2023 country report : Estonia.
Date: 2023-07-06
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: EU aid, Estonia, economic indicator, economic recovery, economic reform, economic situation, green economy, labour market, report, social situation, stability pact, sustainable development

ISSN 2443-8014 (online)

2023
Country
Report 

Estonia

INSTITUTIONAL PAPER 230 | JUNE 2023

EUROPEAN ECONOMY

Economic and 
Financial Affairs 

Secretariat-General
Recovery and 
Resilience Task Force

European  Economy  Institutional  Papers  are  important  reports  analysing  the  economic  situation  and 
economic  developments  prepared  by  the  European  Commission's  Directorate-General  for  Economic  and 
Financial Affairs, which serve to underpin economic policy-making by the European Commission, the Council 
of the European Union and the European Parliament.   

This paper has also been published as Staff Working Document SWD(2023) 606. 

This  specific  report  was  prepared  in  cooperation  with  the  Secretariat-General  Recovery  and  Resilience  Task 
Force,  with  valuable  contributions  from  Eurostat,  Directorate-General  for  Employment,  Social  Affairs  and 
Inclusion, Directorate-General for Climate Action, Directorate-General for Environment, Directorate-General for 
Regional  and  Urban  Policy,  Directorate-General  for  Structural  Reform  Support,  Joint  Research  Centre, 
Directorate-General  for  Energy,  Directorate-General  for  Mobility  and  Transport,  Directorate-General  for 
Internal  Market,  Industry,  Entrepreneurship  and  SMEs,  Directorate-General  for  Communications  Networks, 
Content and Technology, Directorate-General for Research and Innovation, Directorate-General for Education, 
Youth, Sport and Culture, Directorate-General for Migration and Home Affairs, Directorate-General for Health 
and  Food  Safety,  Directorate-General  for  Financial  Stability,  Financial  Services  and  Capital  Markets  Union, 
Directorate-General  for  Taxation  and  Customs  Union,  Directorate-General  for  Justice  and  Consumers,  and 
Directorate-General for Translation. 

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for the use that might be made of the information contained in this publication. 

This paper can be downloaded from https://economy-finance.ec.europa.eu/ecfin-publications_en.  

Luxembourg: Publications Office of the European Union, 2023 

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European Commission 

Directorate-General for Economic and Financial Affairs 

Secretariat-General 
Recovery and Resilience Task Force  

2023 Country Report 

Estonia 

EUROPEAN ECONOMY                                                                                    Institutional Paper 230 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 606 final  COMMISSION STAFF WORKING DOCUMENT 2023 Country Report -  Estonia Accompanying the document 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 {COM(2023) 606 final}  
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Estonia’s economy was 
significantly affected by high 
inflation and supply chain 
disruptions 

Graph 1.1: Employment, activity and 
unemployment rates 

the 

Estonia’s  economy  was  hit  early  and 
strongly  by  the  higher  energy  prices  and 
supply  disruptions;  still, 
labour 
market  has  remained  strong.  Economic 
activity  slowed  down  considerably  over  2022, 
when  GDP  contracted  by  1.3%.  Being  a  small 
and  open  economy,  Estonia  was  hit  early  by 
the  rapid  rise  in  energy  prices,  the  negative 
effects  of  the  war  in  Ukraine,  and  the  rise  in 
interest rates (given the prevalence of flexible 
interest  rates 
in  Estonian  household  and 
corporate loan contracts). Estonia was the euro 
area’s  hotspot  of  inflation  throughout  2022, 
when  inflation  reached  19.4%,  mainly  driven 
by  rising  energy  and  food  costs.  A  pickup  in 
in 
EU-funded 
inflation  are  set  to  give  a  boost  to  growth  in 
the  second  half  of  2023;  this  is  expected  to 
lead annual GDP to  -0.4% in 2023 and about 
3% in 2024. 

investments  and  a  decline 

The  Estonian  labour  market  continued  to 
perform  strongly  in  2022  and  2023  but 
youth  unemployment  is  high.  Employment 
rose  sharply  by  about  4%  in  2022  and 
reached 81.9% of the working-age population 
in  2022.  More  than  10  thousand  refugees 
from  Ukraine  had  found  a  job  by  the  end  of 
March  2023.  This  illustrates  the  success  of 
quickly integrating Ukrainian refugees into the 
labour  market.  The  youth  unemployment  rate 
is  much  higher  than  the  total  unemployment 
rate  (16.7%  in  2021  and  18.6%  in  October 
2022. 

2 

Source: Eurostat 

has 

expenditure 

increased 
Public 
consistently  over  recent  years,  and  has 
not  been  matched  by  tax  increases.  The 
general  government  recorded  a  relatively 
small  deficit  of  0.9%  of  GDP  in  2022,  when 
inflation  automatically  boosted 
revenues. 
However,  the  deficit  is  projected  to  rise  to 
3.1%  of  GDP  in  2023,  reflecting  a  significant 
budget  expansion  for  the  year.  Nevertheless, 
Estonia’s  government  debt  is  expected  to 
stand  at  19.5%  of  GDP  by  the  end  of  2023, 
the  lowest  rate  in  the  EU.  Besides  additional 
defence  and  security  spending,  the  state 
budget for 2023 provides salary increases for 
teachers,  cultural  workers,  internal  security 
personnel  and  IT  specialists.  It  also  includes 
education  programmes,  R&I  expenditure, 
additional child benefit, and spending linked to 
Ukrainian  refugees.  As  household  budgets 
were  greatly  affected  by  increased  energy 
prices  in  2022,  especially  for  low-income 
groups, Estonia took measures to mitigate the 
negative impact of these higher energy prices. 

787980818283848586051015202530352009201020112012201320142015201620172018201920202021%%EEActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-29 (lhs) 
 
  
 
Measures  included  a  fixed-price  electricity 
scheme  for  private  households  and  small 
enterprises, and direct compensation of energy 
prices for households (see Box 1). 

The  challenging  macroeconomic  context 
has  contributed  to  the  emergence  of  a 
number  of  vulnerabilities 
that  are 
assessed  in  the  In-depth  Review  for 
Estonia.  (1)  The  very  high  rate  of  inflation  – 
compared with the euro-area average – might 
risk  a  loss  of  price  competitiveness.  Fast 
growth in wages entails risks for second-round 
effects  on  inflation  and  high  increases  in  unit 
labour  costs.  In  particular,  growth  in  nominal 
compensation  per  employee  in  2021  and 
2022  (9.8%  and  8.3%)  was  well  above  pre-
pandemic  levels  (7.2%  in  2019).  It  is  also 
expected  to  stay  at  a  high  level  in  2023 
(10.3%)  according  to  the  Commission  spring 
2023 forecast. Moreover, nominal house price 
growth  is  among  the  highest  in  the  EU,  amid 
an estimated moderate overvaluation of house 
prices.  A  correction  is  expected  to  slow  down 
or halt house price growth this year in the face 
of  the  worse  economic  outlook  and  the 
tightening  of  financial  conditions.  Mitigating 
the risks, the Estonian economy is structurally 
resilient,  with  the  current  account  close  to 
balance,  low  debt  levels,  and  a  solid  financial 
sector (see Annex 22).] 

Estonia  is  an  energy-intensive  economy 
and  has  experienced  significant  energy 
price  increases.  Retail  prices  for  electricity 
and  gas  increased  in  the  first  half  of  2022 
compared  with  the  same  period  in  2021  (by 
55% and 154% respectively). Estonia is one of 
the  most  carbon-  and  energy-intensive 
economies  in  the  EU.  In  2020,  the  economy's 
greenhouse gas emissions intensity was twice 
the  EU  average,  although 
is 
decreasing.  While  the  share  of  renewable 
energy in the electricity mix has seen a strong 
increase (from 29% in 2019 to 41% in 2021), 
the share of fossil fuels in the energy mix was 
still high at 71% (See Annex 6). 

trend 

the 

(1) European Commission (2023), In-Depth Review for 
Estonia, Commission staff working document, 
(COM(2023) 630 final). 

3 

Skills shortages and 
underinvestment in innovation 
hold back productivity growth 

is 

Labour  productivity 
improving  but 
skills and labour shortages remain one of 
the  main  challenges  to  investment  and 
productivity  growth  in  the  longer  term. 
While  Estonia’s  labour  productivity  is  still 
substantially below the EU average, the gap is 
narrowing  and  the  country  is  slowly  catching 
up.  The  post-pandemic  economic  recovery 
allowed labour productivity in industry to grow 
in  2021,  which  was,  however, 
by  7.4% 
followed  by  a  decline  of  -8.4%  in  2022, 
compared  to  an  EU  average  growth  of  1.4% 
(see  Annex  12).      One  of  the  main  long-term 
barriers  to  investment  and  a  major  challenge 
for  businesses  is  the  availability  of  skilled 
staff.  

their 

continue 

businesses 

research-based 

to 
Estonian 
underinvest  in  research  and  innovation 
(R&I). Estonia maintained its public sector R&I 
spending  at  0.75%  of  GDP  in  2021,  slightly 
below the EU average (0.76%). However, while 
business sector investments in R&I have risen 
from 87% of GDP in 2019 to 0.98% in 2021, 
their  level  is  still  below  the  EU  average  of 
1.49%, and Estonia is far below the European 
Research  Area’s  overall  target  of  3%  of  GDP. 
is  room  for  companies  to 
Hence,  there 
innovation 
increase 
capacity and R&I functions (see Annex 11). As 
regards  the  use  of  digital  technologies,  while 
the  share  of  small  and  medium-sized 
companies with at least  basic digital  intensity 
is  close  to  the  EU  average,  the  use  of  some 
advanced  technologies,  such  as  big  data  and 
artificial  intelligence,  is  lower  than  the  EU 
average.  However,  in  2022,  Estonia  improved 
innovation  funding  and  established  a  national 
innovation  agency,  which  will  support  the 
collaboration 
funded 
research  and  innovation  (concentrated  at  a 
few state-funded universities) and businesses. 
In  addition,  Estonia  launched  a  large-scale 
grant scheme for applied research, supporting 
fostering 
R&D-intensive 
university-industry collaboration. 

companies  and 

between 

publicly 

 
 
                                                 
Addressing social challenges and 
regional disparities would bring 
more inclusive growth 

in 

Estonia 

particular 

performs  well 

While 
on 
employment related indicators, the Social 
the  European 
Scoreboard  supporting 
Pillar  of  Social  Rights  points  to  some 
challenges, 
regarding 
poverty  and  high  self-reported  unmet 
needs  for  medical  care.  While  poverty  has 
been gradually decreasing, it remains high for 
unemployed  people,  people  with  disabilities, 
and  older  people:  40.6%  of  people  aged  65 
and  over  were  at  risk  of  poverty  in  2021, 
versus 16.8% in the EU-27. This is largely due 
to the average old-age pension, which is below 
the  at-risk-of-poverty  threshold.  Pensions  are 
among  the  lowest  in  the  EU  relative  to  work 
incomes. There is also a gender gap in old-age 
poverty (the rate for older women is 47.9%  – 
almost  21  percentage  points  higher  than  for 
men). The low adequacy of the Estonian social 
safety net and low coverage of unemployment 
benefits  contribute  to  income  inequality,  still 
slightly  above  the  EU  average,  and  poverty. 
While the ratio has decreased, Estonia still has 
one  of  the  highest  levels  in  the  EU  of  self-
reported  unmet  needs  for  medical  care  (8.1% 
vs  2%  in  the  EU  in  2021).  Population  ageing 
continues  to  put  pressure  on  the  long-term 
care  system  which  is  inadequate  to  meet 
demand due to deficiencies in the organisation 
and financing of long-term care. 

Estonia  continues  to  feature  significant 
disparities  between  its  capital  region 
(Põhja-Eesti) and the rest of the country. 
In  2020,  GDP  per  capita  of  Põhja-Eesti  stood 
above  the  EU  average  at  120.6%,  while  it 
ranged  from  48%  in  Lääne-Eesti  to  around 
60%  in  Lõuna-Eesti  (see  Annex  17).  Labour 
productivity is also higher in the capital region, 
though  real  productivity  growth  has  been 
in  Lõuna-Eesti  and  Kesk-Eesti. 
highest 
Depopulation  between  2011-2019  was  most 
striking  in  Kirde-Eesti  (-14.8%),  while  the 
capital  region’s  population  grew  by  8.9%.  The 
urban-rural  divide  is  also  visible  in  terms  of 
public  transport,  education  and  employment 
(including  the  digital  divide),  and  for  risk  of 

poverty,  which  is  higher  in  rural  areas.  In 
addition to the support from the Recovery and 
Resilience  Facility  (see  Section  2),  Estonia 
benefits  from  a  significant  volume  of  EU 
cohesion  funds.  Over  2021-2027,  cohesion 
policy programmes will invest EUR 2.6 billion in 
the green transition and EUR 361 million in the 
digital  transformation  as  part  of  Estonia’s 
total  allocation  of  EUR 5  billion  (see  Annex 
4) (2). 

Graph 1.2: GDP per capita (percentage) in 
Estonia, NUTS 3, 2020 

Source: Eurostat 

Estonia  is  improving or  performs  well  on 
most  of  the  Sustainable  Development 
Goals  (SDGs)  indicators.  Estonia  performs 
well  in  ‘education  indicators’  (SDG  4).  For 
example, there are relatively few 15-year-olds 
who  are  low  achievers  in  reading,  and  adult 
participation  in  learning  is  increasing.  The 
country  has  made  some  progress  on  energy 
consumption  indicators  (SDG  7).  For  example, 
Estonia has managed to increase the ‘share of 
in  gross  final  energy 
renewable  energy 
consumption’.  However,  while 
improving, 
Estonia  still  needs  to  catch  up  with  the  EU 
average  on  the  ‘healthy  life  years  at  birth’ 
indicator  (SDG  3).  The  only  SDG  indicator 
where Estonia is moving away from the target 

(2)  European Regional Development Fund (ERDF), Cohesion 
Fund (CF), European Social Fund Plus (ESF+), Just 
Transition Fund (JTF), excluding Interreg programmes. 
Total amount includes national and EU contributions. 
Data source: Cohesion Open Data. 

. 

4 

 
 
                                                 
Box 1: 

Box on energy policy response in Estonia 

Estonia suffered the highest retail energy price increases in the EU. The country adopted 
various support measures to cushion the impact of energy price inflation on households 
and businesses. For 2023, their gross budgetary costs are projected  at 0.3 % of GDP, 
which  is  relatively  small  in  comparison  with  many  other  EU  Member  States.  Most 
measures  do  not  fully  preserve  the  price  signal  and  are  not  targeted  at  the  most 
vulnerable. All the measures were planned to expire in spring 2023. 

The most notable measures were: 

  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, and 
electricity  and  gas  price  caps  for  households,  small  companies,  microbusinesses, 
NGOs, and local governments; and 

  a one-time EUR 50 social transfer to pensioners and children. 

Furthermore,  the  Estonian  state-owned  energy  company  was  mandated  by  the 
government to sell electricity at a pre-determined fixed price to households and small 
enterprises, starting from October 2022, for four years. 

In  April  2022,  Finland  agreed  to  lease  a  floating  storage  regasification  unit.  This  unit 
arrived  in  Finland,  port  of  Inkoo,  in  December  2022.  This  terminal,  crucial  for  the 
security of supply of Estonia, Finland and also the whole Baltic region, was identified in 
Annex 3 of the REPowerEU Communication as an additional gas infrastructure need. 

Estonia applies a national measure in application of Council Regulation (EU) 2022/1854, 
namely  an  environmental  charge  payable  by  corporations  engaged  in  the  mining  and 
refining of oil shale in Estonia. The charge is calculated per tonne of the resource and 
its  rate  is  determined  by  the  government  every  quarter  between  a  minimum  and 
maximum ceiling (3). 

and, at the same time, also needs to catch up 
with  the  EU  average  is  the  ‘life  below  water’ 
indicator  (SDG  14).  This  is  due  to  an  increase 
in  marine  waters  affected  by  excess  nutrient 
accumulation  originating  in  human  activity.  A 
more detailed overview is provided in Annex 1, 
which assesses Estonia’s progress on the SDGs 
along  the  four  dimensions  of  competitive 
sustainability. 

(3)  Member States can keep national measures that are 

equivalent to the solidarity contribution regulated under 
Council Regulation (EU) 2022/1854 provided they are 
compatible with the objectives of the regulation and 
generate higher or comparable proceeds. These 
measures must also cover the extraordinary and 
unexpected profits of businesses active in the 
extraction of crude petroleum, natural gas, coal, and 
refinery sectors. 

5 

 
                                                 
 
 
 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

Estonia’s  recovery  and  resilience  plan 
(RRP) aims to address the key challenges 
related  to  the  green  transition, 
including 
energy  efficiency  and  sustainable  transport, 
the  digital  transition  in  the  public  and  private 
sector,  and  health  and  social  protection.  It 
consists  of  25  investments  and  16  reforms, 
detailed  in  124  milestones  and  targets  that 
are  supported  by  EUR 863.5  million  in  grants 
and about 2.8% of GDP (see Annex 3 for more 
details).  

The implementation of Estonia’s recovery 
and  resilience  plan  is  underway.  Estonia 
submitted  a  modification  of  its  plan  together 
with the 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 modification of the plan and intends to 
submit  the  first  and  second  payment  request 
as  soon  as 
the  modification  has  been 
approved by the Council.  

The  amendments  to  the  RRP  and  the 
REPowerEU  chapter  are  expected  to 
address the  challenges  related  to  energy 
supply  and  security,  energy  efficiency, 
and  to  speed  up  the  transition  to 
renewable  energy  sources.  The  modified 
investments:  the 
plan  contains  five  new 
construction  of  a  general  hospital  and  health 
care  centre  “TERVIKUM”  in  Viljandi,    boosting 
of  offshore  wind  farms  development,  support 
to  companies  to  increase  energy  security, 
construction  of  five  Rail  Baltic  viaducts  and  a 
multifunctional  work  vessel 
to  prevent 
pollution  in  the  sea  and  improve  maritime 
safety.  The  REPowerEU  chapter  includes  one 
investments,  aiming  at 
reform  and 
of 
country’s 
accelerating 

two 
the 

take-up 

energy  and 

renewable 
the 
development  of  sustainable  biogas  and 
biomethane.   

facilitating 

At the same time, the revised lower allocation 
for Estonia and the strong increase in prices in 
combination with supply chain disruptions, has 
made it necessary to remove four investments 
from  the  RRP.  This  concerns  the  construction 
of the Northern Estonian Medical Campus and  
Rail  Baltic  Ülemiste  terminal  in  Tallinn,  the 
purchase of multi-purpose helicopters, and the 
electrification  of  a  Westbound  section  of  the 
country’s  railways.  In  addition,  Estonia  has 
requested  to  modify  the  milestones  and 
targets of 13 measures of the RRP. 

review  of 
The  following,  more  detailed 
measures being implemented under the RRP in 
no way implies formal Commission approval or 
rejection of any payment requests.  

Supporting the green transition, 
including fostering sustainable 
transport 

Supporting 
innovation  and  the  green 
transition is under way. The Green Fund has 
been  set  up,  supporting  development  and 
scaling up innovative green technologies in the 
private  sector.  The  green  transition  will  be 
further supported by investments and reforms 
strengthening  the  electricity  grid  capacity  and 
incentivising  production  and  uptake  of 
renewable  energy.  For  removing  barriers  to 
installation  of  renewable  energy  facilities,  the 
relevant  legislation  will  enter  into  force  and 
guidance materials will be published. 

accelerate 

To 
to 
the 
sustainable  transport,  the  government 
has  adopted  the  Transport  and  Mobility 
Two 
Development  Plan  2021-2035. 

transition 

6 

 
 
Strengthening social protection 
and healthcare 

into 

Measures  have  been  taken  to  support 
the  unemployed. 
young  people  and 
Legislation  has  entered 
to 
strengthen  the  ‘My  First  Job’  scheme,  which 
foster 
Youth 
employment. 
Guarantee Action Plan has also been adopted. 
In  addition,  the  duration  of  unemployment 
benefit has been extended under amendments 
to the relevant legal act. 

youth 

force 

The 

long-term  care, 

Reforms were adopted to improve access 
to  long-term  care  and  healthcare.  As 
regards 
in  2022,  several 
amendments  to  the  Social  Welfare  Act  were 
adopted to ensure that a person must be able 
to live as long as possible in their home and to 
receive  quality  services.  Furthermore, 
to 
strengthen 
legislative 
amendments  entered  into  force  to  provide 
greater  access  to  specialist  care  and  to 
increase  the  level  of  support  for  general 
practitioners,  making  working 
in  primary 
remote  areas  more 
health 
attractive. 

primary 

centres 

care, 

in 

is  envisaged 
e-health 

Future  reforms  and  investments  will  aim 
to  improve  the  provision  of  health  and 
social services, and to reduce the gender 
pay gap. An integrated care model for health 
and  social  services 
to  be 
governance 
established, 
framework  will  be  improved  and  the  number 
of health workers increased. Investment in the 
health 
health 
will 
infrastructure.  Measures  will  be  taken  to 
reduce the gender pay gap, including by rolling 
out  a  gender  pay  gap  digital  tool  to  help 
employers to take informed decisions. 

improve 

sector 

the 

important projects aim to increase sustainable 
mobility in urban areas. The project design for 
the  Tallinn  Old  Port  tramline  was  completed 
and  the  construction  contract  concluded.  In 
2022,  a  notice  was  published  for  the  call  for 
proposals  for  grants  to  develop  24 km  of 
bikeway  and  walkway  infrastructure.  Estonia 
will invest in developing both rail transport and 
the Tallinn capital public transport system. 

Supporting the digital transition 

further 

Reforms and investments will support the 
digital  transition  by  making  data  more 
accessible  to  Estonian  policymakers  and 
the  public.  To 
strengthen  e-
governance,  Estonia  has  created  a  centre  of 
excellence for data governance and open data. 
This  centre  improves  the  quality  of  data 
collected  and  held  by  Estonian  public 
authorities,  increasing  its  use  for  decision-
making  and  its  availability  as  open  data  so 
that 
reused  by  other 
stakeholders. 

it  may  also  be 

To promote the digital transition of small 
and medium-sized companies, Estonia will 
set up a dedicated grant scheme. This tool 
will help companies to digitalise their business 
processes.  The  government  has  adopted 
secondary  legislation  to  support  the  adoption 
of  digital  technologies,  the  development  of 
cloud  technologies,  and  the  strengthening  of 
digital skills in the labour force. 

Further  reforms  and  investments  are 
envisaged  in  the  digital  area.  They  will 
services, 
further 
improve  public  digital 
strengthen 
laundering 
framework,  and  support  the  roll-out  of  very 
high-capacity  broadband  network  to  8 097 
new  sites  (residential  properties,  companies, 
other establishments). 

anti-money 

the 

7 

 
Box 1: 

Key  deliverables  expected  under  the  recovery  and  resilience  plan  in 
2023/2024 

  Green skills: New upskilling and retraining modules for green skills will be available. 

  Digital  transition:  Transfer  of  the  basic  digital  services  to  the  national  cloud 
infrastructure  of  the  data  embassy  and  roll-out  of  very  high-capacity  broadband 
networks, which offer a connection of at least 100 Mbps, for 4 000 new households and 
socio-economically important institutions, such as hospitals, schools, public services and 
businesses. 

  Energy efficiency: Update of the Housing homepage to visualise the possible outcome 
of  home  renovation  and  calculation  of  the  potential  costs  and  renovation  of  at  least 
2 600 dwellings in apartment buildings and at least 80 private residences, with primary 
energy savings of at least 30%. 

  Modernising public administration: Entry into force of the amendment to the Money 
Laundering and Terrorist Financing Prevention Act and of other legislative amendments 
needed for the Centre for Strategic Analysis to prevent money laundering. 

  Social protection: Entry into force of the Decree of the Minister of Social Protection to 
support  the  independent  living  of  older  people  with  lower  care  needs  and  people  with 
disabilities. 

Key  deliverables  expected  under  the  modified  recovery  and  resilience  plan  in 
2023/2024 subject to Council approval: 

  Energy  and  energy  efficiency:    Selection  of  contractors  for  the  radar  and  passive 
systems/sensors and signed contracts to boost offshore wind farms development.   

  Sustainable transport: Signing of work contracts for the building of a multifunctional 
research vessel and the construction of the Rail Baltic viaducts, with the respective aims 
of  ensuring  the  safety  and  conditions  of  waterways  for  maritime  transport  and 
connecting the three Baltic states via rail. 

  Healthcare: Signing of the contract for the construction of the TERVIKUM health centre 

in Viljandi.  

  REPowerEU:  Signature  of  the  co-financing  agreement  for  electricity  distribution 
network  works  under  the  programme  to  increase  the  access  of  renewable  energy 
production to the electricity distribution network; entry into force of legal amendments 
streamline  planning,  permitting  and  environmental  impact  assessment  processes  for 
wind energy projects; establishment of wind priority development areas on the basis of 
a technical report identifying priority development areas.   

8 

 
 
 
 
 
FURTHER PRIORITIES AHEAD 

increase 

intensity, 

Beyond those tackled by the RRP, Estonia 
faces  additional  challenges.  There  are 
bottlenecks  that  need  to  be  addressed  to 
ensure Estonia’s long-term sustainable growth 
and  competitiveness,  notably  to 
increase 
energy  security  while  reducing  the  economy's 
energy 
resource 
productivity,  improve  healthcare  and  increase 
social  protection,  and  close  the  skills  gaps. 
These  objectives  are  also  identified  in  the 
‘Estonia  2035’  national  strategy.  Addressing 
these challenges will also help to make further 
progress in achieving the SDGs where Estonia 
currently 
further 
improvement,  namely  ‘Healthy  life  years  at 
birth’ indicator (SDG 3) and ‘Life below water‘ 
(SDG 14). 

shows 

room 

for 

renovation  strategy  estimates  that  141 000 
buildings,  accounting  for  54 million m²,  need 
renovation  within  30  years.  Estonia  aims  to 
renovate  3%  of  the  floor  area  of  public 
buildings  per  year,  aided  by  funding  from  the 
RRF  and  EU  structural  funds.  Estonia  would 
benefit from increasing smaller municipalities’ 
renovation  capacity  by  better 
targeting 
support  measures,  by  pursuing  a  strategy  on 
losing 
sustainable 
population  and  by  continuing  efforts 
to 
structurally  reduce  demand.  More  generally, 
new  financing  instruments  and  changes  in 
fiscal  policies  to  foster  renovation  would 
further  support  Estonia 
its  efforts  to 
increase  energy  efficiency  and  eradicate 
energy poverty. 

shrinking 

regions 

in 

in 

Using resources more efficiently 
and diversifying fuel sources 

is  making  efforts  to  reduce 
Estonia 
emissions. However,  the policies in  place  are 
projected to reduce greenhouse gas emissions 
by  12%  in  2030  relative  to  2005  levels,  far 
below  the  effort-sharing  target  of  24% 
contributing  to  the  EU’s  55%  objective.  With 
the  revised  recovery  and  resilience  plan  (RRP) 
and  a  dedicated  REPowerEU  chapter,  Estonia 
will  allocate  59%  of  the  plan’s  resources  to 
climate-related measures. 

Energy  efficiency  is  a  central  component 
of  Estonia's  energy  transition.  Energy 
efficiency  is  central  to  Estonia’s  recovery  and 
resilience  plan  and 
the  structural  funds 
operational  programme.  However,  the  targets 
for primary and final energy consumption laid 
down in Estonia’s national energy and climate 
plan  are  of  modest  (5.4  million  tonnes  of  oil 
equivalent)  and  very  low  ambition  (2.9  Mtoe), 
respectively,  and  are  bound  to  be  revised 
upwards  (see  Annex  6).  Estonia’s  long-term 

The share of oil shale in Estonia’s energy 
mix  remains  still  significant,  even  if 
in  the 
is  making  progress 
Estonia 
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 (see Annex 6). 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  (see  Annexes  6  and  7). 
Estonia  has 
in  the 
REPowerEU  chapter  to  streamline  permitting 
procedures 
permitting 
to  be 
authorities.  Several 
hampering  progress  towards  the  use  of  more 
renewable  energy, 
insufficient 
capacity  in  the  electricity  grid.  Reducing  the 
reliance  on  fossil  fuels  is  crucial  for  the 
decarbonisation  of  the  Estonian  economy  and 
will  also  contribute  to  ensuring  security  of 
supply. 

supporting 
issues  seem 

introduced  measures 

includingthe 

and 

Estonia  needs  to  continue  its  efforts  to 
reduce  the  dependency  of  its  electricity 
network. The Estonian electricity network, like 
that  of  other  Baltic  Member  States,  remains 
exposed  as  it  is  synchronised  with  the  BRELL 

9 

 
 
power grid (controlled by Russia, see Annex 7). 
The  regional  synchronisation  of  the  electricity 
grid  with  the  rest  of  the  European  Union  is 
making progress but remains to be completed. 
To  that  end,  cooperation  with  Latvia  and 
Lithuania is necessary. 

Estonia’s  land  use,  land-use  change  and 
forestry  (LULUCF)  sector  has  shifted  to 
net  emissions  and  action  to  restore  its 
absorption capacity is of high importance. 
This  degradation  from  net 
removals  of 
to  net 
4 835 kt CO2-equivalent 
emissions  of  1 297 kt CO2-equivalent  in  2020 
(see  Annex  6)  is  mostly  explained  by  the 
significant  decline  in  the  capacity  for  carbon 
improving 
in  forests.  Therefore, 
removals 
forest management is key and adoption of an 
appropriate  national  forest  development  plan 
is crucial. 

in  2010 

Estonia  recently  adopted  new  policies, 
such as a white paper and action plan, to 
address  circular  economy  challenges, but 
the  country  would  benefit  from  targeted 
measures,  in  particular  to  improve  circularity 
of  municipal  waste.  The  municipal  waste 
recycling  rate  was  30.5%  in  2021,  while  the 
EU  average  stood  at  48.5%.  Estonia’s 
industrial  system  is  characterised  by  low 
resource productivity and resource productivity 
is one of Estonia’s relative weaknesses when it 
comes  to  the  country’s  innovation  capacity. 
Estonia  ranked  18th  on  the  2021  Eco-
Innovation  Index  in  the  EU.  Innovation  in 
valorisation  of  natural  resources  and  the 
circular  economy  would  also  help  increase 
resource productivity and increase value added 
in industrial production. 

Accelerating the shift towards 
sustainable mobility 

accelerating 

the  shift 
requires 

to  sustainable 
Achieving 
mobility 
the 
adoption  of  appropriate  measures  such 
as  increasing  multimodality  in  national 
and urban transport networks. Estonia has 
one  of 
railway 
the 
Although 
electrification 

rates  of 
EU. 

lowest 
in 

the 

electrification investments are a key priority in 
national transport policy, results are yet to be 
seen.  The  greening  of  transport  has  also 
slowed  down  in  the  area  of  private  vehicles 
due to the lack of incentives. The rate of new 
registrations  of  alternative  fuel  vehicles  still 
lags significantly below the EU average, while 
the  availability  of  electric  charging  points  is 
sufficient in relation to the existing number of 
registered  electric  vehicles.  Additionally,  in 
terms of public transport, the uptake in urban 
and  suburban  areas  could  be  increased  by 
providing wider multimodal mobility options in 
different areas of Estonia. 

to  more 

Although  Estonia  aims  to  shift  freight 
environmentally 
transport 
friendly  alternatives,  the  shift  of  freight 
transport to rail on the North-South axis is yet 
to  take  off.  In  addition,  Estonia  is  lacking 
appropriate  measures,  such  as  differentiated 
railway 
infrastructure  charges,  that  could 
initiate the shift to green freight transport. 

Environmental  taxes  on  transport 
in 
Estonia  are  the  lowest  in  the  EU,  as  a 
share  of  GDP  (0.04%  vs  0.42%  as  EU 
average) (4).  The  country  is  one  of  the  few 
Member States without an annual road vehicle 
tax,  but  it  levies  relatively  high  excise  duties 
on road fuels. 

Addressing poverty by 
increasing social protection 

The  adequacy  of  social  safety  has 
improved,  but  the  risk  of  poverty  or 
social  exclusion  remains  high  among 
some groups, including older people. While 
impact  of  social  transfers  (excluding 
the 
pensions)  on  poverty  reduction  has  improved 
and  the  share  of  people  at  risk  of  poverty  or 
social  exclusion  continued  to  decrease,  the 
level  of  minimum  income  benefits  is  low  and 
stands  at  50%  of  the  poverty  threshold.  The 

(4)

https://ec.europa.eu/eurostat/documents/152166

29/15589759/KS-07-22-523-EN-N.pdf/3ef323b2-
703a-9905-f24d-
91db92a2931c?version=3.0&t=1673612473356. 

10 

 
                                                 
 
from 

introduced  an  opt-out 

at-risk-of-poverty-or-social-exclusion  rate  for 
older persons is still among the highest in the 
EU. Furthermore, old-age poverty is more than 
two times higher for women than for men; this 
is also related to the high gender pay gap (see 
Annex 14). The main driver for old-age poverty 
is  low  pensions.  The  2019  pension  reform, 
which 
the 
statutory pillar II funded pension scheme, risks 
to reduce the future adequacy of pensions and 
puts  people  at  a  higher  risk  of  poverty  in  the 
long  term.  At  the  same  time,  demographic 
trends  put  further  pressure  on  the  pension 
system.  The  number  of  employees 
is 
decreasing  and  the  number  of  pensioners 
increasing; social tax contribution to the pillar I 
(state)  pensions  is  therefore  decreasing.  In 
2022,  Estonia  carried  out  an  analysis  of  the 
sustainability  and  adequacy  of  its  pension 
system  and  identified  gaps.  One  is  that, 
currently, approximately one in ten pensioners 
receive  a  pension  lower  than  the  requirement 
of  the  social  charter,  and  this  proportion  is 
increasing.  Furthermore,  Estonia  does  not 
meet  the  average  pension  goal  as  the  pillar I 
and  II  pension  of  the  median  wage  earner  is 
less than 60% of the median wage. 

to  contribute 

low  coverage  of  unemployment 
The 
benefits  continues 
to 
income  inequality  and  increased  poverty. 
As provided for under the RRP, Estonia has put 
in place a mechanism to trigger extending the 
duration of unemployment benefit in times of 
economic  crisis.  However,  the  access  to  and 
the  unemployment  benefit 
coverage  of 
scheme  remains  unchanged,  including  that 
people  with  short  work  spells  and  in  non-
standard  forms  of  work  are  not  covered  (see 
Annex 14). To reach the 2030 national poverty 
reduction  target,  it  is  crucial  to  accelerate 
efforts  to  alleviate  poverty  among  vulnerable 
groups. 

Increasing access to long-term 
care and healthcare 

proportion  of  the  65+  population  in  need  of 
long-term  care  lacks  assistance  in  personal 
care  or  household  activities.  The  need  for 
home  care  services  is  the  highest  in  the  EU 
and  services  are  not  equally  accessible 
throughout the country as the capacity of local 
governments  to  provide  them  varies.  The 
reliance  on  informal  carers  is  considerable; 
however,  financial  support  to  carers  is  very 
limited.  In  addition,  the  lack  of  common 
national  standards  for  services  and  workforce 
shortages make it difficult to ensure good care 
quality.  To  address  the  increasing  need  for 
long-term  care,  high  out-of-pocket  payments, 
and  the  impact  of  a  decreasing  and  ageing 
population  on 
future  public  expenditure 
(European  Commission  2022  Country  Report), 
Estonia  adopted  the  care  reform  and  other 
legislative changes in 2022. Further measures 
are  planned  to  improve  care  coordination,  to 
support municipalities to deliver care services, 
and  to  support  informal  carers.  These  are 
important  steps 
the 
towards 
provision  of  long-term  care.  However,  the 
impact of the planned measures remains to be 
seen. 

improving 

Estonia  is  characterised  by  high  self-
reported  unmet  needs  for  medical  care 
and  by  health  workforce  shortages.  Life 
expectancy  in  Estonia  is  one  of  the  lowest  in 
the EU. The rate of self-reported unmet needs 
for  medical  care  is  one  of  the  highest  in  the 
EU,  although  it  has  fallen  compared  with 
previous 
years.  Out-of-pocket  payments 
remain  high  (see  Annex  16).  Estonia  faces 
health  workforce  shortages,  especially  nurses. 
The numbers of graduating doctors and nurses 
have  fallen 
in  recent  years  and  uneven 
regional  distribution  of  the  health  workforce 
raises 
long-term 
about 
accessibility  of  health  services.  Working 
conditions  are  important  factors  in  choosing 
the  profession.  While  salaries  have  increased, 
they are not sufficiently attractive (see Annex 
16).  Estonia  is  addressing  health  workforce 
shortages  to  some  extent  in  its  RRP  and  also 
has  put  some  incentives  in  place  to  increase 
the health workforce. 

concerns 

the 

Estonia  has  taken  steps  to  improve  the 
accessibility  and  affordability  of  long-
term  care,  but  challenges  remain.  A  high 

Low  public  financing  of  health  remains 
the  key  bottleneck  to  address  the 
challenges  in  healthcare  and  long-term 

11 

 
care.  Estonia’s  total  health  expenditure  in 
2020  was  low  compared  with  the  EU  (7.8% 
versus  10.9%  EU).  While  out-of-pocket 
payments  slightly  decreased 
in  2021  to 
21.4%,  it  is  still  far  above  the  EU  average  of 
14.4%.  Furthermore,  public  spending  on  long-
term care remains one of the lowest in the EU 
(0.4%  of  GDP  vs  1.7%  of  GDP  EU  in  2019) 
(see  Annex  14).  While  measures  are  being 
taken by Estonia, adequate financing of health 
and long-term care has not yet been ensured. 

Bridging labour and skills gaps 
to foster productivity 

long-term 

challenges 

Availability  of  (skilled)  labour  is  one  of 
the  main 
to 
investment  and  productivity  growth. 
Labour  shortages  are  particularly  hampering 
export industries, putting challenges on further 
export  growth.  Labour  shortages  have  started 
industry,  construction  and 
to  decrease  in 
services  sectors  and 
reaching  pre-COVID 
levels,  but  they  remain  high  (11%  in  industry 
and  20%  in  services  in  2022).  Teacher  and 
health  workforce  shortages  (see  section  on 
healthcare) continue to be a challenge. 

Early  school  leaving  and  gender  gaps 
throughout  the  education  system  remain 
a  stumbling  block  to  solving  skills 
shortages.  The  education  system  delivers 
very  good  outcomes,  high  equality  and 
advanced  digitalisation  of  schools.  However, 
the  insufficient  numbers  of  graduates  from 
vocational  and  higher  education,  coupled  with 
increasing  early  school  leaving  and  gender 
gaps 
the  education  system, 
present challenges in filling current and future 
jobs (see Annexes 14 and 15). 

throughout 

In  the  context  of  the  green  transition, 
labour  shortages  in  key  sectors  have 
increased in recent years, also linked to a 
lack  of  relevant  skills  and  creating 
bottlenecks in the transition to a net-zero 
economy.  In  2022,  labour  shortages  were 
reported  in  Estonia  for  68  occupations  that 
required  specific  skills  or  knowledge  for  the 
green  transition,  including  refuse  sorters,  civil 

engineering  technicians  and  civil  engineers (5). 
The  job  vacancy  rate  increased  across  key 
sectors,  such  as  construction  (from  0.5%  in 
2015 to 1.4% in 2022), but still below the EU 
average  of  4%,  in  2022. (6).  In  2022,  labour 
shortages  were  reported  as  a  factor  limiting 
production in industry (for 23.3% of firms) and 
construction (for 32.5% of firms) (7). Upskilling 
and reskilling for the green transition, including 
for  people  most  affected,  and  promoting 
inclusive  labour  markets  are  essential  policy 
levers  to  accelerate  the  transition  to  net-zero 
and ensure its fairness (see Annex 8). 

rising 

the  pressure  on 

(which  also  contributes 
teachers), 

Teacher  shortages  exacerbate  skills 
shortages.  Estonia’s  teaching  force  remains 
one  of  the  oldest  in  the  EU.  Even  though  the 
number  of  education  support  specialists  is 
to 
slowly 
lowering 
the 
demand  for  support  specialists  is  high.  The 
lack and ageing of teachers is especially acute 
in  mathematics  and  sciences,  which  are  also 
subjects with particularly high dropout rates in 
higher  education.  This  might  exacerbate  skills 
shortages  in  the  STEM  fields,  crucial  for  the 
green  and  digital  transition,  and  have  a 
negative  impact  on  labour  productivity  and 
innovation. Teachers’ salaries went up in 2023, 
but  working  conditions  (workload  and  well-
being)  could  still  be  improved to  attract more 
candidates  and  prevent  dropout  from  the 
profession.  While  the  adoption  in  2022  of  a 
teacher  action  plan  to  improve  the  working 
conditions,  training  and  career  progression  of 
teachers  is  a  step  in  the  right  direction,  the 
close  monitoring  of 
implementation 
remains key. At the same time, the integration 

its 

(5)  Data on shortages is based on European Labour 

Authority (2023), EURES Report on labour shortages 
and surpluses 2022. National authorities report through 
a questionnaire, based on administrative data and other 
sources as submitted by the EURES National 
Coordination Offices (definitions of shortages differ, 
thus data is not comparable across countries and 
covers a wide variety of sectors). Skills and knowledge 
requirements are based on the ESCO (European Skills 
Competences and Occupations) taxonomy on skills for 
the green transition (for occupations at ISCO 4-digit 
level of which there are 436 in total). Examples are 
identified based on their ESCO ‘greenness’ score and 
relevant sectors. 

(6)  Eurostat (JVS_A_RATE_R2). 

(7)  European Business and Consumer Survey. 

12 

 
                                                 
into  the  education 
of  Ukrainian  refugees 
system,  dealing  with  learning  gaps  after  the 
COVID  pandemic,  and  accelerating 
the 
transition to Estonian-language education also 
imposes further challenges on teachers. 

Productivity  growth  in  Estonia  is  slowed 
down  by  the  low  levels  of  investment  in 
innovation  by  business 
research  and 
sectors,  and  the  slow  adoption  of  some 
advanced  technologies.  Business  sector 
investments in R&I are below the EU average. 
Furthermore,  Estonian  businesses  are  slower 
than  the  EU  average  in  adopting  advanced 
technologies  such  as  big  data  and  artificial 
intelligence.  This 
is  also  related  to  the 
insufficient  number  of  skilled  specialists. 
Furthermore, while public sector R&I spending 
is close to the EU  average,.total  R&I spending 
is  still  below  the  European  Research  Area's 
(ERA)  overall  target  of  3%.  An  increase  in 
public  sector  spending  would  create  synergy 
with  R&I  undertaken  in  the  private  sector. 
Training  more  specialists,  particularly  at 
doctoral  and  postdoctoral 
levels  would 
incentivise  Estonian  businesses  to  engage  in 
more R&I and to adopt advanced technologies. 

13 

 
 
 
 
KEY FINDINGS 

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

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

  Removing 

administrative 

barriers, 
and 
strengthening 
innovation capability of the business sector, 
and setting up a Green Fund. 

productivity 

the 

  Upgrading  digital  government  services, 
improving  digital  skills  and  reducing  the 
administrative  burden  for  people  and 
businesses. 

  Reducing the economy’s energy intensity by 
improving  energy  efficiency  of  buildings, 
energy 
further  developing 
streamlining 
capacity, 
production 
permitting, 
permitting 
supporting 
authorities*  and  developing  workers’  green 
skills. 

renewable 

  Improving  the  circular  economy  through 
valorisation  of  natural 
in 
particular by incentivising the production of 
local sustainable biomethane*. 

resources, 

  Addressing sustainable transport*, including 
through a reform on a common pricing and 
ticketing  system  in  Tallinn  area,  advancing 
the Rail Baltic project, and the construction 
of Tallinn Old Port tramline. 

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

  Enhancing  social  protection  by  extending 
the  duration  of  the  unemployment  benefit, 
reducing  the  gender  pay  gap,  improving 
long-term care and youth employment. 

Estonia  should  proceed  with  the  steady 
implementation  of  its  recovery  and  resilience 
plan including its REPowerEU chapter. 

14 

  Strengthening social protection, including to 
address  old-age  poverty  and  by  extending 
the coverage of unemployment benefits, in 
particular  to  those  with  short  work  spells 
and 
in  non-standard  forms  of  work. 
Improving  access  to  health  and  long-term 
care,  in  particular  by  ensuring  sustainable 
funding. 

  Addressing  skills  shortages,  including  by 
reducing  early  school  leaving  and  easing 
teacher  shortages.  Increasing  investments 
in research and innovation (R&I) to improve 
economic 
and 
competitiveness. 

performance 

  Designing and implementing new measures 
to  reach  the  2030  climate  targets  for  the 
sectors  outside  the  Emissions  Trading 
System  and  to  strengthen  the  capacity  of 
the  land-use  sector  for  carbon  removals, 
setting  more  ambitious  targets  for  energy 
efficiency,  and  improving  municipal  waste 
management.  Continuing  to  incentivise  the 
deployment of renewable energy, including 
by increasing the capacity of the electricity 
grid. 

  Continuing efforts to increase the share of 
sustainable transport modes by electrifying 
the rail network and through incentives for 
the uptake of low-carbon vehicles. 

  Continuing  the  timely  implementation  of 
the  synchronisation  with  the  EU  electricity 
grid. Stepping up efforts to deploy buildings 
renovation,  by  ensuring  sufficient  funding 
resources  and  associated  investments  to 
achieve the renovation targets. 

The modifications to the RRP are marked with 
*.  

 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Cross-cutting indicators 

A1.  Sustainable Development Goals 

A2.  Progress in the implementation of country-specific recommendations 

A3.  Recovery and resilience plan - overview 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy security and affordability 

A8.  Fair transition to climate neutrality 

Productivity 

A9.  Resource productivity, efficiency and circularity 

A10.  Digital transformation 

A11.  Innovation 

A12.  Industry and single market 

A13.  Public administration 

Fairness 

A14.  Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

A15.  Education and training 

A16.  Health and health systems 

A17.  Economic and social performance at regional level 

Macroeconomic stability 

A18.  Key financial sector developments 

A19.  Taxation 

A20.  Table with economic and financial indicators 

A21.  Debt sustainability analysis 

A22.  Macroeconomic imbalance procedure assessment matrix 

17 

20 

20 

22 

25 

27 

29 

30 

30 

35 

39 

42 

42 

44 

46 

48 

52 

54 

54 

57 

60 

62 

64 

64 

66 

68 

69 

72 

 
 
 
LIST OF TABLES 

A2.1. 
Summary table on 2019-2022 CSRs 
A3.1. 
Key elements of Estonia’s RRP 
A6.1. 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
A7.1. 
Key Energy Indicators 
A8.1. 
Key indicators for a fair transition in Estonia 
A9.1. 
Overall and systemic indicators on circularity 
A10.1.  Key Digital Decade targets monitored by DESI indicators 
A11.1.  Key innovation indicators 
A12.1. 
Industry and the Single Market 
A13.1.  Public administration indicators 
A14.1.  Social Scoreboard for Estonia 
A14.2.  Situation of Estonia on 2030 employment, skills and poverty reduction targets 
A15.1. 
A16.1.  Key health indicators 
A17.1.  Estonia selected indicators at regional level 
A18.1.  Financial soundness indicators 
A19.1.  Taxation indicators 
A20.1.  Key economic and financial indicators 
A21.1.  Debt sustainability analysis - Estonia 
A21.2.  Heat map of fiscal sustainability risks - Estonia 
A22.1.  Assessment of macroeconomic imbalances matrix 

: EU-level targets and other contextual indicators under the European Education Area strategic framework 

LIST OF GRAPHS 

Progress towards the SDGs in Estonia in the last 5 years 
Estonia’s progress on the 2019-2022 CSRs (2023 European Semester) 
Share of RRF funds contribution to each policy pillar 
Total grants disbursed under the RRF 
Cohesion policy funds 2021-2027 in Estonia: budget by fund 
Synergy between Cohesion policy funds and RRP investment by RRF pillar in Estonia 
Cohesion policy funds contribution to the SDGs in 2014-2020 and 2021-2027 in Estonia 
Thematic – greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2021 
Energy mix (top) and Electricity mix (bottom), 2021 
Thematic – environmental investment needs and current investment, p.a. 2014-2020 
Share of gas consumption per sector in Estonia, 2021 
Gas consumption per industrial sector, 2021 (% of total gas consumption in industry) 
Fair transition challenges in Estonia 
Distributional impacts of energy prices due to rising energy expenditure (2021-2023) 
Trend in material use 
Treatment of municipal waste 

A1.1. 
A2.1. 
A3.1. 
A3.2. 
A4.1. 
A4.2. 
A4.3. 
A6.1. 
A6.2. 
A6.3. 
A7.1. 
A7.2. 
A8.1. 
A8.2. 
A9.1. 
A9.2. 
A11.1.  R&D intensity in % of GDP, 2021 
A12.1.  Hourly productivity in PPS (% of EU27) 
A12.2.  Business environment and productivity drivers 
A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2019-2070 
A19.1.  Tax revenues from different tax types, % of total taxation revenue 
A19.2.  Tax wedge for single and second earners, % of total labour costs, 2022 

LIST OF MAPS 

A17.1.  GDP per capita (in PPS) in Estonia, NUTS 3, 2020 

18 

23 
25 
30 
35 
39 
42 
44 
46 
49 
53 
54 
55 
57 
60 
62 
64 
66 
68 
70 
71 
72 

21 
22 
25 
26 
27 
27 
28 
30 
31 
32 
35 
36 
39 
40 
42 
42 
46 
48 
50 
60 
60 
67 
67 

62 

 
 
 
 
 
19 

 
 
CROSS-CUTTING INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

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  and  the 
environmental crisis, 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  the  SDGs  in  an 
EU context. 

While Estonia is improving and performs well 
on  most  of  the  SDG  indicators  related  to 
environmental  sustainability  (SDGs  2,  6,  7, 
11,  15),  it  needs  to  catch  up  with  the  EU 
average on SDG 12 (Responsible consumption 
and  production)  and  on  SDG  14  (Life  below 

final 

energy 

in  gross 

water).  While  coastal  water  bathing  sites  with 
excellent  water  quality  (SDG  14)  have  increased 
from  51.9%  in  2016  to  53.3%  in  2021,  they  are 
still  below  the  EU  average  of  88.3%.  However, 
Estonia  has  made  some  progress  on  energy 
consumption  indicators,  including  the  share  of 
renewable 
energy 
consumption  (SDG  7;  from  29.2%  in  2016  to 
38.0%  in  2021;  EU  average  21.8%).  It  has  also 
made  progress  on  the 
industry  sustainability 
indicators,  reducing  the  air  emission  intensity  of 
fine particulate matter from industry (SDG 9; from 
0.63  g  per  euro  in  2015  to  0.54  g  per  euro  in 
2020).  Nevertheless,  it  remains  above  the  EU 
average  (0.07  g  per  euro).  Similarly,  while  energy 
productivity has increased (SDG 12; from 2.9 euro 
per  kilogram  of  oil  equivalent  (kgoe)  in  2016  to 
euro 4.5 per kgoe in 2021), it is still below the EU 
average (8.5 euro per kgoe in 2021). 

While Estonia is improving and performs well 
on  some  SDG  indicators  related  to  fairness 
(SDGs  1,  4,  7,  10),  it  still  needs  to  catch  up 

Graph A1.1: Progress towards the SDGs in Estonia in the last 5 years 

For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable development in the European Union’; for 
details on extensive country-specific data on the short-term progress of Member States: Key findings – Sustainable development 
indicators – Eurostat (europa.eu). The status of each SDG in a country is the aggregation of all indicators for the specific goal 
compared to the EU average. A high status does not mean that a country is close to reaching a specific SDG, but signals that it is 
doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5 
years. The calculation does not take into account any target values as most EU policy targets are only valid for the aggregate EU 
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country. 
Source: Eurostat, latest update of 20 January 2023. Data mainly refer to 2016-2021 or 2017-2022. 

20 

 
 
 
 
 
 
average  (2.3%  in  2021).  Similarly,  the  country  is 
improving  but  still  needs  to  catch  up  with  the  EU 
average  on  R&D  personnel  (SDG  9;  from  0.9%  of 
the active population in 2016 to 1.0% in 2021; EU 
average 1.5% in 2021). The Estonian RRP includes 
significant  reforms  and  investments  aimed  at 
boosting 
in 
is  still  room  for 
businesses.  However,  there 
improvement  on  addressing 
remaining 
challenges. 

innovation  and  digital  transition 

the 

Estonia  is  improving  or  performing  well  on 
indicators  related  to 
most  of  the  SDG 
macroeconomic  stability  (SDG  8),  but  it  is 
moving  away  from  SDG  17  (Partnerships  for 
the  goals),  and  the  country  also  needs  to 
catch  up  with  the  EU  average  on  SDG  16 
(Peace, justice and strong institutions).  While 
the  COVID-19  crisis  caused  a  recession  in  2020, 
recovery has been swift. Real GDP per capita (SDG 
8) improved from EUR 14 410 in 2017 to EUR 16 
250  in  2022.  Nevertheless,  it  remains  below  the 
EU  average  (EUR 28  820  in  2022).  Estonia  is 
performing well on general government gross debt 
(SDG 17; 18.4% of GDP in 2022 compared to the 
EU  average  of  84.0%  in  2022).  But  official 
development  assistance  (SDG  17)  has  declined 
from 0.19% of GNI in 2016 to 0.16% in 2021 (EU 
average  0.49%  of  GNI  in  2021).  Furthermore, 
while  Estonia  is  improving  on  the  standardised 
death rate due to homicide indicator (SDG 16; 3.6 
per 100 000 persons in 2015 to 3.2 in 2020), the 
standardised  death 
to  homicide 
nevertheless remains above the EU average (0.7 in 
2020). 

rate  due 

As the SDGs form an overarching framework, any 
links  to  relevant  SDGs  are  either  explained  or 
depicted with icons in the other Annexes. 

(16.8% 

on SDG 5 (Gender equality) and SDG 3 (Good 
health  and  well-being).  The  country  performs 
well  on  low  achieving  15-year-olds  in  reading 
(SDG  4;  11.1%  of  15-year-old  students  in  2018 
compared  to  the  EU  average  of  22.5%  in  2018). 
Estonia is also improving and performs well on the 
severe material and social deprivation rate (SDG 1; 
from  2.2%  of  the  population  in  2016  to  1.9%  in 
2021;  EU  average  of  6.3%  in  2021),  on  people 
living  in  households  with  very  low  work  intensity 
(SDG  1;  from  5.5%  of  the  population  aged  less 
than 65 in 2016 to 5.1% in 2021; EU average of 
8.9% in 2021).  Estonia is making progress on the 
share of people at risk of income poverty (SDG 1; 
from 21.7% of the population in 2016 to 20.6% in 
2021).  Nevertheless,  it  remains  above  the  EU 
is 
average 
improving,  it  still  needs  to  catch  up  with  the  EU 
average on the gender pay gap in unadjusted form 
(SDG  5;  the  average  gross  hourly  earnings  of 
women went from being 24.8% lower than men in 
2016  to  being  20.5%  lower  in  2021;  the  EU 
average  was  12.7%  lower  than  men  in  2021). 
Similarly,  Estonia  is  improving  but  still  needs  to 
catch up with the EU on healthy life years at birth 
(SDG 3; from 55.0 years in 2015 to 57.6 years in 
2020; EU average 64.0 years in 2020).  Estonia is 
also  improving  on  self-reported  unmet  needs  for 
(SDG  3;  from  15.3%  of  the 
medical  care 
population  aged  16  or  over  in  2016  to  8.1%  in 
2021).  Nevertheless,  it  remains  above  the  EU 
average  (2.0%  in  2021).  The  Estonian  recovery 
and resilience plan (RRP) includes measures aimed 
at  addressing  challenges  in  primary  healthcare 
and long-term care.  

in  2021).  While  Estonia 

Estonia  is  improving  or  performing  well  on 
all  SDGs  on  productivity  (SDGs  4,  8,  9),  but 
still  needs  to  catch  up  with  the  EU  average 
on some (SDG 9). The country is performing well 
and improving on adult participation in learning in 
the past 4 weeks (SDG 4; from 16.8% of the active 
population aged 25-64 in 2017 to 21.1% in 2022; 
EU average 11.9% in 2022). Estonia is performing 
well  and  improving  on  the  share  of  households 
with  a  high-speed  internet  connection  (SDG  9; 
(from  48.5%  in  2016  to  73.4%  in  2021;  EU 
average 70.2% in 2021). It also performs well and 
is improving on the investment share of GDP (SDG 
8; from 24.4% of GDP in 2016 to 28.9% in 2021; 
EU average 23.2% in 2022). Estonia still needs to 
catch  up  with  the  EU  average  in  the  area  of 
innovation.  While  gross  domestic  expenditure  on 
R&D  has  increased  (SDG  9;  from  1.2%  of  GDP  in 
2016  to  1.8%  in  2021),  it  is  still  below  the  EU 

21 

 
 
ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 

Graph A2.1: Estonia’s progress on the 2019-2022 
CSRs (2023 European Semester) 

The Commission has assessed the 2019-2022 
country-specific  recommendations  (CSRs) (8) 
addressed  to  Estonia  as  part  of  the  European 
Semester. These recommendations concern a wide 
range of policy areas that are related to 14 of the 
17 Sustainable Development Goals (see Annexes 1 
and 3). The assessment considers the policy action 
taken by Estonia to date (9) and the commitments 
in its recovery and resilience plan (RRP) (10). At this 
stage  of  RRP  implementation,  81%  of  the  CSRs 
focusing  on  structural  issues  from  2019-2022 
have recorded at least ‘some progress’, while 16% 
recorded  ‘limited  progress’  (see  Graph  A2.1).  As 
the  RRP  is  implemented  further,  considerable 
progress in addressing structural CSRs is expected 
in the years to come. 

Source: European Commission. 

(8)  2022 CSRs: EUR-Lex - 32022H0901(06) - EN - EUR-Lex 

(europa.eu) 

      2021 CSRs: EUR-Lex - 32021H0729(06) - EN - EUR-Lex 

(europa.eu) 
2020 CSRs: EUR-Lex - 32020H0826(06) - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(06) - EN - EUR-Lex 
(europa.eu) 

(9)  Including policy action reported in the national reform 

programme and in Recovery and Resilience Facility (RRF) 
reporting (twice a year reporting on the progress made in 
implementing milestones and targets and resulting from the 
payment requests assessment). 

(10)  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 carried out outside of the 
RRP at the time of assessment. Measures laid down in the 
Annex of the adopted Council Implementing Decision on 
approving the assessment of the RRP, which are not yet 
adopted or implemented but considered 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. 

22 

No Progress3%Limited Progress16%Some Progress78%Substantial Progress3% 
 
                                                 
 
   
 
 
 
Table A2.1: Summary table on 2019-2022 CSRs 

(Continued on the next page) 

23 

EstoniaAssessment in May 2023RRP coverage of CSRs until 2026**Relevant SDGs2019 CSR 1Some 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 applicableSDG 8, 16Ensureeffectivesupervisionandtheenforcementoftheanti-moneylaundering framework.Some progressNot applicableSDG 8, 162019 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 being planned as of 2022SDG 4Improve the adequacy of the social safety net and access to affordable and integrated social services. Some progressRelevant RRP measures being planned as of 2022 and 2023SDG 1, 2, 10Take measures to reduce the gender pay gap, including by improving wage transparency.Some progressRelevant RRP measures being planned as of 2022SDG 8, 102019 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 being planned as of 2021, 2022, 2023 and 2024SDG 7, 9, 10, 11, 132020 CSR 1Some progressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment. Not relevant anymoreNot applicableSDG 8, 16Improvetheaccessibilityandresilienceofthehealthsystem,includingbyaddressingtheshortagesofhealthworkers,strengtheningprimarycareandensuringthesupplyofcriticalmedical products. Some progressRelevant RRP measures being planned as of 2020, 2021, 2022 and 2023SDG 32020 CSR2Some progressStrengthen the adequacy of the social safety net, including by broadening the coverage of unemployment benefits.Some progressRelevant RRP measures being planned as of 2022 and 2023SDG 1, 2, 102020 CSR 3Some progressFront-load mature public investment projects Some ProgressRelevant RRP measures being planned as of 2021, 2022, 2023 and 2024SDG 8, 16and promote private investment to foster the economic recovery. Some ProgressRelevant RRP measures being planned as of 2021, 2022, 2023 and 2024SDG 8, 9Focusinvestmentonthegreenanddigitaltransition,inparticularondigitalisation of companies, Some ProgressRelevant RRP measures being planned as of 2021, 2022, 2023 and 2024SDG 9research and innovation,Some ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 9clean and efficient production and use of energy,Some ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 7, 9, 13resource efficiency, and Some ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 6, 7, 12, 15sustainabletransport,contributingtoaprogressivedecarbonisationof the economy. Limited ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 11Supporttheinnovationcapacityofsmallandmedium-sizedenterprises,Some ProgressRelevant RRP measures being planned as of 2021, 2022, 2023 and 2024SDG 8, 9and ensure sufficient access to finance.Some ProgressRelevant RRP measures being planned as of 2021SDG 8, 92020 CSR 4Some progressStepuptheeffortstoensureeffectivesupervisionandenforcementof the anti-money laundering framework. Some progressRelevant RRP measures being planned as of 2024 and 2026SDG 8, 16 
 
 
 
  
 
Table (continued) 

Note: 
* See footnote  (9). 
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the 
RRP are necessary to fully implement CSRs and address their underlying challenges. Measures indicated as 'being implemented' 
are only those included in the RRF payment requests submitted and positively assessed by the European Commission.  
***A revised RRP was approved by the Commission on 12 May 2023, but has not yet been adopted by the Council. The table 
reflects the RRP measures as per the revised RRP. 
Source: European Commission 

24 

2021 CSR 1Some progressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Some progressNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term. Some ProgressNot applicableSDG 8, 16At the same time, enhance investment to boost growth potential.(cid:13)(cid:13)Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition.Some progressNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Substantial ProgressNot applicableSDG 8, 162022 CSR 1Some progressIn2023,ensurethatthegrowthofnationallyfinancedprimarycurrentexpenditureisinlinewithanoverallneutralpolicystance,takingintoaccountcontinuedtemporaryandtargetedsupporttohouseholdsandfirmsmostvulnerabletoenergypricehikesandtopeoplefleeingUkraine.Standreadytoadjustcurrentspendingtotheevolving situation.No progressNot applicableSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Some progressNot applicableSDG 8, 16Fortheperiodbeyond2023,pursueafiscalpolicyaimedatachieving prudent medium-term fiscal positions.Some progressNot applicableSDG 8, 162022 CSR 2Proceed with the implementation of its recovery and resilience plan, in line with the milestones and targets included in the Council Implementing Decision of 29 October 2021.Submit the 2021-2027 cohesion policy programming documents with a view to finalising their negotiations with the Commission and subsequently starting their implementation.2022 CSR 3Some progressStrengthen social protection, including by extending the coverage of unemployment benefits, in particular to those with short work spells and in non-standard forms of work.Some progressRelevant RRP measures being planned as of 2023SDG 1, 2, 10Improve the affordability and quality of long-term care, in particular by ensuring its sustainable funding and integrating health and social services.Some progressRelevant RRP measures being planned as of 2023, 2024 and 2025SDG 32022 CSR 4Limited progressReduce overall reliance on fossil fuels and diversify imports of fossil fuelsLimited progressRelevant RRP measures being planned as of 2022SDG 7, 9, 13byacceleratingthedeploymentofrenewables,includingthroughfurther streamlining of permitting proceduresSome progressRelevant RRP measures being planned as of 2022SDG 7, 8, 9, 13ensuring sufficient capacity of interconnectionLimited progressSDG 7, 9, 13and strengthening the domestic electricity grid.Limited progressRelevant RRP measures being planned as of 2022SDG 7, 9, 13Increase energy efficiency, including of buildings, to reduce energy consumption.Some progressRelevant RRP measures being planned as of 2022SDG 7Intensifyeffortstoimprovethesustainabilityofthetransportsystem,includingthroughelectrificationoftherailnetworkandbyincreasingincentivestoencouragesustainableandlesspollutingtransport,including the renewal of the road vehicle stock.Limited progressRelevant RRP measures being planned as of 2024SDG 11RRP implementation is monitored by assessing RRP payment requests and analysing reports published twice a year on the achievement of the milestones and targets. These are to be reflected in the country reports. Progress on the cohesion policy programming documents is monitored under the EU cohesion policy. 
 
  
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN - OVERVIEW 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the centrepiece of the EU’s efforts to help it 
recover  from  the  COVID-19  pandemic,  speed 
up  the  twin  transition  and  strengthen 
resilience  against  future  shocks.  The  RRF 
also  contributes  to  implementation  of  the 
SDGs  and  helps  to  address  the  Country 
Specific  Recommendations  (see  Annex 4). 
recovery  and 
its 
Estonia  submitted 
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  969.3  million 
under the RRF over the 2021-2026 period.   

initial 

Table A3.1: Key elements of Estonia’s RRP 

Source: RRF Scoreboard 

Since  the  entry 
into  force  of  the  RRF 
Regulation  and  the  assessment  of  the 
resilience  plans, 
national  recovery  and 
geopolitical  and  economic  developments 
have caused major disruptions across the EU. 
In  order  to  effectively  address  these  disruptions, 
the  (adjusted)  RRF  Regulation  allows  Member 
States to amend their recovery and resilience plan 
for  a  variety  of  reasons.  In  line  with  article  11(2) 
of the RRF, the maximum financial contribution for 
Estonia  was  moreover  updated  on  30  June  2022 
to an amount of EUR 863.5 million in grants.  

In  this  context,  Estonia  submitted  an 
amended RRP to the Commission on 9 March 
2023  to  take  account  of  the  revised  maximum 
financial  contribution  and  cater  for  objective 
circumstances  that  make  it  no  longer  possible  to 
achieve certain milestones and targets in the RRP, 
in  line  with  Articles  18  and  21  of  the  RRF 
Regulation.  The  proposed  RRP  amendments  entail 
removing 4 investments (Northern Estonia Medical 

Campus,  multipurpose  medical  helicopters;  the 
westbound Tallinn-Rohuküla railway; the Rail Baltic 
multimodal joint terminal in Tallinn) from the plan 
and  adding  5  new  investments.  These  are  new 
Viljandi  health  center  (EUR  72  million),  to  boost 
(EUR  67  million); 
wind  energy  development 
construction  of  Rail  Baltic  viaducts  (EUR  31 
million), 
to  strengthen  energy  security  of 
companies  (EUR  20  million)  and  multifunctional 
(EUR  18  million).  Also,  13  existing 
vessels 
measures  have  been  adjusted  notably  by 
increasing  their  budget  (EUR  64.3  million)  and 
adjusting milestones and targets.   

two  new 

investments 

The  modified  RRP  also 
includes  a  new 
REPowerEU  chapter  with  one  additional  reform 
of  the  renewable  energy  permitting  system  (EUR 
31.8  million)  and 
to 
strengthen the electricity grid (EUR 38 million) and 
increase  production  and  uptake  of  sustainable 
biogas and biomethane (EUR 20.2 million).  This is 
part  of  the  EU’s  efforts  to  respond  to  the 
economic hardship and global energy market 
disruptions  caused  by  Russia’s  invasion  of 
Ukraine.  The  revised  RRP  was  approved  by  the 
Commission  on  12  May  2023  and  has  been 
submitted to the Council for approval. 

Estonia’s progress in implementing its plan is 
published  in  the  Recovery  and  Resilience 
Scoreboard (11).  The  Scoreboard  also  gives  an 
overview  of  the  progress  made  in  implementing 
the RRF as a whole, in a transparent manner. The 
graphs in this Annex show the current state of play 
as reflected on the Scoreboard.  

EUR 126.01 million has so far been disbursed 
to Estonia under the RRF in pre-financing on 17 
December  2021,  equivalent  to  13%  of  the  initial 
financial allocation.  

(11)  https://ec.europa.eu/economy_finance/recovery-and-

resilience-scoreboard/country_overview.html 

25 

Current RRPScope Initial planCID adoption date29 October 2021Total allocation EUR 969,3 million in grants (3.16% of 2021 GDP) and EUR 0 million in loansInvestments and reforms 25 investments and 16 reforms Total number of milestones and targets124 
 
 
      
 
  
                                                 
 
 
Graph A3.2: Total grants disbursed under the RRF 

Note: This graph displays the amount of grants disbursed so 
far under the RRF. Grants are non-repayable financial 
contributions. The total amount of grants given to each 
Member State is determined by an allocation key and the 
total estimated cost of the respective RRP. 
Source: RRF Scoreboard 

Graph A3.1: Share of RRF funds contribution to each policy pillar 

Note: 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 RRP. The bottom part represents the amount of the primary pillar, the 
top part the amount of the secondary pillar. 
Source: RRF Scoreboard 

26 

€ 126,01million0%10%20%30%40%50%60%70%80%Green transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic, socialand institutionalresiliencePolicies for thenext generation 
        
  
 
 
  
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The  EU  budget  of  over  EUR  1.2  trillion  for 
2021-2027  is  geared  towards  implementing 
the  EU’s  main  priorities.  Cohesion  policy 
investment amounts to EUR 392 billion across the 
EU and represents almost a third of the overall EU 
budget, including around EUR 48 billion invested in 
line with REPowerEU objectives.   

Graph A4.1: Cohesion policy funds 2021-2027 in 
Estonia: budget by fund 

developing  the  OSKA  skills  forecasting  system, 
developing flexible study pathways and reforming 
the professional qualifications system. 

Of  the  investments  mentioned  above,  more 
than  EUR  1  billion  will  be  invested  in  line 
with  the  REPowerEU  objectives.  This  is  on  top 
of  the  EUR  342  million  dedicated  to  REPowerEU 
under the 2014-2020 budget. EUR 1 billion (2021-
2027)  and  EUR  272  million  (2014-2020)  is  for 
improving  energy  efficiency,  and  EUR  28  million 
(2021-2027)  and  EUR  70  million  (2014-2020)  is 
for renewable energy and low-carbon R&I. 

Graph A4.2: Synergy between Cohesion policy 
funds and RRP investment by RRF pillar in Estonia 

(1) million EUR in current prices, % of total; (total amount 
including EU and national co-financing) 
Source: European Commission, Cohesion Open Data 

(ERDF) will  boost  R&D, 

In  2021-2027,  in  Estonia,  cohesion  policy 
programs (12) will invest EUR 2.6 billion in the 
green  transition  and  EUR  361  million  in  the 
digital  transformation  as  part  of  the 
country’s  total  allocation  of  EUR  5.2  billion. 
In  particular,  the  European  Regional  Development 
Fund 
innovation  and 
digitalisation  by  supporting  more  than  12 100 
companies  and  ensuring  that  more  than  290 
enterprises  are  closely  cooperating  with  research 
institutions.  Energy  efficiency  investments  will 
save energy and reduce heating costs for 32 000 
dwellings.  Particular  attention  should  be  paid  to 
the greening of the economy, which is a priority in 
2021-2027.  The  Just  Transition  Fund  will  enable 
further  economic  diversification  and  help  create 
jobs  in  the  Ida-Viru  region.  The  fund  will  support 
the  creation  of  1 000  new  jobs  and  will  help 
Estonia  fulfil  its  commitment  to  phase  out  oil 
shale  in  energy  production  by  2040  at  the  latest. 
Under  the  European  Social  Fund  Plus  (ESF+), 
Estonia  allocated  EUR  244  million  to  education 
and skills development, dedicating EUR 82 million 
to  flexible  re-skilling  and  upskilling  measures. 
include  further 
Benefits  of  this  funding  will 

(12)  European Regional Development Fund (ERDF), Cohesion Fund 
(CF), European Social Fund+ (ESF+), Just Transition Fund 
(JTF), excluding Interreg programmes. Total amount includes 
national and EU contributions. Data source: Cohesion Open 
Data.  

(1) million EUR in current prices (CP funds: total amount, 
including EU and national co-financing; RFF primary pillars)   
Source: European Commission  

In  2014-2020,  cohesion  policy  funds  made 
EUR  3.7  billion  available  to  Estonia (13),  with 
an  absorption  of  91% (14). 
Including  national 
financing,  the  total  investment  amounted  to  EUR 
4.9 billion - around 2.9% of GDP for 2014-2020.  

flexibility 

Estonia  continues  to  benefit  from  cohesion 
support  economic 
to 
policy 
recovery,  step  up  convergence  and  provide 
vital support to regions following the COVID-
19  pandemic.  The  Recovery  Assistance  for 
Cohesion and the Territories of Europe instrument 
(REACT-EU) (15)  under  NextGenerationEU  provides 

(13)  Cohesion policy funds include the ERDF, CF, ESF and the 
Youth Employment Initiative (YEI). ETC programmes are 
excluded here. According to the ‘N+3 rule’, the funds 
committed for 2014-2020 must be spent by 2023. REACT-
EU is included in all figures. Data source: Cohesion Open 
Data. 

(14)  2014-2020 Cohesion policy EU payments by MS is updated 

daily on Cohesion Open Data.   

(15)  REACT-EU allocation on Cohesion Open Data. 

27 

1,02520%2,85755%75914%58411%CFERDFESF+JTF1,7352221,2187474623732,55836198362666435050010001500200025003000Green transitionDigitaltransformationSmart, sustainableand inclusive growthSocial and territorialcohesionHealth, economic,social andinstitutionalresiliencePolicies for the nextgenerationEU CP 2014-2020 (million EUR)EU CP 2021-2027 (million EUR) 
 
   
                                                 
   
 
                                                 
 
 
EUR  207  million  on  top  of  the  2014-2020 
cohesion  policy  allocation  for  Estonia.  REACT-EU 
financed  the  vaccination  of  more  than  869 000 
people  against  COVID-19,  the  creation  of  238 
bedspaces for COVID-19 patients and the creation 
of 137 isolation rooms, making Estonian hospitals 
more  pandemic-resilient.  With  SAFE  (Supporting 
Affordable  Energy),  the  2014-2020  cohesion 
policy  funds  may  also  be  mobilised  by  Estonia  to 
and 
support 
companies  particularly  affected  by  high  energy 
prices.  

households, 

vulnerable 

jobs 

In both 2014-2020 and 2021-2027, cohesion 
policy  funds  have  contributed  substantially 
to 
the  Sustainable  Development  Goals 
(SDGs). In 2021-2027, these funds support 11 of 
the  17  SDGs,  notably  SDG  9  ‘Industry,  innovation 
and  infrastructure’  and  SDG  7  ‘Affordable  and 
clean energy’ (16).  

Graph A4.3: Cohesion policy funds contribution to 
the SDGs in 2014-2020 and 2021-2027 in Estonia 

(1) 5 largest contributions to SDGs in million (EUR) current 
prices 
Source: European Commission  

Other EU funds provide significant support to 
Estonia.  The  common  agricultural  policy  (CAP) 
made available EUR 2.2 billion in 2014-2022 and 
will keep supporting Estonia with EUR 1.4 billion in 
(European 
2023-2027.  The 
Agricultural  Guarantee  Fund  and  European 
Agricultural 
for  Rural  Development), 
contribute  to  the  European  Green  Deal  while 
ensuring  long-term  food  security.  They  promote 
social,  environmental  and  economic  sustainability 
and  innovation  in  agriculture  and  rural  areas,  in 

two  CAP  Funds 

Fund 

coordination  with  other  EU  Funds.  The  European 
Maritime  and  Fisheries  Fund  made  EUR  101 
million available to Estonia in 2014-2020 and the 
European  Maritime,  Fisheries  and  Aquaculture 
Fund  makes  EUR  97  million  available  in  2021-
2027.  

Estonia  also  benefits 
from  other  EU 
programmes,  notably  the  Connecting  Europe 
Facility,  which  under  CEF  2  (2021-2027)  has  so 
far  allocated  EU  funding  of  EUR  145.9  million  to 
six  specific  projects  on  strategic 
transport 
networks, notably Rail Baltica, and strategic energy 
networks.  Similarly,  Horizon  Europe  has  so  far 
allocated  nearly  EUR  54  million  for  Estonian  R&I 
on  top  of  the  EUR  274  million  earmarked  under 
the  previous  programme  (Horizon  2020).  The 
Public  Sector  Loan  Facility  established  under  the 
Just Transition Mechanism makes EUR 26.9 million 
of  grant  support  from  the  Commission  available 
for  projects  located  in  Estonia  for  2021-2027, 
which will be combined with loans from the EIB, to 
support  investments  by  public  sector  entities  in 
just transition regions.  

for 

risks 

temporary 

unemployment 

support 
in 

Estonia received support under the European 
to 
instrument 
mitigate 
an 
emergency  (SURE)  to  finance  short-time  work 
schemes  and  similar  measures  to  mitigate  the 
impact of COVID-19. The Council granted financial 
assistance to Estonia of EUR 230 million in loans, 
which supported around 20% of workers and 13% 
of firms in 2020. 

Estonia 

Instrument 
designing 

(TSI) 
The  Technical  Support 
and 
supports 
in 
implementing  growth-enhancing 
reforms, 
including  those  set  out  in  its  recovery  and 
resilience  plan  (RRP).  Estonia  has  received 
significant  support  since  2017.  Examples (17) 
financial 
include  support 
management 
improve 
active  labour  market  policies  and  to  promote 
professional  development  of  teachers  and  school 
leaders. The support also helped Estonia develop a 
draft transport and mobility plan.  

to  strengthen 
its 
information  system,  to 

(16)  Other EU funds contribute to the implementation of the 
SDGs, in 2014-2022 this includes both the European 
Agricultural Fund for Rural Development (EARDF) and the 
European Maritime and Fisheries Fund (EMFF).  

(17)  Country factsheets on reform support are available here. 

28 

1,5376282436126191,7241,06252745838602004006008001,0001,2001,4001,6001,8002,000SDG 9 Industry,innovation,infrastructureSDG 7 Affordableand clean energySDG 1 No povertySDG 4 QualityeducationSDG 8 Decent workand economicgrowthEU CP 2014-2020 (millions EUR)EU CP 2021-2027 (millions EUR) 
   
                                                 
                                                 
this  area  are  driven  mainly  by  its  below-average 
long-term 
gender 
unemployment rate. 

employment 

gap, 

and 

Compared  to  the  EU  average,  Estonia  shows 
an  overall  similar  level  of  capacities  across 
all  RDB  indicators.  While  it  has  overall  medium 
resilience  capacities  in  the  social  and  economic 
dimension, Estonia shows medium-high capacities 
in the green and geopolitical dimensions and high 
capacities  in  the  digital  dimension.  Estonia  has 
stronger capacities than the EU average related to 
the digitalisation of the personal or public space, in 
'cybersecurity’,  'raw  material  and  energy  supply’ 
and 'sustainable use of resources’. However, there 
is room for improving capacities relative to the EU 
in,  for  example,  the  areas  ‘inequalities  and  social 
impact  of 
‘financial 
globalisation’. 

transitions’  and 

the 

Table A5.1:  Resilience indices summarising the 
situation across RDB dimensions and areas 

ANNEX 5: RESILIENCE 

This  Annex 
illustrates  Estonia’s  relative 
resilience capacities and vulnerabilities using 
the  Commission’s 
resilience  dashboards 
(RDB) (18).  Comprising  a  set  of  124  quantitative 
indicators,  the  RDB  provide  broad  indications  of 
Member  States’  ability  to  make  progress  across 
four interrelated dimensions: social and economic, 
green, digital, and geopolitical. The indicators show 
vulnerabilities (19)  and  capacities (20)  that  can 
become  increasingly  relevant,  both  to  navigate 
ongoing  transitions  and  to  cope  with  potential 
future shocks. To this end, the RDB help to identify 
areas  that  need  further  efforts  to  build  stronger 
and  more  resilient  economies  and  societies.  They 
in  Table  A5.1  as  synthetic 
are  summarised 
resilience 
illustrate  the  overall 
relative  situation  for  each  of  the  four  dimensions 
and their underlying areas for Estonia and the EU-
27 (21). 

indices,  which 

in 

lower 

vulnerabilities 

According  to  the  set  of  resilience  indicators 
under  the  RDB,  Estonia  shows  a  similar  but 
somewhat 
level  of  vulnerabilities 
compared  to  the  EU  average.  Estonia  has 
the  green  and 
medium 
geopolitical dimensions of the RDB   and medium-
low vulnerabilities in the social and economic and 
digital dimensions. Relative to the EU level, Estonia 
shows higher vulnerabilities related to ‘sustainable 
use  of 
‘ecosystems,  biodiversity, 
sustainable  agriculture’  and  ‘raw  material  and 
energy  supply’.  Estonian  vulnerabilities  are  clearly 
lower  compared  to  the  EU  in  most  areas  in  the 
digital  and  the  social  and  economic  dimensions, 
most notably in the areas ‘digital for industry’ and 
‘health,  education  and  work’.  Although  Estonia 
faces  higher  challenges  with  respect  to  some 
health  indicators (22),  the  lower  vulnerabilities  in 

resources’, 

(18)  For details see https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en; see also 2020 Strategic 
Foresight Report (COM(2020) 493). 

(19)  Vulnerabilities describe features that can exacerbate the 

negative impact of crises and transitions, or obstacles that 
may hinder the achievement of long-term strategic goals. 

(20)  Capacities refer to enablers or abilities to cope with crises 
and structural changes and to manage the transitions.  

(21)  This Annex is linked to Annex 1 on SDGs, Annex 6 on the 
green deal, Annex 8 on the fair transition to climate 
neutrality, Annex 9 on resource productivity, efficiency and 
circularity, Annex 10 on the digital transition and Annex 14 
on the European pillar of social rights. 

(22)  For instance, its self-reported unmet need for medical care 
and the standardised preventable and treatable mortality 
rate are among the highest in Europe. 

29 

(1) Data are for 2021, and EU-27 refers to the value for the 
EU as a whole. Data underlying EU-27 vulnerabilities in the 
area ‘value chains and trade’ are not available as they 
comprise partner concentration measures that are not 
comparable with Member States’ level values. 
Source: JRC Resilience Dashboards - European Commission 

 
 
                                                 
 
  
 
 
 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

Estonia’s green transition requires continued 
action  on  several  aspects  including  energy 
efficiency,  sustainable  mobility,  and  forest 
management.  Implementation  of  the  European 
Green  Deal  is  underway  in  Estonia;  this  Annex 
provides a snapshot of the key areas involved (23).  

Estonia  has  not  yet  defined  all  the  climate 
policy  measures  it  needs  to  reach  its  new 
2030  climate  target  for  the  effort  sharing 
sectors (24). Data for 2021 are expected to show 
that  greenhouse  gas  emissions  in  these  sectors 
have  been  slightly  lower  than  Estonia’s  annual 
emission allocations (25). Current policies in Estonia 
are  projected  to  reduce  these  emissions  by  -12% 
relative  to  2005  levels  in  2030.  This  reduction  is 
not  sufficient  to  reach  the  effort  sharing  target 
even  before  the  target  was  raised  to  meet  the 
EU’s 55% emissions reduction objective. Additional 
measures  tabled  would  bring  a  sharper  reduction 
in  emissions  of  -14%,  surpassing  the  current 
target  but  not  reaching  Estonia’s  new  effort 
sharing target for reductions of 24% (26). With the 
revised  recovery  and  resilience  plan  (RRP)  and  its 
dedicated REPowerEU chapter, Estonia will allocate 
over  60%  of  its  Recovery  and  Resilience  Facility 

(23)  The overview in this Annex is complemented by the 

information provided in Annex 7 on energy security and 
affordability, Annex 8 on the fair transition to climate 
neutrality and environmental sustainability, Annex 9 on 
resource productivity, efficiency and circularity, Annex 11 on 
innovation, and Annex 19 on taxation. 

(24)  Member States’ greenhouse gas emission targets for 2030 
(‘effort sharing targets’) were increased by Regulation (EU) 
2023/857 (the Effort Sharing Regulation) amending 
Regulation (EU) 2018/842, aligning the action in the 
concerned sectors with the objective to reach EU-level, 
economy-wide greenhouse gas emission reductions of at 
least 55% relative to 1990 levels. The Regulation sets 
national targets for sectors outside the current EU Emissions 
Trading System, notably: buildings (heating and cooling), road 
transport, agriculture, waste, and small industry. Emissions 
covered by the EU ETS and the Effort Sharing Regulation are 
complemented by net removals in the land use sector, 
regulated by Regulation (EU) 2018/841 (the Land Use, Land 
Use Change and Forestry (LULUCF) Regulation) amended by 
Regulation (EU) 2023/839. 

(25)  Estonia's annual emission allocations for 2021 were some 

6.2 Mt CO2eq, and its approximated 2021 emissions were at 
6.1 Mt (see European Commission, Accelerating the 
transition to climate neutrality for Europe’s security and 
prosperity: EU Climate Action Progress Report 2022, 
SWD(2022)343). 

(26)  See the information on the distance to the 2030 climate 

policy target in Table A6.1. Existing and additional measures 
as at 15 March 2021. 

grants  to  key  reforms  and  investments  to  attain 
climate 
strategy 
‘Estonia  2035’  aims  to  achieve  climate  neutrality 
and climate-neutral energy production by 2050. 

objectives (27).The 

national 

Graph A6.1: Thematic – greenhouse gas emissions 
from the effort sharing sectors in Mt CO2eq, 
2005-2021 

Source: European Environmental Agency. 

Estonia’s  land  use,  land-use  change  and 
forestry (LULUCF) sector has recently shifted 
from  net  removals  to  net  emissions;  Estonia 
is  not  on  track  to  meet  its  2030  LULUCF 
removal  target.  Estonia’s  LULUCF  sector  has 
degraded  sharply,  from  net  removals  of  4 835 
ktCO2e in 2010 to net emissions of 1 297 kt CO2eq 
in  2020.  This  is  due  to  the  capacity  for  carbon 
removals in forests significantly declining over the 
past  10  years.  Improved  forest  management  and 
wetland  restoration  would  help  Estonia  reach  its 
LULUCF 
removing 
2 545 kt CO2eq in 2030 (see Table A6.1) (28). 

implies 

target 

that 

In  2021,  oil  products  still  represented  more 
than  half  of  Estonia’s  energy  mix,  while 
inland 
renewables  share  of  the  gross 
consumption  has  stalled.  In  2021,  oil  shale 
accounted  for  58%  of  the  Estonian  energy mix, a 
decrease  of  5  points  since  2019.  Renewable 
energy  share  of  the  energy  mix  has  been  stable 
between 2020 and 2021, with respectively 30 and 
29%.  Natural  gas  and  oil  (not  accounting  for  oil 
shale)  completes  the  energy  mix,  with  stable 
contributions  of  9%  and  4%  respectively.  Besides 

(27)  For example, investments in sustainable transport, with a 
further electrification of the railway network and in energy 
efficiency, with the renovation of the building stock. For 
REPowerEU, see Annex 7.  

(28)  This value is indicative and will be updated in 2025 (as 

mandated by Regulation (EU) 2023/839). 

30 

0123456720052021Domestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
 
 
                                                 
     
                                                 
 
 
the  high  carbon  intensity  of  the  Estonian  energy 
mix,  due  to  high  oil  shale  consumption,  oil-shale 
mining  causes  dire  environmental  damages,  such 
as  groundwater  contamination.  Estonia  has 
committed  to  phasing  out  the  use  of  oil  shale  in 
power generation by 2035. 

Graph A6.2: Energy mix (top) and Electricity mix 
(bottom), 2021 

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 

Renewable  energies  represent  an  increasing 
share  of  Estonia’s  energy  gross  final 
consumption. Between 2020 and 2021, the share 
of  Estonia’s  gross  final  consumption  of  energy 
from  renewable  sources  rose  from  30%  to  38%. 
However,  this  increase  stems  from  both  the 
change  in  calculation  method  (Renewable  Energy 
Directive methodology) and statistical transfers in 
2020 (See Annex 7). Estonia’s target of 42% share 
of  energy  from  renewable  sources  in  gross  final 
energy consumption by 2030 included in the NECP 

was considered sufficiently ambitious. Estonia will 
need to strengthen its renewable energy target in 
the  updated  NECP  to  reflect  more  ambitious  EU 
climate  and  energy  targets  in  the  Fit  for  55 
Package  and  in  the  REPowerEU  Plan.  Such  a 
strengthening  of  the  Estonia  NECP  could  reflect 
the  ambitious  national  objective  set  in  2022  of 
100%  of 
final 
consumption of electricity by 2030 but should not 
be made at the expenses of increased emissions in 
the  LULUCF  sector.  The  Estonian  RRP  notably 
incentivises  the  uptake  of  renewable  energy  and 
aims  to  address  grid  stability  and  capacity 
challenges  and  will  be  reinforced  with  the 
REPowerEU chapter.  

the  gross 

renewables 

in 

Energy  efficiency  is  a  central  component  of 
the  Estonian  energy  transition.  Estonia’s 
targets  for  primary  and  final  energy  consumption 
(PEC and FEC) laid down in its national energy and 
climate plan were considered of modest  and very 
low ambition respectively in the 2020 Commission 
assessment.  Based  on  the  energy  consumption 
trajectory  for  2018-2021,  Estonia  is  expected  to 
be on track to meet its 2030 target for PEC as well 
as its 2030 target for FEC, as these were notified 
in  its  NECP (29).  Estonia’s  long-term  renovation 
strategy estimates that 141 000 buildings – about 
54  million  m²  -  need  renovation  within  30  years. 
Estonia aims to renovate 3 % of the floor area of 
public  buildings  per  year,  about  170  000  m2  by 
2030,  and  to  increase  the  energy  efficiency  of 
residential buildings and offices. Estonia’s recovery 
and  resilience  plan 
includes  support  for  the 
renovation  of  apartment  buildings  and  private 
residences. 

related 

investments 

Estonia’s  transition  to  sustainable  mobility 
proceeds  slowly.  As  the  country  has  one  of  the 
lowest  shares  of  railway  electrification  in  the  EU 
(11.8%  in  2020),  transport  priorities  are  focusing 
to  electrification  of 
on 
railways  and  eliminating  bottlenecks 
the 
transport.  Electric 
the 
development  of 
passenger cars only make up a very small share of 
new registrations (around 3.2% in 2021), while the 
density  of  electric  charging  points  is  adequate  in 
relation  to  the  existing  number  of  registered 
electric  vehicles.  Estonia’s  RRP  includes  some 
investments  in  sustainable  transport,  but  the 

rail 

in 

(29)  After the conclusion of the negotiations for a recast EED, the 
ambition of both the EU and national targets as well as of 
the national measures for energy efficiency to meet these 
targets is expected to increase 

31 

10%48%1%41%Solid fossil fuels(except oil shale)and peatOil shaleGasRenewables9%60%31%GasOil and petroleumproducts(comprising oilshale and oilsands)Renewables 
  
 
                                                 
modal  shift  is  yet  to  take  off  in  Estonia.  The 
national  transport  and mobility masterplan  in line 
with  ‘Estonia  2035’  strategy  aim  to  reduce  the 
greenhouse  gas emissions  of  the  transport  sector 
by  30 %  relative  to  2018  and  increase  the  share 
of  commuters  using  public  transport,  cycling,  or 
walking  from  39 %  in  2019  to  55 %  by  2035.  In 
2021, Estonia has reported the largest rail freight 
transport  decrease  compared  to  2011  (-66.1 %), 
mainly due to the decline in the transit of Russian 
oil  products  and  domestic  oil  shale  transport.  On 
air  quality,  Estonia  performs  well  for  the  most 
part:  air  pollution  decreased  significantly  during 
the  shift  away  from  oil  shale.  However,  pollution 
through  emissions  from  large  combustion  plants 
remains to be addressed.  

Graph A6.3: Thematic – environmental investment 
needs and current investment, p.a. 2014-2020 

Source: European Commission. 

and 

pollution 

Estonia would benefit from investing more in 
environmental  protection  and  in  measures 
protecting 
addressing 
biodiversity (30).  Between  2014  and  2020, 
environmental  investment  needs  were  estimated 
to  be  at  least  EUR  884  million  while  investment 
stood  at  about  EUR  387 million,  leaving  a  gap  of 
at  least  EUR  497  million,  per  year,  with  unmet 
investment needs for biodiversity and ecosystems 
accounting for 78% of the overall gap (see Graph 
A6.3) (31).  For  the  Natura  2000  network (32), 

(30)  Environmental objectives include pollution prevention and 

control, water management and industries, circular economy 
and waste, biodiversity and ecosystems (European 
Commission, 2022, Environmental Implementation Review, 
country report Estonia). 

Estonia  has  designated  all  sites  of  community 
importance  as  special  areas  of  conservation,  but 
still  needs  to  set  conservation  objectives  for  the 
sites and measures, improve the way semi-natural 
grasslands and forests are managed, and step up 
the  protection  and  assessment  requirements  to 
meet  its  obligations  under  the  Habitats  Directive. 
Up to 2030, the additional  cumulative investment 
need for Estonia over baseline levels is estimated 
at  EUR  361  million,  with  around  90%  concerning 
wastewater. Estonia has the potential to rely more 
on  environmental  taxes  to  internalise  the  cost  of 
air  pollution  and  to  limit  water  pollution (33)  (see 
Annex 19). 

in 

in  Estonia, 

Climate  change  is  likely  to  affect  several 
implying  adaptation 
sectors 
challenges (34).  The 
temperature, 
rises 
precipitation, and the sea level, as well as extreme 
weather  phenomena  accompanied  by  coastal  and 
inland  floods,  wildfires,  and  new  pathogens,  are 
expected  to  affect  the  country’s  population, 
forests,  infrastructure,  coastal  facilities,  and  the 
building  stock.  The  development  plan  for  climate 
change  adaptation  until  2030  sets  the  basis  for 
increasing  awareness,  readiness,  and  capacity  to 
adapt to these effects. Priority should be given to 
measures  targeted  at  densely  populated  coastal 
areas  and  areas  around  inland  water  bodies,  and 
forests,  which  could  be  affected  the  most  by 
climate change.  

Estonia  provides  fossil  fuel  and  other 
environmentally harmful subsidies that could 
be  considered  for  reform  in  the  medium-
term,  while  ensuring  food  and  energy 
security  and  mitigating  social  effects. 
Environmentally  harmful  subsidies  have  been 
identified,  via  an 
in  the 
agriculture,  forestry  and  fishing,  electricity,  gas, 
steam  and  air  conditioning,  transportation  and 
storage, mining and quarrying, manufacturing and 
services  sectors.  Examples  of  such  subsidies 
include  the  energy  tax  relief  for  companies  in 
agriculture  and  forestry  for  gas  oil,  the  reduced 

initial  assessment, 

(32)  In 2021, Estonia had 20.9% terrestrial protected areas 

(Natura 2000 and nationally designated areas), against the 
EU average of 26.4% (European Environment Agency, 2023, 
Natura 2000 Barometer). 

(33)  European Commission, 2021, Green taxation and other 

economic instruments – Internalising environmental costs to 
make the polluter pay, Ensuring that polluters pay.  

(31)  When also accounting for needs estimated at EU level only 

(e.g. water protection, higher circularity, biodiversity strategy).  

(34)  Republic of Estonia Ministry of the Environment: Climate 

change adaptation development plan until 2030. 

32 

8484661143911790105523490.0100.0200.0300.0400.0500.0600.0Pollutionprevention andcontrolWater (industries,excl. protection)Circular economy(incl. waste)Biodiversity andecosystemsR&I&D and otherEUR million (at current prices)Current investmentTotal need 
      
                                                 
                                                                              
energy  tax  rate  for  light  fuel  oil  used  in  mobile 
machinery,  the  excise  duty  exemptions  on  diesel 
used  for  agricultural,  fishing,  aquaculture  and 
navigation  purposes  or  the  excise  tax  exemption 
and  tax  relief  for  natural  gas  for  industrial 
consumers (35).  In  2021,  Estonia's  national  audit 
office  already  developed  an  overview  of  the 
subsidies 
conflict  with  national 
environmental  policy  objectives.  Estonia  could 
build  on  this  mapping  to  prioritise  candidates  for 
reform. 

that  may 

(35)  Fossil fuel figures in EUR of 2021 from the 2022 State of 

the Energy Union report. Initial assessment of 
environmentally harmful subsidies done by the Commission 
in the 2022 toolbox for reforming environmentally harmful 
subsidies in Europe, using OECD definitions, and based on the 
following datasets: OECD Agriculture Policy Monitoring and 
Evaluations; OECD Policy Instruments for the Environment 
(PINE) Database; OECD Statistical Database for Fossil Fuels 
Support; IMF country-level energy subsidy estimates. Annex 4 
of the toolbox contains detailed examples of subsidies on 
the candidates for reform. 

33 

 
                                                 
Table A6.1: Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Sources: (1) Historical and projected emissions, as well as Member States’ climate policy targets and 2005 base year emissions 
under the Effort Sharing Decision (for 2020) are measured in global warming potential (GWP) values from the 4th Assessment 
Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ climate policy targets and 2005 base 
year emissions under the Effort Sharing Regulation (for 2030) are in GWP values from the 5th Assessment Report (AR5). The 
table above shows the base year emissions 2005 under the Effort Sharing Decision, using AR4 GWP values. Emissions for 2017-
2021 are expressed in percentage change from 2005 base year emissions, with AR4 GWP values. 2021 data are preliminary. The 
table shows the 2030 target under Regulation (EU) 2023/857 that aligns it with the EU’s 55% objective, in percentage change 
from 2005 base year emissions (AR5 GWP). Distance to target is the gap between Member States’ 2030 target (with AR5 GWP 
values) and projected emissions with existing measures (WEM) and with additional measures (WAM) (with AR4 GWP values), in 
percentage change from the 2005 base year emissions. Due to the difference in global warming potential values, the distance to 
target is only illustrative. The measures included reflect the state of play as of 15 March 2021.  
(2) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2023 
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839 
amending Regulation (EU) 2018/841 (LULUCF Regulation) – Annex IIa, kilotons of CO2 equivalent, based on 2020 submissions. 
(3) Renewable energy and energy efficiency targets and national contributions are in line with the methodology established under 
Regulation (EU) 2018/1999 (Governance Regulation).  
(4) Percentage of total revenue from taxes and social contributions (excluding imputed social contributions). Revenue from the EU 
Emissions Trading System is included in environmental tax revenue.  
(5) Expenditure on gross fixed capital formation for the production of environmental protection services (abatement and 
prevention of pollution) covering government, industry, and specialised providers.  
(6) European Commission, Study on energy subsidies and other government interventions in the European Union, 2022 edition.  
(7) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters. This 
indicator is based on modelling of the current risk from floods, wildfires and windstorms as well as earthquakes, and an 
estimation of the current insurance penetration rate. The indicator does not provide information on the split between the 
private/public costs of climate-related disasters. A score of 0 means no protection gap, while a score of 4 corresponds to a very 
high gap (EIOPA, 2022).  
(8) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided by GDP).  
(9) Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV). 

34 

2030200520172018201920202021target/valueWEMWAMGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq; %; pp5.414%13%14%9%--24%-12-10Net carbon removals from LULUCF (2)kt CO2eq-2,7542702,2571,1492,5092,883-2545n/an/a200520172018201920202021Share of energy from renewable sources in gross final consumption of energy (3)%17%30%30%32%30%38%42%Energy efficiency: primary energy consumption (3)Mtoe5.35.85.64.74.34.55.4Energy efficiency: final energy consumption (3)Mtoe2.92.93.02.92.82.82.9201620172018201920202021201920202021Environmental taxes (% of GDP)% of GDP3.02.92.83.22.52.32.42.22.2Environmental taxes (% of total taxation)(4)% of taxation 8.98.78.39.67.26.85.95.65.5Government expenditure on environmental protection% of total exp.1.51.91.91.71.51.31.71.61.6Investment in environmental protection (5) % of GDP0.50.50.70.4--0.40.40.4Fossil fuel subsidies (6)EUR2021bn0.10.00.00.00.00.053.050.0-Climate protection gap (7) score 1-41.10.81.5Net greenhouse gas emissions1990 = 10049.052.050.036.028.033.076.069.072.0Greenhouse gas emission intensity of the economykg/EUR'101.151.151.050.740.60-0.310.30-Energy intensity of the economykgoe/EUR'100.340.310.290.230.23-0.110.11-Final energy consumption (FEC)2015=100101.4102.4105.6103.398.2101.1102.994.6-FEC in residential building sector2015=100108.5109.7109.7111.0110.2112.6101.3101.3106.8FEC in services building sector2015=100107.1100.3105.399.2100.4110.0100.194.4100.7Smog-precursor emission intensity (to GDP) (8)tonne/EUR'103.83.73.32.32.0-0.90.9-Years of life lost due to air pollution by PM2.5per 100.000 inh.117.964.0202.070.851.8-581.6544.5-Years of life lost due to air pollution by NO2per 100.000 inh.24.98.712.116.0<1-309.6218.8-Nitrates in ground watermg NO3/litre4.64.24.85.05.5-21.020.8-Land protected areas% of total16.220.1-20.820.820.926.226.426.4Marine protected areas% of total18.5--18.6-18.710.7-12.1Organic farming% of total utilised agricultural area18.020.021.022.322.423.08.59.1-201720182019202020212021202020212022Share of zero-emission vehicles (9)% in new registrations0.10.40.31.92.33.45.48.910.7Number of AC/DC recharging points (AFIR categorisation)---192198275188626330028432518Share of electrified railways%12.812.813.4n/an/a11.856.6n/a56.6Hours of congestion per commuting driver per year19.418.118.017.3n/an/a28.7n/an/a'Fit for 55'DistanceProgress to policy targetsNational contribution to 2030 EU targetEstoniaEUMobilityFiscal and financialindicatorsEnergyPollutionBiodiversityClimate 
 
     
 
ANNEX 7: ENERGY SECURITY AND AFFORDABILITY 

similarly  to  other  Baltic  states,  is  exposed,  as  its 
electricity  grid  is  synchronised  with  the  BRELL 
power  grid  (Russia  and  Belarus).  Estonia  has 
adopted  demand  response  measures,  particularly 
through  communication  campaigns  on  energy 
savings.  These  target  customers,  while  digital 
solutions  allow  them  to  better  monitor  their 
consumption.    Estonia  also  rolled  out  supply  side 
measures  and  allowed  a  few  combined  heat  and 
power  plants  to  switch  from  natural  gas  to  the 
domestically  produced  shale  oil  under  strict 
conditions for the 2022-2023 heating season.  

Graph A7.1: Share of gas consumption per sector 
in Estonia, 2021 

Source: Eurostat 

Estonia  is  accelerating  its  green  transition, 
but  further  infrastructure  investments  and 
acceleration of renewables permitting would 
allow  it  to  accommodate  a  higher  share  of 
renewable  electricity,  strengthening  energy 
independence.  As  part  of 
its  recovery  and 
resilience  plan,  Estonia  supports  green  hydrogen 
roll-out,  energy  efficiency  and  the  renovation  of 
private  buildings,  the  development  of  its  energy 
networks  and  infrastructure,  as  well  as  the  green 
transition  in  businesses  through  the  development 
of green skills. However, to ensure the unrolling of 
renewables,  investments  and  reforms  are  needed 
to 
Increasing 
further 
energy 
commitments 
efficiency  and  renovation  investments  are  critical 
for  Estonia  to  achieve  further  energy  security 
while addressing energy poverty.  

barriers. 
investments 

remove 
and 

in 

Before  Russia  invaded  Ukraine,  Estonia  was 
highly dependent on Russian gas and refined 
oil, even though gas represented a relatively 
small  share  of  its  energy,  amounting  to  8% 
in  2021.  Estonia  has  acted  to  reduce  the 
curtailment  risks  after  it  stopped  buying 
Russian  gas,  notably  by  cooperating  with 
Finland and benefiting from the Finnish Inkoo 
terminal,  as  well  by  extremely  reducing  the 
national  natural  gas  consumption  by  36% 
between  August  2022  and  March  2023 
compared  to  the  previous  5-years  average. 
This Annex (36)  sets out the actions carried  out by 
Estonia  to  achieve  the  REPowerEU  objectives, 
including  through  the 
its 
recovery  and  resilience  plan,  in  order  to  improve 
energy 
affordability  while 
accelerating  the  clean  energy  transition,  and 
contributing to enhancing the EU’s competitiveness 
in the clean energy sector (37) .  

implementation  of 

security 

and 

its  security  of  supply 

Diversification  of  Estonia’s  gas  supply 
presented  a  challenge,  but  the  country  has 
in 
strengthened 
cooperation  with  Finland  through  the  Inkoo 
FSRU. Estonia has acted to reduce the curtailment 
risks  after  it  stopped  buying  Russian  gas,  notably 
by cooperating with Finland and securing access to 
the  new  Finnish  Inkoo  LNG  terminal,  which  went 
online  in  early  January  2023,  which  had  been 
assessed  as  of  significant  importance  in  Annex  3 
of  the  REPowerEU  Communication.  Estonia  does 
not  operate  a  gas  storage  facility  but  has  access 
to the Latvian Incukalns facility.  

The security of supply of the gas system and 
the one of the electricity system are loosely 
interlinked, as electricity generated from gas 
less  than  1%  of  electricity 
represents 
generated overall in 2021, and Estonia is one 
of  the  most  energy  independent  Member 
States.  However,  the  Estonian  energy  network, 

(36)  It is complemented by Annex 6 as the European Green Deal 
focuses on the clean energy transition, by Annex 8 on the 
actions taken to mitigate energy poverty and protect the 
most vulnerable ones, by Annex 9 as the transition to a 
circular economy will unlock significant energy and resource 
savings, further strengthening energy security and 
affordability, and by Annex 12 on industry and single market 
complementing ongoing efforts under the European Green 
Deal and REPowerEU. 

(37)  in line with the Green Deal Industrial Plan COM(2023) 62 
final, and the proposed Net-Zero Industry Act COM(2023) 
161 final 

35 

34.4%25.0%4.4%20.2%15.3%0.8%EnergyIndustryTransportServices and public sectorHouseholdsAgriculture, forestry andfishery 
 
                                                 
       
 
 
Graph A7.2: Gas consumption per industrial sector, 
2021 (% of total gas consumption in industry) 

A7.1). Sectors such as the food industry, paper and 
non-metallic  minerals  are  highly  exposed  to 
energy  shocks  and  are  experiencing  growing 
pressure  to  either  raise  their  prices  to  safeguard 
margins  or  reduce  production  due  to  the  high 
share  of  energy  consumption.  The  distributional 
impact of these energy prices is covered further in 
Annex 8.  

Source: Eurostat 

Graph A7.3: Estonia´s retail energy prices for 
industry (top) and households (bottom) 

and 

new 

Estonia  has  high  ambitions  to  transform  its 
energy  system,  having  committed  to  a  new 
renewable  electricity  target  of  100%  by 
electricity 
deployed 
2030, 
production  capacity  from  renewables 
in 
2021. 
Its  deployment  of  renewable  energy 
reached a total of 915 MW in 2021, increasing by 
25%  compared  to  2020.  This  growth  comes 
mostly from solar, whose installed capacity almost 
doubled  from  2020  to  2021  (For  the  share  of 
renewables in the gross electricity production, see 
Annex 6). In 2022, Estonia deployed an additional 
166  MW  of  renewable  energy  capacity  (Source: 
IRENA renewables capacity statistics, 2023). There 
are no offshore wind farms in Estonia for the time 
being,  and  the  development  of  onshore  wind  has 
been  stagnant  over  the  last  decade.  However,  a 
wind  energy  benefit  scheme  for  local  authorities 
and residents was recently introduced to facilitate 
project  development.  A  successful  tender  for 
renewable  energy  generation  concluded  in  2022, 
and additional tenders  are planned  for the next 3 
years.  The  government  is  also  planning  to  review 
the  permit-granting  procedures  of  renewable 
energy  projects 
in  order  to  speed  up  their 
implementation  (see  Annex  12  on  the  aspect  of 
is  cooperating  with 
permit-granting).  Estonia 
Latvia on a joint 1 GW offshore wind farm that will 
contribute  significantly  to  the  total  electricity 
generation of the Baltics. 

1) On electricity, the band consumption is DC for households 
and ID for industry 
(2) On gas, the band consumption is D2 for households and I4 
for industry 
Source: Eurostat 

Despite  the  mechanisms 
introduced  by 
Estonia to mitigate the effects of the energy 
crisis,  it  is  still  impacted  by  high  energy 
prices.  Electricity  retail  prices  for  households  in 
the  country  increased  98%  at  the  end  of  2022 
compared to December 2021. The surge in energy 
prices has had a considerable impact on Estonian 
industry,  which  accounted  for  25%  of  gas 
consumption  in  the  country  in  2021  (see  Graph 

On research and innovation (R&I) investment 
in  the  EU’s  Energy  Union  priorities (38), 
Estonia  shows  a  downward  trend  in  public 
investment.,  Public  R&I 
and  private  R&I 
investment  decreased  from  0.020%  in  2014  to 
0.005% in 2021 (as a share of GDP), even though 
this figure includes a significant increase in public 
R&I  investment  in  the  Smart  system  priority 
(55.4%  in  2021  compared  to  34.6%  in  2014). 
Private  R&I  investment  decreased  from  0.07%  in 
2014 to 0.01% in 2019 (as a share of GDP). As a 

(38)  Renewables, smart systems, efficient systems, sustainable 

transport, carbon capture, utilisation and storage, and nuclear 
safety, COM(2015) 80 final (Energy Union Package).  

36 

0.0%5.0%10.0%15.0%20.0%25.0%30.0%Iron and steelChemical and petrochemicalNon-ferrous metalsNon-metallic mineralsTransport equipmentMachineryMining and quarryingFood, beverages and tobaccoPaper, pulp and printingWood and wood productsConstructionTextile and leather 
       
 
     
 
 
                                                 
trend, 

venture 

significant 

investment, 

positive 
capital 
in  2021, 
investment (39) in climate tech start-ups and scale-
ups  accounted  for  2.1%  of  the  total  venture 
capital 
increase 
a 
compared to 2020 (0.2%)). In 2021, 63.2% of the 
EUR  23.1  million  of  venture  capital  invested  in 
climate  tech  start-ups  and  scale-ups  was  in  the 
Energy  –  Generation  &  Grid  Tech  domain.. 
Regarding market surveillance activities, based on 
relevant 
information  provided 
reporting mechanisms,  Estonia  is  not  carrying  out 
checks  on  products  covered  by  ecodesing  and 
energy labelling. This raises serious concerns with 
respect to the enforcement of market surveillance 
obligations  and  the  compliance  levels  of  the 
concerned  products,  level  playing  field  among 
economic  operators,  missed  energy  and  CO2 
savings and consumer trust. 

through 

the 

(39)  Venture Capital investments include Venture Capital deals 
(all stages) and Private Equity Growth/Expansion deals (for 
companies that have previously been part of the portfolio of 
a VC investment firm). 

37 

 
 
                                                 
Table A7.1: Key Energy Indicators 

(1) The ranking of the main supliers is based on the latest available figures (for 2021) 
(2) includes FSRU in Inkoo (FI) contracted in cooperation between EE and FI 
(3) Venture Capital investments include Venture Capital deals (all stages) and Private Equity Growth/Expansion deals (for 
companies that have previously been part of the portfolio of a VC investment firm). 
Source: Eurostat, Gas Infrastructure Europe (Storage and LNG Transparency Platform), JRC SETIS (2022), JRC elaboration based 
on PitchBook data (06/2022) 

38 

EU20182019202020212018201920202021Import Dependency [%] 1%5%11%1%58%61%57%56%of Solid fossil fuels 85%107%392%95%44%44%36%37%of Oil and petroleum products 85%130%130%55%95%97%97%92%of Natural Gas 100%100%100%100%83%90%84%83%Dependency from Russian Fossil Fuels [%]of Hard Coal100%100%100%83%40%44%49%47%of Crude Oil0%0%0%0%30%27%26%25%of Natural Gas 100%99%46%11%40%40%38%41%20152016201720182019202020212022Gross Electricity Production (GWh)10,14912,17013,16012,3647,6166,0787,204-Combustible Fuels9,40711,53112,39711,6826,8364,9596,095-Nuclear0000000-Hydro27352615193023-Wind715594723636687844733-Solar 010143174245354-Geothermal 0000000-Other Sources0000000-Net Imports of Electricity (GWh)-925-2,037-2,734-1,8972,1573,6442,629-   As a % of electricity available for final consumption -12%-27%-35%-23%26%42%30%-Electricity Interconnection (%)--63.2%69.0%67.6%67.6%83.4%85.8%20152016201720182019202020212022*Gas Consumption (in bcm)0.50.50.50.50.50.40.50.4Gas Imports - by type (in bcm)0.50.50.50.50.50.50.5-Gas imports - pipeline0.50.50.50.50.50.40.5-Gas imports - LNG0.00.00.00.00.00.00.0-Gas Imports - by main source supplier (in bcm) (1)Latvia0.00.00.00.00.00.20.4-Russia0.50.50.50.50.50.20.1-Lithuania0.00.00.00.00.00.00.0-Finland0.00.00.00.00.00.00.0-Poland0.00.00.00.00.00.00.0-2019202020212022LNG TerminalsNumber of LNG Terminals (2)0001LNG Storage capacity (m3 LNG)00068,000Underground StorageNumber of storage facilities0000Operational Storage Capacity (bcm)00002019202020212022VC investments in climate tech start-ups and scale-ups (EUR Mln) (3)0.10.623.1n.a.as a % of total VC investments in Estonia0.0%0.2%2.2%n.a.Research & Innovation spending in Energy Union R&i prioritesPublic R&I (EUR mln)4.03.21.5n.a.Public R&I (% GDP)0.015%0.012%0.005%n.a.Private R&I (EUR mln)0.0n.a.n.a.n.a.Private R&I (% GDP)n.a.n.a.n.a.n.a.CLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIESELECTRICITYENERGY DEPENDENCE-ESTONIA 
 
 
 
 
   
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

participating 

This  Annex  monitors  Estonia’s  progress  in 
ensuring  a  fair  transition  towards  climate 
neutrality  and  environmental  sustainability, 
notably  for  workers  and  households 
in 
vulnerable situations. The number of workers in 
energy-intensive 
in 
industry 
education and training has risen significantly from 
8.6%  in  2015  to  12.1%  in  2021.  Skills  for  the 
the  Council 
green 
Recommendation  on  ensuring  a  fair  transition 
towards  climate  neutrality (40),  support  a  fair 
transition  and  the  implementation  of  REPowerEU. 
(RRP) 
Estonia’s  recovery  and  resilience  plan 
outlines  crucial  reforms  and  investment  for  a  fair 
green  transition (41),  complementing  the  territorial 
just transition plans and projects supported by the 
European Social Fund Plus (ESF+). 

line  with 

transition, 

in 

Graph A8.1: Fair transition challenges in Estonia 

Source: Eurostat, EMPL-JRC GD-AMEDI/AMEDI+ projects and 
World Inequality Database (see Table A8.1).           

the  green  economy 

Employment 
in  Estonia’s  sectors  most 
affected  by  the  green  transition  remains 
stable,  while 
is 
expanding.  The  greenhouse  gas  (GHG)  emissions 
intensity of Estonia’s workforce declined from 27.9 
to  18.7  tonnes  per  worker  between  2015  and 
2021,  above  the  EU  average  of  13.7  tonnes  (see 
in 
Graph A8.1  and  Table A8.1).  Employment 
(EII) 
Estonia’s 
represented a share of 2.5% of total employment 
in 2020: 2.5% vs 3.0% in the. But employment in 
mining  and  quarrying  increased  by  4.6%  since 
2015  (to  around  4 000  workers).  The  transition 
away from oil shale for energy production creates 

energy-intensive 

industries 

a  risk  for  the  jobs  of  around  16 000  people.  The 
core  companies  in  the  oil  shale  sector  are  the 
heart  of  Ida-Viru  county’s  economy  (40%  of  the 
largest  employers  registered  in  the  region  are  oil 
shale  companies),  both  in  terms  of  their  turnover 
and  due  to  their  impact  on  other  companies.  The 
shrinking  of  the  oil  shale  sector  thus  has  an 
impact  on  the  effective  functioning  of  the  whole 
region. (42)  On  the  other  hand,  total  jobs  in  the 
environmental  goods  and  services  sector  grew  by 
4.1%  (to  31 421)  during  2015-19  (EU:  +8.3%), 
reaching  4.9%  of  total  employment  (EU  average 
2.2%,  see  Annex  9  for  circular  jobs  specifically). 
The  job  vacancy  rate  is  relatively  low  at  2.0%, 
including in construction, a key sector for the green 
transition (1.4% vs 4.0% in EU) (43). As from 2021, 
ESF+  will  offer  active  labour  market  measures  in 
regions  with  high  unemployment,  taking 
into 
account 
regional  situation  and  climate 
objectives. 

the 

increased. 

Upskilling  and  reskilling  in  declining  and 
transforming  sectors  has 
In 
energy-intensive  industries,  workers’  participation 
in education and training has increased from 8.6% 
in  2015  to  16.3%  in  2022  and  is  above  the  EU 
average (10.4%). But 36% of citizens believe they 
do  not  have  the  necessary  skills  to  contribute  to 
the  green  transition  (EU:  38%) (44)  (cf.  Annex  15). 
Investment under the RRP and the 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  14).  ESF+  will  integrate  the 
development of green skills into the labour market, 
education and training measures, and this helps to 
increase 
people’s 
attractiveness 
awareness  of  study  fields  related  to  green  and 
digital change. 

and 

the 

Energy  poverty  indicators  have  remained 
relatively  stable  and  below  EU  average,  but 
the spike in energy prices can aggravate the 
situation.  In  2021,  the  share  of  the  total 
population unable to keep their homes adequately 
warm  dropped  back  to  the  levels  of  2015  (2.0%) 

(40)  Council Recommendation of 16 June 2022 on ensuring a fair 
transition towards climate neutrality (2022/C 243/04) covers 
employment, skills, tax-benefit and social protection 
systems, essential services and housing 

(42)  See report on oil shale industry from Praxis think tank: 

Adaptation of Ida-Virumaa county´s economy and labor 
market to the reduction of oil shale industry | Praxis  

(43)  Eurostat (JVS_A_RATE_R2)   

(41)  See 2022 Country Report (Annex 6) and Annex 3 for an 

(44)  Special Eurobarometer 527. Fairness perceptions of the 

overview. 

green transition (May – June 2022). 

39 

00.20.40.60.811.21.41.61.82GHG per workerEmployment EIIEducation &training EIIEnergy povertyTransportpoverty(proxy)CarboninequalityEU LatestEE Latest (vs EU Latest)EE 2015 (vs EU Latest) 
 
  
 
                                                 
                                                 
 
the 

pps 

by  16.4 

and  19.1 

and  behavioural 
share  of 
responses, 
individuals living in households which spend more 
than  10%  of  their  budget  on  energy  would  have 
increased  by  30.5  percentage  points (pps)  for  the 
whole  population  and  by  15.2  pps  among  the 
(expenditure-based)  AROP  population  (EU-level 
increases 
pps, 
respectively) (47).  Expenditure  shares  of  low  and 
lower-middle income groups would have increased 
the  most,  in  particular  for  electricity  compared  to 
EU-average  effects,  as  shown 
in  Graph A8.2. 
Among  the  (expenditure-based)  AROP  population, 
the  share  of  individuals  living  in  households  with 
budget shares for private transport fuels (48) above 
6% would have increased by 0.7 pps (EU average: 
5.3  pps)  due  to  the  increase  in  transport  fuel 
prices  and  was  relatively  low  at  4.4%  in  January 
2023  (vs  37.1% in  the  EU).  The  RRP  supports the 
green transition of companies by encouraging the 
uptake  of  green  technologies  through  knowledge 
transfer,  the  organisation  of  proficiency  training 
programmes  in  higher  education  and  vocational 
education  and 
training,  and  upskilling  and 
reskilling. 

Access to public transport displays an urban-
rural divide. Citizens perceive public transport to 
be  relatively  available  (63%  vs  55%  in  the  EU), 
affordable  (72%  vs  54%  in  the  EU)  and  of  good 
quality (74% vs 60% in the EU). As regards these 
perceptions,  rural  areas  in  Estonia  perform  worse 
than  urban  areas,  yet  still  better  when  compared 
to  rural  areas  in  the  EU  overall (49).  The  average 
carbon  footprint  of  the  top  10%  of  emitters 
among the population in Estonia is about 5.5 times 
higher  than  that  of  the  bottom  50%  (see  Graph 
A8.1),  i.e.  slightly  more  pronounced  than  the  EU 
average (5.0 times).  

(well below the EU  average of 6.9% in 2021) (45). 
In  particular,  the  share  of  the  at-risk-of-poverty 
population unable to keep their homes adequately 
warm  dropped  from  6.1%  in  2015  to  3.2%  in 
2021  (EU  average  16.4%  in  2021).  At  the  same 
time,  2%  of  lower  middle-income  households  (in 
income deciles 4-5) were in this situation in 2021 
(EU: 8.2% in 2021). Before the energy price hikes, 
an  estimated  42.8%  of  the  total  population  and 
(expenditure-based)  at-risk-of-
76.3%  of 
poverty (AROP) population had expenditure shares 
on electricity, gas, and (heating) oil (46) above 10% 
(well  above  the 
of  their  household  budget 
estimated  EU  average  of  26.9%  and  48.2%, 
respectively).  Already  in  December  2021,  half  of 
the  total  rise  in  prices  in  the  consumer  basket 
came from energy, as prices for electricity and gas 
were more than  120%  higher  than  a year  earlier, 
pushing heating prices up 40%. 

the 

Graph A8.2: Distributional impacts of energy prices 
due to rising energy expenditure (2021-2023) 

Mean change of energy expenditure as a percentage (%) of 
total expenditure per income decile (D) due to observed price 
changes (August 2021 – January 2023 relative to the 18 
months prior), excl. policy support and behavioural responses. 
Source: EMPL-JRC GD-AMEDI/AMEDI+ projects, based on 
Household Budget Survey 2015 and Eurostat inflation data 
for CP0451 and CP0452.     

The  record  energy  prices  affected  inflation, 
which  was  one  of  the  highest  in  the  EU  in 
2022.  The increased  energy  prices  in  2021-2023 
have  negatively  affected  households’  budgets,  in 
particular  for  low-income  groups.  As  a  result  of 
energy  price  changes  during  the  August  2021  to 
January  2023  period  relative  to  the  18  months 
prior (cf. Annex 7), in the absence of policy support 

(45)  Energy poverty is a multi-dimensional concept. The indicator 
used focuses on an outcome of energy poverty. Further 
indicators are available at the Energy Poverty Advisory Hub.   

(47)  EMPL-JRC GD-AMEDI/AMEDI+ ; see details in the related 

technical brief.  

(48)  ECOICOP: CP0722. 

(46)  Products defined according to the European Classification of 

(49)  EU (rural): 46%, 48%, 56% respectively. Special 

Individual Consumption according to Purpose (ECOICOP): CP045. 

Eurobarometer 527. 

40 

0.0%2.0%4.0%6.0%8.0%10.0%12.0%ElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasD1D2D3D4D5D6D7D8D9D10EE GasEE ElectricityEU GasEU Electricity 
   
                                                 
                                                 
Table A8.1: Key indicators for a fair transition in Estonia 

Source: Eurostat (env_ac_ainah_r2, nama_10_a64_e, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-
JRC GD-AMEDI/AMEDI+ projects and World Inequality Database (WID).      

41 

IndicatorDescriptionEE 2015EE LatestEU LatestGHG per workerGreenhouse gas emissions per worker - CO2 equivalent tonnes27.918.7 (2021)13.7 (2021)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24), automotive (C29) - %2.42.5 (2020)3 (2020)Education & training EIIAdult participation in education and training (last 4 weeks) in energy-intensive industries - %8.616.3 (2022)10.4 (2022)Energy povertyShare of the total population living in a household unable to keep its home adequately warm - %22 (2021)6.9 (2021)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport - %3.84.4 (2023)37.1 (2023)Carbon inequalityAverage emissions per capita of top 10% of emitters vs bottom 50% of emitters5.65.5 (2020)5 (2020) 
 
 
 
  
 
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The  circular  economy  transition  is  key  to 
climate  and 
delivering  on 
the  EU’s 
environmental  goals  and  provides 
large 
socio-economic  benefits. It  spurs  job  growth, 
innovation  and  competitiveness  and 
fosters 
resilience  and  resource  security.  The  circularity 
transition  of  industry,  the  built  environment  and 
agri-food  can  generate  significant  environmental 
improvements (see Annex 6), as they rank among 
the most resource-intensive systems. 

Estonia is on track to meet the EU’s circular 
economy  goals, although  there remain  areas 
in  which  improvement  is  needed.  The  EU’s 
2020 circular economy action plan (CEAP) aims at 
doubling  the  circular  material  use  rate  between 
2020  and  2030.  The  CEAP  also  aims 
to 
significantly  decrease  the  EU’s  material  footprint. 
Estonia’s  material  footprint  is  well  above  the  EU 
average,  with  a  tendency  to  increase  the  gap 
further  (see  graph  A9.1).  With  15.1%  of  circular 
use  of  material,  Estonia  is  above  the  EU  average 
of 11.7% in 2020.  

treatment  of  waste,  with  particular  focus  on 
biowaste. 

Graph A9.1: Trend in material use 

Source: Eurostat 

Graph A9.2: Treatment of municipal waste 

and 

Estonia  recently  adopted  new  policies  to 
address  circular  economy  challenges,  but 
more measures are needed. A circular economy 
strategic document and action plan were finalised 
at  the  end  of  2022.  Estonia  also  launched  the 
Accelerate  Estonia  programme  in  2018  to  offer 
institutional 
arrangements 
supporting  the  transition  towards  a  resource-
efficient  economy.  After  completing  the  Technical 
Support  Instrument  project  on  Estonian  waste 
system  analysis,  including  good  circular  economy 
measures in the recovery and resilience plan (RRP) 
and  adoption  of  the  CEAP,  Estonia  has  an 
opportunity  to  further  accelerate  its  transition 
towards the circular economy. 

regulatory 

The  treatment  of  municipal  waste  needs 
improvement.  Since  Estonia’s 
considerable 
waste  management  performance  in  recent  years 
has  been  stagnating,  reaching  the  recycling  rate 
for municipal waste of 30.3% in 2021, it has been 
assessed as being at high risk of missing the 2025 
recycling  targets  for  municipal  and  packaging 
waste.  Estonia  has  moved  away  from  heavy 
reliance  on  landfilling  (landfill  rate  of  20%  in 
2021)  to  treating  municipal  waste  by  incineration 
(48.6% in 2021). Estonia will need to make strong 
efforts  to  meet  EU  recycling  targets  through 
and 
improvements 

collection 

separate 

in 

Source: Eurostat 

in  Estonia 

The industrial system is characterised by low 
resource productivity. With EUR 1 generated per 
in  2021,  resource 
kg  of  material  consumed 
is  dragged  down  by 
productivity 
resource-intensive 
Furthermore, 
resource  productivity  is  one  of  Estonia’s  relative 
weaknesses  when  it  comes  to  the  country’s 
innovation capacity. In 2021, Estonia ranked 18th 
Index.  Estonia 
on 

the  2021  Eco-Innovation 

industries. 

42 

0.020.040.060.080.0100.0120.00.05.010.015.020.025.030.035.0201620172018201920202021kg/capitatonnes/capitaMaterial footprint Estonia (tonnes/capita)Material footprint EU-27 (tonnes/capita)Trade in recyclable raw materials Estonia (imports extra EU, kg/capita)Trade in recyclable raw materials EU-27 (imports extra EU, kg/capita)3763904053693833950100200300400500600201620172018201920202021Kg per capita Difference waste generated/treatmentLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27 
 
 
     
 
     
 
Table A9.1: Overall and systemic indicators on circularity 

(1) Persons employed in the circular economy only tracks direct jobs in selected sub-sectors of NACE codes E, C, G and S; (2) the 
circular material use rate measures the share of material recovered and fed back into the economy in overall material use, 
including composting and digestion; (3) the recovery rate of construction and demolition waste includes waste which is prepared 
for reuse, recycled or subject to material recovery, including through backfilling operations; (4) soil sealing: 2016 column refers to 
2015 data; (5) food waste includes primary production, processing and manufacturing, retail and distribution, restaurants and 
food services, and households.  
Source: Eurostat, European Environment Agency 

performs below the EU average in three out of five 
components  of  the  Eco-Innovation  Index  of  2021, 
namely  in  eco-innovation  inputs,  eco  innovation 
activities  and  resource  efficiency  outcomes.  The 
resource-intensive  energy  production  from  oil 
shale also has an impact on resource productivity. 
Oil  shale  combustion  and  processing  account  for 
90% of the country’s hazardous waste. As a result, 
Estonia 
the  second-biggest  producer  of 
hazardous waste in the EU with 1 198 kg/capita in 
2020 (Eurostat, 2020). 

is 

circular 

transition  of 

Additional  measures  are  planned  to  support 
the 
the  built 
environment  system.  In  2021,  Estonia  adopted 
the  Construction  2035  long-term  view.  Through 
seven  steps,  it  will  focus  on  identifying  the  best 
developments for the construction  sector, shaping 
a  high-quality  built  environment.  Estonia  also 
launched  the  Pattern  Buildings  project  aiming  to 
launch a modular buildings platform for a circular 
construction. 

The  agri-food  system  has  yet  to  sustainably 
manage water resources and to optimise the 
use  of  agricultural  residues.  Estonia  reuses 
91.9%  of  wastewater  sludge  in  agriculture  and 
landfills  the  remaining  8.1%.  Estonia  needs  to 
reduce  and  prevent  eutrophication  of  inland  and 
marine  surface  waters  where  the  agricultural 

pressure  is  significant.  Estonia’s  composting  and 
anaerobic digestion per head remained well below 
the  EU  average. 
Increasing  composting  and 
anaerobic  digestion  could  enhance  Estonia’s 
strategic autonomy by producing organic fertilisers 
and/or  biomethane.  Estonia’s 
recovery  and 
resilience  plan  as  well  as  REPowerEU  include 
measures targeted at increasing the production of 
biomethane. 

There remains a financing gap in the circular 
including  waste  management.  
economy, 
Additional  investments  will  be  required  to 
address  growing  needs.  The  financing  gap  was 
estimated  at  EUR  39  million  per  year  between 
2014  and  2020.  Over  this  period,  investment 
needs  were  estimated  to  be  at  least  EUR  105 
million  per  year  while  investment  baselines  were 
EUR 66 million per year (see Annex 6). Investing in 
the  circular  economy  is  key  to  achieving  the 
transition. 
capacity  building, 
innovative  sustainable  solutions  and  awareness-
raising  campaigns  are  crucial  for  accelerating  the 
circular  economy  transition (50).  Estonia  is  already 
using  funds  from  the  ERDF  and  the  RRF,  but 
further investments are needed. 

Investment 

in 

(50)  2022 EEA Circular Economy self-report for Estonia 

43 

AREA201620172018201920202021EU-27 Latest year EU-27Overall state of the circular economyMaterial footprint (tonnes/capita)24.128.430.327.827.9-13.72020YoY growth in persons employed in the circular economy (%)1------2.92019Water exploitation index plus (WEI+) (%)2.66.48.55.4--3.62019IndustryResource productivity (purchasing power standard (PPS) per kilogram)0.80.80.80.90.91.02.32021Circular material use rate (%)211.612.413.515.615.615.111.72021Recycling rate (% of municipal waste)27.928.228.030.828.930.349.62021Built environmentRecovery rate from construction and demolition waste (%)397.0-95.0-93.0-89.02020Soil sealing index (base year = 2006)4105.3-109.6---108.32018Agri-foodFood waste (kg per capita)5----125.0-131.02020Composting and digestion (kg per capita)10.014.015.09.010.013.0100.02021 
                                                 
 
     
 
ANNEX 10: DIGITAL TRANSFORMATION 

transformation  by  2030, 

Digital  transformation  is  key  to  ensuring  a 
resilient and competitive economy. In line with 
the  Digital  Decade  Policy  Programme,  and  in 
particular  with  the  targets  in  that  Programme  for 
digital 
this  Annex 
describes  Estonia’s  performance  on  digital  skills, 
digital 
the 
digitalisation  of  businesses  and  public  services. 
Where relevant, it makes reference to progress on 
implementing  the  Recovery  and  Resilience  Plan 
(RRP).  Estonia  allocates  21%  of  its  total  RRP 
budget to digital (EUR 0.2 billion) (51). 

infrastructure/connectivity 

and 

ICT 

specialists 

percentage  of  the  population  with  at  least  basic 
digital  skills  and  has  a  very  high  share  of  ICT 
specialists.  However,  67%  of  Estonian  companies 
recruiting 
report  difficulties, 
confirming a skills gap still exists. With a relatively 
high  proportion  of  ICT  graduates (8.4%  compared 
to  the  EU  average  of  3.9%),  Estonia  is  taking 
targeted  measures  to  fill  this  gap,  such  as 
schemes  to  attract  foreign 
ICT  experts  and 
upskilling  and  reskilling  programmes (55).  The 
Estonian RRP also includes skills reform for the ICT 
sector. 

The  Digital  Decade  Policy  Programme  sets 
out a pathway for Europe’s successful digital 
transformation  by  2030.  The  Programme 
provides  a  framework  for  assessing  the  EU’s  and 
Member States’ digital transformation, notably via 
the  Digital  Economy  and  Society  Index  (DESI).  It 
also  provides  a  way  for  the  EU  and  its  Member 
States  to  work  together,  including  via  multi-
country  projects,  to  accelerate  progress  towards 
the  Digital  Decade  digital  targets  and  general 
objectives (52).  More  generally,  several  aspects  of 
digital  transformation  are  particularly  relevant  in 
the current context. In 2023, the European Year of 
Skills, building the appropriate skillset to make full 
use of the opportunities that digital transformation 
offers  is  a  priority.  A  digitally  skilled  population 
increases the development and adoption of digital 
technologies  and  leads  to  productivity  gains (53). 
Digital  technologies,  infrastructure  and  tools  all 
play  a  role  in  the  fundamental  transformation 
needed to adapt the energy system to the current 
structural challenges (54). 

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 

(51)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII of the RRF 
Regulation. 

(52)  The Digital Decade targets as measured by DESI indicators 
and complementary data sources are integrated to the 
extent currently available and/or considered particularly 
relevant in the MS-specific context.  

(53)  See for example OECD (2019): OECD Economic Outlook, 

Digitalisation and productivity: A story of complementarities, 
OECD Economic Outlook, Volume 2019 Issue 1 | OECD 
iLibrary (oecd-ilibrary.org). 

Estonia  still  suffers  from  relatively  poor 
digital  infrastructure/connectivity,  although 
this  has  improved  significantly  in  recent 
(VHCN) 
years.  Very  high  capacity  network 
coverage  is  above  the  EU  average.  However,  the 
country  still  lags  behind  in  terms  of  overall  5G 
coverage  and  5G  coverage  on  the  3.4-3.8  GHz 
spectrum  band.  The  Estonian  RRP  includes  a 
measure  to  roll  out  very high  capacity broadband 
networks to new sites in rural areas. 

Not all Estonian businesses make full use of 
the  potential  of  digital  technologies.  The 
share of small and medium-sized companies with 
at least basic digital intensity is slightly below the 
EU  average  (67%  compared  to  an  EU  average  of 
69%),  and  their  adoption  of  some  advanced 
technologies  is  lower  than  the  EU  average  (big 
data  and  artificial  intelligence),  but  higher  in 
others 
the 
Estonian  business  ecosystem 
includes  many 
innovative  and  growing  start-ups  that  are  driving 
the  country’s  growth  and  modernisation.  The 
Estonian  RRP  includes  some  measures  to  support 
and  encourage  the  digitalisation  of  companies, 
particularly  SMEs,  including  a  measure  to  provide 
financial support for adopting digital technologies, 
promoting industrial R&D and training staff. 

(cloud  computing).  Nevertheless, 

Estonia’s digital public services, known as E-
Estonia,  are  very  advanced.  With  very  high 
scores from the DESI for digital public services for 
citizens and businesses, Estonia is one of the most 
advanced countries  in the EU in this respect (with 
scores of 94 for citizens and 99 for businesses). In 
the  context  of its  RRP,  the  country  plans to make 
these  services  even  more  user-focused  and 

(54)  The need and possible actions for a digitalisation of the 
energy system are laid out in the Communication 
‘Digitalisation the energy system – EU action plan’ 
(COM(2022)552. 

(55)  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  

44 

 
 
                                                 
                                                 
 
Table A10.1: Key Digital Decade targets monitored by DESI indicators 

(1) The 20 million target represents about 10% of total employment. 
(2) The Fibre to the Premises coverage indicator is included separately as its evaluation will also be monitored separately and 
taken into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75 % of Union enterprises have taken up one or more of the following, in line with their business operations: (i) cloud 
computing services; (ii) big data; (iii) artificial intelligence.  

Source: Digital Economy and Society Index 

proactive (anticipating user needs and making the 
first move).  Electronic identification (eID) is widely 
used  in  Estonia.  Estonia  currently  has  six  eID 
means  notified  under  the  Estonian  eID  scheme. 
The  ID  card,  the  RP  card,  the  Digi-ID,  the  e-
Residency,  the  Digi-ID,  the  Mobiil-ID,  and  the 
Diplomatic identity card are all notified at level of 
assurance ‘high’. 

45 

EUDigital Decade target by 2030 DESI 2021DESI 2022DESI 2023DESI 2023(EU)Digital skillsAt least basic digital skillsNA56%56%54%80%% individuals2021202120212030ICT specialists (1)6.2%6.2%6.2%4.5%20 million% individuals in employment aged 15-7420202021202120212030Digital infrastructure/connectivityFixed Very High Capacity Network (VHCN) coverage71%73%79%73%100%% households20202021202220222030Fibre to the Premises (FTTP) coverage (2)71%73%79%56%-% households20202021202220222030Overall 5G coverage0%18%43%81%100%% populated areas202020212022202220305G coverage on the 3.4-3.8 GHz spectrum bandNANA15%41%-% populated areas202220222030Digitalisation of businessesSMEs with at least a basic level of digital intensityNANA67%69%90%% SMEs202220222030Big data (3)10%10%10%14%75%% enterprises20202020202020202030Cloud (3)NA51%51%34%75%% enterprises2021202120212030Artificial Intelligence (3)NA3%3%8%75%% enterprises2021202120212030Digitalisation of public servicesDigital public services for citizensNA929477100Score (0 to 100)2021202220222030Digital public services for businessesNA989984100Score (0 to 100)2021202220222030Access to e-health recordsNANA8971100Score (0 to 100)202320232030Estonia 
 
  
 
 
 
 
 
 
ANNEX 11: INNOVATION 

This  Annex  provides  a  general  overview  of  the 
performance  of  Estonia’s  research  and  innovation 
system,  which  is  essential  for  delivering  the  twin 
green and digital transition. 

Estonia  has  established  new  comprehensive 
national strategy framework that integrates 
the  research  and  innovation  system.  The 
‘Estonian  Research  and 
sectoral  action  plan 
Development, 
Innovation  and  Entrepreneurship 
Strategy  2021-2035’ (56)  was  adopted  in  July 
2021  under  the  national  long-term  development 
strategy  "Estonia  2035".  The  focus  areas  are:  (1) 
digital  solutions,  (2)  health  technologies  and 
services,  (3)  valorisation  of  local  resources,  (4) 
smart and sustainable energy solutions, and (5) a 
vibrant  Estonian  society,  language,  and  cultural 
space.  By  the  end  of  2022,  roadmaps  for  3-4 
years were compiled for each of the national focus 
area  (including  four  roadmaps  in  relation  to  local 
resources). The Ministry of Education and Research 
the  Ministry  of  Economy  and 
as  well  as 
Communications, 
coordinate  R&D  and 
innovation policies, have strengthened cooperation 
as was evident during the R&I Enhanced Dialogue 
between the Commission and Estonia in November 
2022. Advisory councils of research and innovation 
(initially  separately  advising  the  two  ministries  in 
charge for R&I) have had only joint meetings since 
late 2021. 

that 

(gross 

Estonia’s 

A  dynamic  R&D  base  and  good  framework 
conditions  for  tech  start-up  support  the 
economy. 
of 
innovativeness 
Estonia’s 
domestic 
intensity 
R&D 
expenditure on R&D  as a percentage of GDP) has 
increased  over  the  2016-2O21  period.  According 
to  Eurostat,  R&D  intensity  was  1.80%  of  GDP  in 
2021,  compared  to  1.63%  in  2019  and  1.24%  in 
2016.  According  to  ‘The  State  of  European  Tech 
2021’ (57), Estonia retains its leadership position as 
the  EU’s  most  entrepreneurial  country  for  tech 
start-ups.  By  the  end  of  2022,  Estonia  had  over 
1.1 start-ups per 1 000 people, the highest rate in 
the  EU.  Innovative  Estonian  firms  have  good 
access to finance (also see Annex 12). The volume 
of venture capital as a percentage of GDP (market 
statistics) is the highest in the EU and three times 
the  EU  average  (calculated  using  a  three-year 
moving  average  to  reduce  volatility).  According  to 
the  OECD  ‘Financing  SMEs  and  Entrepreneurs 

2022’  Scoreboard (58),  Estonia  had  seven  unicorns 
than 
(private 
USD 1 billion), the best result per capita in the EU. 

companies  valued  at  more 

business 

The 
research-based 
sector’s 
innovation  activities  have  expanded  but  are 
still too limited. Despite the growth since 2018, 
business R&D intensity remains well below the EU 
average.  While  Estonian  public  R&D  intensity  is 
nearly on a par with the EU average, business R&D 
intensity was 0.98% of GDP in 2021, compared to 
an EU average of 1.49%. The ‘Estonia 2035’ action 
plan  includes  several  measures  supporting  R&D 
and  innovation  in  enterprises.  In  2022,  Estonia 
improved  innovation  funding  and  established  a 
national  innovation  agency  in  line  with  a  key 
recommendation  of  the  Horizon  Policy  Support 
Facility’s  review  of  the  Estonian  R&D  system.  The 
Estonian  Business  and  Innovation  Agency  was 
formed  by  merging  national  foundations  KredEx 
and  Enterprise  Estonia.  Another  recommendation 
of the Horizon Policy Support Facility’s review was 
to  strengthen 
‘intermediary 
the  system  of 
organisations’ able to support industrial innovation 
through cooperation with the public R&D base. The 
establishment of such an organisation is a work in 
progress;  discussions  started  in  2022.  Estonia  is 
encouraging  doctoral  students 
in 
companies  related  to  their  doctoral  research.  A 
new  option  from  2022  to  obtain  a  ‘knowledge 
transfer  doctor’  degree  enables  doctoral  research 
to be orientated towards company needs. 

to  work 

Graph A11.1: R&D intensity in % of GDP, 2021 

Source: Eurostat 

The  level  of  green  innovation  is  below  EU 
average,  but  the  Estonian  recovery  and 
resilience  plan  (RRP)  is  expected  to  help  to 

(56)  Available at https://www.hm.ee/en/ministry/ministry/strategic-

planning-2021-2035#documents--2 

(57)  Available at https://2021.stateofeuropeantech.com. 

(58)  Link to Estonian section: https://www.oecd-

ilibrary.org/sites/ff8dd165-
en/index.html?itemId=/content/component/ff8dd165-en. 

46 

00.511.5EstoniaEUPublicBusiness 
 
                                                 
  
                                                 
 
Table A11.1: Key innovation indicators 

(1) EU average for the latest available year or the year with the highest number of country data. 
Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPQ’s Patent Statistical database), Invest Europe 

processing 

wood 
biochemicals 
efficiency of this forest-based resource. 

industry,  dramatically 

to  a 

biomaterials  and 
increasing 

improve  it.  The  share  of  environment-related 
patents  has  been  decreasing  and  was  4.9%  in 
2019  (the  EU  average  was  13.3%).  The  RRP 
includes  EUR 55 million  for  measures  addressing 
the innovation capability of the business sector. In 
addition, EUR 50 million is available to support the 
process  of  establishing  the  hydrogen  value  chain. 
The  Green  Fund,  with  EUR 100 million  from  the 
RRP, 
the 
development of innovative green technologies. 

innovation  and  supports 

targets 

in 

Another  positive  development  is  the  special 
attention given to adding value to wood, the 
nation’s  most  important  natural  resource, 
through R&I. ‘Wood’ is one of three new national 
roadmaps 
and 
entrepreneurship focus area, ‘Adding value to local 
resources’ (59). According to the Roadmap, chemical 
and  molecular  upcycling  of  wood  is  a  priority  as 
the  key  to  increasing  added-value  (and  as  a 
substitute 
fossil-based  materials).  New 
technologies  enable  a  transition  from  traditional 

innovation 

R&D, 

the 

for 

(59)  Available at https://www.hm.ee/korgharidus-ja-

teadus/teadus-ja-arendustegevus/taie-fookusvaldkonnad. 

47 

R&D intensity (gross domestic expenditure as % of GDP)1.581.471.631.751.752.26Public expenditure on R&D as & of GDP0.770.770.740.760.750.76Business enterprise expenditure on R&D (BERD), % of GDP0.790.680.870.960.981.49Scientific publications in top 10% most cited publications worldwide as % of total publications of the country 7.07.58.6::9.8The Patent Cooperation Treaty patent applications per billion GDP (in Purcasing Power Standards)2.31.01.3::3.3Public-private scientific co-publications as % of publications6.85.99.88.38.37.1Public expenditure on R&D financed by business, % of GDP0.0290.0350.049::0.054New graduates in science & engineering per thousand population aged 25-3412.511.89.69.5:16Public sector support for BERD as % of GDP0.0930.0650.057::0.194Share of environment-related patents filed (%)18.711.14.9::13.3 Venture capital (market statistics) as % of GDP0.0340.0320.0680.0990.2140.074Employment in fast-growing enterprises in 50% most innovative sectors3.03.44.5::5.5Green innovation2019EU (1)2021Finance for innovation and economic renewal202020102015Key indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D 
                                                 
 
 
 
 
 
 
 
 
 
 
  
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

Estonia  continues  to  be  well  integrated  into 
the  Single  Market.  Intra-EU  trade  accounts  for 
64.1%  of  the  GDP,  one  of  the  higher  shares 
among  the  EU  Member  States.  Furthermore, 
Estonia  has  a  comparatively  low  level  of  trade 
restrictiveness  compared  to  the  EU  average.  In 
2021, it was among the top 10 EU countries with 
the  highest  share  of  both  public  and  private  net 
investments,  considerably  higher  than  the  EU 
average.  In  2022,  net  private  investment  as  a 
percentage  of  GDP  dropped  from  9.1%  to  5.5%, 
which  is  still  above  the  EU  average  of  3.7%.  Net 
public  investment  also  decreased  slightly  from 
2.6% in both 2020 and 2021 to 2.1% in 2022 but 
remained above the EU average of 0.4%.  

Estonia  also  remains  among  the  countries 
with  the  lowest  number  of  infringements  (8 
pending  compared  to  the  EU  average  of  27)  and 
recorded the lowest transposition deficit among all 
Member  States  in  2021,  thus  confirming  its  good 
2020  record  in  the  Single  Market.  Furthermore, 
Estonia’s  SOLVIT  resolution  rate  remained  at 
100% in 2021, with very good scores on handling 
time as well as a very small number of submitted 
and 
public 
procurement,  Estonia  is  an  average  performer 
overall,  with  a  rather  high  share  of  one  third  of 
contracts  (32%)  awarded  after  receiving  only 
single bids in 2022 (61).  

cases (60). 

Regarding 

received 

the 

industries 

One  of  the  main  long-term  barriers  to 
investment  and  a  challenge  seen  as  a  major 
concern  ahead  is  the  availability  of  skilled 
staff (62).  Industrial  companies  facing  constraints 
in  terms  of  labour  shortages  may  also  hamper 
exporting 
long  run.  Other 
in 
challenges to the Estonian economy are posed by 
the  Russian  invasion  of  Ukraine,  which  creates 
supply chain bottlenecks and has a negative effect 
on performance and productivity levels as well as 
on  access  to  skills.  The  Estonian  recovery  and 
resilience plan (RRP) seeks to tackle the challenge 
of  access  to  skills  through  measures  aiming  at 
facilitating access to transversal skills. Despite the 
pandemic  and  the  impact  of  Russia’s  war  of 
aggression  against  Ukraine,  Estonia  recorded  a 
robust  export performance,  which is partly  due to 
the  fact  that  Latvia,  Sweden,  and  Finland  are  the 
country’s  main  trading  partners,  economies  which 
have  suffered  only  relatively  mild  contractions, 
and because trade with Russia had already fallen 
considerably since 2014 (63).  

Graph A12.1: Hourly productivity in PPS (% of 
EU27) 

In  terms  of  productivity,  the  gap  between 
Estonia  and  the  EU  average  was  overall  
narrowing  until  2021  and  the  country  was 
slowly  catching  up.  However,  compared  with 
2021  levels,  Estonia  recorded  a  decline  in  its 
productivity in 2022. While still considerably below 
the EU average, Estonia was first among its Baltic 
peers until 2021 but was overtaken by Lithuania in 
2022 (see Graph A12.1.). In 2022, Estonia’s labour 
productivity stood at 71.2% of the EU aggregate in 
terms  of  GDP  per  hour  worked,  as  well  as  at 
82.5%  in  terms  of  GDP  per  persons  employed. 
Generally, there are also quite substantial regional 
differences  regarding  productivity  (see  Annex  17). 
The  post-pandemic  economic  recovery  allowed 
labour productivity in industry to grow by 7.4% in 
2021,  which  was,  however,  followed  by  a  decline 
of  -8.4%  in  2022,  compared  to  an  EU  average 
growth of 1.4%.   

GDP in current purchasing power standards per hour worked 
and in percentage of the EU 
Source: AMECO database, European Commission 

High  energy  and  raw  material  prices  are 
impacting  the  competitiveness  of  Estonian 
industrial ecosystems overall (also see Annex 
7).  They  are  particularly  affecting  some  sectors, 
such  as  the  construction  sector  as  well  as  the 
forest-based 
industries  and  the  metalworking 
industry, with the ICT and real estate sectors also 
impacted. While the share of industrial companies 

(60)  Single Market Scoreboard 

(62)  European Investment Bank Investment Survey 2022 

(61)  Single Market Scoreboard – Public Procurement 

(63)  OECD Economic Surveys: Estonia 2022 

48 

01020304050607080990103050709111315171921% of EU27EstoniaLatviaLithuania 
 
                                                 
  
 
                                                 
 
reporting  constraints  due  to  materials  shortages 
remained  below  the  EU  average  in  2022,  the 
accessibility  of  raw  materials  is  nevertheless 
affected by geopolitical developments. In terms of 
resource  productivity  (see  Annex  9),  which  is  also 
one  of  the  country’s  relative  weaknesses  when  it 
comes  to  innovation (64),  Estonia  has  one  of  the 
lowest rates in the EU (41.8% of the EU average in 
2021 (65)), which can be partially explained by the 
country’s use of oil shale. Improving in the area of 
resource  productivity  can  generally  decrease 
dependency on volatile raw materials markets. 

reduce 

A  soaring  producer  price  index  for  industrial 
output 
is  putting  additional  strain  on 
businesses (66).  Also,  the  construction  sector  has 
suffered  from  supply  chain  disruptions,  sanctions 
and high timber prices. The high raw materials and 
energy  prices  may  also 
the  export 
competitiveness  of  the  metalworking  industry, 
which tends to export around 90% of the goods it 
produces. The forest-based sector plays a key role 
in 
increases, 
particularly  driven  by  the  price  of  firewood,  have 
impacted  the  timber  market,  with  pulpwood  and 
firewood  prices  increasing  even  further  towards 
the  end  of  2022.  Furthermore,  in  terms  of  raw 
materials,  the  country  also  has  a  very  high 
dependency on potash (94.3% compared to the EU 
average  of  51.5% (67)),  which  is  mainly  exported 
from Canada, Belarus and Russia and essential for 
the production of fertilisers.  

the  country  and  wood  price 

Estonia’s  business  environment 
improved 
further  since  2020.  In  terms  of  access  to 
finance  for  companies,  Estonia  is  one  of  the  top 
performers  on  access  to  equity  finance  and  also 
scores above the EU average for loans. In addition, 
the  country  has  the  highest  share  of  venture 
capital investment per GDP (see Annex 11), which 
may  also  be  connected  to  the  low  level  of 
regulatory obstacles to investment.  

enabling 

scale-up 
start-up 
An 
environment, aided by the high digitalisation 
level  of  the  public  administration  also 
the  administrative 
significantly 

reduces 

and 

(64)  European Innovation Scoreboard 

(65)  Eurostat, Resource Productivity, GDP and DMC, by country 

2021 

(66)  Statistics Estonia 

burden  for  businesses.  Related  to  this,  the 
percentage  of  firms  reporting  business  regulation 
as  a  major  obstacle  for  doing  business  remains 
well  below  the  EU  average,  despite  an  increase 
compared  to  2021.  In  2022,  9.4%  of  firms 
declared  such  obstacles,  which  is  considerably 
below  the  EU  average  of  29.6% (68).  However,  a 
Flash  Eurobarometer  of  early  2022 indicates that 
46%  of  Estonian  companies  are  also  concerned 
about  frequent  legislative  changes  which  can 
create confusion and uncertainty and add burdens 
for  businesses  operations 
in  this  challenging 
economic  climate,  in  which  business  survival  is 
threatened by the energy crisis (69).  

of 

EU 

the 

terms 

professions, 

average, 
agents (70), 

In 
regulatory 
restrictiveness  in  Estonia  is  generally  lower 
for 
than 
patent/trademark 
which 
reassessing  the  scope  of reserved  activities  could 
increase  competitiveness.  Furthermore,  lawyers  in 
Estonia  are  subject  to  incompatibility  rules  and 
multidisciplinary  restrictions,  which  could  affect 
their  potential  to  innovate  and  roll  out  digital 
solutions and new business models in this sector. 

except 
for 

for 

important 

tackling  of 

is  an  aspect  which 

The 
some  process-related 
barriers  to  the  deployment  of  renewable 
energy  sources 
is 
particularly 
the  energy 
transition and for ensuring energy security in 
the  country  (also  see  Annex  7).  This  issue  is 
also  addressed  in  the  RRP  (see  Annex  3).  As 
identified  by  the  Single  Market  Enforcement 
Taskforce  (SMET),  barriers  relate  to  the  length  of 
administrative  authorisation  procedures,  which 
tend  to  take  a  long  time,  particularly  for  wind 
energy projects, and to a lack of consistency in the 
approaches of national and municipal authorities. 

Small  and  medium-sized  enterprises  (SMEs) 
represent  99.8%  of  the  firms  in  the  country 
and  created  78.7%  of  the  value  added  in 
2021 (71).  Late  payments  remain  the  largest 
barrier  to  their  resilience and  growth.  Estonia  has 

(68)  European Investment Bank Investment Survey 2022 

(69)  Flash Eurobarometer 504 – Perceived independence of the 
national justice systems in the EU among companies, 
January-February 2022 

(70)  Communication on updating the reform recommendations 
for regulation in professional services, COM(2021)385 

(67)  OECD Policy Responses on the Impacts of the War in Ukraine, 

(71)  SME Performance Review 2021/2022 – Estonia country 

2022 

sheet 

49 

 
                                                 
                                                 
an  above  EU-average  share  of  SMEs experiencing 
late  payments  (45.2%  in  2022),  which  is  a  slight 
decrease from 2021 but an increase compared to 
2020,  while  still  below  the  2019  level.  In  2022, 
Estonia recorded a slightly higher than EU-average 
payment  gap  of  16  days  for  payments  from  the 
public  sector  (see  Graph  A12.2),  a  significant 
increase if compared to the average of 11 days in 
2021. The gap for payments in the private sector, 
namely  business-to-business,  has  remained  on  a 
similar level, with a modest improvement (13 days 
in  2022,  14  in  2021).  The  current  geopolitical 
situation is a contributing factor in this regard, as 
uncertainty  as  well  as  high  energy  costs  are 
among  the  main  causes  for  the  increasing  share 
of late payments in the country.  Though Estonian 
SMEs  have  seen  their  share  of  credit  losses 
decrease  since  the  loosening  of  pandemic-related 
restrictions, circa 73% of Estonian firms identified 
credit loss as a major problem in 2022 (26% more 
than in 2021), and an even bigger share (86%) are 
concerned  about  payments  after  the  set  due 
date (72),  an  aspect  exacerbated  by  the  current 
economic challenges. 

Graph A12.2: Business environment and 
productivity drivers 

Source: 1) % of GDP, 2021 Eurostat;  
2) composite indicator, 2021 European Investment Fund 
access to finance index;  
3) average payment delay in number of days, 2022 Intrum;  
4) % of firms in manufacturing facing constraints, 2022 
European Commission business consumer survey;  
5) proportion of contracts awarded with a single bidder, 2022 
Single Market Scoreboard. 

(72)  INTRUM European Payment Report 2022  

50 

1) Businessinvestments2) EIF access tofinance index3) Payment gap- G2B3) Payment gap- B2B4) Materialshortage4) Labourshortage5) Single bidsEuropean UnionEstonia 
 
 
                                                 
   
 
Table A12.1: Industry and the Single Market 

(*) Last available year 
Source: (1) AMECO, (2) Eurostat, (3) ECFIN BCS, (4) Eurostat, (5) COMEXT and Commission calculations, (6) Eurostat, (7) Eurostat, 
(8) OECD, (9) Single Market Scoreboard, (10) EIB survey, (11) Eurostat: (12) Intrum, (13) SAFE Survey, (14) EIF SME Access to 
Finance Index. 

51 

POLICY AREAINDICATOR NAME20182019202020212022EU27 average (*)Net private investment, level of private capital stock, net of depreciation, % GDP (1)9.17.511.29.15.53.7Net public investment, level of public capital stock, net of depreciation, % GDP (1)2.21.92.62.62.10.4Real labour productivity per person in industry (% yoy)(2)3.2-0.1-0.77.4-8.41.4Cost competitive-nessNominal unit labour cost in industry (% yoy)(2)4.982.50.916.32.9Material shortage (industry), firms facing constraints, % (3)547222047Labour shortage using survey data (industry), firms facing constraints, % (3)25218272328Vacancy rate (business economy)(4)1.81.81.11.51.83.1Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials (5)0.190.180.160.170.180.18Installed renewables electricity capacity, % of total electricity produced (6)12.516.219.628.3n.a.50.9Single Market integrationEU trade integration, % (7)54.552.550.857.164.145.8RestrictionsEEA Services Trade Restrictiveness Index (8)0.040.040.040.040.040.05Public procurement Single bids, % of total contractors (9)223427253229Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle (10)10.113.08.95.69.429.6Bankruptcies, Index (2015=100)(11)89.6103.7105.973.367.486.8Business registrations, Index (2015=100) (11)123.2128.6130.9148.7123121.2Payment gap - corporates B2B, difference in days between offered and actual payment (12)2115141313Payment gap - public sector, difference in days between offered and actual payment (12)7114111615Share of SMEs experiencing late payments in past 6 months, % (13)n.a.52.337.848.445.243EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1 (14)0.370.240.480.47n.a.0.46EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 1 (14)0.40.270.20.41n.a.0.23BUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to financeHEADLINE INDICATORSEconomic StructureRESILIENCEShortagesStrategic dependenciesSINGLE MARKET 
 
   
 
ANNEX 13: PUBLIC ADMINISTRATION 

This  Annex  outlines  the  performance  of 
is 
Estonia’s  public  administration,  which 
essential for providing services and carrying 
out  reforms.  Overall,  Estonia’s  government 
effectiveness is above the EU  average, showing a 
steady  improvement  over  the  last  10  years (73). 
The  government  has 
identified  administrative 
modernisation  as  a  continuous  process  in  support 
long-term  strategic  objectives (74). 
of  national 
Among  the  current  efforts  are  improving  the 
quality  of  services,  through  the  consolidation  of 
agencies,  and  providing  better  access  to  open 
data,  digitalisation  of  the  justice  system,  and 
telework.  Long-term  priorities  also 
include 
strengthening local governance (75).  

(RRP) 
The  recovery  and  resilience  plan 
focuses  mainly  on  the  green  and  digital 
transitions.  Digital  challenges  are  addressed  in 
the  plan,  mostly under  Component  1  on  digital 
transformation of enterprises and Component 3 on 
the  digital  state.  Component  3,  in  particular,  is 
expected  to  drive  the  digitalisation  of  the  public 
the 
sector  and  public  services 
development  of  an  excellence  centre  for  data 
management  and  open  data;  (ii)  the  development 
of cloud solutions in the Estonian public sector; (iii) 
the  further  development  of  digital  public  services 
for people and businesses; (iv) a virtual assistance 
platform. 

through: 

(i) 

Estonia’s civil service is relatively young and 
well-skilled  and  outperforms  the  private 
sector on  job  satisfaction (76).  A large  share  of 
employees  in  the  public  administration  have  a 
higher  education  (69.7%),  compared  to  the  EU 
average of 52%. The ratio of employees between 
25 to 49 years of age to those who are between 
50 and 64 is also among the highest in the EU, as 
is  gender  parity  in  senior  management  positions 
(Table  A13.1).  The  government  has  promoted 
remote  work  and  flexible  working  arrangements 
and  has  continued  the  policy  of  relocating  more 

civil  servants  from  the  capital  to  the  regions. 
Merit-based selection has been promoted.  

Estonia ranks well above the EU-27 average 
on the overall maturity of e-government. This 
includes the extent to which key technologies have 
been  put  in  place  to  deliver  e-services  and  the 
ease  with  which  citizens  are  able  to  access  and 
use  online  services from  abroad (77).  Based  on  an 
analysis of ‘life events’, Estonia ranks visibly above 
the  EU-27  average  on  digital  public  services  for 
people, as well as for business (annex 10). 

Estonia  performs  well  on  the  composite 
indicator  for  regulatory  governance.  Impact 
assessments  and  policy  evaluations  are  a  well-
impact 
established  practice.  The  quality  of 
analyses has improved over time. There is regular 
oversight  and  reporting  on  the  application  of  the 
process and its quality (78). The Ministry of Justice 
has  launched  the  development  of  a  co-creation 
workspace for law-making (79). This measure aims 
to  improve  the  transparency  and  traceability  of 
legislative  initiatives,  including  information  on 
which  lobbyists  and  stakeholders  participated  in 
preparing  them.  A  new  public  sector  innovation 
programme  was  launched  in  2022,  looking  to 
develop solutions to 10 crucial social problems.  

The 
justice  system  performs  efficiently 
overall.  The  length  of  court  proceedings  in  civil, 
commercial and administrative cases is among the 
shortest in the EU (27 days on average for cases 
at  first  instance  in  2021),  and  the  combined 
number  of  pending 
commercial  and 
administrative cases is amongst the lowest in the 
EU (1.6 per 100 inhabitants at first instance). The 
overall  quality  of  the  justice  system  is  good. 
However, it does not offer many arrangements to 
make it easier for people at risk of discrimination 
and older people to get access to justice. The level 
of  digitalisation  is  very  advanced  and  keeps 

civil, 

(73)  Worldwide Governance Indicators, 2021 

(http://info.worldbank.org/governance/wgi/).  

(74)  Government Office, Estonia 2035 strategy, 

2021 (https://www.valitsus.ee/media/4269/download).  

(75)  Government of Estonia 

(https://ec.europa.eu/info/sites/default/files/nrp_2022_estoni
a_en.pd). 

(77)  European Commission, eGovernment benchmark 2022 

(https://ec.europa.eu/newsroom/dae/redirection/document/88
517).  

(78)  OECD, Regulatory Policy Outlook 2021, Country profile for 
Estonia, 2021 (https://www.oecd.org/gov/regulatory-
policy/country-profiles-oecd-regulatory-policy-outlook-2021-
2018-2015.htm). 

(79)  Open government initiative 

(76)  Civil service dedication and satisfaction survey 2021, in 
Estonian (https://www.fin.ee/media/2803/download).  

(https://www.opengovpartnership.org/members/estonia/com
mitments/EE0058/).  

52 

 
 
                                                 
                                                 
 
Table A13.1: Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2022 value. If not available, the 2021 value is shown. 
(3) 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. (4) Defined as the absolute value of the difference between the 
percentage of men and women in senior civil service positions. 
Flags: (b) break in time series; (d) definition differs; (u) low reliability. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Labour Force 
Survey, Eurostat (# 4, 5, 7), European Institute for Gender Equality (# 6); Fiscal Governance Database (# 8, 9); OECD Indicators of 
Regulatory Policy and Governance (# 10). 

improving.  As  regards  judicial  independence,  no 
systemic deficiencies have been reported (80). 

(80)  For a more detailed analysis of the performance of the 
justice system in Estonia, see the 2023 EU Justice 
Scoreboard (forthcoming) and the country chapter for Estonia 
in the 2023 Rule of Law Report (forthcoming). 

53 

EE201720182019202020212022EU-27(2)187.787.788.189.389.4n/a64.82n/an/an/a91.690.091.872.93n/a0.40.70.90.90.90.8468.366.968.970.366.4 (b)69.752.0539.838.642.029.336.9 (b)41.416.968.09.44.41.03.03.411.073.02.42.42.62.4 (b)2.61.580.70.70.70.70.7n/a0.791.31.31.31.31.3n/a1.5102.19n/an/an/a2.17n/a1.7Medium term budgetary framework indexIndicator (1)E-government and open government dataShare of individuals who used the internet within the last year to interact with public authorities (%)E-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education (levels 5-8, %)Participation rate of public administration employees in adult learning (%)Gender parity in senior civil service positions (4)Ratio of 25-49 to 50-64 year olds in NACE sector OPublic financial management Strength of fiscal rules indexEvidence-based policy makingRegulatory governance 
 
   
                                                 
 
   
 
FAIRNESS 
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The  European  Pillar  of  Social  Rights  is  the 
compass  for  upward  convergence  towards 
better  working  and  living  conditions  in  the 
EU.  This  Annex  provides  an  overview  of  Estonia’s 
progress in implementing the Pillar’s 20 principles 
and EU headline and national targets for 2030 on 
employment, skills and poverty reduction. 

tackle gender segregation in the labour market by 
promoting  more  diverse  vocational  training  and 
career  paths.  Only  25.7%  of  children  aged  less 
than  3  years  were  enrolled  in  childcare  in  2021 
(EU:  36.2%),  a  decline  of  6.1  pps  compared  to 
2019, partly due to the COVID-19 pandemic.  

Table A14.1: Social Scoreboard for Estonia 

continued 

aggression 

labour  market 

against  Ukraine. 

Estonia’s 
to 
perform  strongly  in  2021  and  2022,  but 
challenges remain,  including  by  Russia’s  war 
of 
The 
employment  rate  in  Estonia  reached  81.9%  in 
2022,  surpassing  the  national  employment  rate 
target of 81.3% set for 2030, despite an economic 
slowdown  in  the  second  part  of  the  year.  The 
influx  of  displaced  people  from  Ukraine  has 
increased the labour supply. Around 40% of these 
Ukrainians are  working, but one third of them are 
non-active (81).  The  unemployment  rate  decreased 
slightly  in  2022,  reaching  5.6%  (  6,2%  in  2021).. 
Regional  differences  in  unemployment  remain 
significant,  with  figures  twice  as  high  as  the 
national  average  in  the  north-eastern  part  of  the 
in  2021).  Estonia’s  youth 
country 
unemployment  rate  (16.9%  in  2022)  is  much 
higher  than  the  total  unemployment  rate.  The 
European  Social  Fund  Plus  (ESF+)  will  support 
access  to  employment  by  removing  obstacles  to 
participation  in  the  labour  market  for  vulnerable 
groups  and  promote  healthier  working  years.  As 
part  of  its  recovery  and  resilience  plan  (RRP), 
Estonia is implementing the ‘My First Job’ scheme, 
which helps get young people into employment. 

(11.5% 

Estonia  has  one  of  the 
lowest  gender 
employment  gaps  in  the  EU  but  also  one  of 
the  highest  gender  pay  gaps.  The  impact  of 
parenthood  on  employment 
is  high  at  23.1 
percentage  points  (pps)  for  women  (aged  25-49) 
with young children (aged 0-6). The reform of the 
parental  benefit  and  child  leave  system  in  2022, 
building  on  the  reforms  in  2020  which  extended 
paternity  leave  and  allowed  more  flexibility,  has 
contributed to reducing the gender pay gap (21.1% 
in  Estonia  vs  EU  13%  in  2021).  This  pay  gap  is 
also  addressed  in  the  RRP.  ESF+  measures  will 

Update of 27 April 2023. 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 2023. 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.  

and 

labour 

shortages 

Skills 
persist, 
particularly  in  healthcare  and  education. 
There is a severe shortage of nurses, care workers, 
specialised  doctors  and  psychologists (82)  (see 
Annex  16).  Similarly,  teacher  shortages  remain  a 

(81)  Share of beneficiaries of temporary protection in age group 20-64 
years of a in Employment. Data by Statistics Estonia, calculations 
by Ministry of Social Affairs.  

(82)  Estonian Unemployment Insurance Fund Survey (Labour 

Market Barometer: Tööturu uuring: tööturg liigub tasakaalu 
poole | Töötukassa (tootukassa.ee). 

54 

10.856.3710.62.95.0381.95.61.3133.6522.217.430.6418.74.425.78.1Critical situationTo watchWeak but improvingGood but to monitorOn averageBetter than averageBest performersSocial protection and inclusionAt risk of poverty or social exclusion rate                                            (% of total population, 2021)At risk of poverty or social exclusion rate for children                       (% of population aged 0-17, 2021)Impact of social transfers (other than pensions) on poverty reduction (% reduction of AROP, 2021)Disability employment gap(percentage points, 2021)Housing cost overburden(% of total population, 2021)Children aged less than 3 years in formal childcare(% of population under 3-years-old, 2021)Self-reported unmet need for medical care(% of population 16+, 2021)Dynamic labour markets and fair working conditionsEmployment rate(% of population aged 20-64, 2022)Unemployment rate(% of active population aged 15-74, 2022)Long term unemployment(% of active population aged 15-74, 2022)GDHI per capita growth                                                              (2008=100, 2021)Policy areaHeadline indicatorEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24, 2022)Share of individuals who have basic or above basic overall digital skills (% of population aged 16-74, 2021)Youth NEET rate(% of population aged 15-29, 2022)Gender employment gap(percentage points, 2022)Income quintile ratio(S80/S20, 2021) 
 
 
                                                 
 
  
 
                                                 
 
major  challenge.  Although  participation  in  adult 
learning is high, early school leaving in Estonia has 
risen  (see  Annex  15).  Tackling  challenges  related 
to skills will support the national employment rate 
target  of  81%  and  progressing  towards  the  adult 
learning target of 52.3% by 2030. 

Table A14.2: Situation of Estonia on 2030 
employment, skills and poverty reduction targets 

(1) Adult Education Survey, adults in learning in the past 12 
months 
(2) Number of persons at risk of poverty or social exclusion 
(AROPE), reference year 2019 
Source: Eurostat, DG EMPL. 

The  risk  of  poverty  or  social  exclusion 
remains  high  among  vulnerable  groups.  The 
share  of  people  at  risk  of  poverty  or  social 
exclusion  (AROPE)  continued  to  decrease  from 
23.7%  in  2019  to  22.8%  in  2021  (EU:  21.9%). 
However, persons with disabilities face a high risk 
of  poverty  or  social  exclusion  (40.4%  in  2021) 
compared to the EU average (28.9%). Older people 
(65 years and over) are at a particularly high risk 
of  poverty  or  social  exclusion  (41.6%  against 
19.5% in the EU in 2021). This is largely due to the 
average  pension,  which  is  below  the  at-risk-of-
poverty (AROP) threshold. Pensions are among the 
lowest  in  the  EU  relative  to  work  income.  In 
addition,  a  gender  gap  in  poverty  among  older 
people persists (the AROP rate for older women is 
47.9%,  almost  21pps  higher  than  for  men). 
Estonia  has  taken  some  steps  to  protect  people 
increasing  the 
with 
minimum  pension.  The  impact  of  social  transfers 
(excluding pensions) on reducing poverty improved 
to  30.6%  in  2021,  from  28.1%  in  2019,  but 
remains  below  the  EU  average  (32.7%).  Social 
expenditure in Estonia remains low (19,2% of GDP 
vs 31,7% of EU GDP in 2020). The low coverage of 
unemployment  benefits  and  restrictive  criteria 
contribute  to  income  inequality  and  increased 
poverty  as  people  with  short  work  spells  and  in 
non-standard  forms  of  work  are  not  covered.  In 
registered 
2022,  only  36%  of 

low-income  pensions  by 

the  newly 

and 

39% 

received 

unemployed  received  unemployment 
insurance 
fixed 
benefits 
unemployment  allowance.  The  adequacy  of 
minimum  income  benefits  is  low,  at  50%  of  the 
poverty  threshold (83)  and  32%  as  a  share  of  the 
income  of  a  low-wage  earner  (EU  averages:  59% 
and 47% respectively). 

the 

in 

for 

(EU  18.1%).  Fragmentation 

Access  to  healthcare  and  social  services 
remain  a  challenge.  Estonia  has  one  of  the 
highest  levels  of  self-reported  unmet  needs  for 
medical  care  in  the  EU  (8.1%  vs  2%  in  the  EU  in 
2021,  see  Annex  16).  As  the  share  of  the 
population  aged  65  and  over  is  expected  to 
increase  from  19.8%  in  2019  to  23.2%  in  2030, 
the  demand  for  long-term  care  becomes  even 
more  acute.  Public  spending  on  long-term  care  in 
Estonia is amongst the lowest  in the EU (0.4% of 
GDP vs 1.7% of EU GDP in 2019) (84). Only 10.3% 
of people aged 65 and over in need of long-term 
care say they use home-care services, against the 
EU  average  of  28.6%  in  2019.  Out-of-pocket 
payments 
long-term  care  have  slightly 
decreased  but  remain  high,  accounting  for  43.8% 
of all long-term care health-related expenditure in 
2020 
the 
organisation  and  financing  of  long-term  care 
between  the  social  and  healthcare  sector,  and 
between the state and local governments leads to 
an uneven supply of similar home and community 
services.  Under  the  RRP,  in  2022  the  Estonian 
Parliament  adopted  two  sets  of  amendments  to 
improve the accessibility and affordability of long-
term  care.  These  amendments  should  prioritise 
home  care  to 
institutional  care,  ensure  the 
provision  of  higher  quality  of  long-term  care 
assistance,  and  create  legal  clarity,  to  support 
those  in  need  of  long-term  care  assistance  and 
people  with  care  burden.  The  “Care  reform”  that 
enters  into  force  on  1  July  2023  is  the  first 
significant  step 
reducing  out  of  pocket 
payments  for  general  care  service.  However,  an 
integrated  and 
care 
sustainable 
framework to ensure equal access, availability and 
quality  long-term  care  services  evenly  in  all 
municipalities  is  not  in  place  yet.  The  ESF+  will 
finance  measures 
inclusion, 
including  a  reform  of  long-term  care,  integration 
tackle  material 
measures,  and  action 

fostering  social 

long-term 

to 

in 

(83) MI adequacy is computed for income year 2020, for a single-

person household. The AROP threshold is an average over the 3 
income years 2018 to 2020.  

(84)  3) 

 Ageing Report 2021, Public LTC expenditure % GDP. 

55 

IndicatorsLatest dataTrend            (2015-2022)National target by 2030EU target by 203081.9(2022)33.9(2016)-18(2021)Adult learning1 (%)5260Employment (%)8178Poverty reduction2 (thousands)-39-15 000 
 
   
 
                                                 
 
deprivation.  This  should  help  Estonia  achieve  the 
2030  EU  headline  target  on  poverty  reduction 
(39 000 fewer people AROPE compared to 2019). 

56 

 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  for 
Estonia’s education and training system in light of 
the  EU-level 
targets  and  other  contextual 
indicators  under  the  European  Education  Area 
strategic framework, based on the 2022 Education 
and Training Monitor. 

in  five 

schools, 

teachers 

teachers  and  educational 

The education system faces major shortages 
support 
of 
specialists.  Although 
the  education  system 
delivers  very  good  outcomes,  high  equality  and 
advanced  digitalisation  of 
teacher 
shortages  are  severe.  Estonia’s  teaching  force  is 
one of the oldest in the EU (see Table A15.1) and 
shortages  in  science,  technology,  engineering  and 
mathematics  (STEM),  crucial  for  the  green  and 
digital  transitions,  are  particularly  acute.  The 
annual  age-related  replacement  need  for  general 
education  teachers  is  around  570  teachers (85). 
One 
in  maths,  chemistry, 
geography  and  biology  and  one  in  four  physics 
teachers  are  at  least  60  years  old.  Further 
outflows  stem  from  the  considerable  share  of 
novice  teachers  that  leave  the  profession  within 
the first 5 years (around 50%) (86). The shortage of 
support  specialists  (such  as  speech  therapists, 
social workers and psychologists) is also an issue. 
In almost a third of kindergartens and a quarter of 
received 
basic  schools,  children  and 
in  2019/2020 (87). 
inadequate  or  no  support 
A teacher  action  plan  was  adopted  in  2022  to 
improve  the  working  conditions,  training  and 
career progression of teachers and continues to be 
implemented;  it  also  covers  support  specialists, 
school  leaders  and  school  managers.  Developing 
leadership quality and organisational culture is key 
to 
improving  the  reputation  of  the  teaching 
profession,  bringing  new  teachers  to  school  and 
ensuring  their  job  security.  While  the  number  of 
university  admissions  in  the  field  of  educational 
support  has  increased  in  recent  years,  it  is  still 
insufficient  to  replace  retirements.  The  teacher 
and support specialist shortages are intensified by 
current  challenges  of  the  education  system,  such 

teens 

as  integrating  Ukrainian  refugees,  dealing  with 
learning  gaps  after  the  COVID  pandemic  and 
accelerating  the  transition  to  Estonian-language 
education. 

Participation  in  early  childhood  education 
and  care  increases  with  children’s  age,  but 
remains  somewhat  below  the  EU  average. 
Participation  of  children  between  3  years  and the 
starting  age  of  compulsory  education  (7  years) 
stood at 91.9% in 2020, somewhat below the EU 
average  of  93%  and  the  EU-level  target  of  96% 
by  2030.  Efforts  to  reform  early  childhood 
education  and  care  continue:  a  draft  reform  act 
aims,  inter  alia,  to  detect  special  educational 
needs  earlier  and  to  create  a  single,  integrated 
early  childhood  education  and  care  system  with 
common quality standards. However, the draft act 
is not yet adopted. 

leaving  and  gender  gaps 
Early  school 
throughout  the  education  system  remain  a 
stumbling  block  to  solving  skills  shortages. 
The  early  leaving  rate  was  10.8%  in  2022,  up 
from 9.8% in 2021. Boys leave the education and 
training  system  with  low  or  without  qualification 
significantly  more  often  than  girls:  while  girls’ 
early  leaving  rate  slightly  declined  between  2021 
and  2022,  boys’  rate  increased  by  2.3  pps  (see 
Table  A15.1).  Boys  also  account  for  a  greater 
number  among  those  with  lower  educational 
achievement (88). 
education 
Estonia’s 
strategy  acknowledges 
that,  from  secondary 
school  on,  the  choice  of  educational  paths 
influenced  by  a  person’s  gender  might  lead  to 
labour  market 
inequality  and 
socio-economic 
segregation (89).  One  of  the  strategy’s  main 
priorities 
leaving  from 
to  address  early 
education and training. Reducing gender gaps and 
early leaving could enable the education system to 
produce  more  vocational  and  higher  education 
graduates,  and  hence  to  increase  the  supply  of 
highly needed skills. 

2035 

is 

(85)  Rosenblad, Y., Leoma, R., & Krusell, S. (2022). OSKA 

üldprognoos 2022–2031. Ülevaade Eesti tööturu olukorrast, 
tööjõuvajadusest ning sellest tulenevast koolitusvajadusest 
(Summary of the 2022-2031 forecast. Overview of the 
Estonian labour market, labour needs and resulting training 
needs) 

(86)  Estonian Ministry of Education and Research (2021), 

Õpetajate järelkasvu tegevuskava (Action Plan for the Next 
Generation of Teachers). 

(87)  National Audit Office of Estonia (2020), Availability of 

education support services.  

Estonia  aims  to  accelerate  the  transition  to 
an  Estonian-language  education  system, 
while  it  also  undertakes  major  efforts  to 
integrate  Ukrainian  pupils.  The  government 
aims  to  complete  the  transition  to  an  Estonian-
language  education  system  already  by 2030, 

(88)  Government of Estonia (2021). Education Strategy 2021–

2035. 

(89)  idem 

57 

 
 
                                                 
                                                 
 
Table A15.1: : EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Source: (1,3,4,5,7,8,9,10,11) = Eurostat; 2 = OECD (PISA); 6 = European Commission (Joint Research Centre). Notes: Data are not 
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering 
underachievement in digital skills and participation of adults in learning. The equity indicator shows the gap in the share of 
underachievement in reading, mathematics and science (combined) among 15-year-olds between the lowest and highest quarters 
of socio-economic status. 

5 years  earlier  than  previously  planned.  Starting 
from  2024/25,  public  kindergartens  and  primary 
schools  will  gradually  use  Estonian  as  the  sole 
language  of  instruction  for  subject  teaching,  with 
secondary  schools  being  phased  in  up  to  2030. 
The Parliament adopted the required amendments 
to  relevant  education  acts;  the  government  put  in 
place  an  action  plan  to  support  the  language 
training, 
transition, 
educational  materials  and  financial  incentives  for 
teachers. Around 8 500 children and young people 
in  Estonian 
from  Ukraine  are 
schools (90); 
local 
governments,  teachers  and  parents  with  various 
measures. 

registered 
the  government  supports 

continuous 

covering 

Tertiary  education  attainment  is  relatively 
high,  albeit  with  some  disparities.  In  2022, 
43.9%  of  Estonians  between  25  and  34  held  a 
university  degree  (EU  average:  42%),  but  the 
urban-rural  and  gender  gaps  remain  high  (see 
Table  A15.1).  The  tertiary  education  attainment 

gap  in  favour  of  women  remains  among  the 
highest  in  the  EU  (20.8  pps  in  2022,  EU  average: 
11.1 pps). The population’s labour market potential 
is  negatively  impacted  by  a  relatively  high  drop-
out  rate  from  higher  education (91)  –  the  reasons 
for  this  are  related  to  the  difficulty  of  covering 
living  costs  while  studying  and  the  lower  wage 
premium for tertiary educated workers than in the 
OECD  on  average (92), (93).  The  government  has 
taken various measures to improve graduation on 
time  and  reduce  the  dropout  rate.  The  share  of 
STEM graduates in 2020, at 27.5%, was above the 
EU  average  (24.9%).  This is mainly  due to  one  of 
the  highest  shares  of  ICT  graduates  in  the  EU, 
in  natural 
while 
sciences/statistics/maths 
in 
engineering/construction/manufacturing  (13%)  is 

the  share  of  graduates 
(6.1%) 

and 

(91)  Government of Estonia (2021). Education Strategy 2021–

2035. 

(92)  OECD (2022) Education at a Glance. Estonia Country Report. 

(93)  Arenguseire Keskus (2022), The future of higher education. 

(90)  Estonian Education Information System (EHIS), April 2023. 

Development trends up to 2035. 

58 

96%90.6%b91.9%91.9%202093.0%2020Reading< 15%10.6% 20.0%11.1%201822.5%2018Mathematics< 15%11.2% 22.3%10.2%201822.9%2018Science< 15%8.8% 21.1%8.8%201822.3%2018< 9 %13.7%11.0%10.8% 9.6%Men16.4%12.5%14.3%11.1%Women10.9%9.4%7.5%8.0%Cities6.3%9.6%9.3%8.6%Rural areas20.3%12.2%12.7%10.0%Native13.8%10.0%10.5%8.3%EU-born:u20.7%:u20.3%Non EU-born:u23.4%:u22.1%6Equity indicator (percentage points)::5.1201819.320187Exposure of VET graduates to work based learningTotal ≥ 60% (2025) : :78.9%60.1%45%38.5%36.5%43.9%42.0%Men28.3%31.2%34.0%36.5%Women49.2%41.8%54.8%47.6%Cities47.2%46.2%53.3%52.2%Rural areas27.1%26.9%33.4%30.2%Native38.0%37.7%42.3%43.0%EU-born:u32.7%:u39.5%Non EU-born46.2%u27.0%65.2%35.7%45.2% 38.3%50.4%202039.2%2020Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth11Share of school teachers (ISCED 1-3) who are 50 years or over1Participation in early childhood education (age 3+)2Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)3Total3By gender4By degree of urbanisation5By country of birth20152022IndicatorTargetEstoniaEU27EstoniaEU27 
                                                 
                                                 
 
   
 
somewhat  below  the  EU  average  (6.2%  and 
14.8%, respectively). 

59 

 
ANNEX 16: HEALTH AND HEALTH SYSTEMS 

A  healthy  population  and  an  effective, 
accessible  and  resilient  health  system  are 
prerequisites  for  a sustainable  economy and 
society.  This  Annex  provides  a  snapshot  of 
in 
population  health  and  the  health  system 
Estonia.  

Life  expectancy  in  Estonia  remains  among 
the  lowest  in  the  EU,  having  dropped  by  a 
further 1,7 years in 2021 compared to 2020. 
This  was  one  of  the  largest  drops  in  the  EU  and 
reflects  the  increase  in  COVID-19  mortality  in 
2021  (almost  quintupled  compared  to  2020 (94). 
Treatable mortality is higher in Estonia than in the 
EU  overall,  but  has  decreased  substantially  over 
the  last  decade.  In  2020,  the  leading  causes  of 
death  were  diseases  of  the  circulatory  systems 
(“cardiovascular diseases”) followed by cancer and 
external causes. 

Graph A16.1: Life expectancy at birth, years 

Source: Eurostat 

Health  expenditure  in  Estonia  is  among  the 
lowest  in  the  EU,  and  only  77.2%  of  it  was 
publicly  funded  in  2020.  Spending  on  inpatient 
care,  pharmaceuticals  and  medical  devices  is 
below 
the  EU  average,  while  spending  on 
outpatient care is above. In 2020, total healthcare 
spending increased to 7.8% of GDP, up from 6.8% 
in 2019. This is in line with the upward trend in all 
Member  States  in  2020.  In  Estonia,  this  increase 
can  mainly  be  attributed  to  higher  spending  per 
capita and only to a lesser extent to the observed 
GDP contraction. The spending remains one of the 
lowest  in  the  EU  where  the  average  healthcare 
spending in 2020 was 10.9% of GDP. This said, as 
a  share  of  total  public  spending,  health  spending 
remained  relatively  stable  at  14.6%.  In  2020,  the 
share  of  out-of-pocket  healthcare  spending  was 
21.44%,  compared  14.4%  for  the  EU  average.  
Public  expenditure  on  health  is  projected  to 

(94)  Based on data provided directly by Member States to ECDC 
under the European Surveillance System (data current as of 
13 April 2023) 

60 

increase by 0.8 percentage points (pps) of GDP by 
2070  (compared  to  0.9  pps  for  the  EU  overall). 
This  projection  is  based  on  the  age  profile  of  the 
Estonian population. 

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2019-2070 

AWG reference scenario 
Source: Source: European Commission / EPC (2021) 

Spending on  prevention  in  Estonia amounted 
to  4.8%  of  total  spending  on  healthcare  in 
2020,  compared  to  3.4%  for  the  EU  overall. 
This is comparatively high, with four other Member 
States  also  reporting  a  level  above  4%.  Between 
2019 and 2020, spending on prevention in Estonia 
increased  by  47%,  compared  to  a  26%  increase 
for the EU overall. Across the EU, this increase was 
primarily driven by spending on disease detection, 
surveillance, control and response programmes as 
part  of  the  public  health  response  to  COVID-19. 
Between  2019  and  2020,  a 
remarkable 
proportional  increase  in  reported  spending  was 
noted  in  Estonia  for  early  disease  detection 
programmes  and  disaster  preparedness  and 
emergency response programmes. 

Estonia  faces  a  shortage  and  an  uneven 
distribution of health workers, which plays a 
role  in  the  long  waiting  times  for  publicly 
funded  services.  Overall,  reported  unmet  needs 
for  medical  care  are  the  highest  in  the  EU  (see 
Annex  14).  Unmet needs improved between 2020 
(13%)  and  2021  (8,.1%)  (compared  to  an  EU 
average  of  2%).  However,  this  improvement  may 
be  partially  due  to  more  patients  using  private 
practices  for  specialist  out-patient  care  –  the  use 
of  which  increased  by  35%.  In  2020  Estonia  had 
fewer  doctors  (3.5  per  1  000  population)  and 
nurses  (6.4  per  1  000  population)  than  the  EU 
overall,  with  respective  averages  of  3.9  and  8.3. 
The  numbers  of  graduating  doctors  and  nurses 
have  fallen  in  recent  years.  The  percentage  of 
doctors  aged  over  55  is  high  in  Estonia  (46.2% 
compared  to  an  EU  unweighted  average  of 

78.078.478.579.078.977.280.980.981.081.380.480.1201620172018201920202021EstoniaEU6.64.90.90.802468EUEstonia% of GDP20192070increase 
 
      
                                                 
      
 
 
Table A16.1: Key health indicators 

Note: The EU average is weighted for all indicators, except for (*) and (**), for which the EU simple average is used. The simple 
average for (*) uses data for 2020 or most recent year if former not available. Doctors' density data refer to practising doctors in 
all countries except EL, PT (licensed to practice) and SK (professionally active). Nurses' density data refer to practising nurses in all 
countries except FR, PT, SK (professionally active) and EL (nurses working in hospitals only). 
Source: Eurostat; except: ** ECDC 

35.9%),  raising  concerns  about  the  long-term 
accessibility of health services. Working conditions 
are  an  important  issue,  with  low  remuneration 
being  a  deterrent,  in  particular  for  nurses.  The 
wage  of  nurses  in  Estonia  compared  to  the 
average wage of full-time employees in all sectors 
in  the  country  is  1,1  compared  to  an  average 
calculated for 20 EU countries at 1,2 (2020 data). 

Through  its  recovery  and  resilience  plan, 
Estonia  plans  to  address  health-related 
challenges.  Investments  will  be  used  to  improve 
health  infrastructure,  implement  organisational 
reforms,  strengthen  primary  healthcare,  some 
measures on health workforce, and update the e-
health  institutional  framework.  Work  has  started 
on  the  last  two  reforms,  including  through  the 
entry  into  force  of  the  Government’s  Decree 
amending the list of the Estonian Health Insurance 
services  of  general 
Fund 
the 
force  of 
into 
practitioners, 
Government’s  Decree  amending 
list  of 
the 
healthcare  services  of 
the  Estonian  Health 
Insurance  Fund  for  specialised  medical  care,  and 
the  e-health  governance 
the  approval  of 
framework and its implementation roadmap. 

costs  and 

the  entry 

for 

61 

20172018201920202021EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)136.6133.5129.4123.9NA91.7 (2020)Cancer mortality per 100 000 population286.8292.3279.5265.0NA242.2 (2020)Current expenditure on health, % GDP 6.66.76.87.8NA10.9 (2020)Public share of health expenditure, % of current health expenditure73.673.774.577.2NA81.2 (2020)Spending on prevention, % of current health expenditure 3.33.53.64.8NA3.4 (2020)Acute care beds per 100 000 population338332332NANA387.4 (2019)Doctors per 1 000 population *3.53.53.53.5NA3.9 (2020)Nurses per 1 000 population *6.26.36.26.4NA8.3 (2020)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day (total consumption in CY and CZ) **9.910.210.28.88.714.5 (2021) 
 
 
 
 
 
 
 
 
 
 
 
     
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

This  Annex  showcases  the  economic  and 
social  regional  dynamics  in  Estonia,  providing 
an  update  on  economic,  social  and  territorial 
cohesion  in  the  Estonian  regions  compared  with 
the EU as a whole and the main regional economic 
recovery challenges.  

regional  outlook  continues 

to  be 
The 
significant  disparities 
characterised  by 
between  its  capital  region  (Põhja-Eesti)  and 
the rest of the country. In 2021, GDP per capita 
(purchasing  power  standard  –  PPS)  of  Põhja-Eesti 
stood above the EU average at 122%. In the other 
four NUTS 3 regions, GDP per capita ranged from 
between around 52% in Kirde-Eesti to around 68% 
in  Lõuna-Eesti  (Map  A17.1).  Similarly,  annual 
average  growth  in  GDP  per  capita  in  2011-2020 
was highest in the capital region of Põhja-Eesti (at 
4%),  while  Kirde-Eesti  had  a  growth  rate  close  to 
zero  and  Lääne-Eesti  had  a  negative  growth  rate 
(-0.5%).  

Map A17.1:  GDP per capita (in PPS) in Estonia, 
NUTS 3, 2020 

2011-2020  was  the  highest  in  two  regions  - 
Lõuna-Eesti (1.8%) and Kesk-Eesti (1.6%), but the 
region  of  Lääne-Eesti  experienced  a  decrease 
of -1.3% (table A17.1).  

Much  like  its  Baltic  neighbours,  Estonia  is 
experiencing  depopulation,  particularly  from 
its non-capital regions. Estonia's population fell 
in  2011-2019  and  demographic 
by  0.2% 
projections 
its  population  could 
indicate  that 
decline  by  5.5%  between  2020  and  2050.  In 
2011-2019,  the  capital  region’s  population  grew 
by a noteworthy 8.9%, while  all  the other regions 
experienced population decline ranging from 3.9% 
in Lõuna-Eesti to 14.8% in Kirde-Eesti. 

Table A17.1: Estonia selected indicators at regional 
level 

Source: EUROSTAT, EDGAR database, Estonian statistics 

The urban-rural divide is also visible in terms 
of  education  and  employment.  In  rural  areas, 
the  share  of  NEETs (95)  stood  at  14.1%  in  2021 
(but  3.2  percentage  points  (pps)  down  on  2020), 
compared  to  an  EU  average  for  rural  areas  of 
14.8%.  This  figure  is  11.2%  in  cities,  reflecting  a 
significant  performance  gap.  NEETs  face  more 
difficulties in finding a job in Estonia's rural areas. 
The  63%  employment  rate  for  young  people  in 
rural  areas  is  16  pps  lower  than  in  cities  (79%). 
There  is  also  a  much  higher  level  of  educational 
attainment  in  cities.  In  2021,  50.6%  of  the 
population  aged  25-64  had  a  tertiary  education 
degree,  compared  with  only  34.5%  in  towns  and 
suburbs,  and  32.8%  in  rural  areas.  The  reduction 

(95)  Young people (aged 15-34) neither in employment nor in 

education and training. 

In 2021, labour productivity was much higher 
in  the  capital  region  of  Põhja-Eesti,  at  100% 
of the EU average but in the other regions ranged 
between 60% (in Lääne-Eesti) and 71% (in Lõuna-
in 
Eesti).  However, 

real  productivity  growth 

62 

NUTS 3 RegionGDP per head (PPS)GDP per head growth, average % change on the preceding yearProductivity (GVA (PPS) per person employed)Real productivity growth, average % change on the preceding year EU27=100, 2021EU27=0, 2011-2020EU27=100, 2021EU27=1 2011-2020European Union10001001Eesti893842Põhja-Eesti12231002Lääne-Eesti56060-1Kesk-Eesti563672Kirde-Eesti522601Lõuna-Eesti683712 
 
 
 
 
 
 
  
 
                                                 
 
 
 
of  the  digital  gap  between  urban  and  rural  areas 
has  been  very  slow.  Rural  fixed  broadband 
coverage  of  78.6%  remains  one  of  the  lowest  in 
the EU (91.5%).  

The  share  of  the  population  at  risk  of 
poverty  or  social  exclusion  (AROPE)  is  also 
related  to  the  urban-rural  divide.  In  rural 
areas,  22.7%  people  were  at  risk  of  poverty  or 
social  exclusion  in  2021  (4  pps  lower  than  in 
2020),  which  is  in  line  with  the  EU  average  for 
rural areas that stood at 22.5%. In Estonian cities, 
this  rate  was  at  21%,  which  was  stable  when 
compared with 2020.  

pandemic 

COVID-19 

The 
significantly 
affected Estonia. Excess mortality in the country 
from  March  2020  onward  increased  by  10.9%, 
compared with the average mortality in the same 
weeks in 2015-2019. The share of persons usually 
working from home increased by 5.9 pps in 2020. 
Estonia’s  shift  to  teleworking  could  have  been 
cushioned  by  its  high  internet  penetration  rate, 
with  80%  of  Estonians  having  interacted  with 
public  authorities  online  in  2020,  which  was 
significantly higher than the EU average of 56%.  

The  impact  of  the  pandemic  was  somewhat 
different from one type of region to another. 
Estonia’s  unemployment  rate  rose  from  4.5%  in 
2019 to 6.8% in 2020 but increased slightly more 
in  cities  (by  almost  3  pps)  than  in  towns  and 
suburbs,  and  rural  areas  (where  it  increased  by 
2 pps). Tallinn experienced the sharpest decline in 
tourism,  which  also  increased  the  unemployment 
rate of other cities. 

63 

 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

jointly  by 

The Estonian financial sector is bank-focused 
and  relatively  concentrated.  The  Estonian 
banking  system  has  four  systemically  important 
credit  institutions  (Swedbank,  SEB  Pank,  Luminor 
and  LHV)  supervised 
the  Single 
Supervisory Mechanism and the Estonian Financial 
Supervisory  Authority.  The  assets  of  the  five 
largest credit institutions account for over 90% of 
total Estonian banking-sector assets. Total banking 
assets as a share of GDP have increased in recent 
years  due  to  the  headquartering  of  Luminor  in 
Estonia  in  2019  and  the  consolidation  of  assets 
and  liabilities  of  the  Latvian  and  Lithuanian 
branches  of  Luminor  in  Estonia.  Nevertheless,  the 
size of Estonia’s banking sector remains less than 
half the EU average. The share of domestic banks 
in  the  sector  increased  to  just  below  half  of  the 
sector by 2021.  

The  Estonian  banking  sector  is  resilient. 
Banks  operating  in  Estonia  are  among  the  best 
capitalised  in the  EU  (their  average  2022  capital-
adequacy  ratio  stood  at  22.7%  vs  18.6%  in  the 
EU).  The  resilience  of  the  banks  has  also  been 
boosted  by  their  strong  profitability  (their  return 
on  equity  in  Q3-2022  was  10.2%  vs  an  EU 
average  of  6.1%).  This  profitability  has  allowed 
them  to  maintain  their  level  of  capitalisation  and 
cover losses on small loans. Estonian banks have, 
on average, one of the lowest non-performing loan 
ratios  in  the  EU  (0.7%  for  households  and  1.4% 
for  non-financial  corporations).  The  share  of 
overdue  loans  or  loans  on  payment  holidays 
shrunk  considerably  over 2022,  allowing  banks to 
reduce the provisions they made to cover possible 
loan losses. This has supported banks’ capacity to 
finance the economy. In 2022, deposits increased, 
but  not  as much  as  the increase  in  private  sector 
credit,  pushing  up  the  loan-to-deposit  ratio  to 
84.8%.  

The  structure  of  assets  and  liabilities  in  the 
Estonian  banking  sector  is  affected  by  the 
lack  of  development  of  the  local  capital 
market. On the liability side, the Estonian banking 
sector  is  mainly  funded  from  local  deposits. 
Thanks  to  the  strong  and  stable  domestic-
customer  deposit  base  (around  three  quarters  of 
total  funding)  credit  institutions  do  not  need  to 
draw  additional  funding  from  financial  markets. 
This  reduces  their  exposure  to  possible  global 
financial  stress  and  capital  flight  in  times  of 
market  volatility.  It  also  reduces  their  reliance  on 

64 

cross-border  parent  banking  groups.  Although 
banks have actively expanded their funding mix in 
recent  years,  the  share  of  funding  from  bonds 
remains  small  at  around  10%  of  all  liabilities  on 
average. This is one of the smallest shares in the 
euro  area.  There  are  several  factors  behind  this. 
Firstly,  the  Estonian  central  government  has  the 
lowest  government  debt  in  the  EU,  so  there  is  no 
practical need to issue sovereign bonds. Moreover, 
the  local  bond  market  is  not  able  to  support  the 
issuance  of  bonds  by 
infrastructure 
companies  as  it  is  too  small  for  these  companies 
and  they  prefer  to  issue  their  bonds  in  foreign 
markets. Finally, there is a large share of SMEs in 
the  Estonian  economy,  and  these  SMEs  mostly 
finance  themselves  through  banks.  There 
is 
therefore no great demand for alternative sources 
of  financing.  This  explains  why,  on  the  asset  side 
of  bank  balance  sheets,  the  share  of  mortgage 
loans and corporate loans is larger than the euro-
area average.  

large 

in 

in 

the 

Both  corporate  and  household  debt  have 
grown  strongly  in  recent  years.  Risks  have 
now  built  up 
real-estate  and 
construction  sectors.  The  economy  in  Estonia 
recent  years. 
has  seen  strong  demand 
Combined with low interest rates and rapid growth 
in income and savings, this has led to a substantial 
increase  in  the  issuance  of  mortgage  loans.  And 
this  in  turn  has  coincided  with  rapid  growth  in 
house  prices  (up  64%  since  2015).  Similarly,  the 
main  driver  of  the  rapid  growth  in  the  corporate 
loan  portfolio  was  financing  for  the  real-estate 
and construction sector. The amounts borrowed by 
companies  and  households  in  the  12  months  to 
the  end  of  Q3-2022  were  12.5%  and  11.1% 
greater  respectively  than  in  the  twelve-month 
period to the end of Q3-2021. Although household 
indebtedness in Estonia is not excessive so far (at 
only  38%  of  GDP),  banks’  exposure  to  mortgage 
debt is relatively high (accounting for 43% of their 
total  loan  portfolio).  This  makes  Estonian  banks 
vulnerable  to  any  negative  change 
loan 
servicing  by  households  if  incomes  fall  or  if 
interest rates rise. Banks’ loan portfolios have also 
become  more  concentrated  and  exposed  to  risks 
from  the  highly  cyclical  market  for  commercial 
real  estate  (CRE).  According  to  the  European 
Banking  Authority,  the  share  of  CRE  loans  as  a 
proportion  of  total  bank  loans  is  almost  20%  in 
Estonia.  This  is  the  highest  percentage  of  CRE 
loans of all EU countries. At 60%, the share of CRE 

in 

 
 
 
 
Table A18.1: Financial soundness indicators 

Russia’s  war  against  Ukraine  have  eroded 
households’  disposable  income  and  purchasing 
power. They have also reduced companies’ profits. 
The combination of a worsening economic outlook 
and  rising  financing  costs  will  depress  the  debt-
servicing capacity of households and non-financial 
corporations. These pressures risk cutting demand 
for  loans  and  reducing  asset  quality.  Moreover, 
Estonian  banks  anticipate  a  tightening  of  their 
credit  standards,  and  their  lending  will  become 
more  cautious.  If  the  share  of  non-performing 
loans  increases  significantly,  there  may  be  a 
decline in banks’ risk appetite, credit volumes, and 
profitability.  

Estonian  insurers  are  significantly  exposed 
to  the  banking  sector,  mainly  through 
covered  bonds.  The  European  Insurance  and 
Occupational  Pensions  Authority  has  calculated 
that,  at  the  end  of  2020,  approximately  42%  of 
Estonian  insurers’  total  investment  on  average 
was  concentrated  in  banks.  This  could  potentially 
become  a  channel  of  risk  transmission  and 
contagion in the future. Moreover, the exposure of 
Estonian  insurers  was  predominantly  to  cross-
border  banks  (65%  of  all  exposure  to  banks)  and 
in bank bonds (mainly covered bonds) rather than 
bank equity.  

(1) Last data: Q3 2022. 
(2) Data is annualized. 
Source: ECB, Eurostat, S&P Global Capital IQ Pro. 

loans  to  non-financial  corporations  to  total  bank 
loans  is  also  very  high.  Moreover,  CRE  loans 
represent 40% of total banking NPLs. Although the 
banking sector is particularly exposed to CRE, since 
the  end  of  2017,  insurers’  share  of  total  CRE 
exposure has roughly tripled, implying higher spill-
over 
interlinkages  between  banks, 
in 
investment funds and insurers. 

risks 

Banks  must  hold  sufficient  capital  and  set 
aside  sufficient  provisions  to  be  able  to 
cover  the  accumulated  risks  if  these  risks 
were  ever  to  materialise.  Currently,  the  base 
requirement of the countercyclical capital buffer is 
1%,  effective  from  7 December 2022.  However, 
Eesti  Pank,  Estonia’s  central  bank,  believes  the 
cyclical  risks  from  rapid  growth  in  the  debt  of 
companies  and  households  are  increasing,  and 
therefore decided to set the countercyclical capital 
buffer  rate  at  1.5%  from  1 December 2023. 
Further  raising  the  countercyclical  capital  buffer 
requirement should not have a significant negative 
impact  on  the  funding  of  the  economy,  as  the 
banking  sector  currently  meets  the  capital  and 
buffer  requirements  with  sufficient  margin.  The 
good  profitability  of  the  banks,  which  is  likely  to 
further increase in the near term as money market 
interest  rates  rise,  is  also  supporting  the  capital 
position of Estonian banks.  

Geopolitical  and  inflationary  pressures  risk 
cutting credit volume, reducing asset quality, 
and  damaging  the  profitability  of  financial 
institutions in the longer term. Falling demand, 
high inflation and market disruptions reinforced by 

65 

201720182019202020212022EUMedianTotal assets of the banking sector (% of GDP)106.8101.1103.7125.1121.5106.3276.8207.9Share (total assets) of the five largest banks (%)90.391.093.093.793.0--68.7Share (total assets) of domestic credit institutions (%)125.927.349.549.649.050.7-60.2NFC credit growth (year-on-year % change)5.54.03.03.17.412.5-9.1HH credit growth (year-on-year % change)7.06.66.45.07.811.1-5.4Financial soundness indicators:1        - non-performing loans (% of total loans)1.91.31.61.61.10.91.81.8- capital adequacy ratio (%)30.631.026.327.824.322.718.619.8- return on equity (%)29.29.88.37.49.510.26.16.6Cost-to-income ratio (%)146.345.352.552.653.850.060.651.8Loan-to-deposit ratio (%)189.893.590.076.777.384.888.678.0Central bank liquidity as % of liabilities0.50.30.16.45.70.5-2.9Private sector debt (% of GDP)106.2101.298.9101.495.3--120.7Long-term interest rate spread versus Bund (basis points)---48.143.7114.4-93.3Market funding ratio (%)23.124.524.122.222.3-50.840.0Green bonds issued to all bonds (%)------3.92.31-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States. 
 
   
 
ANNEX 19: TAXATION  

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

information  on 

Estonia’s  tax  revenues  are  relatively  low  in 
relation  to  its  GDP.  Table A19.1  shows  that 
Estonia’s  tax  revenues  stood  at  32.8%  of  GDP  in 
2022  and  were  considerably  below  the  EU 
aggregate 
in  2021.  Labour  taxes  generated 
revenue  of  17.3%  of  GDP  in  2021  (below  the  EU 
aggregate),  while  consumption  taxes  generated 
(above  the  EU 
revenue  of  13.0%  of  GDP 
aggregate).  As  regards  environmental  taxation, 
Estonia  is  one  of  the  few  Member  States  without 
an  annual  road  vehicle  tax  and  has  the  lowest 
share of transport taxation as percentage of GDP. 
At  the  same  time  Estonia  levies  relatively  high 
excise  duties  on  road  fuels.  (For  more  on  policies 
related to environmental  sustainability,  see Annex 
6).  Very  little  revenue  is  generated  from  total 
property  taxes,  including  from  recurrent  taxes  on 
immovable  property  (0.3%  and  0.2%  of  GDP  in 
2021 
the  EU 
aggregate  of  2.2%  and  1.1%),  which  are  among 
the taxes least detrimental to growth.  

compared  with 

respectively 

Greater use of currently underused  environmental 
and property taxation could be considered in order 
to  counteract  the  challenges  of  climate  change 
and an ageing population.  

Estonia’s  labour  tax  burden  is  slightly  less 
progressive  than  the  EU  average,  but 
reforms  over  the  years  have  reduced  the 
total  tax  burden  on  low  wages.  Graph A19.2 
shows  that  the  labour  tax  wedge  for  Estonia  in 
2021  was  close  to  the  EU  average  for  single 
people at 50% of the income level of the average 
wage  and  lower  than  the  EU  average  at  higher 
levels  of  income.  Second  earners  at  a  wage  level 
of 67% of the average wage, whose spouses earn 
the  average  wage,  are  subject  to  a  lower  tax 
wedge  in  Estonia  than  the  EU  average.  The  tax 
wedge  for  workers  earning  50%  of  the  average 
wage was reduced from 37.3% in 2010 to 32.2% 
in  2022.  The  very  high  level  of  inflation  recorded 
for 2022 (17.5%), which was the fourth highest in 
the  EU,  may  have  reduced  the  benefit  of  lower 
taxation  for  lower-paid  workers  as  they  may  be 
shifted  to  higher  tax  brackets.  A  review  of  tax 
bands  and  tax-free  thresholds  could  address  this 
risk, also known as “bracket creep”. 

Table A19.1: Taxation indicators 

(1) Forward-looking effective tax rate (OECD).       
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average  
For more data on tax revenues as well as the methodology applied, see European Commission, Directorate-General for Taxation 
and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United Kingdom: 
2021 edition, Publications Office of the European Union, 2021, 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 the VAT gap, see European Commission, Directorate-General for Taxation and Customs Union, VAT gap in the 
EU: report 2022, Publications Office of the European Union, 2022, https://data.europa.eu/doi/10.2778/109823 
Source: European Commission, OECD. 

66 

2010201920202021202220102019202020212022Total taxes (including compulsory actual social contributions) (% of GDP)33.233.533.333.532.837.939.940.040.6Labour taxes (as % of GDP)17.716.917.717.320.020.721.320.9Consumption taxes (as % of GDP)13.213.913.013.010.811.110.711.2Capital taxes (as % of GDP)2.32.62.63.17.18.18.08.5Total property taxes (as % of GDP)0.40.30.30.31.92.22.22.2Recurrent taxes on immovable property (as % of GDP)0.30.20.20.21.11.21.21.1Environmental taxes as % of GDP2.93.22.42.32.42.42.22.2Tax wedge at 50% of average wage (Single person) (*)37.330.530.831.532.233.932.331.932.131.7Tax wedge at 100% of average wage (Single person) (*)40.137.037.338.239.041.040.139.939.639.7Corporate income tax - effective average tax rates (1) (*)17.017.017.019.519.419.1Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)6.45.38.07.98.67.78.17.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)6.16.831.640.7VAT Gap (% of VAT total tax liability, VTTL)3.31.811.09.1EstoniaEU-27Tax structureProgressivity & fairnessTax administration & compliance 
 
 
 
     
 
Graph A19.1: Tax revenues from different tax types, % of total taxation revenue 

Source: European Commission 

Graph A19.2: Tax wedge for single and second 
earners, % of total labour costs, 2022 

Second earner tax wedge assumes first earner at 100% of 
the average wage and no children. For the methodology of 
the tax wedge for second earners see OECD (2016) “Taxing 
Wages 2014-2015”. 
Source: European Commission 

Estonia performs well on tax compliance and 
tax  administration,  including  digitalising  the 
tax  administration.  Outstanding  tax  arrears 
increased  slightly  in  2020  by  0.7  percentage 
points to 6.8% of total net revenue (by comparison 
with  the  previous  year),  but  they  are  significantly 
below the EU average of 40.7%. The Annual report 
on taxation 2022 shows that the rate of tax return 
e-filing  in  Estonia  is  100%  for  corporate  income 
for  personal 
taxation  and  close 
taxation (96).  The  potential 
to  ensure  better 
services  for  taxpayers  could  nevertheless  be 
explored (e.g. by harnessing behavioural insights to 
increase tax collection). The VAT gap (an indicator 
of  the  effectiveness  of  VAT  enforcement  and 
compliance)  has  decreased  to  1.9%,  which  is 
significantly  below  the  EU-wide  gap  of  9.1%. 
Finally,  the  average  forward-looking  effective 
corporate  income  tax  rates  were  below  the  EU 
average in 2020. 

to  100% 

(96)  European Commission, Directorate-General for Taxation and 
Customs Union, Annual report on taxation 2022: review of 
taxation policies in the EU Member States, Publications 
Office of the European Union, 2022 (see Section 2.4.1 on 
improving tax administration). 

67 

32.234.539.041.236.920253035404550100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - EESingle earner - EU averageSecond earner -  EESecond earner -  EU average51.4327.5421.0151.6738.949.39Tax revenue shares in 2021, Estonia (outer ring) and EU (inner ring)Taxes on labourTaxes on consumptionTaxes on capital6.294.320.121.000.400.190.562.640.272.75012345678Estonia -environmentaltaxationEU -environmentaltaxationEstonia - propertytaxationEU - propertytaxationEnvironmental and property taxation as % of total tax revenue, Estonia and the EUEnergy taxesTransport taxesResource/pollution taxesRecurrent property taxesOther property taxes 
 
     
 
                                                 
     
ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS 

Table A20.1: Key economic and financial indicators 

(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
(2) Net international investment position (NIIP) excluding direct investment and portfolio equity shares.  
Source: Eurostat and ECB as of 2 May 2023, where available; European Commission for forecast figures (Spring forecast 2023). 

68 

2004-072008-122013-1920202021202220232024Real GDP (y-o-y)8.4-1.73.2-0.68.0-1.3-0.43.1Potential growth (y-o-y)5.90.72.93.73.12.41.81.8Private consumption (y-o-y)9.8-2.74.1-1.06.42.30.34.2Public consumption (y-o-y)4.11.22.32.84.0-0.34.30.7Gross fixed capital formation (y-o-y)13.3-4.12.924.72.8-10.91.84.2Exports of goods and services (y-o-y)14.85.43.2-5.319.95.00.92.8Imports of goods and services (y-o-y) 16.62.03.40.421.05.81.83.2Contribution to GDP growth:Domestic demand (y-o-y)10.5-2.93.26.34.9-2.11.43.3Inventories (y-o-y)0.5-0.50.0-0.41.63.2-1.00.1Net exports (y-o-y)-2.52.30.0-4.2-0.7-0.7-0.8-0.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.0-0.70.30.50.91.50.90.6Capital accumulation (y-o-y)3.31.41.31.91.71.11.01.1Total factor productivity (y-o-y)2.60.01.31.30.4-0.2-0.10.2Output gap7.1-4.00.3-2.81.8-1.9-4.0-2.8Unemployment rate7.211.66.46.96.25.66.26.1GDP deflator (y-o-y)7.93.53.1-0.56.016.610.33.6Harmonised index of consumer prices (HICP, y-o-y)4.64.52.0-0.64.519.49.22.8HICP excluding energy and unprocessed food (y-o-y)3.83.72.10.22.411.811.25.4Nominal compensation per employee (y-o-y)15.73.36.56.29.88.310.34.8Labour productivity (real, hours worked, y-o-y)6.31.12.65.8-0.1-5.8-0.82.7Unit labour costs (ULC, whole economy, y-o-y)8.53.44.73.91.814.811.02.0Real unit labour costs (y-o-y)0.5-0.11.54.4-3.9-1.50.6-1.5Real effective exchange rate (ULC, y-o-y)6.51.03.50.00.510.65.3-1.4Real effective exchange rate (HICP, y-o-y)2.81.51.5-0.31.58.6..Net savings rate of households (net saving as percentage of net disposable income)-8.93.86.110.56.5...Private credit flow, consolidated (% of GDP)25.11.94.63.06.5...Private sector debt, consolidated (% of GDP)104.4130.7109.3101.495.3...of which household debt, consolidated (% of GDP)36.149.739.340.737.8...of which non-financial corporate debt, consolidated (% of GDP)68.381.070.060.857.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (1).5.61.81.51.0...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.51.91.51.410.74.66.05.9Corporations, gross operating surplus (% of GDP)32.930.330.429.331.131.731.331.6Households, net lending (+) or net borrowing (-) (% of GDP)-6.41.01.63.00.9-2.7-1.1-1.1Deflated house price index (y-o-y).-10.55.57.010.44.7..Residential investment (% of GDP)5.33.14.25.44.95.2..Current account balance (% of GDP), balance of payments-12.6-1.01.4-1.0-1.8-2.2-1.1-0.6Trade balance (% of GDP), balance of payments-7.93.03.50.1-0.4-0.6..Terms of trade of goods and services (y-o-y)1.8-0.30.70.40.30.62.00.8Capital account balance (% of GDP)1.23.11.61.88.90.5..Net international investment position (% of GDP)-78.4-65.8-37.5-21.9-13.0-20.5..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)-16.8-16.218.641.539.927.5..IIP liabilities excluding non-defaultable instruments (% of GDP) (2)79.493.170.870.467.967.7..Export performance vs. advanced countries (% change over 5 years)55.729.67.417.023.2...Export market share, goods and services (y-o-y)7.91.31.04.87.81.0-1.7-0.9Net FDI flows (% of GDP)-6.4-5.0-2.5-10.4-1.91.6..General government balance (% of GDP)2.3-0.80.0-5.5-2.4-0.9-3.1-2.7Structural budget balance (% of GDP)..-0.1-4.1-4.3-0.2-1.2-1.3General government gross debt (% of GDP)4.66.99.518.517.618.419.521.3forecast 
 
 
 
      
 
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  Annex  assesses  fiscal  sustainability 
risks for Estonia over the short, medium and 
long term. It follows the same multi-dimensional 
approach  as  the  European  Commission’s  2022 
Debt Sustainability Monitor, updated based on the 
Commission 2023 spring forecast. 

compared with past fiscal performance, indicating 
room  for  corrective  action.  At  the  same  time,  the 
baseline  projections  up  to  2033  benefit  from  a 
favourable  (although  declining)  snowball  effect, 
with  real  GDP  growth  averaging  1.8%  in  2025-
2033.  Government  gross  financing  needs  are 
expected  at  around  4%  of  GDP  during  the 
projection period. 

‘adverse 

The  baseline  projections  are  stress  tested 
against  four  alternative  scenarios  to  assess 
the  impact  of  changes  in  key  assumptions 
(Graph  1).  For  Estonia,  reverting  to  historical 
fiscal  trajectories  under  the  ‘historical  structural 
primary  balance  (SPB)’  would  not  change  the 
projected  debt  ratio  considering  that  the  baseline 
SPB  is  close  to  the  historical  15-year  average  (a 
deficit of 0.6% of GDP). A permanent worsening of 
the  macro-financial  conditions,  as  reflected  under 
the 
interest-growth  rate  differential’ 
scenario (i.e. 1 pp. higher than the baseline) would 
result  in  a  debt-to-GDP  ratio  about  2  pps.  higher 
than 
temporary 
worsening  of  financial  conditions,  as  captured  by 
the  ‘financial  stress’  scenario,  would  result  in  a 
debt  projection  similar  to  the  baseline.  The  ‘lower 
structural primary balance (SPB)’ scenario (i.e. SPB 
level  permanently 
the 
cumulative  forecast  change)  estimates  the  debt-
to-GDP ratio would be about 3 pps. of GDP higher 
in 2033 compared to the baseline. 

the  baseline  projection.  A 

reduced  by  half  of 

low  risks 

Additionally,  stochastic  debt  projections 
(Graph  2). (100)  These 
indicate 
stochastic  simulations  point  to  a  95%  probability 
of  the  debt  ratio  in  2027  being  greater  than  in 
2022,  entailing  some  risk.  However,  such  shocks 
point  to 
(i.e.  the  difference 
between  the  10th  and  90th  debt  distribution 
percentiles)  surrounding  the  government  debt 
baseline projections. 

low  uncertainty 

1  -  Short-term  risks  to  fiscal  sustainability 
are 
low  overall.  The  Commission’s  early-
detection  indicator  (S0)  does  not  signal  major 
short-term  fiscal  risks  (Table  A21.2). (97)  Gross 
financing  needs  are  expected  to  remain  low  at 
around 4% of GDP in the short term (2023-2024), 
considerably  below  the  peak  in  2020  (Table  1, 
Table  A21.1).  Financial  markets’  perceptions  of 
sovereign  risk  are  positive,  as  confirmed  by  the 
ratings of the main agencies. 

2 - Medium-term risks to fiscal sustainability 
are low overall.   

The baseline DSA for Estonia shows that the 
government  debt  ratio  is  projected  to  rise 
over the medium term, though remaining at a 
very low level (around 26% of GDP in 2033) 
(Graph  1). (98) (99)  The  assumed  structural  primary 
balance  (a  deficit  of  0.7%  of  GDP)  contributes  to 
plausible 
these 

developments. 

appears 

It 

(97)  The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of macro-financial and 
fiscal variables that have proven to perform well in the past 
in detecting situations of upcoming fiscal stress.  

(98)  The assumptions underlying the Commission’s ‘no-fiscal 
policy change’ baseline notably comprise: (i) a structural 
primary deficit, before ageing costs, of 0.7% of GDP as of 
2024; (ii) inflation converging linearly towards the 10-year 
forward inflation-linked swap rate 10 years ahead (which 
refers to the 10-year inflation expectations 10 years from 
now); (iii) the nominal short- and long-term interest rates on 
new and rolled over debt converging linearly from current 
values to market-based forward nominal rates by T+10 (as 
for all Member States); (iv) real GDP growth rates from the 
Commission 2023 spring forecast until 2024, followed by 
EPC/OGWG ‘T+10 methodology projections between T+3 and 
T+10, i.e. for 2025-2033 (on average 1.8%); (v) ageing costs 
in line with the 2021 Ageing Report (European Commission, 
Institutional Paper 148, May 2021). For information on the 
methodology, see the 2022 Debt Sustainability Monitor 
(European Commission, Institutional Paper 199, April 2023). 

(99)  Table 1 shows the baseline debt projections and its 

(100) These projections show the impact on debt of 2000 different 

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.  

shocks affecting the government’s primary balance, 
economic growth, interest rates and exchange rates. The 
cone covers 80% of all simulated debt paths, therefore 
excluding tail events. 

69 

 
 
 
 
                                                 
 
 
 
 
                                                 
 
 
3  -  Long-term  risks  to  fiscal  sustainability 
are low overall. (101)  

S2 

gap 

sustainability 

The 
indicator 
(at  -0.3 pp.  of  GDP)  points  to low  risks  since 
Estonia  would  not  need  to 
its 
structural  primary  balance  to  ensure  debt 
stabilises over the long term. This results from 
the projected decrease in ageing costs (-1.1 pps. of 
GDP),  in  particular  for  pensions,  which  more  than 
offsets  the  initial  budgetary  position  (0.8 pp.) 
(Table 2).  

improve 

Finally,  several  additional  risk  factors  need 
to  be  considered  in  the  assessment.  On  the 
one hand, risk-increasing factors include the recent 
increase of interest rates, the large share of short-
term  debt  in  total  debt,  and  the  large  share  of 
public  debt  held  by  non-residents.  On  the  other 
hand,  risk-mitigating  factors  include  the  fact  that 
debt is fully  denominated in euro. In addition, the 
structural  reforms  under  the  NGEU/RRF,  if  fully 
implemented, could have a further positive impact 
on GDP growth in the coming years, and therefore 
help to mitigate debt sustainability risks. 

Given  low  long-term  debt  vulnerabilities,  as 
highlighted by the S1 indicator, overall long-
term risks are assessed as low. Indeed, the S1 
sustainability  gap  indicator  indicates  that the  SPB 
could deteriorate by up to 0.7 pps. of GDP without 
debt exceeding 60% of GDP by 2070. This result is 
driven  by  the  current  low  debt  level  (-0.8 pps.  of 
GDP)  and  the  projected  decline  in  ageing  costs 
(-0.5 pps.  of  GDP),  which  compensate  for  the 
slightly  unfavourable  initial  budgetary  position 
(Table 2). 

(101) The S2 fiscal sustainability gap indicator measures the 

permanent fiscal effort (SPB adjustment) in 2024 that would 
be required to stabilise public debt over the long term. It is 
complemented by the S1 fiscal sustainability gap indicator, 
which measures the permanent fiscal effort required in 2024 
to bring the debt-to-GDP ratio to 60% in the long term (by 
2070). For both the S1 and S2 indicators, the risk 
assessment depends on the amount of fiscal consolidation 
needed: ‘high risk’ if the required effort exceeds 6 pps. of 
GDP, ‘medium risk’ if it lies between 2 pps. and 6 pps. of 
GDP, and ‘low risk’ if the effort is negative or below 2 pps. of 
GDP. The overall long-term risk classification brings together 
the risk categories derived from S1 and S2. S1 may notch up 
the risk category derived from S2 when it signals a higher 
risk than S2. See the 2022 Debt Sustainability Monitor for 
further details. 

70 

 
                                                 
Table A21.1: Debt sustainability analysis - Estonia 

Source: Commission services. 

Table A21.2: Heat map of fiscal sustainability risks - Estonia 

Source: Commission services. 

71 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWLOWDebt level (2033), % GDP25.825.628.527.626.0Debt peak year20332033203320332033Fiscal consolidation space62%61%77%62%62%Probability of debt ratio exceeding in 2027 its 2022 level95%Difference between 90th and 10th percentiles (pps. GDP)9.3(1)Debtlevelin2033.Green:below60%ofGDP.Yellow:between60%and90%.Red:above90%.(2)Thedebtpeakyearindicateswhetherdebtisprojectedtoincreaseoveralloverthenextdecade.Green:debtpeaksearly.Yellow:peaktowardsthemiddleoftheprojectionperiod.Red:latepeak.(3)Fiscalconsolidationspacemeasurestheshareofpastfiscalpositionsinthecountrythatweremorestringentthantheoneassumedinthebaseline.Green:highvalue,i.e.theassumedfiscalpositionisplausiblebyhistoricalstandardsandleavesroomforcorrectivemeasuresifneeded.Yellow:intermediate.Red:low.(4)Probabilityofdebtratioexceedingin2027its2022level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)Thedifference 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.Short termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)LOWLOWLOWLOWLOWTable 1. Baseline debt projections20202021202220232024202520262027202820292030203120322033Gross debt ratio (% of GDP)18.517.618.419.521.322.323.023.323.824.324.725.125.525.8Changes in the ratio10.0-0.90.81.11.71.10.60.30.50.50.40.40.40.3of whichPrimary deficit5.42.40.82.72.11.61.10.80.80.70.70.60.60.5Snowball effect0.1-2.3-2.2-1.2-0.7-0.6-0.5-0.5-0.2-0.2-0.2-0.2-0.2-0.3Stock-flow adjustments4.4-1.02.2-0.30.30.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)10.52.84.44.24.54.03.73.43.53.63.63.63.73.7S1S2Overall index  (pps. of GDP)-0.7-0.3of which Initial budgetary position0.70.8Debt requirement-0.8Ageing costs-0.5-1.1of which    Pensions-1.0-1.7     Health care0.50.6     Long-term care0.20.3Others-0.2-0.3Table 2. Breakdown of the S1 and S2 sustainability gap indicators05101520253020202021202220232024202520262027202820292030203120322033Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p9010203020202021202220232024202520262027% of GDPGraph 2. Stochastic debt projections 2023-2027MedianBaseline 
 
 
 
 
 
     
 
 
     
 
ANNEX 22: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX  

close-to-balance  position. 

outcomes  significantly,  as  services  export 
is 
forecast  to  remain  robust.  The  current  account  is 
forecast  to  weaken  only  marginally  from  the 
current 
The  net 
international  indebtedness  position  is  expected  to 
remain  favourable  and  does  not  signal  notable 
funding  constraints  going  forward.  House  prices 
are likely to undergo a period of moderation, given 
the  interest  rate  rises  and  the  recent  economic 
recession. However, risks of a sudden disorganised 
adjustment on the housing market are considered 
low,  as  household  debt  is  relatively  moderate 
(37%  of  GDP)  and  the  financial  sector  is  well 
capitalised,  highly  profitable  and  benefits  from 
currently low NPLs.  

Estonia’s  policy  setup  related  to  the  above 
vulnerabilities  can  be  considered  as  broadly 
appropriate.  Nevertheless, certain policies could 
help  to  address  the  identified  vulnerabilities.  In 
particular,  Estonia  does  not  make  full  use  of 
housing  or  wealth-based  taxation,  which  could 
dampen  real-estate  cycles.  More  focus  on  some 
specific  structural  policies  could  also  help  to 
fostering 
manage  price  pressures,  such  as 
competition  in  the  domestic  market  or  improving 
labour supply. Continuing to follow counter-cyclical 
economic 
and 
such 
macroprudential  policies,  and  reinforcing  them 
when needed, would be important in the small and 
volatile Estonian economy. 

policies, 

fiscal 

as 

Based  on  this  assessment,  the  Commission 
considered  in  its  communication  European 
Semester – 2023 Spring Package (COM(2023) 
600  final)  that  Estonia  does  not  experience 
macroeconomic imbalances. 

The  Macroeconomic 
Imbalance  Procedure 
matrix presents the main elements of the in-
depth  review  undertaken  for  Estonia (102). 
Estonia was selected for an in-depth review in the 
in-depth 
2023  Alert  Mechanism  Report.  This 
review  on  the  prevention  and  correction  of 
macroeconomic  imbalances  presents  the  main 
findings  on  the  gravity  and  evolution  of  the 
challenges  identified,  as  well  as  policy  responses 
and potential policy needs. Findings cover all areas 
of vulnerability assessed in the in-depth review.  

Estonia  is  facing  vulnerabilities  relating  to 
deteriorating price competitiveness linked to 
the  build-up  of  wage  and  price  inflation 
differentials  with  its  trading  partners  and 
strong  housing  price  growth.  Estonia’s 
economy  came  through  the  COVID-19  crisis 
relatively  unscathed.  The  labour  market  has  been 
tight,  with  relatively  rapid  wage  wage  growth 
(averaging  7%  between  2012  and  2019)  and 
household  savings  at  record  levels.  With  the 
energy  crisis,  this  overall  setting  gave  a  further 
boost  to  competitiveness  concerns,  reflected  in 
high  HICP  inflation  leading  to  a  large  inflation 
differential  with  respect  to  the  euro  area,  unit 
labour  cost  growth  and  a  sharp  increase  in  real 
estate  prices.  Some  gaps  with  macroeconomic 
fundamentals  emerged  for  wages,  house  prices 
impacting 
and 
competitiveness.  Real  estate  prices 
surged 
especially over 2022, but do not show strong signs 
of  overvaluation.  However,  the  current  account  is 
close  to  balance.  The  deficit  in  goods  trade  is 
compensated  by  a  significant  surplus  in  services 
trade,  largely  thanks  to  tourism  and  ICT  exports. 
Estonia  has  gained  world  export  market  shares 
over  the  past  decade,  although  these  trends 
turned  slightly  negative  in  2022.  The  NIIP  is  only 
slightly negative, giving Estonia a buffer to absorb 
even  several  years  of  moderate  current  account 
deficits,  should  competitiveness  losses  result  in 
such an outcome, contrary to current forecasts.  

in  2022,  negatively 

inflation 

Going  forward,  competitiveness  concerns 
remain,  but  economy-wide  repercussions 
seem  limited  and  house  prices  are  likely  to 
undergo a period of moderation.  The potential 
competitiveness  losses  seem  not  to  affect  trade 

(102)  European Commission (2023), In-Depth Review for Estonia, 
Commission staff working document, (COM(2023) 630 final), 
in accordance with Article 5 of Regulation (EU) No 
1176/2011 on the prevention and correction of 
macroeconomic imbalances.  

72 

 
 
 
                                                 
 
 
 
 
Table A22.1: Assessment of macroeconomic imbalances matrix 

Source: European Commission 

73 

Gravity of the challengeEvolution and prospectsPolicy responseUnsustainable trends, vulnerabilities and associated risksHousing price growthHouse price growth was in line with income growth until 2019 but has since accelerated. House prices were estimated to be 2% overvalued in 2022. Prices were boosted by rising incomes and low interest rates, but also by the post-COVID economic surge (which was relatively strong in Estonia) and the 2021 pension reform, which allowed the immediate withdrawal of second pillar pension assets (worth 5% of GDP). Nevertheless, household debt is relatively low and stable at 36% of GDP in 2022, below prudential and fundamental limits. House prices are likely to undergo a period of moderation, given the interest rate rises and the recent economic recession, already reflected in a decline in transactions. This adjustment can be expected to slow down construction and private consumption. However, risks of a disorderly adjustment are considered low, as household debt is relatively moderate and the financial sector is well capitalised, highly profitable and benefits from currently low NPLs.Some policy needs related to the house price increases remain. The ESRB assessment of 2022 is that the macroprudential policy stance on the real estate market developments is appropriate and sufficient. Still, as a precautionary measure, the Bank of Estonia raised the countercyclical capital buffer rate for the banks from 1% to 1.5% starting from 1 December 2023.However, Estonia does not make full use of housing or wealth-based taxation, which could also dampen real-estate cycles.Cost competitivenessHICP inflation was in check prior to 2022, but has since surged, to 19.4% in 2022, well above the EA and EU average. This increase not only reflected energy price increases, but also domestic factors. Over the past decade, the core inflation REER (compared to 42 main trading partners) appreciated by almost 15% and Estonia’s ULC growth was very high, at 6.4% annually, compared to an EU average of 1.7%. Wage growth was also above a benchmark of economic fundamentals. Nevertheless, the current account has been close to balance and Estonia gained world export market shares until 2022. The loss in exportsover recent months could be related to some transient sector specific problems due to global demand and supply chain shifts.HICP inflation is forecast to abate to rates similar to the rest of the EA and EU, helped by the decline in energy prices. However, relatively rapid ULC growth is forecast to continue, reflecting the catching-up of the economy and the tight labour market. Unless still compensated by non-cost competitiveness factors, as in the previous decade, some exporting sectors could face more persistent cost competitivness issues. The policy setting is overall consistent with an improvement in competitiveness. Still, ongoing policy actions related to improving the labour market supply side, competition in the domestic market and boosting energy supply and efficiency could help to ease price and wage pressures. Appropriately, in April 2023, the new government has announced intentions to improve the effetiveness of the Competition Authority,  increase funding for innovation and education and prioritise green energy production capacity. Continuing to follow counter-cyclical economic policies, such as fiscal and macroprudential policies, and reinforcing them when needed, would be important. 
 
 
 
  
 
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