Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Estonia
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Estonia, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, social policy, social security, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 606 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Estonia   {SWD(2024) 600 final} - {SWD(2024) 606 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Estonia 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  

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OJ L 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj ). 

the  Recovery  and  Resilience  Facility 

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(2) 

(3) 

(4) 

(5) 

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The  REPowerEU  Regulation3,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Estonia  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’4, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report5.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.   

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey6, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it did not identify Estonia as one 
of  the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. On the same date, the 
Commission also adopted an opinion on the 2024 draft budgetary plan of Estonia. The 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 12 April 2024, as well 
as the proposal  for the 2024  Joint Employment Report analysing the implementation 
of  the  Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social 
Rights, which the Council adopted on 11 March 2024. 

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States7.  The  objectives  of  the 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1, ELI: http://data.europa.eu/eli/reg/2023/435/oj). 
COM(2023) 168 final. 
COM(2024) 77 final 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 

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new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
gradual  fiscal  consolidation  as well  as  through  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure8 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) No 2024/1263, including the requirements to put or 
keep  general  government  debt  on  a  plausibly  downward  path  by  the  end  of  the 
adjustment period at the latest, or for it to remain at prudent levels below 60% of GDP, 
and to bring and/or maintain the government deficit below the 3% of GDP reference 
value  over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of 
reforms and investments in accordance with the criteria set out in Regulation (EU) No 
2024/1263, the adjustment period may be extended by 3 years at most. For the purpose 
of supporting the preparation of those plans, on  [21 June] 2024, the Commission   is 
set  to  provide  Member  States  with  guidance  on  the  content  of  the  plans  and  the 
subsequent  annual  progress  reports  that  they  will  need  to  submit  and,  in  accordance 
with  Article  5  of  Regulation  (EU)  No  2024/1263,  will  transmit  to  them  technical 
guidance  on  the  fiscal  adjustments  (reference  trajectories  and  technical  information 
where  applicable).  Member  States  should  submit  their  medium-term  fiscal-structural 
plans by 20 September 2024, unless the Member State and the Commission agree to 
extend the deadline by a reasonable period of time. Member States should ensure the 
involvement  of  their  national  parliaments,  and  the  consultation  of  independent  fiscal 
institutions, of social partners and other national stakeholders, as appropriate.  

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.  

On  18  June  2021,  Estonia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  29 
October 2021, the Council adopted its Decision on the approval of the assessment of 

29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 
Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 

(6) 

(7) 

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(8) 

(9) 

the  recovery  and  resilience  plan  for  Estonia9,  which  was  amended  on  16  June  2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the REPowerEU 
chapter10. The release of instalments is conditional on a decision by the Commission, 
taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Estonia has 
satisfactorily  fulfilled  the  relevant  milestones  and  targets  set  out  in  the  Council 
Implementing  Decision.  Satisfactory  fulfilment  presupposes  that  the  achievement  of 
preceding milestones and targets has not been reversed. 

On 25 April 2024, Estonia submitted its 2024 National Reform Programme and, on 30 
April 2024, its 2024 Stability Programme, in line with Article 4(1) of Regulation (EC) 
No  1466/97.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the  2024 
National Reform Programme also reflects Estonia’s biannual reporting on the progress 
made in achieving its recovery and resilience plan.  
The Commission  published the 2024 country report for  Estonia11on 19 June 2024. It 
assessed  Estonia’s  progress 
country-specific 
recommendations  adopted by the Council between 2019 and 2023 and took stock of 
Estonia’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Estonia’s progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

addressing 

relevant 

the 

in 

(10)  Based  on  data  validated  by  Eurostat,  Estonia’s  general  government  deficit  increased 
from a deficit of 1.0% of GDP in 2022 to a deficit of 3.4% in 2023, while the general 
government debt rose from 18.5% of GDP at the end of 2022 to 19.6% at the end of 
2023. As announced in the fiscal policy guidance for 202412, the Commission is taking 
the first step for the opening of deficit-based excessive deficit procedures on the basis 
of the outturn data for 2023, in line with existing legal provisions. On 19 June 2024, 
the  Commission  adopted  a  report  under  Article  126(3)  of  the  TFEU13.  That  report 
assessed the budgetary situation of Estonia, as its general government deficit in 2023 
exceeded the reference value of 3% of GDP. The report concluded that in the light of 
this  assessment,  and  after  considering  the  opinion  of  the  Economic  and  Financial 
Committee  as  established  under  article  126(4)  TFEU,  the  Commission  will  not 
propose in July to open an excessive deficit procedure for Estonia. 

(11)  On 12 July 2022, the Council recommended that Estonia take action to ensure in 2023 
that  the  growth  of  nationally  financed  primary  current  expenditure  is  in  line  with  an 
overall  neutral  policy  stance,  taking  into  account  continued  temporary  and  targeted 
support to households and firms most vulnerable to energy price hikes and to people 

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Council Implementing Decision of 29 October 2021 on the approval of the assessment of the recovery 
and resilience plan for Estonia (0319/2021). 
Council Implementing Decision of 16 June 2023 amending the Implementing Decision of 29 October 
2021 on the approval of the assessment of the recovery and resilience plan for Estonia (9367/2023). 
SWD(2024) 606 final. 
Report  from  the  Commission,  prepared  in  accordance  with  Article  126(3)  of  the  Treaty  on  the 
Functioning of the European Union, 19.6.2024, COM(2024) 598 final. 
Report  from  the  Commission,  prepared  in  accordance  with  Article  126(3)  of  the  Treaty  on  the 
Functioning of the European Union, 19.6.2024, COM(2024) 598 final. 

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fleeing Ukraine. Estonia was recommended to stand ready to adjust current spending 
to the evolving situation. Estonia was also recommended to expand public investment 
for  the  green  and  digital  transitions,  and  for  energy  security  taking  into  account  the 
REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and  Resilience 
Facility and other Union funds. In 2023, according to the Commission estimates, the 
fiscal  stance  was  expansionary  by  1.6%  of  GDP,  in  a  context  of  high  inflation.  The 
growth  in  nationally  financed  primary  current  expenditure  (net  of  discretionary 
revenue measures) in 2023 provided an expansionary contribution to the fiscal stance 
of  1.0%  of  GDP.  This  includes  the  reduced  cost  of  the  targeted  emergency  support 
measures to  households  and firms  most vulnerable to  energy price hikes  by  0.1% of 
GDP.  This  also  includes  higher  costs  to  offer  temporary  protection  to  displaced 
persons from Ukraine (by 0.2% of GDP). The expansionary contribution of nationally 
financed net primary current expenditure in 2023 was therefore only partly due to the 
support  to  people  fleeing  Ukraine.  The  expansionary  growth  in  nationally  financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  was  driven  by 
higher  public  wage  spending  and  pensions  coupled  with  further  new  permanent 
spending  programmes  for  defence,  education  and  child  benefits,  not  matched  by 
proportional increases on the revenue side. In sum, the growth of nationally financed 
primary current expenditure in 2023 was not in line with the Council recommendation. 
Expenditure financed by Recovery and Resilience Facility grants and other EU funds 
amounted to 1.4% of GDP in 2023. Nationally financed investment amounted to 5.8% 
of GDP in 2023, with an annual increase of 1.4 percentage points from 2022. Estonia 
financed additional investment through the Recovery and Resilience Facility and other 
EU funds. Estonia financed public investment for the green and digital transitions, and 
for energy security, such as the development of event services and digital gateway for 
entrepreneurs, capitalisation of the Green Fund (which makes investments in venture 
capital funds and equity investments in enterprises) and strengthening of the electricity 
grid  to  increase  renewable  energy  production  capacity  and  adapt  to  climate  change, 
which are funded by the Recovery and Resilience Facility. 

(12)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP to grow by 0.0% in 2024 and 2.0% in 2025, while it  projects HICP inflation at 
3.6%  in  2024  and  2.7%  in  2025.  The  general  government  deficit  is  expected  to 
increase  to  3.5%  of  GDP  in  202414  and  3.0%  of  GDP  in  2025,  while  the  general 
government  debt-to-GDP  ratio  is  set  to  increase  to  22.6%  by  the  end  of  2024  and 
24.9% by the end of 2025. After 2025, the general government deficit is projected to 
decrease  gradually  to  2.2%  of  GDP  in  2026,  1.4%  in  2027,  and  0.8%  in  2028. 
Therefore, the general government balance is planned to not exceed the 3.0% of GDP 
deficit  reference  value  from  2025.  In  turn,  after  2025,  the  general  government  debt 
ratio is projected to increase to 26.2% in 2026 and then decrease gradually to 26.0% in 
2027, and 25.0% in 2028. 

14  

The  Estonian  authorities  informed  the  Commission  that  the  government  agreed  to,  and  sent  to  the 
Parliament on 5 June 2024, a supplementary budget for 2024 (State 2024 Additional Budget Act  456 
SE), which passed the first reading in Parliament on 10 June, the second on 14 June and is expected to 
pass the third reading on 19 June. This supplementary budget is expected to reduce the nominal deficit 
by 0.4% of GDP (of which, most are permanent expenditure cuts, but also includes revenue-increasing 
measures). 

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(13)  The Commission Spring 2024 Forecast projects real GDP to contract by 0.5% in 2024 
and to grow by 3.1% in 2025, and HICP inflation to stand at 3.4% in 2024 and 2.1% in 
2025. 

(14)  The Commission Spring 2024 Forecast projects a government deficit of 3.4% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to increase to 21.4% 
by the end of 2024. The increase of the debt-to-GDP ratio in 2024 mainly reflects the 
impact  of  the  government  deficit.  Based  on  the  Commission’s  estimates,  the  fiscal 
stance is projected to be broadly neutral at 0.1% of GDP in 2024. 

(15)  Expenditure amounting to 0.9% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.3%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Estonia. 

(16)  On  14  July  2023,  the  Council  recommended  that  Estonia  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary  expenditure  in  2024  to  not  more  than  4.9%.  When  executing  their  2023 
budgets  and  preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were 
invited  to  take  into  account  that  the  Commission  would  propose  to  the  Council  the 
opening  of  deficit-based  excessive  deficit  procedures  based  on  the  outturn  data  for 
2023.  According  to  the  Commission  Spring  2024  Forecast,  Estonia’s  structural 
balance  is  projected  at  -0.7%  of  GDP  in  2024  (from  -1.3%  in  2023),  thereby  at  the 
country’s medium-term budgetary objective (MTO) of a structural balance of -0.75% 
of GDP. Estonia is therefore assessed as being in line with what was recommended by 
the Council. 

(17)  Moreover,  the  Council  recommended  that  Estonia  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Estonia  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost of emergency energy support measures is estimated at 0.2% of GDP in 2023 and 
projected  at  0.0%  in  2024  and  2025.  The  emergency  energy  support  measures  are 
projected to be wound down as soon as possible in 2023 and 2024. This is in line with 
the Council recommendation. 

(18) 

In  addition,  the Council also  recommended that Estonia preserve nationally financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to increase to 6.3% of GDP in 2024 from 5.8% of GDP 
in 2023. This is in line with what was recommended by the Council. 

(19)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 4.3% of GDP in 2025. The increase of the deficit in 2025 mainly reflects the 
net impact of a reform to personal income tax that is expected to reduce government 
revenues. The general government debt-to-GDP ratio is set to increase to 24.6% by the 

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end of 2025. The increase of the debt-to-GDP ratio in 2025 mainly reflects the impact 
of the government deficit.  

(20)  Estonia’s tax revenue as a share of GDP increased in 2023 but is significantly below 
the EU’s average, limiting the funding available for public expenditure on healthcare, 
long-term care and social protection. In 2022, revenues from property taxes, which are 
among the taxes least detrimental to growth, amounted to only 0.3% of GDP, around 
seven times lower than the EU average. Estonia collected less than a third of the EU’s 
average from capital taxes (2.7% of GDP), had some of the lowest transport taxes in 
the EU, and is one of the few Member States without an annual car tax. Furthermore, 
the tax burden is unevenly distributed, and forthcoming tax reforms are set to further 
increase inequality. More specifically, in 2025, an increase in the income tax rate from 
20% to 22%, and an increase in the basic tax exemption and widening of its scope to 
cover all income taxpayers are set to be regressive. Also, Estonia’s labour income tax, 
even if close to the EU average at 17.2% of GDP, is regressive, taxing higher income 
levels at a lower effective rate. Public spending on social protection decreased in 2022 
and  is  still  significantly  below  the  EU’s  average.  This  translates  into  relatively  low 
levels and limited coverage of social benefits, with old-age pensions among the lowest 
in  the  EU.  Expenditure  on  general  public  services  is,  at  3.7%  of  GDP,  almost  two 
thirds lower than the EU average. 

(21)  Estonia adopted several reforms to improve the accessibility and affordability of long-
term  care  and  healthcare.  While  the  reforms  are  going  in  the  right  direction, 
sustainable funding for healthcare and long-term care is not yet ensured. As a result, 
out  of  pocket  payments  remain  high  and  the  unmet  need  for  medical  care  has 
increased. The access to care is uneven across the country not least because of the lack 
of capacity and resources across municipalities to provide enough services to meet the 
demand.  While  the  demand  is  not  fully  met,  public  spending  on  long-term  care  and 
healthcare  is  still  amongst  the  lowest  in  the  EU.  This  is  coupled  with  workforce 
shortages  in  these  sectors.  Due  to  demographic  changes,  demand  is  expected  to 
increase  for  access  to  healthcare  and  long-term  care,  therefore,  ensuring  adequate 
funding for both is warranted. 

(22) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan  including  the  REPowerEU 
chapter  is  essential  to  boost  Estonia’s  long-term  competitiveness  through  the  green 
and digital transition, while ensuring social fairness. To deliver on the commitments of 
the plan by August 2026, it is essential for Estonia to continue the implementation of 
reforms and investments. The systematic involvement of local and regional authorities, 
social  partners,  civil  society  and  other  relevant  stakeholders  remains  essential  to 
ensure  broad  ownership  for  the  successful  implementation  of  the  recovery  and 
resilience plan. 

(23)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Estonia  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms the basis for the definitive allocation of the EU 
funding  included  in  each  programme.  Estonia  has  made  progress  in  implementing 

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cohesion  policy and the  European Pillar of Social  Rights,  but  challenges  remain and 
disparities  persist  between  the  capital  and  the  rest  of  Estonia.  Accelerating  the 
implementation of the cohesion policy programme is crucial. The priorities agreed in 
the  programme  continue  to  be  relevant.  It  is  particularly  important  to  increase  the 
competitiveness  of  companies,  especially  outside  the  capital  area,  and  boost  their 
capacity to innovate. Improving the energy efficiency of private and public buildings 
as well as of businesses is a high priority. Access to employment through active and 
preventive  labour  market  measures  and  promoting  a  healthy  work  environment 
continues  to  be  important.  Priority  should  also  be  given  to  improving  the  quality, 
effectiveness  and  labour  market  relevance  of  education  and  training;  promoting 
lifelong  learning,  especially  flexible  upskilling  and  reskilling  as  well  as  active 
inclusion;  and increasing  the  accessibility,  effectiveness  and  resilience  of  long-term 
care  services.  As  part  of  the  mid-term  review  of  cohesion  policy  programmes,  the 
needs  related  to  the  accessibility  and  quality  of  long-term  care,  while  prioritising 
independent  living,  merit  further  attention.  Estonia  could  also  leverage  the  Strategic 
Technologies  for  Europe  Platform  initiative  specifically  in  relation  to  investment  in 
net-zero technologies manufacturing and supporting the transformation of the industry, 
for instance, in the areas of deep tech innovation, green and digital technologies, and 
biomedicine. Estonia could also increase its capacity to process rare earth metals and 
to engage in research and development supporting it.  

(24)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan and other EU funds, Estonia faces several additional challenges related to social 
protection, resource efficiency and skills.  

(25)  The social protection for supporting older people, persons with disabilities and people 
in non-standard forms of work and with short work spells remains weak. As a result, 
the share of persons with disabilities at risk of poverty and social exclusion not only 
increased in 2022 but it was the second highest in the EU. Old-age poverty has been 
rising, and it was one of the highest in the EU in 2022, not least because pensions are 
still low relative to work incomes. The low adequacy of the social safety net results in 
high,  and  increasing,  income  inequality,  despite  a  few  improvements  in  previous 
years.  The  low  coverage  of  unemployment  benefits,  especially  for  those  in  non-
standard forms of work and with short work spells, exacerbates income inequality and 
poverty. Although the duration of unemployment benefits has been adjusted under the 
Estonian  recovery  and  resilience  plan,  the  extension  of  the  coverage  has  yet  to  be 
implemented. Rising inequality is linked to the significant increase in prices and cost 
of  living,  which  has  not  been  accompanied  by  a  corresponding  increase  in  social 
benefits and minimum wages. The situation for low-income households has worsened 
due  to  high  and  persistent  inflation  in  the  past  and  is  set  to  deteriorate  further  as  a 
result  of  the  tax  reforms  in  2024-2025.  Ensuring  adequate  mitigation  measures, 
including  for  pensions,  as  well  as  increasing  the  adequacy  of  the  social  protection 
system  could  reduce  poverty  and  inequalities.  All  these  measures  would  also 
contribute  to  supporting  upward  social  convergence,  in  line  with  the  Commission 
services’  second-stage  country  analysis  based  on  the  features  of  the  Social 
Convergence Framework15. 

(26)  The share of oil shale in Estonia’s energy mix remains significant and is hindering the 
green transition. Further deployment of renewable energy production is needed to help 

15 

SWD(2024)132 final. 

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gradually phase out oil shale while at the same time keeping a high degree of energy 
independence.  In  addition  to  causing  environmental  damage,  the  oil  shale  industry 
accounts for 90% of Estonia’s hazardous waste. Estonia has one of the lowest resource 
productivity  rates  among  EU  Member  States,  which  can  be  partially  due  to  the 
country’s  resource-intensive  oil  shale  industry,  but  also  to  the  overall  resource-
intensive industrial system. Resource productivity barely increased from 1 EUR/kg of 
resources used to 1.1 EUR/kg, remaining at less than half the EU average in 2022. The 
sector of land use, land use change and forestry has become a CO2 emitter instead of 
an absorber. The forestry sector is characterised by high felling volumes, as well as by 
low  resource  valorisation.  Estonia  would  benefit  from  increasing  the  efficiency  of 
sustainable  forest  management,  transitioning  further  to  a  circular  economy,  and 
improving waste management. Furthermore, resource productivity is one of Estonia’s 
weaknesses when it comes to the country’s innovation capacity. Estonia ranked 13th 
on the 2022 Eco-Innovation Scoreboard (115.5 versus an EU average of 121.5, 2013 = 
100). Boosting eco-innovation and bio-based innovation for sustainable use of natural 
resources will help to improve Estonia’s resource productivity and competitiveness. 

(27)  Skills  shortages  and  mismatches  exist  in  many  sectors  and  reduce  Estonia’s 
competitiveness.  Businesses  have  identified  the  lack  of  skilled  staff  as  a  barrier  to 
investment  and  to  their  export  potential.  Shortages  of  skilled  labour  and  large  skills 
mismatches coincide with rapid wage growth and increased unit labour cost. Both the 
green  and  digital  transitions  have  increased  demand  for  workers  with  specialised 
skills, while shortages in healthcare and education remain acute and are augmented by 
the  ageing  of  the  workforce.  At  the  same  time,  relatively  high  rates  of  both  early 
school  leaving  and  drop  out  in  higher  education  result  in  an  insufficient  number  of 
skilled  graduates.  This  problem  has  a  particular  regional  dimension,  as  rural  and 
remote  areas  face  more  difficulties  in  attracting  qualified  professionals.  Skills 
mismatches could be limited through further improving the labour market relevance of 
the education and training system, investing in career guidance, addressing the gender 
pay gap, increasing opportunities for reskilling and upskilling, and better anticipating 
skills  needs.  Given  the  need  for  the  economy  to  diversify  into  activities  with  high 
value added, better ways to retain and attract talent would also help. 

(28) 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation  on 
the  euro  area.  For  Estonia, 
recommendations  (1),  (2),  (3)  and  (4)  help  implement  the  first,  second,  third,  and 
fourth euro area recommendations.  

the  economic  policy  of 

HEREBY RECOMMENDS that Estonia take action in 2024 and 2025 to:  

1. 

16 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure16  in  2025  to  a  rate  consistent  with  reducing  the  general  government 
deficit  below  the  3%  of  GDP  Treaty  reference  value  and  keeping  the  general 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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2. 

3. 

4. 

government debt at a prudent level over the medium term. Broaden the tax base and 
improve access to and financing of healthcare and long-term care.   

Continue with the swift and effective implementation of the recovery and resilience 
plan,  including  the  REPowerEU  chapter,  ensuring  completion  of  reforms  and 
investments  by  August 2026. Accelerate  the  implementation  of  the  cohesion  policy 
programme. In the context of the mid-term review, continue focusing on the agreed 
priorities, taking action to better address the needs in the long-term care sector, while 
considering  the  opportunities  provided  by  the  Strategic  Technologies  for  Europe 
Platform initiative to improve competitiveness. 

Strengthen social protection, inter alia 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. 

Reduce  the  share  of  oil  shale  in  the  energy  mix  and  raise  resource  productivity 
through bio-based innovation. Improve labour productivity and skills supply through 
reskilling and upskilling, and by better attracting and retaining talent. 

Done at Brussels, 

For the Council 
The President 

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