decreased,  indicating 
that the country is on track to relatively decouple 
total  waste  generation  from  economic  growth.  
Estonia  has  made  slow  but  steady  progress  over 
the  past  decade  in  stepping  up  its  recycling  rate. 
However,  with  only  28.9%  of  municipal  waste 
recycled  in  2020,  the  country  remains  far  below 
the EU average of 47.8%. 

Further  measures  can  help  Estonia  improve 
its  position  in  environmental  technology.  A 
to  a  circular  economy 
successful 
transition 
innovation. 
technological 
requires  social  and 
Estonia  ranked  18th  on  the  2021  Eco-Innovation 
Index,  with  a  total  score  of  97,  resulting  in  an 
'average'  eco-innovation  performer  status.  The 
country  performs  below  the  average  in  three  out 
of  the  five  components  of  the  Eco-Innovation 
Index; 
eco-innovation 
activities  and  resource  efficiency  outcomes.  For 
socio-economic 
eco-innovation 
outputs, it performs above the EU average. Further 
measures  such  as  sustainable  product  design, 
resource  efficient  production  processes,  digital 
solutions  for  industry,  environmental  problem-
solving  technologies  and  new  circular  business 
models can help Estonia to develop environmental 
technology. 

eco-innovation 

outputs 

inputs, 

and 

while 

minimizing 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
clean 
creating  markets 
industry 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chains  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics,  helping  create  sustainable, 
local and well-paid jobs across Europe. 

for 

by 

Estonia  continued  steadily  increasing  its  use 
of circular material. The circular (secondary) use 
of material grew from 11.6% in 2016 to 17.3% in 
2020. Estonia performs above the EU average and 
has a positive trend of the indicator’s performance 
over time. 

Estonian  resource  productivity  is  well  below 
the EU average. Resource productivity expresses 
how  efficiently 
the  economy  uses  material 
resources  to  produce  wealth.  Improving  resource 
productivity can help to minimise negative impacts 
on  the  environment  and  reduce  dependency  on 
volatile  raw  material  markets.  Largely  due  to 
resource  intensive  energy  production  from  oil 
shale,  resource  productivity  in  Estonia  is  the  third 
lowest  in  the  EU  with  EUR 0.93  at  purchasing 
power  standards  (EUR-PPS)  generated  per  kg  of 
material consumed in 2020, compared with the EU 
average of 2.23 EUR-PPS per kg. Material intensity 
is more than twice the EU average. 

Estonia  is  on  track  to  decouple  municipal 
waste  generation  from  economic  growth  but 

Table A7.1: Selected resource efficiency indicators 

Source: Eurostat 

32 

SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)0.80.80.80.80.90.92.22020Material Intensity (kg/EUR)1.21.21.31.31.11.10.42020Circular Material Use Rate (%)11.311.612.413.515.617.312.82020Material footprint (Tones/capita)24.624.128.430.327.8-14.62019Waste Waste generation (kg/capita, total waste)-18,451-17,539--5,2342018Landfilling (% of total waste treated)-64.7-60.8--38.52018Recycling rate (% of municipal waste)28.328.128.42830.828.947.82020Hazardous waste (% of municipal waste)-39.9-46.9--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)4.44.94.74.54.6-2.32019Private investment in circular economy (% of GDP)-0.2----0.12018Key indicators - EstoniaLatest year EU 27 
 
 
 
 
 
 
 
 
 
 
   
 
ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

integration  of  digital 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The  areas  of  human  capital,  digital  connectivity, 
the 
technologies  by 
businesses  and  digital  public  services  reflect  the 
Digital  Decade’s  four  cardinal  points (27).  This 
Annex describes Estonia’s DESI performance. In its 
recovery  and  resilience  plan  (RRP),  Estonia  has 
allocated  21.5%  of  the  funds  to  achieve  digital 
objectives. 
the  digital 
transformation  of  businesses  and  strengthens 
further the digitalisation of public services (28). 

It  mainly 

supports 

business ecosystem includes many innovative and 
growing  start-ups  that  are  driving  the  country’s 
growth and modernisation. 

Estonia’s digital public services, known as E-
Estonia,  are  very  advanced.  With  very  high 
scores from the DESI for digital public services for 
people and businesses, Estonia is a strong EU front 
runner. The country is now working to make these 
services  even  more  user-oriented  and  proactive 
(anticipating  the  needs  of  the  users  and  making 
the first move). 

Estonia  has  a  large  and  growing  pool  of 
digital  experts  and  a  population  with 
relatively  good  digital  skills.  Estonia  performs 
slightly  above  the  EU  average  as  regards  the 
percentage  of  the  population  with  at  least  basic 
digital  skills  and  has  a  very  high  share  of  ICT 
specialists.  However,  60%  of  Estonian  companies 
report  difficulties, 
recruiting 
confirming  a  skills  gap  still  exists.  With  a  relative 
high proportion of ICT graduates (8% compared to 
3.9%  at  EU  average),  Estonia  is  taking  other 
targeted  measures  to  fill  this  gap:  schemes  to 
attract  foreign  ICT  experts  and  upskilling  and 
reskilling programmes (29). 

specialists 

ICT 

Estonia  still  suffers  from  relatively  poor 
connectivity,  although  this  has  improved 
significantly  in  recent  years.  Today,  very  high 
is  above  the  EU 
capacity  network  coverage 
average.  However,  the  country  still 
in 
providing  5G  commercial  services  because  not  all 
spectrum resources needed for 5G operation have 
been allocated yet. 

lags 

Not  all  Estonian  businesses  take  advantage 
of the digital technologies.  The share of small 
and medium-sized companies with at least a basic 
digital  intensity  is  close  to  the  EU  average,  and 
their  adoption  of  some  advanced  technologies 
lower  than  the  EU  average  in  some  areas,  while 
in  others.  Nevertheless,  the  Estonian 
higher 

(27)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM (2021) 118 final. 

(28)  The share of financial allocation contributing to digital 

objectives has been calculated using Annex VII of the RRF 
Regulation. 

(29)  See  https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=ICT_specialists_-
_statistics_on_hard-to-fill_vacancies_in_enterprises  and 
https://digital-strategy.ec.europa.eu/en/policies/desi-estonia  

33 

 
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A8.1: Key Digital Economy and Society Index Indicators 

(*) The 5G coverage indicator does not measure users’ experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 

34 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA56%54%79%% individuals202120212021ICT specialists5.8%6.2%6.2%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists24%23%23%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage57%71%73%70%100%% households201920202021202120215G coverage (*)NA0%18%66%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA54%55%86%% SMEs202120212021Big data11%10%10%14%31%% enterprises20182020202020202020CloudNANA51%34%69%% enterprises202120212021Artificial IntelligenceNANA3%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA9275100Score (0 to 100)202120212021Digital public services for businessesNANA9882100Score (0 to 100)202120212021Estonia 
 
 
 
 
 
 
  
 
ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

is  a 

This  Annex  provides  a  general  overview  of 
the  performance  of  Estonia’s  research  and 
innovation  system.  Estonia 
strong 
innovation  performer  according  to  the  2021 
edition of the European Innovation Scoreboard (30), 
and its performance has been improving over time. 
The  country  was  already  among  the  group  of 
strong  innovation  performers  before,  but  it  has 
passed  the  EU  average  for  the  first  time.  R&D 
intensity,  at  1.79%  of  GDP,  is  still  significantly 
lower  than  the  EU  average  of  2.32%  of  GDP  in 
2020. 
its 
commitment to raise public sector R&D funding to 
1% of GDP, faster than originally planned (2023). 

the  government  met 

In  2021, 

innovation  capacity 

Research  & 
in  the 
business  sector  remains  weak.  Business 
enterprise expenditure on R&D reached nearly 1% 
of  GDP,  which  represents  a  significant  increase 
from  the  previous  year  but  still  falls  short  of  the 
2% target. Estonia does not provide tax incentives 
for  business  R&D  expenditure,  and  public  support 
for  business  enterprise  expenditure  on  R&D 
remains  well  below  the  EU  average.  While  the 
amount  of  venture  capital  as  a  share  of  GDP  is 
above  the  EU  average,  the  relatively  small 
business  expenditure  on  R&D  is  reflected  in  the 
country’s technological production. This production 
has increased over time but remains less than half 
the  EU  average.  Moreover,  the  number  of  new 
graduates 
in  science  and  engineering  has 
decreased,  creating  a  skills  shortage  to  support 
business innovation. 

is  reforming 

Estonia  has  made  an  effort  to  strengthen 
links  between  science  and  business  and  the 
technology  transfer  ecosystem.  As  part  of  its 
new  overarching  R&D  and  entrepreneurship 
strategy,  Estonia 
innovation 
support structures, and R&I support services have 
been  merged. However,  there  is scope  to  improve 
cooperation  between  universities  and  research 
institutes  and 
the  business  sector.  Recent 
initiatives  to  develop  research  and  technology 
organisations  are  at  an  early  stage  and  will  take 
time to mature. 

its 

(30)  https://ec.europa.eu/docsroom/documents/45912  

35 

 
 
 
 
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A9.1: Key research, development and innovation indicators 

Source: DG Research and Innovation - Common R&I Strategy and Foresight Service - Chief Economist Unit        
Data: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe 

36 

CompoundEUannual growthaverageR&D Intensity (GERD)1.581.471.411.631.791.32.32Public expenditure on R&D0.770.770.790.740.780.10.78Business expenditure on R&D (BERD)0.790.680.600.870.982.21.53Scientific publications within the top 10% most cited worldwide, % of total in Estonia7.38.19.0::2.79.9PCT patent appl.-s, per billion of GDP (in PPS)2.61.21.6:: -1.13.5Public-private scientific co-publications, %7.06.59.610.18.92.49.05New graduates in science & engineering per thousand pop. aged 25-3412.511.810.09.6:-5.116.3Public sector support for BERD as % of GDP0.0920.0640.0480.057:-5.30.196Share of environment-related patents in total patent applications filed under PCT (%) 18.411.1 20.0 : :1.112.8 Venture Capital (market stat.) as % of GDP0.0340.0320.0330.0670.09010.10.054Employment in fast-growing enterprises in 50% most innovative sectors3.03.24.34.5:4.45.52020Estonia2010201520182019Finance for innovation and Economic renewalKey indicators as % of GDPQuality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation  
 
  
 
ANNEX 10: INDUSTRY AND SINGLE MARKET 
ANNEX 10: INDUSTRY AND SINGLE MARKET 

vs.  76%  in  the  EU)  and  bids  (85%  in  Estonia  vs 
74% in the EU). 

The  Estonian  economy  is  well  integrated  in 
the  single market.  This integration  is  above the 
EU average (the ratio of intra to extra-EU trade is 
2.28  compared  to  1.59  for  the  EU  in  2021). 
Compliance  in  transposition  is  also  above  the  EU 
average (Estonia is among the five countries with 
the lowest deficits in the EU) and the country has 
the lowest number of pending infringement cases 
in  the  EU  (12  compared  to  31  for  the  EU). 
Confidence  in  investment  protection  is  on  EU 
average level (56%). 

and 

chain 

Growth  prospects  are  affected  by  global 
labour 
disruptions 
supply 
shortages. The recovery from the COVID-19 crisis 
in  Estonia  has  been  one  of  the  fastest  in  Europe, 
but  growth  prospects  are  hampered  by  global 
supply  problems  and  a  labour  shortage.  21%  of 
companies  reported  shortages  in  materials  or 
equipment in 2021 (with industry and construction 
sector  affected  the  most)  compared  to  the  EU 
average  of  26%.  However,  the  situation  had 
worsened  substantially  compared  to  the  previous 
year. Labour shortages will continue to be a bigger 
challenge 
(reported  by  26%  of  companies 
compared  to  14%  in  the  EU).  Estonia  is  tackling 
this  by  skills  measures  in  the  recovery  and 
resilience plan, cohesion policy funds, and changes 
in  national  legislation  to  facilitate  immigration  of 
skilled  workforce.  Energy  supply,  especially  an 
increasing  the  share  of  renewable  energy  from 
wind,  remains  a  key  factor  for  resilience  and  is 
addressed in the RRP as well. 

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence over the long run. A major source 
of  productivity  for  the  EU  economy  is  a  well-
functioning single market, where fair and effective 
competition  and  a  business-friendly  environment 
is ensured, in which small and medium enterprises 
(SMEs)  can  operate  without  difficulty.  Businesses 
and  industry  rely  heavily  on  robust  supply  chains 
and  are  facing  bottlenecks  that  bear  a  negative 
impact  on  firms’  productivity  levels,  employment, 
turnover and entry-exit rates. This may impact the 
Member  States’  capacity  to  deliver  on  Europe’s 
green and digital transformation. 

Estonia’s labour productivity remains low but 
is rising steadily. Labour productivity rose faster 
in Estonia than in the rest of Europe, with a steady 
annual  increase  of  1.1%  in  2019  and  1.9%  in 
2020.  The  country  is  ranked  17th  for  labour 
productivity  in  the  EU.  With  the  current  80.8%  it 
has  moved  closer  to  the  EU  average  from 
relatively low levels (36% 20 years ago). According 
to  the  Eesti  Pank  (Bank  of  Estonia),  increasing 
labour  productivity  requires  raising  the  share  of 
investment  in  human  capital  and  innovation  and 
increased physical capital accumulation (31). 

to 

lenders) 

lend  has 

Estonia’s business environment has improved 
but  some  barriers  remain.  According  to  the 
Eesti  Pank,  the  number  of  corporate  assessments 
for  access  to  finance  is  currently  at  the  highest 
level,  compared  to  the  last  8  years.  Companies 
consider  that  the  willingness  of  banks  (among 
other 
improved.  The 
companies most concerned are in accommodation, 
food  service,  and  transport,  as  they  were  most 
affected  by  restrictions  related  to  COVID-19 (32). 
Access  to  finance  has 
improved  significantly 
reaching  the  EU  average  for  loans  in  2020,  while 
access  to  equity  has  remained  above  the  EU 
average.  However,  late  payments  are  the  biggest 
barrier  to  SMEs’  resilience  and  growth,  according 
to  the  2020  Eurobarometer (33).  Estonia  is  an 
average  performer  in  public  procurement  and 
SMEs  are  involved  in  public  procurement  more 
than  the  EU-27  average,  with  an  increasing 
number of contractors every year (82% in Estonia 

(31)  Estonian Competitiveness Report 2021 Eesti Pank  

(32)  Press release of 16.02.2022 Eesti Pank 

(33)  SME Eurobarometer 2020 SMEs ,start-ups and 

entrepreneurship factsheets, Estonia 

37 

 
 
                                                 
 
 
Table A10.1: Key Single Market and Industry Indicators 

(Continued on the next page) 

38 

SUB-POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average*Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]57.2962.6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]23.1119.7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]19.617.6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]161.3105.4122.3118.2100.760.2%127.3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]216345320%26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]26721262124%14%Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]n.a.5.4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0.170.160.180.190.2-15%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]19.6016.2012.5013.2048%47.8%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]10.27.76.87.536.0%2.6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]2.61.92.32.60%0.4%Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]2.282.432.622.352.90-21%1.59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])1   10%3.37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]70.245%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]Above averageOn averageAbove averageAbove averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]Above averageOn averageOn averageOn averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]5656%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]105.9103.789.696.310.0%70.1Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]130.9128.6123.2116.20.127105.6Investment dynamicsHEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependenciesSINGLE MARKETCompliance - cooperation EC and MSBUSINESS ENVIRONMENT - SMEsBusiness demography 
 
 
 
  
 
Table (continued) 

(*) latest available 
Source: See above in the table the respective source for each indicator in the column “Description”. 

39 

Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]48.437.852.3n.a.n.a.-8%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.560.270.360.3657.4%0.56EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.20.280.410.05290.8%0.18% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]0012.911.121.4-100%12.4%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]8279756722.4%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]8584685847%70.8%Public procurement Access to finance 
 
 
 
  
 
ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress,  and 
fairness. Public administrations at all government 
levels deliver crisis response, ensure the provision 
of  public  services  and  contribute  to  building  the 
resilience  for  the  sustainable  development  of  the 
European economy. 

aims  to  improve  data  collection  quality  and 
management. 

Graph A11.1: Performance on the single market 
public procurement indicator 

Overall,  Estonian  public  administration  is 
among  the  most  effective  in  the  EU (34).  The 
regulatory system is well developed, as shown by 
the  values  of  evidence-based  policymaking 
indicators  that  are  above  the  EU  average.  The 
legislative  process 
is  considered  open  and 
transparent. Estonia performs rather well on public 
engagement and stakeholder consultations. Impact 
assessments  are  carried  out  consistently  for  all 
drafts of primary legislation, but evaluation during 
or  after  implementation  are  conducted  case-by-
case. The civil service demonstrates a high level of 
educational  attainment  and  participation  in  adult 
learning, the gender balance in senior civil service 
management  positions  is  well  above  the  EU 
average. 

Estonia’s  overall  performance  on  public 
procurement 
is  around  the  EU  average. 
However, there is room for improvement given the 
relatively high share of negotiated procedures and 
contracts  awarded  where  there  was  just  a  single 
bidder. There is also a high dependence on price as 
award criterion for public procurement where more 
qualitative  criteria  could  be  applied  (see  Graph 
A11.1). 

The competition and transparency indicators are triple-
weighted, whereas the efficiency and quality indicators have 
unitary weights. All others receive a 1/3 weighting in the SMS 
composite indicator.  
Source: Single market scoreboard 2020 data. 

The  justice  system  performs  efficiently.  The 
length  of  court  proceedings  in  civil,  commercial 
and  administrative  cases  is  shorter  than  the  EU 
average,  while  the  number  of  pending  cases  is 
amongst  the  lowest  in  the  EU.  The  quality  of  the 
justice  system  is  overall  good.  Estonia  is  also 
among  the  best  performing  Member  States  when 
it  comes  to  digitalisation  of  justice.  As  regards 
judicial  independence,  no  systemic  deficiencies 
have been reported (35). 

the 

public 

ranks  among 
of 

for 
best 
Estonia 
digitalisation 
administration 
services.  E-government  is  used  by  89%  of 
internet  users  and  this  is  increasing.  Recent 
reforms  aim  to  strengthen  digital  security  and  to 
give easier access to public services. The Estonian 
recovery and resilience plan (RRP) includes reforms 
and 
to  upgrade  digital 
government services further, in particular in terms 
of  user  centricity  and  resilience  (especially  given 
growing  cyber  threats).  The  plan  also  includes 
measures 
to  help  businesses  and  public 
administration take advantage of the opportunities 
offered  by  the  latest  technologies.  The  plan  also 

investments  aiming 

(34)  Worldwide Governance Indicators, 2020 

(35)  For more detailed analysis of the performance of the justice 
system in Estonia, see the 2022 EU Justice Scoreboard 
(forthcoming) and the country chapter for Estonia of the 
Commission’s 2022 Rule of Law Report (forthcoming). 

40 

 
 
                                                 
 
 
 
 
 
 
 
 
 
 
                                                 
 
Table A11.1: Public administration indicators – Estonia 

(1) High values stand for good performance barring indicators # 7 and 8. 
(2) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. 
(3) Break in the series in 2021. 
(4) Defined as the absolute value of the difference between the share of men and women in senior civil service positions. 

Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); OECD Indicators of Regulatory Policy and Governance (# 12). 

41 

EE20172018201920202021EU27188.088.088.089.089.070.82nananana90.070.93nananana94.281.1451.451.451.451.4na56.8568.366.968.970.366.455.3640.239.042.430.338.318.678.09.44.41.03.021.8817.218.920.620.019.021.390.720.720.720.72na0.72101.41.41.41.4na1.5115.05.35.7-0.3na-0.7122.19nana2.17na1.7Index of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and ex post evaluation of legislation Educational attainment level, adult learning, gender parity and ageingOpen government and independent fiscal institutionsParticipation rate of public administration employees in adult learning (3)Gender parity in senior civil service positions (4)Share of public sector workers between 55 and 74 years (3)E-government Public Financial Management Evidence-based policy makingIndicator (1)Medium term budgetary framework indexStrength of fiscal rules indexPublic procurement composite indicatorShare of individuals who used internet within the last year to interact with public authorities (%)2021 e-government benchmark´s overall score (2) 2021 open data maturity indexScope Index of Fiscal InstitutionsShare of public administration employees with tertiary education, levels 5-8  (3) 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The European Pillar of Social Rights provides 
for  upward  convergence 
the  compass 
towards better working and living conditions 
in the EU. The implementation of its 20 principles 
on  equal  opportunities  and  access  to  the  labour 
market,  fair  working  conditions,  social  protection 
and inclusion, supported by the 2030 EU headline 
targets  on  employment,  skills  and  poverty 
reduction, will strengthen the EU’s drive towards a 
digital,  green  and  fair  transition.  This  Annex 
provides  an  overview  of  Estonia’s  progress  in 
achieving  the  goals  under  the  European  Pillar  of 
Social Rights. 

Table A12.1: Social Scoreboard for Estonia 

are 

regional 

differences. 

The  performance  of  the  Estonian  labour 
market  has  remained  strong,  with  a  limited 
impact  from  the  COVID-19  crisis,  although 
there 
The 
employment  rate  in  Estonia  has  recovered  to 
79.3%  in  2021,  but  is  not  yet  back  to  the  pre-
pandemic  level  (80.5%  in  2019).  To  mitigate  the 
impact of the crisis, Estonia introduced short-time 
work  schemes  that  helped  contain  unemployment 
and  its  adverse  social  impacts.  The  long-term 
unemployment  rate  has  picked  up  slightly  from 
2019 (1.6% of the active population in 2021) but 
is  well  below  the  EU  average  (2.8%).  However, 
there  are  regional  differences  in  unemployment, 
with higher rates than the national average in the 
north-eastern part of the country (6.2% in Estonia 
and  11.5%  in  the  North-East  in  2021).  The  Just 
Transition Fund aims to mitigate the impact of the 
transition  from  oil  shale  in  North-eastern  Estonia 
(see  Annex  15).  The  European  Social  Fund  Plus 
(ESF+)  will  support  access 
to  employment. 
Whereas Estonia is the best performer as regards 
the  gender  employment  gap, 
it  nonetheless 
continues  to  have  one  of  the  highest  gender  pay 
gaps  in  the  EU  (21.1%  in  Estonia  versus  the  EU 
average  of  13%  in  2020).  That  rate  is  on  a 
downward  trend,  partly  because  of  reforms 
undertaken  in  recent  years.  There  is  scope  for 
strengthening  the  capacity  of  social  partners  and 
social dialogue in general. 

Update of 29 April 2022. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2022. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income. 

Source: Eurostat 

is  generally  performing  well 

Estonia 
in 
education  and  training  but  skills  shortages 
and  mismatches  remain.  According  to  the  EU 
Statistics  on  Income  and  Living  Conditions  (EU-
SILC) survey, only 26.7% of children below the age 
of  three  were  enrolled  in  childcare  in  2020,  a 
decline  of  5.1  percentage  points  compared  to 
2019, in part due to the COVID-19 pandemic. The 
early  school  leaving  rate  was  in  line  with  the  EU 
average, at 9.8% in 2021, while the rate for men 
was  significantly  higher  than  for  women  (12% 
versus  7.6%  in  2021).  Early  school  leaving  was 
also  higher  in  rural  areas  (12.3%),  and  among 
young people with disabilities (16.2%). The tertiary 
education attainment rate is relatively high (43.2% 
in 2021). Participation in adult learning (in the last 
4  weeks)  is  also  high  based  on  the  latest  2021 
data  (18.4%  versus  10.8%  in  the  EU).  However, 
there  are  skill  shortages  in  Estonia  linked  to 
factors  such  as  the  insufficient  number  of  higher 
education  and  vocational  education  and  training 

42 

9.856.011.23.75.079.36.21.6129.322.817.431.720.64.426.713.0Critical situationTo watchWeak but improvingGood but to monitorOn averageSocial Scoreboard for ESTONIAEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24) (2021)Youth NEET(% of total population aged 15-29) (2021)Gender employment gap (percentage points) (2021)Income quintile ratio (S80/S20) (2020)Individuals' level of digital skills (% of population 16-74) (2021)Dynamic labour markets and fair working conditionsSocial protection and inclusionAt risk of poverty or social exclusion for children (in %) (2020)Disability employment gap (ratio) (2020)Better than averageAt risk of poverty or social exclusion (in %) (2020)Employment rate(% population aged 20-64) (2021)Unemployment rate(% population aged 15-74) (2021)Long term unemployment(% population aged 15-74) (2021)GDHI per capita growth (2008=100) (2020)Best performersImpact of social transfers (other than pensions) on poverty reduction (% reduction of AROP) (2020)Children aged less than 3 years in formal childcare (% of under 3-years-olds) (2020)Self-reported unmet need for medical care (% of population 16+) (2020)Housing cost overburden (% of population) (2020) 
 
 
 
  
 
 
 
 
 
 
graduates in certain fields (see Annex 13). The rate 
of people with basic or above basic digital skills is 
above  the  EU  average.  Overall,  as  identified  by 
OSKA  (skills  forecasting  system)  sectoral  reports, 
the  need  for  digital  up-  and  reskilling  remains  an 
important  challenge  across  most  economic 
sectors. The recovery and resilience plan (RRP) will 
contribute to upskilling the workforce’s digital and 
green  skills  and  modernising  corresponding 
training curricula. 

assistance in personal care or household activities 
(EU: 46.5% in 2019). The out-of-pocket payments 
for long-term care are high accounting for 45% of 
disposable  income  (second  highest  in  the  EU  in 
2019). Health and social services are not provided 
in  an  integrated  way.  The  RRP  contains  measures 
to  address  some  long-term  care  issues.  The 
European  Social  Fund+  will  co-finance  measures 
fostering social inclusion, including long-term care, 
contributing  to  achieving  the  2030  EU  headline 
target on poverty reduction. 

Poverty  has  been  gradually  decreasing  from 
a  high  level,  but  some  vulnerable  groups 
remain at a high risk. The share of people at risk 
of poverty or social exclusion (AROPE) continued to 
decrease in 2020 to 22.8% (from 23.7% in 2019), 
closer  to  the  EU  average  of  21.9%.  At  the  same 
time,  the  impact  of  social  transfers  (excluding 
pensions)  on  poverty  reduction  rose  to  31.7%  in 
2020,  from  28.1%  in  2019,  and  is  now  close  to 
the EU average (32.7%). The at risk of poverty  or 
social  exclusion  rate  for  children  remains  below 
the  EU  average  (17.4%  versus  24.2%  in  the  EU). 
For older people (65+), however, poverty or social 
exclusion  risks  are  very  high,  at  42.5%  in  2020 
(against  the  EU  average  of  28.9%  in  2020).  The 
poverty  rate  is  especially  high  for  older  women 
(48.4%),  despite  their  high  employment  rate.  In 
addition to the very high gender pay gap, there is 
also a high gender gap in life expectancy. Women 
live  8.5  years  longer  than  men,  so  many  may 
spend their last years alone. In addition, 40.4% of 
people  with  disabilities  are  at  risk  of  poverty  or 
social exclusion, which is one of the highest rates 
in  the  EU (compared  to  the  EU  average  of  28.9% 
in  2020).  The  poverty  rate  among  non-standard 
workers,  in  particular  temporary  workers  and  the 
self-employed,  is  the  second  highest  in  the  EU 
(25.2%  compared  to  the  EU  average  of  16.4%  in 
2019).  The  unemployment  benefit  scheme  has 
gaps in coverage of people, in particular those with 
short  work  spells.  The  adequacy  of  minimum 
income  benefits  is  low;  it  is  50.7%  compared  to 
the poverty threshold and 31.7% as a share of the 
income of a low-wage earner (the EU averages are 
58.9%  and  45.5%  respectively).  According  to  the 
EU-SILC  survey,  13.1%  of  Estonians  reported 
unmet  medical  needs  in  2020,  mainly  due  to 
waiting  times,  compared  to  the  EU  average  of 
1.7%.  5%  of  Estonians  have  no  health  insurance 
and  25%  of  health  spending  comes  from  out-of-
pocket  payments.  Weak  primary  care  and  a 
shortage  of  health  care  workers  contribute  to 
unequal  access  to  healthcare.  58.4%  of  the  65+ 
lacks 
population 

long-term  care 

in  need  of 

43 

 
 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

This  Annex  outlines  the  main  challenges  for 
Estonia’s  education  and  training  system  in 
light of the EU-level targets of the European 
Education  Area  strategic  framework  and 
other  contextual  indicators,  based  on  the 
analysis  from  the  2021  Education  and 
Training Monitor. The Estonian education system 
continues  to  combine  high  performance  with  a 
high  level  of  equity.  However,  continued  success 
dependents  on  the  future  supply  of  teachers  and 
addressing the substantial shortage and ageing in 
the  profession  will  be  crucial.  The  education 
system  also  struggles  to  produce  a  sufficient 
number  of  graduates  to  fill  jobs  requiring  skilled 
workers. 

Estonia’s teaching staff is among the oldest 
in the EU, while half of novice teachers leave 
the  profession.  Half  of  Estonian  teachers  in 
primary  and  secondary  schools  are  over  50  (EU 
average:  39%),  and  9%  are  over  65  (EU  average 
1%) (36).  The  shortages  and  ageing  of  teachers 
concern  all  levels  of  education:  11%  of  teaching 
staff  in  higher  education  are  over  65  and  12.6% 
are  over  65  in  vocational  education  and  training. 
At  the  same  time,  only  half  of  novice  teachers 
remain in the profession for more than 5 years (37). 
The  teacher  shortage  concerns  both  urban  and 
rural  areas  and  is  especially  acute  for  certain 
subjects 
of 
educational support specialists are also a concern, 
especially  as  the  pandemic  further  increased  the 
need 
the  number  of 
admissions for these professions at universities is 
not sufficient to cover this need (38). 

them.  Currently, 

Shortages 

sciences). 

(maths, 

for 

Teacher shortages have an impact on teacher 
qualification levels. If no qualified teachers can 
fixed-term 
be 
recruited,  school  heads  sign 
least 
contracts  with  candidates  having  at 
secondary  education. 
In  2020/2021,  57%  of 
beginning  teachers  did  not  meet  the  qualification 

(36)  Eurostat 2019, ISCED levels 1-3 

(37)  Vaher, K., Selliov, R. (2019). Professional mobility and career 
paths of school teachers according to EHIS, Ministry of 
Education and Research, 
https://www.hm.ee/sites/default/files/opetajate_tooalane_liik
uvus_kristel_vaher_ja_rena_selliov.pdf 

(38)  National Audit Office (2020), Availability of Education 

requirements (39).  A  newly  adopted  action  plan  on 
teachers  contains  different  measures  to  address 
these  challenges  and  is  partly  supported  by  the 
European  Social  Fund+ (40).  The  action  plan 
focuses on career progression, working conditions, 
further  developing  flexible  pathways  into  the 
profession, 
training  of 
teachers and school leadership. 

initial  and 

in-service 

Graph A13.1: Age of school teachers (primary and 
secondary education) by age group, 2019 

Source: UOE, educ_uoe_enra21 

The  number  of  graduates  from  vocational 
education  and  training  and  higher  education 
cannot meet labour market needs. Against the 
backdrop  of  a  shrinking  population  and  a  rising 
demand for skilled workers in specific fields, such 
as  education,  engineering  and  science, 
the 
education  and  training  system  does  not  produce 
enough  graduates (41).  In  particular,  Estonia  has 
16.5  tertiary  graduates  in  science,  technology, 

(39)  Ministry of Education of Estonia, Development trends for the 

next generation of teachers until 2026, 
https://www.hm.ee/sites/default/files/jarelkasvu_arnengusuu
nad_aastani_2026_mai_2021.pdf  

(40)  Roadmap 2022 on teachers 

https://www.hm.ee/sites/default/files/2022._opetajate_jarelk
asvu_tegevuskava_toodokument.pdf  

(41) OSKA (2020a), Estonian Labour Market Today and Tomorrow 
2019-2027 – Key Findings, https://oska.kutsekoda.ee/wp-
content/uploads/2020/05/OSKA-study-
%E2%80%9CEstonian-Labour-Market-Today-and-
Tomorrow-2019%E2%80%9D.pdf. 

Support Services, 
https://www.riigikontroll.ee/tabid/206/Audit/2516/language/e
n-US/Default.aspx. 

OSKA (2020b), COVID-19 impact on the need for labour force 
and skills – Key Findings, https://oska.kutsekoda.ee/wp-
content/uploads/2021/01/Key-findings_COVID19-study.pdf.  

44 

05101520253035<2525-3435-4445-5455-64≥65%EEEU 
 
                                                 
  
                                                 
 
Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

The 2018 EU average on PISA reading performance does not include ES; b = break in time series, u = low reliability, : = not 
available; Data is not yet available for the remaining EU-level targets under the European Education Area strategic framework, 
covering underachievement in digital skills, exposure of vocational educational training graduates to work based learning and 
participation of adults in learning.   
Source: Eurostat (UOE, LFS); OECD (PISA).  

engineering,  and  mathematics  per  1 000  people 
aged 20-29, compared to 20.8 in the EU. 

While  early  school  leaving  is  in  line  with  the  EU 
average,  it  hides  significant  gender  disparities  as 
boys leave school early much more than girls (see 
Annex  12).  The  tertiary  education  attainment  rate 
is  relatively  high  in  Estonia  (43.2%  in  2021),  but 
gender  differences  continue.  While  54.3%  of 
women  aged  25-34  graduated  from  higher 
education  institutions,  only  33.1%  of  men  did.  At 
21.2 percentage points, the gender gap is the third 
highest  in  the  EU  (EU  average:  11.1  percentage 
points). In the last decade, it has proven difficult to 
further. 
raise 
Tapping the potential of all population groups will 
be important to address the skills gap. 

tertiary  education  attainment 

45 

96%90.6%b91.9%91.5%201992.8%2019Reading< 15%10.6% 20.4%11.1%201822.5%2018Mathematics< 15%11.2% 22.2%10.2%201822.9%2018Science< 15%8.8% 21.1%8.8%201822.3%2018< 9 %13.7%11.0%9.8%9.7%Men16.4%12.5%12.0%11.4%Women10.9%9.4%7.6% 7.9%Cities6.3%9.6%7.9% 8.7%Rural areas20.3%12.2%12.3%10.0%Native13.8%10.0%9.6%8.5%EU-born:u20.7%:u21.4%Non EU-born:u23.4%:u21.6%45%38.5%36.5%43.2%41.2%Men28.3%31.2%33.1%35.7%Women49.2%41.8%54.3%46.8%Cities47.2%46.2%53.5%51.4%Rural areas27.1%26.9%31.3%29.6%Native38.0%37.7%41.5%42.1%EU-born:u32.7%:u40.7%Non EU-born46.2%u27.0%66.6%u34.7%45.2% 38.3%49.9%201938.9%201920152021IndicatorTargetEstoniaEU27EstoniaEU27Participation in early childhood education (age 3+)Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)TotalBy genderBy degree of urbanisationBy country of birthTertiary educational attainment (age 25-34)TotalBy genderBy degree of urbanisationBy country of birthShare of school teachers (ISCED 1-3) who are 50 years or over 
 
  
 
Graph A14.2: Projected increase in public 
expenditure on health care over 2019-2070 (AWG 
reference scenario) 

ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Estonia. Life expectancy in the 
country  had  increased  strongly  over  the  last  two 
decades  but  fell  in  2020  by  more  than  1  month 
due  to  COVID-19.  As  of  17  April  2022,  Estonia 
reported  1.8  cumulative  COVID-19  deaths  per 
1 000  inhabitants  and  416  confirmed  cumulative 
COVID-19  cases  per  1 000  inhabitants.  Treatable 
mortality  is  higher  in  Estonia  than  in  the  EU 
overall,  but  has  decreased  substantially  over  the 
last  decade.  Ischaemic  heart  disease  is  the  first 
cause of death followed by cancer. 

Graph A14.1: Life expectancy at birth, years 

Source: European Commission/EPC (2021) 

Estonia  faces  a  shortage  as  well  as  an 
uneven distribution of health workers, which 
contributes to long waiting times for publicly 
funded services. Estonia has the highest level of 
unmet medical needs in the EU (see Annex 12). In 
2019,  Estonia  had  fewer  doctors  (3.5  per  1 000 
population)  and nurses (6.2 per 1 000 population) 
than  the  respective  EU  averages  of  3.9  and  8.4. 
The numbers of graduating doctors and nurses has 
fallen in recent years. 

Through  its  Recovery  and  Resilience  Plan, 
Estonia  plans  to  invest  EUR 326.3  million 
(33.2%  of  the  total  RRP  budget).  This  will  be 
used to improve health infrastructure, notably the 
construction  of  the  Northern  Estonia  Medical 
Campus  and  building  capacity  of  health  services 
via multipurpose medical helicopters. The reforms 
will support changing how health care is organised 
in  Estonia,  strengthening  primary  health  care  and 
updating the e-health institutional framework. 

Source: Eurostat database 

is  expected  to 

Health spending relative to GDP in Estonia is 
among  the  lowest  in  the  EU.  Public  health 
expenditure 
increase  by  0.8 
percentage  points  between  2019  and  2070  (EU: 
0.9) (42). Around three quarters of health spending 
in  Estonia  is  financed  through  government  and 
compulsory 
the 
remainder  coming  from  out-of-pocket  payments, 
mostly  in  the  form  of  co-payments  for  medicines 
and  dental  care  (see  Annex  12).  In  2019,  5%  of 
the Estonian population had no health insurance. 

schemes,  with 

insurance 

(42) ‘The 2021 Ageing Report: Economic and Budgetary 

Projections for the EU Member States (2019-2070)’, 
European Commission (ECFIN) and Ageing Working Group 
(EPC). 

46 

80.980.981.81.380.478.078.478.579.078.920162017201820192020EUEstonia6.64.90.90.802468EUEstonia% of GDP20192070increase 
 
  
                                                 
  
 
 
 
 
 
 
 
 
 
Table A14.1: Key health indicators 

Doctors' density data refer to practising doctors in all countries except FI, EL, PT (licensed to pratice) and SK (professionally 
active). Nurses' density data refer to practising nurses in all countries (imputation from year 2014 for FI) except IE, FR, PT, SK 
(professionally active) and EL (nurses working in hospitals only).   
More information: https://ec.europa.eu/health/state-health-eu/country-health-profiles_en 

Source: Eurostat Database; except: * Eurostat Database and OECD, ** ECDC.  

47 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)143.0136.6133.5129.492.1 (2017)Cancer mortality per 100 000 population287.6286.8292.3279.5252.5 (2017)Current expenditure on health, % GDP 6.46.66.76.79.9 (2019)Public share of health expenditure, % of current health expenditure75.773.673.774.579.5 (2018)Spending on prevention, % of current health expenditure 3.23.33.53.62.8 (2018)Acute care beds per 100 000 population344.3337.8331.8331.8387.4 (2019)Doctors per 1 000 population *3.53.53.53.53.8 (2018)Nurses per 1 000 population *6.16.26.36.28.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **10.49.910.210.28.814.5 (2020) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

is  an 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  Member  States.  Taking  into 
account  this  dimension  enables  a  well-calibrated 
and targeted policy response that fosters cohesion 
and  ensures  sustainable  and  resilient  economic 
development  across  all  regions.  Estonia’s  regional 
outlook 
characterised  by 
to  be 
significant disparities between its capital region of 
Northern Estonia (Põhja-Eesti) and the rest of the 
country.  In  2019,  GDP  per  head  (PPS)  of  Põhja-
Eesti was well above the EU average at 120%. In 
the  other  four  NUTS-3  regions,  GDP  per  head 
ranged  between  48%  in  both  Central  Estonia 
(Kesk-Eesti)  and  North-eastern  Estonia  (Kirde-
Eesti) and 59% in Lõuna-Eesti (Graph A15.1). 

continues 

Graph A15.1: GDP per head (in PPS) in Estonia, 
NUTS3, 2019 

Source: European Commission 

In  the  last  decade,  Estonia  has  experienced 
strong  economic  growth  and  convergence 
with  the  EU.  Despite implementation  of  regional 
development  programmes,  the  capital  region  is 
converging  faster  than  the  rest  of  the  country. 
Economic  activity  is  highly  concentrated  in  Põhja-
Eesti:  its  share  in  the  national  GDP  continued  to 
increase from 63.3% in 2015 to 66% in 2020. The 
development  gap  between  Estonian 
regions 
remains  sizeable  and  has not  changed in  the  last 
10  years.  Without  stronger  support  to  lagging 
regions, this trend is likely to continue. 

its  Baltic  neighbours,  Estonia 

Like 
experiencing  depopulation 

is 
the  more 

in 

remote  regions.  Better  job  opportunities  and 
higher  salaries  are  driving  migration.  In  2020  the 
average monthly  salary in  Harju  county (including 
Tallinn) was EUR 1 588, in Ida-Virumaa EUR 1 161 
and  in  Põlvamaa  EUR 1 229.  In  2011-2019,  the 
population  of  Kirde-Eesti  dropped  by  14.8%. 
Estonia’s  overall  population 
remained  stable 
between  2011  and  2021,  but  projections  indicate 
the  country  could  experience  a  5.6% 
that 
population  decline  between  2021  and  2050.  This 
trend puts pressure on Estonia’s growth potential, 
its  labour  market  and  the  maintaining  of  public 
regional 
infrastructure 
imbalances  likely  to  worsen  especially  for  the 
more rural areas of the country. In 2020, the share 
of  young  people  neither  in  employment  nor  in 
education  or  training  (NEET),  the  share  of  early 
school  leavers,  and  the  risk  of  poverty  or  social 
exclusion were all higher in rural areas. 

services,  with 

and 

Table A15.1: Estonia, selected indicators at regional 
level 

Gross Fixed Capital Formation reference year: 2019 
Source: Eurostat, *EDGAR Database, Estonian Statistics. 

very 

deploy 

capacity 

The  urban-rural  divide  is  not  decreasing  for 
lower 
many  other  reasons.  Because  of  a 
population  density,  ICT  providers  are  less  inclined 
to 
electronic 
high 
communications networks in rural areas. 84.8% of 
the  urban  population  has  fixed  broadband, 
compared  to  78.0%  in  rural  areas  (2020).  26.9% 
of people in rural areas are also at risk of poverty 
or social exclusion, higher than the EU average of 
23.2%  in  2020.  In  cities,  this  rate  is  21%.  People 
65  years  old  or  over  are  the  group  most  at  risk, 
with a 42.5% rate (EU 20.4%). 

The  transition  from  oil  shale  to  renewable 
energy  sources  will  continue  in  the  coming 
years  and  will  have  a  substantial  socio-
Ida-Virumaa.  Estonia 
economic 

impact 

in 

48 

NUTS 3 RegionGDP per head (PPS)Productivity (GVA (PPS) per person employed)Population growthAt-risk-of-poverty or social exclusionEU27=100, 2019EU27=100, 2018Total % change, 2011-2019% of active population, 2019European Union1001001.821.90Eesti8475-0.224.30Põhja-Eesti120948.916.50Lääne-Eesti5250-4.723.50Kesk-Eesti4851-7.420.60Kirde-Eesti4855-14.831.40Lõuna-Eesti5956-3.922.50 
 
 
 
  
 
 
significantly  reduced  greenhouse  gas  emissions 
per  capita, by  66.5%  in  2020  compared  to  1990, 
although  at  8.8  tonnes  per  head  its  level  is  still 
above  the  EU  average  of  7.6  (2020).  56%  of 
greenhouse gas emissions are produced by the oil 
shale  energy  sector,  which  is  concentrated  in  the 
Ida-Viru  county.  The  Just  Transition  Fund  will 
contribute 
socio-economic 
challenges in the region. 

to  address 

the 

The  COVID-19  pandemic  had  a  significant 
impact on the Estonian economy and society 
as  a  whole,  in  particular  in  certain  regions, 
although  slightly  milder  than  in  most  other 
Member  States.  Unemployment  increased  more 
in  the  northern  region  than  in  the  rest  of  the 
country,  due  to  the  greater  concentration  of 
impacted  by  mobility 
services  more  directly 
restrictions, 
transport, 
as 
restaurants, cultural and leisure activities. 

tourism, 

such 

Graph A15.2: Territories most affected by the 
climate transition in Estonia 

Source: European Commission 

49 

 
 
MACROECONOMIC STABILITY  
MACROECONOMIC STABILITY  
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

This  Annex  provides  an  overview  of  key 
developments  in  Estonia’s  financial  sector. 
The Estonian banking sector is highly concentrated 
and  relatively  small  compared  to  other  EU 
countries,  but  proportional  to  the  size  of  the 
economy. Due to the high interconnectedness with 
neighbouring  countries,  it  may  be  vulnerable  to 
potential  spillovers  if  there  is  a  downturn  in  their 
financial  sectors. 
It  predominantly  comprises 
subsidiaries  of 
larger,  well-capitalised  Nordic 
banks.  A  smaller  share  of  the  financial  sector  is 
owned  by  Estonian  residents.  This  share  has 
increased  in  the  past  couple  of  years  with  the 
establishment of Luminor’s head office in Estonia. 
This  has  also  resulted  in  the  total  assets  as  a 
share of GDP increasing to 126.9% and the share 
of  domestic  banks to  just  over  half  of the  sector. 
The  assets  of  the  five  largest  credit  institutions 
account for over 90% of the total. 

The  financial  sector  has  weathered  the 
COVID-19  pandemic  well.  Banks  operating  in 
Estonia  are  among  the  best  capitalised  in  the  EU 
(the capital adequacy ratio stood at 26.4%). Banks’ 
resilience 
their  strong 
profitability  (return  on  equity  of  8.9%),  which 
level  of 
to  maintain 
enables 
capitalisation  and  cover  small  loan  losses  with 
profits. 

is  also  boosted  by 

them 

their 

The  share  of  overdue  loans  or  loans  on  payment 
holidays  has  shrunk  considerably 
in  2021, 
enabling banks to reduce provisions they made to 
cover possible loan losses. This has supported their 
capacity to finance the economy. In 2021 deposits 
grew  by  nearly  twice  as  much  as  private  sector 
credit,  lowering  the  loan-to-deposit  ratio  to  78%. 
Banks also expanded their funding mix by starting 
to issue bonds. 

The  build-up  of  risks  in  the  real  estate  and 
construction sectors may harm the quality of 
the loan portfolio of banks. Rising incomes and 
savings,  a  pension  system  reform  and  strong 
confidence  of  households  have  given  a  lift  to 
transaction  activity  in  the  housing  market.  Higher 
real estate prices coincided with intense growth in 
mortgage  loans,  although  remained  in  line  with 
nominal  GDP  growth.  While  household  debt  is 
moderate,  banks’  exposure  to  mortgage  debt  is 
relatively high. This makes banks vulnerable to any 
negative change in loan servicing by households if 
rise.  The 
interest 
incomes 
macroprudential  stance  is  appropriate,  although 
there  is  a  need  for  a  continued  reassessment  of 
the policy tools. The good position of the economy 
and financial  sector means rebuilding buffers can 
start. 

fall  or 

rates 

Estonian  banks  have  on  average  one  of  the 
lowest non-performing loans ratio in the EU. 

Table A16.1: Financial soundness indicators 

Preventing  and  combating  money  laundering 
has  been  a  strategic  priority  for  Estonia 
since  2016.  In  recent  years,  the  country  has 

(1) Last data: Q3 2021. 
Source: ECB, Eurostat, Refinitiv. 

50 

20172018201920202021Total assets of the banking sector (% of GDP)106.8101.5103.8128.1126.9Share (total assets) of the five largest bank (%)90.391.093.093.7-Share (total assets) of domestic credit institutions (%)125.927.349.549.650.6Financial soundness indicators:1- non-performing loans (% of total loans)1.91.31.61.61.3- capital adequacy ratio (%)30.631.026.327.826.4- return on equity (%)9.29.88.37.48.9NFC credit growth (year-on-year % change)5.54.03.03.17.3HH credit growth (year-on-year % change)7.06.66.45.07.8Cost-to-income ratio (%)146.345.352.552.653.8Loan-to-deposit ratio (%)189.893.590.076.778.0Central bank liquidity as % of liabilities0.50.30.16.45.7Private sector debt (% of GDP)106.2101.799.0104.4-Long-term interest rate spread versus Bund (basis points)---48.143.7Market funding ratio (%)23.324.624.322.2-Green bond issuance (bn EUR)----- 
 
 
 
 
 
  
 
taken  several  steps  to  reduce  the  risks  of  misuse 
of  its  economy,  in  the  banking  system  and  in  the 
growing  crypto-asset  sector.  The  authorities  have 
taken  legislative  and  institutional  steps,  including 
amending  the  Anti-Money  Laundering/Countering 
(AML/CFT)  Act, 
the  Financing  of  Terrorism 
tightening  licensing  requirements  for  virtual  asset 
service  providers  and  revamping  the  financial 
intelligence  unit.  An  updated  assessment  of  risks 
was  completed  in  2021,  and  measures  are  being 
implemented  to  mitigate  those  risks.  Estonia’s 
recovery  and 
the 
resilience  plan 
establishment of the strategic analysis function of 
the  financial 
intelligence  unit.  AML/CFT  act, 
tightening  licensing  requirements  for  virtual  asset 
service  providers  and  revamping  the  financial 
intelligence  unit.  An  updated  assessment  of  risks 
was  completed  in  2021,  and  measures  are  being 
implemented  to  mitigate  those  risks.  Estonia’s 
recovery  and  resilience  plan  includes  setting  up 
financial 
function 
strategic  analysis 
intelligence unit. 

includes 

the 

in 

51 

 
 
ANNEX 17: TAXATION 
ANNEX 17: TAXATION 

This  Annex  provides  an 
indicator-based 
overview  of  Estonia’s  tax  system.  It  includes 
information  on  the  tax  structure,  i.e.  the  types  of 
tax  that  Estonia  derives  most  revenue  from,  the 
tax  burden  for  workers,  and  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
provides 
tax  collection  and 
compliance  and  on  the  risks  of  aggressive  tax 
planning (43). 

information  on 

Estonia’s  tax  revenues  are  relatively  low  in 
relation  to  GDP.  Total  tax  revenue  was  34%  of 
GDP  in  2020  compared  to  the  EU  average  of 
40.1%. Labour taxes generated revenue of 18.1% 
of  GDP  (somewhat  below  the  EU  average),  while 
consumption taxes generated revenue of 13.3% of 
GDP (somewhat above the EU). Very little revenue 
is  generated  from  recurrent  taxes  on  immovable 
property  (0.2%  of  GDP  compared  to  the  EU 
average  of  1.2%). 
In  environmental  taxation, 
Estonia  is  one  of  the  few  Member  States  without 
an annual road vehicle tax, but it applies relatively 
high excise duties on road fuels. 

Reforms  have  reduced  the  total  tax  burden 
on  low  wages.  In  particular,  the  tax  wedge  for 
workers  earning  50%  of  the  average  wage  was 
lowered  gradually  from  37.3%  in  2010  to  31.4% 
in  2021,  which is  below  the  EU  average.  (The tax 
wedge measures the difference between the wage 
cost  for  employers  and  the  net  wage  for 
employees (44)).  At  higher  income  levels,  the  tax 
wedge  in  Estonia  is  also  below  the  EU  average 
(see  Graph  A17.1),  for  single  workers  and  for 
second earners. The ability of the tax and benefits 
system  to  reduce  inequality  (as  measured  by  the 

(43)  For more data on tax revenues as well as the methodology 
applied see European Commission, Taxation trends in the 
European Union: data for the EU Member States, Iceland, 
Norway and United Kingdom: 2021 edition, 
https://data.europa.eu/doi/10.2778/843047 and the ‘Data on 
Taxation’ webpage (data 
https://ec.europa.eu/taxation_customs/taxation-1/economic-
analysis-taxation/data-taxation_en). For more details on VAT 
GAP see European Commission, “VAT gap in the EU: report 
2021”, https://data.europa.eu/doi/10.2778/30877 

(44)  The tax wedge is defined as the sum of the personal income 
taxes and the employee’s and employer’s social security 
contributions net of family allowances, expressed as a 
percentage of total labour costs (the sum of the gross wage 
and social security contributions paid by the employer). It is 
calculated for specific types of taxpayers – in terms of 
household composition and income level expressed as % of 
average wage. Data on tax wedges can be consulted in the 
‘Tax and benefit database’ 
https://europa.eu/economy_finance/db_indicators/tab/  

Gini  coefficient)  was  much  closer  to  the  EU 
average  in  2020,  thanks  to  the  income  support 
measures taken by the government in response to 
the COVID-19 crisis. 

Estonia  is  doing  well  in  digitalising  the  tax 
administration.  Outstanding  tax  arrears  have 
increased  slightly  by  0.2  percentage  points  to 
6.3%  of  total  net  revenue.  This  is  significantly 
below the EU average of 31.8%, but that average 
is  inflated  by  very  large  values  in  a  few  Member 
States. The Annual Report on Taxation 2021 shows 
that the rate of tax return e-filing is close to 100% 
in  Estonia (45).  Nevertheless,  the  potential  to 
ensure  better  services  for  taxpayers  could  be 
explored,  for  example,  by  introducing  behavioural 
insights to increase tax collection. The VAT gap (an 
indicator of the effectiveness of VAT enforcement 
and compliance)  has remained relatively stable in 
Estonia at 4.5%, significantly below the EU gap of 
forward-looking 
the  average 
10.5%.  Lastly, 
effective  corporate  income  tax  rates  were  below 
the EU average in 2020. 

(45)  European Commission, Directorate-General for Taxation and 
Customs Union, Annual Report on Taxation 2021: review of 
taxation policies in the EU Member States, 2021, 
https://data.europa.eu/doi/10.2778/294944 (see section 
2.1.4 Improving tax administration) 

52 

 
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
                                                 
 
Table A17.1: Indicators on taxation 

(1) Forward-looking Effective Tax Rate (OECD) 
(*) EU-27 simple average as there is no aggregated EU-27 value 

Source: European Commission and OECD. 

Graph A17.1: Indicators on tax wedge 

The tax wedge measures the difference between the total labour cost of employing a worker and the worker’s net earnings: sum 
of personal income taxes and employee and employer social security contributions, net of family allowances, expressed as a 
percentage of total labour costs (the sum of the gross wage and social security contributions paid by the employer). 
(1)  The second earner average tax wedge measures how much extra personal income tax (PIT) plus employee and employer 
social security contributions (SSCs) the family will have to pay as a result of the second earner entering employment, as a 
proportion of the second earner’s gross earnings plus the employer SSCs due on the second earner’s income. For a more detailed 
discussion see OECD (2016), Taxing Wages 2016, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en    
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission  

53 

31.433.938.141.236.5At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% of AverageWage (Two earner couple, 1st earner100% of AW) (1)Tax wedge 2021 (%)EEEU-27 (*)2010201820192020202120102018201920202021Total taxes (including compulsory actual social contributions) (% of GDP)33.233.033.534.034.437.940.139.940.1Labour taxes (as % of GDP)17.716.717.018.120.020.720.721.5Consumption taxes (as % of GDP)13.213.513.913.310.811.111.110.8Capital taxes (as % of GDP)2.32.82.62.77.18.28.17.9Total property taxes (as % of GDP)0.40.30.30.31.92.22.22.3Recurrent taxes on immovable property (as % of GDP)0.30.20.20.21.11.21.21.2Environmental taxes as % of GDP2.92.73.22.42.42.42.42.2Tax wedge at 50% of Average Wage (Single person) (*)37.329.830.530.831.433.932.432.031.531.9Tax wedge at 100% of Average Wage (Single person) (*)40.136.237.037.338.141.040.240.139.939.7Corporate Income Tax - Effective Average Tax rates (1) (*)17.017.017.019.819.519.3Difference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)6.45.65.38.08.47.97.48.3Outstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)6.16.331.931.8VAT Gap (% of VTTL)4.04.511.210.5Dividends, Interests and Royalties (paid and received) as a share of GDP (%)5.25.810.710.5FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)4.13.73.447.846.236.7Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity RiskEstoniaEU-27 
 
   
 
   
 
 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A18.1: Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

. 

54 

2004-072008-122013-1820192020202120222023Real GDP (y-o-y)8.4-1.73.24.1-3.08.31.02.4Potential growth (y-o-y)5.90.62.84.13.63.52.42.4Private consumption (y-o-y)9.8-2.73.94.1-2.56.42.51.5Public consumption (y-o-y)4.11.22.13.03.03.92.00.3Gross fixed capital formation (y-o-y)13.3-4.12.36.119.93.3-7.05.0Exports of goods and services (y-o-y)14.85.42.96.5-5.019.83.04.9Imports of goods and services (y-o-y) 16.62.03.33.80.920.6-0.64.3Contribution to GDP growth:Domestic demand (y-o-y)10.5-2.93.04.14.45.0-0.42.1Inventories (y-o-y)0.5-0.60.3-1.5-1.22.8-1.6-0.3Net exports (y-o-y)-2.52.3-0.22.1-4.3-0.52.90.6Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.0-0.70.20.50.10.50.0-0.1Capital accumulation (y-o-y)3.31.41.31.41.71.71.21.3Total factor productivity (y-o-y)2.6-0.11.32.21.71.31.31.2Output gap6.4-4.00.32.0-4.50.0-1.5-1.5Unemployment rate7.211.66.74.56.96.26.86.9GDP deflator (y-o-y)7.93.53.03.2-0.35.58.13.2Harmonised index of consumer prices (HICP, y-o-y)4.64.51.92.3-0.64.511.22.5Nominal compensation per employee (y-o-y)15.73.36.38.45.37.67.04.5Labour productivity (real, hours worked, y-o-y)6.31.12.63.63.20.24.50.4Unit labour costs (ULC, whole economy, y-o-y)8.53.44.55.55.5-0.66.73.0Real unit labour costs (y-o-y)0.5-0.11.52.25.8-5.7-1.3-0.1Real effective exchange rate (ULC, y-o-y)6.70.73.82.6....Real effective exchange rate (HICP, y-o-y)2.00.92.20.00.61.5..Net savings rate of households (net saving as percentage of net disposable income)-8.93.85.98.712.7...Private credit flow, consolidated (% of GDP)25.11.94.73.43.6...Private sector debt, consolidated (% of GDP)104.4130.7110.999.0104.4...of which household debt, consolidated (% of GDP)36.149.739.538.641.8...of which non-financial corporate debt, consolidated (% of GDP)68.381.071.460.462.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).5.61.81.51.5...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.51.91.52.21.51.97.77.7Corporations, gross operating surplus (% of GDP)32.930.330.629.128.130.430.730.9Households, net lending (+) or net borrowing (-) (% of GDP)-6.41.01.62.34.22.10.10.5Deflated house price index (y-o-y).-10.55.74.46.9...Residential investment (% of GDP)5.33.14.14.95.54.7..Current account balance (% of GDP), balance of payments-12.6-1.01.22.5-0.3-1.11.32.3Trade balance (% of GDP), balance of payments-7.93.03.44.20.50.3..Terms of trade of goods and services (y-o-y)1.8-0.30.6-0.30.90.3-1.30.7Capital account balance (% of GDP)1.23.11.51.72.19.2..Net international investment position (% of GDP)-78.4-65.8-40.0-22.8-21.5-12.2..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-16.8-16.216.630.942.340.7..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)79.493.172.859.772.469.6..Export performance vs. advanced countries (% change over 5 years)57.529.37.60.218.1...Export market share, goods and services (y-o-y)7.91.30.73.15.69.0-1.60.6Net FDI flows (% of GDP)-6.4-5.0-2.3-3.9-10.41.5..General government balance (% of GDP)2.3-0.8-0.10.1-5.6-2.4-4.4-3.7Structural budget balance (% of GDP)..-0.1-0.8-3.4-3.3-3.8-3.0General government gross debt (% of GDP)4.66.99.78.619.018.120.923.5forecast 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS   
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS   

balance (SPB) gradually returns to its past average 
level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 
‘adverse interest-growth rate’ scenario assumes a 
less  favourable  snowball  effect  than 
in  the 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022. 

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2 000  different  shocks  affecting  the 
economic 
government’s 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 

This  annex  assesses  fiscal  sustainability 
risks for Estonia over the short, medium and 
long term. It follows the same multi-dimensional 
approach as the 2021 Fiscal Sustainability Report, 
updated  on  the  basis  of  the  Commission  2022 
spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
Next Generation EU. 

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 

Table A19.1: Debt sustainability analysis for Estonia 

Source: European Commission. 

55 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)8.619.018.120.923.525.226.427.329.130.632.033.434.836.1Change in debt0.310.4-0.92.92.61.71.20.91.81.51.41.41.41.3of whichPrimary deficit-0.15.62.34.33.52.92.52.22.72.62.62.62.52.5Snowball effect-0.50.3-2.3-1.5-1.0-1.3-1.3-1.2-0.9-1.2-1.2-1.2-1.2-1.1Stock-flow adjustment1.04.6-0.90.00.00.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)1.310.72.55.55.04.64.44.24.85.05.15.35.45.5S1S2Overall index (pps. of GDP)-1.51.6of whichInitial budgetary position1.82.8Debt requirement-2.9Ageing costs-0.4-1.3of whichPensions-0.6-1.9Health care0.20.7Long-term care0.10.3Others-0.1-0.3                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators0510152025303540452019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9001020304020192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
 
   
 
change 

cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 
projected 
public 
expenditure  such  as  pensions,  health  care  and 
long-term  care,  and 
requirement 
measures  the  additional  adjustment  needed  to 
reach the 60% of GDP debt target. 

in  ageing-related 

the  debt 

Finally,  the  heat  map  presents  the  overall 
fiscal  sustainability  risk  classification  (Table 
A19.2).  The  short-term  risk  category  is  based  on 
the  S0  indicator,  an  early-detection  indicator  of 
fiscal  stress  in  the  upcoming  year.  The  medium-
term  risk  category  is  derived  from  the  debt 
sustainability  analysis  (DSA)  and  the  S1  indicator. 
The DSA assesses risks to sustainability based on 
several  criteria:  the  projected  debt  level  in  10 
years’  time,  the  debt  trajectory  (‘peak  year’),  the 
plausibility  of  fiscal  assumptions  and  room  for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA.  

(Table 1).  The  low  sensitivity  of  the  debt  path  to 
possible  shocks  to  fiscal,  macroeconomic  and 
financial  variables,  as  illustrated  by  alternative 
scenarios and stochastic simulations, confirms this 
risk  assessment 
(Tables  A19.1  and  A19.2). 
Moreover,  the  sustainability  gap  indicator  S1 
signals  that  no  fiscal  adjustment  is  needed  to 
reach a debt ratio of 60% of GDP in 15 years’ time 
(Table 2).  Overall,  the 
low  risk  reflects  the 
remaining  low  debt  ratio,  despite  an  increasing 
trend. 

Long-term  risks  to  fiscal  sustainability  are 
low.  Over  the  long  term,  both  the  sustainability 
gap indicator S2 (at 1.6 pps. of GDP) and the DSA 
point to low  risks.  The  S2  indicator  suggests  that, 
to  stabilise  debt  over  the  long  term,  a  limited 
consolidation  effort  would  be  needed,  mainly 
driven  by  the  unfavourable 
initial  budgetary 
position and the projected increase of health care 
spending (Table 2). 

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection  indicator  (S0)  does  not  signal  major 
short-term fiscal risks (Table A19.2). 

risks 

to 

Medium-term  risks  to  fiscal  sustainability 
are  low.  Both  elements  of  the  Commission’s 
medium-term  analysis  lead  to  this  conclusion. 
First,  the  debt  sustainability  analysis  (DSA)  shows 
that  government  debt  would  rise  from  around 
21%  of  GDP  in  2022  to  about  36%  of  GDP  in 
low 
in  the  baseline,  hence  remaining 
2032 

Table A19.2: Heat map of fiscal sustainability risks for Estonia 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.  
Source: European Commission (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report). 

56 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWLOWDebt level (2032), % GDP3621383836Debt peak year20322025203220322032Fiscal consolidation space94%72%95%94%94%Probability of debt ratio exceeding in 2026 its 2021 level100%Difference between 90th and 10th percentiles (pps. GDP)10Short termMedium termLong termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)S2Overall     (S2+DSA)OverallLOWLOWDeterministic scenariosStochastic projectionsLOWLOWLOWLOW