Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Estonia and delivering a Council opinion on the 2023 Stability Programme of Estonia
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Estonia, economic policy, economic recovery, economic reform, energy policy, fiscal policy, health care, social security, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 606 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Estonia and delivering a Council opinion on the 2023 Stability Programme of Estonia {SWD(2023) 606 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National Reform Programme of Estonia and delivering a Council opinion on 
the 2023 Stability Programme of Estonia 

THE COUNCIL OF THE EUROPEAN UNION,  

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

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

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

1 
2 
3 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

EN 

1 

  EN 

                                                 
(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey,4  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 
four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted 
the 2023 Alert Mechanism Report, in which it identified Estonia as one of the Member 
States that may be affected or may be at risk of being affected by imbalances, and for 
which an in-depth  review would be needed. On  the same date, the Commission also 
adopted  an  opinion  on  Estonia’s  2023  draft  budgetary  plan.  The  Commission  also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 16 May 2023, as well as the proposal for 
the 2023 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 13 March 2023.  

(3)  While the EU economies are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and  inclusive  growth,  safeguard  macroeconomic  stability,  and  increase  resilience  in 
the medium term. It also focuses heavily on increasing the EU’s competitiveness and 
productivity. 

(4) 

On  1  February  2023,  the  Commission  issued  the  Communication  A  Green  Deal 
Industrial  Plan for the Net-Zero  Age’5 to boost the competitiveness  of  the EU’s net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling  of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains.  On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20306, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
improvements,  well  focused 
priorities  aimed  at  actively  ensuring  structural 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

(5) 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 country-specific recommendations remain equally relevant also 

4 
5 
6 

COM(2022) 780 final. 
COM(2023) 62 final.  
COM(2023) 168 final.  

EN 

2 

  EN 

                                                 
(6) 

(7) 

for  recovery  and  resilience  plans  revised,  updated  or  amended  in  accordance  with 
Articles 14, 18 and 21 of Regulation (EU) 2021/241.  
The REPowerEU Regulation7, adopted on 27 February 2023, aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination8.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023 stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
pressures,  Member  States  should  target  such  measures  much  better  than  in  the  past 
towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the  fiscal 
recommendations  would  be  quantified  and  differentiated  and  be  formulated  on  the 
basis of net primary expenditure as proposed in its Communication on orientations for 
a  reform  of  the  EU  economic  governance  framework9.  It  recommended  that  all 
Member States should  continue to  protect  nationally  financed investment and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transitions  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

(8) 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive  reform of the EU's economic  governance rules. The  central  objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 

7 

8 
9 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

EN 

3 

  EN 

                                                 
(9) 

inclusive growth in all Member States through reforms and investment. The proposals 
aim at providing Member States with more control over the design  of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 
Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

On  18  June  2021,  Estonia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  29 
October 2021, the Council adopted its Decision on the approval of the assessment of 
the recovery and resilience plan for Estonia10. The release of instalments is conditional 
on  a  decision  by  the  Commission,  taken  in  accordance  with  Article  24(5)  of 
Regulation  (EU)  2021/241,  that  Estonia  has  satisfactorily  fulfilled  the  relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not  been  reversed.  On  9  March  2023,  Estonia  submitted  a  revised  national  recovery 
and  resilience  plan,  including  a  REPowerEU  chapter,  to  the  Commission,  in 
accordance with Article 21c of Regulation (EU) 2021/241.  The revised recovery and 
resilience plan also takes into account the updated maximum financial contribution in 
accordance with  Article  18(2) of Regulation  (EU) 2021/241  and includes a reasoned 
request  to  the  Commission  to  amend  the  Council  Implementing  Decision  of  3 
November  2021  in  accordance  with  Article  21(1)  of  Regulation  (EU)  2021/241, 
considering the recovery and resilience plan to be partially no longer achievable due to 
objective circumstances. On 12 May 2023, the Commission adopted its proposal for a 
Council Implementing Decision on the approval of the assessment of the recovery and 
resilience plan for Estonia.  [The Council adopted the modified Council Implementing 
Decision on XX XXXX 2023.]   . 

(10)  On  XX  May  2023,  Estonia  submitted  its  2023  National  Reform  Programme  and,  on  
28 April 2023, its 2023 Stability Programme,  in  line with  Article 4(1) of Regulation 
(EC)  No  1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have 
been  assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241, 
the 2023 National Reform Programme also reflects Estonia’s biannual reporting on the 
progress made in achieving its recovery and resilience plan.  

in 

addressing 

(11)  The Commission published the 2023 country report for Estonia11 on 24 May 2023. It 
assessed  Estonia’s  progress 
country-specific 
recommendations  adopted by  the Council  between 2019  and  2022 and  took stock of 
Estonia’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Estonia’s progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

relevant 

the 

10 

11 

Council Implementing Decision of 29 October 2021 on the approval of the assessment of the recovery 
and resilience plan for Estonia (ST 12532/21; ST 12532/21 ADD 1; ST 12532/21 ADD 1 COR 1; ST 
12532/21 ADD 1 COR 1 REV 1). 
SWD(2023) 606 final. 

EN 

4 

  EN 

                                                 
is  not  experiencing  macroeconomic 

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No  1176/2011  for  Estonia  and  published  its  results  on  24  May  202312.  It  concluded 
that  Estonia 
imbalances.  In  particular, 
vulnerabilities relating to competitiveness and house price developments have recently 
increased  but  overall  seem  to  be  contained  at  present.  Wages  and  especially  prices 
grew strongly in 2022, but the competitiveness losses seem limited, while the current 
account has recorded only a small deficit and is forecast to come close to balance this 
year and next. Nonetheless, inflation and wage pressures, if persistent, risk impairing 
Estonia’s  competitiveness,  particularly  as  core  inflation  is  well  above  the  euro  area 
average. House prices have grown strongly since the pandemic, but do not show signs 
of overvaluation. House prices are likely to moderate, given the interest rate rises and 
the recent economic recession. Moreover, household debt and borrowing are relatively 
moderate  and  the  financial  sector  is  sound.  The  policy  setting  is  overall  favourable, 
although  some  additional  efforts  could  help  to  address  the  risks  from  the  identified 
vulnerabilities.  Continued  counter-cyclical  fiscal  and  macroprudential  policies, 
reinforced when needed, would be important in that respect. Fostering competition in 
the domestic market could help to manage price pressures. 

(13)  Based on data validated by Eurostat,13 Estonia’s general government deficit decreased 
from 2.4% of GDP in 2021 to 0.9% in 2022, while general government debt rose from 
17.6% of GDP at the end of 2021 to 18.4% at the end of 2022. On [24 May] 2023, the 
Commission published a report under Article 126(3) TFEU;14 the report discussed the 
budgetary situation of Estonia, as its general government deficit is planned to exceed 
3% of GDP in 2023. The report concluded that the deficit criterion was not fulfilled. In 
line with the Communication of 8 March 2023,15 the Commission did not propose to 
open new excessive deficit procedures in spring 2023; in turn, the Commission stated 
that it would propose to the Council to open deficit-based excessive deficit procedures 
in spring 2024, on the basis of the outturn data for 2023. Estonia should take account 
of this in the execution of its 2023 budget and in preparing the Draft Budgetary Plan 
for 2024. 

(14)  The  general  government  balance  has  been  impacted  by  the  fiscal  policy  measures 
adopted to mitigate the economic and social impact of the increase in energy prices. In 
2022,  such  revenue-decreasing  measures  included  lower  excise  for  agricultural  fuel; 
while such expenditure-increasing measures included a partial compensation of energy 
bills for households earning less than the median income, reduced network charges for 
electricity  and  gas  for  households  and  corporates,  electricity  and  gas  price  caps  for 
households,  and  a  one-time  50-euro  social  transfer  to  pensioners  and  families  with 
children. The Commission estimates the net budgetary cost of these measures at 0.8% 
of  GDP  in  2022.  The  general  government  balance  has  also  been  impacted  by  the 
budgetary  cost  of  temporary  protection  to  displaced  persons  from  Ukraine,  which  is 
estimated at 0.6% of GDP in 2022. At the same time, the estimated cost of COVID-19 
temporary emergency measures dropped to 0% of GDP in 2022, from 2.3% in 2021. 

12 
13 
14 
15 

SWD(2023) 630 final. 
Eurostat-Euro Indicators, 47/2023, 21.4.2023 
COM(2023) 631 final, 24.5.2023. 
COM(2023) 141 final, 8.3.2023. 

EN 

5 

  EN 

                                                 
(15)  On  18  June  2021,  the  Council  recommended  that  in  2022  Estonia16  maintain  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience Facility, and preserve nationally financed investment.  

(16)  According 

to 

the  fiscal  stance17 

the  Commission  estimates, 

in  2022  was 
contractionary, at 1.3% of GDP, which was appropriate in a context of high inflation. 
As  recommended  by  the  Council,  Estonia  continued  to  support  the  recovery  with 
investments  financed  by  the  Recovery  and  Resilience  Facility.  Expenditure  financed 
by Recovery and Resilience Facility grants and other EU funds amounted to 1.4% of 
GDP  in  2022  (1.6%  of  GDP  in  2021).  The  decrease  in  expenditures  financed  by 
Recovery  and  Resilience  Facility  grants  and  other  EU  funds  in  2022  was  due  to  the 
rapid  and  unforeseen  rise  in  construction  prices  .  Nationally  financed  investment 
provided a contractionary contribution of 0.6 percentage points to the fiscal stance18. 
Estonia therefore did not preserve nationally financed investment, which is not in line 
with the Council recommendation. At the same time, the growth in nationally financed 
primary current expenditure (net of new revenue measures) provided a contractionary 
contribution of 0.8 percentage points to the fiscal stance. Estonia therefore sufficiently 
limited the growth in nationally financed current expenditure. 

(17)  The macroeconomic scenario underpinning the budgetary projections in  the Stability 
Programme is cautious in 2023 and realistic thereafter. The government projects real 
GDP to decrease by 1.5% in 2023 and to grow by 3.0% in 2024. By comparison, the 
Commission  2023  spring  forecast  projects  a  lower  real  GDP  contraction  of  0.1%  in 
2023 and a similar growth of 3.0% in 2024. The difference in 2023 is mainly due to 
the  Commission  expecting  more  favourable  private  consumption  developments, 
together with a slightly lower HICP inflation and higher wage growth projections. 

(18) 

In its 2023 Stability Programme, the government expects that the general government 
deficit  will  increase  to  4.3%  of  GDP  in  2023.  The  increase  in  2023  mainly  reflects 
discretionary  measures,  such  as  additional  spending  on  family  benefits,  pensions, 
defence and education and income tax reduction via adjusting tax brackets, as well as 
an  assumed  rise  in  expenditure  by  local  governments.  According  to  the  Programme, 
the general  government  debt-to-GDP ratio is  expected to  increase from  18.4% at  the 
end  of  2022  to  20.2%  at  the  end  of  2023.  The  Commission  2023  spring  forecast 
projects a government deficit of 3.1% of GDP for 2023. This is lower than the deficit 
projected  in  the  Stability  Programme,  mainly  due  to  the  denominator  effect  from 
higher nominal GDP projection and higher estimated growth of tax bases and tax and 
non-tax revenues. 

(19)  The  government  balance  in  2023  is  expected  to  continue  to  be  impacted  by  the 
measures adopted to mitigate the economic and social impact of the increase in energy 
prices. They consist of measures extended from 2022, in particular a compensation of 

16 

17 

18 

Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Estonia, OJ C 304, 29.07.2021 p. 23.  
The  fiscal  stance  is  measured  as  the  change  in  primary  expenditure  (net  of  discretionary  revenue 
measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure 
financed  by  non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
in 
funds, 
the Fiscal Statistical Tables.   
The decline in investments reflects the delay of some projects due to the sharp rise in construction costs 
linked  to  the  supply  chain  disruptions  due  to  the  war  in  Ukraine.  At  the  same  time,  other  nationally 
financed  capital  expenditure  provided  an  expansionary  contribution  of  0.4  percentage  points  of  GDP, 
reflecting the acquisition of gas and fuel reserves. 

growth. For  more 

to  medium-term 

see  Box 1 

potential 

relative 

details 

EN 

6 

  EN 

                                                 
a share of all households’ heating, electricity and gas bills. The net budgetary cost of 
the support measures is projected in the Commission 2023 spring forecast at 0.3% of 
GDP in 202319. The measures in 2023 do not appear targeted to the most vulnerable 
households or firms, and they do not fully preserve the price signal to reduce energy 
demand  and  increase  energy  efficiency.  As  a  result,  the  amount  of  targeted  support 
measures,  to  be  taken  into  account  in  the  assessment  of  compliance  with  the 
recommendation for 2023, is estimated in the Commission 2023 spring forecast at 0% 
of GDP in 2023 (compared to 0.1% of GDP in 2022). The budgetary cost of temporary 
protection  to  displaced  persons  from  Ukraine  is  projected  to  increase  by  0.1  pps.  of 
GDP compared to 2022. 

(20)  On  12  July  2022,  the  Council  recommended20  that  Estonia  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance21,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Estonia  should  stand  ready  to  adjust  current  spending  to  the 
evolving situation. Estonia was also recommended to expand public investment for the 
green  and  digital  transitions,  and  for  energy  security  taking  into  account  the 
REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and  Resilience 
Facility and other Union funds. 

(21) 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
expansionary  (-0.8%  of  GDP),  in  a  context  of  high  inflation.  This  follows  a 
contractionary  fiscal  stance  in  2022  (+1.3%  of  GDP).  The  growth  in  nationally 
financed primary current expenditure (net of discretionary revenue measures) in 2023 
is  projected  to  provide  an  expansionary  contribution  of  1.2%  of  GDP  to  the  fiscal 
stance. This includes the reduced cost of the targeted support measures to households 
and firms most vulnerable to energy price hikes by 0.1% of GDP. This also includes 
higher costs to offer temporary protection to displaced persons from Ukraine (by 0.1% 
of  GDP).  The  expansionary  contribution  of  nationally  financed  net  primary  current 
expenditure is therefore not due to the targeted support to households and firms most 
vulnerable  to  energy  price  hikes  and  to  people  fleeing  Ukraine.  The  expansionary 
growth  in  nationally  financed  primary  current  expenditure  (net  of  discretionary 
revenue  measures) is mainly driven by social spending, public wages, education and 
defence  expenditure.  In  sum,  the  projected  growth  of  nationally  financed  primary 
current  expenditure  is  not  in  line  with  the  recommendation  of  the  Council. 
Expenditure financed by Recovery and Resilience Facility grants and other EU funds 
is projected to amount to 1.8% of GDP in 2023, while nationally financed investment 
is  projected  to  provide  a  contractionary  contribution  to  the  fiscal  stance  of  0.3 
percentage  points.  Therefore,  Estonia  plans  to  finance  additional  investment  through 
the  Recovery  and  Resilience  Facility  and  other  EU  funds,  and  it  is  not  projected  to 
preserve nationally financed investment.22 It plans to finance public investment for the 
green  and  digital  transitions,  and  for  energy  security,  such  as  energy  efficiency  of 

19 

20 

21 

22 

The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Estonia  and 
delivering a Council opinion on the 2022 Stability Programme of Estonia, OJ C 334, 1.0.2022, p. 44.  
Based  on  the  Commission  spring  2023  forecast,  the  medium-term  (10-year  average)  potential  output 
growth of Estonia, which is used to measure the fiscal stance, is estimated at 13.3% in nominal terms. 
Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.3 
percentage points of GDP, reflecting the base effect from 2022 when large gas reserves were aquired.  

EN 

7 

  EN 

                                                 
housing,  strengthening  the  electricity  transmission  networks  to  allow  more  green 
energy  production,  internet  broadband,  digital  services,  upskilling  and  retraining 
modules for green skills.  

(22)  According  to  the  Stability  Programme  the  general  government  deficit  is  expected  to 
decline  marginally  to  4.2%  of  GDP  in  2024.  The  decrease  in  2024  mainly  reflects  a 
decrease  in  expenditure  as  a  share  of  GDP.  The  programme  expects  the  general 
government debt-to-GDP ratio to increase to 23.6% at the end of 2024. However, as 
the  programme  states,  these  projections  do  not  yet  include  the  planned  fiscal 
consolidation  measures  of  the  new  government  that  took  office  on  17  April  2023, 
because  the  measures  are  not  yet  specified  in  legal  acts.  The  new  government  is 
planning  to  raise  the  value  added  tax,  environmental  taxes,  excises  on  alcohol  and 
tobacco and to institute a car tax. On the expenditure side, the government is planning 
to  cut  certain  child  benefits.  Overall,  the  Stability  Programme  estimates  that  these 
measures  would  improve  the  budget  balance  by  1.3%  of  GDP  in  2024.  Based  on 
policy  measures  known  with  sufficient  detail  at  the  cut-off  date  of  the  forecast  (i.e. 
without the planned future measures mentioned above), the Commission 2023 spring 
forecast projects a government deficit for 2024 of 2.7% of GDP. This is lower than the 
deficit projected in the programme, mainly due to the lower deficit base projected for 
2023 and a more favourable GDP and tax revenue outlook for 2024 in the Commission 
forecast.  The  Commission  2023  spring  forecast  likewise  projects  a  lower  general 
government debt-to-GDP ratio, of 21.3% at the end of 2024. 

(23)  The  Stability  Programme  envisages  the  phasing  out  of  all  of  the  energy  support 
measures in  2024. The  Commission  also  assumes  full phasing out  of energy support 
measures  in  2024.  This  hinges  upon  the  assumption  of  no  renewed  energy  price 
increases. 

(24)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark.23 
Taking  into  account  fiscal  sustainability  considerations,24  and  the  need  to  reduce  the 
deficit  to  below  the  3%  of  GDP  reference  value,  an  improvement  in  the  structural 
balance  of  at  least  0.3%  of  GDP  for  2024  would  be  appropriate.  To  ensure  such  an 
improvement,  the  growth  in  net  nationally  financed  primary  expenditure25  in  2024 
should not exceed 4.9%, as reflected in this recommendation. This will also contribute 
to reducing core inflation, which is well above the euro area average, and which could 
lead  to  competitiveness  losses  if  persistent.  At  the  same  time,  the  remaining  energy 
support  measures  (currently  estimated  by  the  Commission  at  0.3%  of  GDP  in  2023) 
should be phased out, contingent on energy market developments and starting from the 
least targeted ones,  and the related savings should be used to  reduce the government 
deficit. However, according to the Commission 2023 spring forecast, the growth in net 
nationally  financed  primary  current  expenditure  in  2023  is  not  in  line  with  the 

23 

24 

25 

Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of  more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The Commission estimated that Estonia would need an average annual increase in the structural primary 
balance as a share of GDP of  0.0 percentage points to achieve a plausible debt reduction or to ensure 
that  government  debt  is  kept  at  prudent  levels  in  the  medium  term.  This  estimate  was  based  on  the 
Commission autumn 2022 forecast. The starting point  for this estimate  was the projected government 
deficit and debt for 2024 which assumed the withdrawal of energy support measures in 2024.  
Net  primary  expenditure  is  defined  as  nationally  financed  expenditure  net  of  discretionary  revenues 
measures and excluding interest expenditure as well as cyclical unemployment expenditure. 

EN 

8 

  EN 

                                                 
recommendation  of  the  Council.  If  this  is  confirmed,  lower  growth  in  net  primary 
expenditure in 2024 would be appropriate. 

(25)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow at 4.5% in 2024, which is below the 
recommended rate.  

(26)  According to the programme, government investment is expected to remain at 5.3% of 
GDP  in  2024  compared  to  an  average  of  5.3%  of  GDP  in  2018-2023.  In  terms  of 
funding sources, nationally financed investment is projected to decline and investment 
financed by the EU to increase, namely through the Recovery and Resilience Facility.  

(27)  The Stability Programme outlines a medium-term fiscal path until 2027. According to 
the programme, the general government deficit is expected to amount to 4.0% of GDP 
in 2025, 4.5% at 2026 and 4.2% by 2027. The general government deficit is therefore 
not planned to return to below 3% of GDP over the programme horizon. According to 
the  Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  increase 
from 23.6% at the end of 2024 to 33% by the end of 2027. However, as noted above, 
these projections do not yet include the new government’s planned fiscal consolidation 
measures. 

(28)  Estonia submitted a revision of its plan together with REPowerEU chapter on 9 March 
2023,  which  was  adopted  by  the  Commission  on  12  May  2023  and  is  subject  to  the 
Council approval. Due to high inflation and disruptions in supply chains caused by the 
war in Ukraine, a few investments have been delayed or discontinued, which resulted 
in the revision of the initial plan. Estonia is the first Member State to have included the 
REPowerEU  chapter  in  the  revision  of  the  plan  and  intends  to  submit  the  first  and 
second payment request as soon as the revision has been approved by the Council. In 
accordance  with  Article  19(3),  point  (b)  and  Annex  V,  criterion  2.2  of  Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing  reforms  and  investments  to  be  implemented  by  2026.  The  new 
REPowerEU chapter in the recovery and resilience plan allows additional reforms and 
investments to be financed in support of Estonia’s strategic objectives in the field of 
energy and the green transition. The systematic and effective involvement of local and 
regional authorities, social partners and other relevant stakeholders remains important 
for the successful implementation of the recovery and resilience plan, as well as other 
economic and employment policies going beyond the plan, to ensure broad ownership 
of the overall policy agenda.  

(29)  The Commission  approved all of Estonia’s cohesion  policy programming documents 
in 2022. Proceeding with the swift implementation of the cohesion policy programmes 
in complementarity andd synergy with the recovery and resilience plan, including the 
REPowerEU  chapter,  is  key  to  achieving  the  green  and  digital  transition,  increasing 
economic and social resilience, as well as achieving balanced territorial development 
in Estonia. 

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

(31)  The adequacy of the social safety net has improved, but the risk of poverty or social 
exclusion remains high among some groups, in particular older people (41.6% against 
19.5% in the EU in 2021) and persons with disabilities (with 40.4% against 28.9% in 

EN 

9 

  EN 

the EU in 2021).  For older people (65+) the risks of poverty  or social exclusion are 
high largely due to the average pensionbeing low. In addition, a gender gap in poverty 
among  older  people  persists  (the  at-risk-of-poverty  rate  for  older  women  is  47.9%, 
almost  21 percentage  points  higher  than  for  men).  Restrictive  criteria  for  receiving 
unemployment benefits, in particular the high thresholds for employment and income 
before  unemployment,  continue  to  expose  unemployed  people  to  the  risk  of  falling 
into poverty. People with short work spells and in non-standard forms of work are not 
eligible  for  unemployment  benefits  when  they  become  unemployed.  In  2022,  only 
36%  of  the  newly  registered  unemployed  received  unemployment  benefits  and  39% 
received 
the  coverage  of 
unemployment benefits and relaxing the minimum criteria to access them, in particular 
for those with short work spells and in non-standard forms of work, and increasing the 
adequacy of pensions could help strengthen social protection. 

fixed  unemployment  allowance.  Extending 

the 

(32)  Estonia  has  taken  steps  to  improve  the  accessibility  and  affordability  of  long-term 
care, but challenges remain.  Public expenditure on healthcare and long-term care are 
low  compared  to  the  EU  average,  hampering  timely  and  equal  access  to  health  and 
long-term care. A high proportion of the population aged 65 and over in need of long-
term  care  has no help  with personal  care or household  activities. The need for home 
care  services  is  one  of  the  highest  in  the  EU.  Furthermore,  while  the  population  is 
ageing and life expectancy in Estonia is one of the lowest in the EU, the rate of self-
reported  unmet  needs  for  medical  care  is  high,  although  it  has  fallen  compared  with 
previous years (13% in 2020 and 8.1% in 2021, compared to an EU average of 2%). 
This  high  rate  is  in  particular  linked  to  waiting  lists  and  a  shortage  and  uneven 
distribution of health workers in  the country. Although out-of-pocket  payments  have 
fallen slightly, they are high both for healthcare and long-term care and far above the 
EU average. Ensuring sustainable funding of healthcare and long-term care could help 
address the challenges in these areas. 

(33)  Following Russia’s invasion of Ukraine, Estonia has successfully abandoned imports 
of  gas  from  Russia  by  redirecting  energy  imports  through  the  liquified  natural  gas 
(LNG)  terminal  in  Klaipėda,  Lithuania  and  the  LNG  terminal  in  Inkoo,  Finland. 
Estonia’s consumption of natural gas has dropped by 36% in the period August 2022 - 
March 2023, compared with the average gas consumption over the same period in the 
preceding  5  years,  beyond  the  15%  reduction  target.  Estonia  could  keep  pursuing 
efforts to temporarily reduce gas demand until 31 March 202426.The share of oil shale 
in Estonia’s energy mix remains significant, even if the country is making progress in 
the  deployment  of  renewable  energy.  The  share  of  renewable  energy  in  gross  final 
energy  consumption  grew  from  30.1%  in  2020  to  37.6%  in  2021.  The  share  of  oil 
shale accounted for 58% of the energy mix in 2021, a decrease of 5 percentage points 
since  2018,  but  an  increase  of  2  percentage  points  since  2020.  In  the  REPowerEU 
chapter of the recently revised recovery and resilience plan, Estonia has committed to 
reforms on permitting and the capacity building of local permitting authorities. These 
are  expected  to  enable  further  progress  towards  the  use  of  renewable  energy. 
Insufficient  grid  capacity  to  accommodate  more  renewables  continues  to  hamper 
further progress. Estonia also needs to continue its efforts to synchronise its electricity 
network  with  that  of  the  rest  of  the  EU  in  order  to  phase  out  its  dependency  on  the 
BRELL  power  grid.  Progress  is  being  made,  but  the  transition  still  needs  to  be 
completed.  To  that  end,  cooperation  with  Latvia  and  Lithuania  is  necessary.  Energy 

26 

Council Regulation (EU) 2022/1369 and Council Regulation (EU) 2023/706 

EN 

10 

  EN 

                                                 
efficiency is key to Estonia’s green transition. Increasing the energy efficiency of the 
economy,  including  of  the  building  stock,  will  require  more  ambitious  energy 
efficiency  targets  and  an  increase  in  smaller  municipalities’  renovation  capacity  by 
better targeting support measures. Estonia has focused on increasing the sustainability 
of its transport sector by adopting the 2021-2035 Transport and Mobility Development 
Plan, but  more appropriate measures should be  taken  to  accelarate the shift to  a  less 
polluting  transport  sector.  Although  Estonia  invests  in  the  electrification  of  the  rail 
network, its implementation has not yet been assessed. A shift to sustainable transport 
also needs to happen in the area of private vehicles, where wider use of zero- and low-
emission  vehicles  is  needed.  Relevant  incentives  such  as  environmental  taxes, 
including  an  emission-based  annual  road  vehicle  tax,  could  help  accelerate  the  shift 
towards less polluting transport options.  

(34)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 
creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High-quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation.  To unlock untapped labour supply, these measures 
need  to  be  accessible,  in  particular  for  individuals  and  in  sectors  and  regions  most 
affected by the green transition. In 2022, labour shortages were reported in Estonia for 
68  occupations  that  require  specific  skills  or  knowledge  for  the  green  transition, 
including 
technicians  and  civil  engineers. 
Furthermore,  labour  shortages  were  reported  as  a  factor  that  limits  production  in 
industry and construction.  

refuse  sorters,  civil  engineering 

(35) 

(36) 

In light of the Commission’s assessment, the Council has examined the 2023 Stability 
Programme and its opinion27 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union, the Council recommended that euro area Member States take action, including 
through  their  recovery  and  resilience  plans,  to  (i)  preserve  debt  sustainability  and 
refrain  from  broad-based  support  to  aggregate  demand  in  2023,  better  target  fiscal 
measures taken to mitigate the impact of high energy prices and reflect on appropriate 
ways to wind down support as energy price pressures diminish; (ii) sustain high public 
investment and promote private investment to support the green and digital transition; 
(iii)  support  wage  developments  that  mitigate  the  loss  in  purchasing  power  while 
limiting  second-round  effects  on  inflation,  further  improve  active  labour  market 
policies  and  address  skills  shortages;  (iv)  improve  the  business  environment  and 
ensure that energy support to companies is cost-effective, temporary, targeted to viable 
firms  and  that  it  maintains  incentives  for  the  green  transition;  and  (v)  preserve 
macro-financial  stability  and  monitor  risks  while  continuing  to  work  on  completing 
the  Banking  Union.  For  Estonia,  recommendations  (1),  (2),  (3)  and  (4)  contribute  to 
the implementation of the first, second and third euro area recommendations.  

27 

Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

EN 

11 

  EN 

 
                                                 
HEREBY RECOMMENDS that Estonia take action in 2023 and 2024 to:  

1. 

2. 

3. 

4. 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023,  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. 

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 4.9%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  

For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal  strategy  of 
gradual  and  sustainable  consolidation,  combined  with  investments  and  reforms 
conducive  to  higher  sustainable  growth,  to  achieve  a  prudent  medium-term  fiscal 
position. 

Proceed with the steady implementation of its recovery and resilience plan including 
its  REPowerEU  chapter.  Proceed  with  the  swift  implementation  of  cohesion  policy 
programmes, in close complementarity and synergy with the recovery and resilience 
plan.    

Strengthen social protection, including to address old-age poverty, and by extending 
the coverage of unemployment benefits, in particular for those with short work spells 
and  in  non-standard  forms  of  work.  Improve  access  to  and  the  affordability  of 
healthcare and long-term care, in particular by ensuring their sustainable funding. 

Reduce  overall  reliance  on  fossil  fuels,  accelerate  the  deployment  of  renewable 
energy  sources,  including  by  strengthening  the  domestic  electricity  grid  capacity. 
Ensure  sufficient  capacity  of  electricity  interconnections  to  increase  the  security  of 
supply  and  continue  the  synchronisation  with  the  EU  electricity  grid.  Strengthen 
energy efficiency through new financing and support measures to meet the targets of 
the  long-term  renovation  strategy.  Continue  efforts  to  increase  the  share  of 
sustainable  transport  by  electrifying  the  rail  network  and  through  taxation  that 
incentivises the gradual renewal of the vehicle stock towards zero- or low-emission 
vehicles.  Step  up  policy  efforts  aimed  at  the  provision  and  acquisition  of  the  skills 
needed for the green transition.  

Done at Brussels, 

For the Council 
The President 

EN 

12 

  EN