COMMISSION STAFF WORKING DOCUMENT 2024 Country Report - Estonia Accompanying the document 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 19.6.2024  SWD(2024) 606 final  COMMISSION STAFF WORKING DOCUMENT 2024 Country Report - Estonia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION  on the economic, social, employment, structural and budgetary policies of Estonia {COM(2024) 606 final} - {SWD(2024) 600 final}  
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Low demand from abroad drives 
recession  

applied  as  of  1 January 2024  has  increased 
inflation again.  

Graph 1.1: Employment, activity and 
unemployment rates 

last  2 years  and  growth 

Estonia’s  economy  has  been  in  recession 
for  the 
is 
expected to remain negative this year (1). 
Real  GDP  contracted  by  3%  in  2023.  The 
country  has  experienced  several  shocks  since 
2021,  including  Russia’s  war  of  aggression 
against  Ukraine,  which  led  to  rapidly  rising 
energy  prices,  loss  of  input  supplies  from 
Russia  and  discontinued  exports  to  Russia,  as 
well  as  the  challenge  of  foreign  and  local 
investors  abstaining  from  investing  in  Estonia 
due  to  perceived  geopolitical  risks.  Economic 
growth  was  further  hampered  by  tighter 
monetary policy and the rapid transmission of 
this tightening to lending given the dominance 
of  flexible  interest  rates  in  Estonia,  and  the 
worsened  economic  situation  in  the  Nordic 
countries,  the  main  destination  of  Estonian 
exports.  Due  to  this  varied  nature  of  shocks, 
the  decline  in  economic  activity  was  broad-
based, with contractions recorded in household 
consumption, 
and, 
particularly, exports. Government spending and 
inflows  of  EU  funds,  including  under  the 
recovery  and  resilience  plan,  have  played  a 
stabilising role. 

investment 

private 

Inflation 
in  Estonia  decreased  after 
reaching  double-digit  heights  but  still 
averaged  9.1%  in  2023,  one  of  the 
highest  rates  in  the  euro  area.  In  the 
second half of 2023, inflation moderated in all 
major  categories,  particularly  in  energy  and 
food,  where  previous  increases  had  been  the 
highest.  It  stabilised  below  5%  by  the  end  of 
the  year.  The  higher  value  added  tax  rate 

(1)  The cut-off date for the data used to prepare the 27 

Country Reports was 15 May 2024 

2 

Source: Eurostat 

remarkable  against 

Despite  the  recession,  the  Estonian 
labour  market  continued  its  very  strong 
performance  in  2023,  though  the  first 
signs of  weakness  are emerging.  In  2023, 
employment  rose  sharply,  by  about  4%.  The 
employment  rate  stood  at  82.1%  of  the 
working-age  population,  above  the  euro  area 
average of 74.8%. This high employment rate 
is  even  more 
the 
background  of  the  very 
influx  of 
Ukrainian  refugees  into  Estonia  (equal  to 
about  2.6%  of  the  Estonian  population).  More 
than 27 700 refugees from Ukraine had found 
a  job  by  the  end  of  January  2024.  The  good 
labour market performance led to a rise in real 
income  of  around  10%  in  2023,  partially 
compensating  for  real  income  losses  inflicted 
by  high  inflation.  The  labour  market  situation 
started  to  worsen  gradually  in  response  to 
weak  economic  activity  and  persisting  skills 
mismatches, and the unemployment rate rose 
to 7.8% in April 2024.  

large 

767880828486889005101520253035200920102011201220132014201520162017201820192020202120222023%%Activity rate 20-64 (right axis)Unemployment rate 15-74Long-term unemployment rate 15-74Youth unemployment rate 15-24Not in education, employment, or training rate 15-29 
 
  
 
   
low 

people 

relatively 

child  benefits, 

from  Ukraine. 

increased  to 
The  government  deficit 
above  3%  in  2023,  due  to  increasing 
expenditure  and 
tax 
revenues.  The  general  government  deficit 
increased from 0.9% of GDP in 2022 to 3.4% 
in  2023,  driven  by  the  decline  in  GDP  and 
in  expenditure  on  defence, 
sizeable  rises 
education, 
research  and 
development,  public  wages  and  helping 
displaced 
Total 
government revenues, including revenues from 
taxation,  increased  by  8.2%  in  2023,  while 
expenditure increased by 14.5%. The deficit is 
projected  to  remain  at  3.4%  of  GDP  in  2024 
due 
to  defence  spending  and  defence 
investments  as  well  as  further  increases  in 
child  benefits.  At  the  end  of  2023,  the 
government 
reached  an  agreement  with 
commercial banks to hand out more dividends 
in 2024 on previously accumulated capital and 
profits. This is expected to lead to an increase 
in  corporate  tax  revenues  in  2024.  Estonia’s 
government debt is expected to rise by around 
2 percentage  points  from  19.6%  of  GDP  in 
2023  to  21.4%  in  2024,  while  remaining  the 
lowest in the EU. Fiscal sustainability risks are 
expected to be low for Estonia over the short, 
medium and long term (see Annex 21).  

After  a  very  rapid  increase  in  house 
prices,  the  real  estate  market  is  cooling. 
From 2010 to 2023, house prices increased by 
more  than  210%  –  the  highest  rate  of  house 
price  growth  in  the  EU  over  these  years.  In 
parallel, lending for house purchases has also 
grown  and  accelerated  since  2020.  However, 
the  market  is  showing  signs  of  stabilisation 
now.  In  2023,  house  prices  remained  stable, 
but,  reportedly,  they  have  started  to  decline 
recently.  As  the  share  of  loans  that  are  close 
limits (2)  has 
it 
to 
appears 
less 
affordable (see Annex 18).  

that  housing  has  become 

regulatory 

increased, 

Estonia’s geopolitical vulnerabilities have 
risen to the medium-high level, above the 
EU  average.  Russia’s  war  of  aggression 

to 

against  Ukraine  has  negatively  affected 
consumer behaviour and investment. Estonia’s 
vulnerabilities 
its  high 
increased  due 
supplier  concentration  in  base  metals  and 
energy  carriers,  its  high  non-EU  trade  partner 
net 
concentration, 
its 
international 
significantly 
(see 
Annexes 5 and 12).  

investment  position,  and 
increased 

deteriorated 

borrowing 

its 

Higher production costs in  
combination with low productivity  
and low innovation impair  
competitiveness 

Over  two  decades,  Estonia’s 
labour 
productivity  has  impressively  narrowed 
the  gap  with  the  EU  average.  Labour 
productivity grew from less than 50% in 2004 
to 77.5% of the EU average in 2023. This rise 
is mostly attributable to capital deepening, but 
also  to  total  factor  productivity (3)  (see  Annex 
12). 

However, over the last few years, Estonia 
has  suffered  from  a  large  decline  in 
labour  productivity.  Average  pay  per 
employee  has  risen  rapidly,  increasing  by 
nearly  10%  in  2021,  by  8%  in  2022  and  by 
7.6% in 2023. While these increases may well 
be  justifiable  given  the  very  high  inflation, 
they coincide with a substantial drop in labour 
productivity, amid a recessionary environment. 
Labour  productivity  declined  by  4.8%  in  2022 
and  by  6.0%  in  2023.  The  sectors  with  the 
losses  were 
labour  productivity 
largest 
financial  activities,  agriculture  and 
lately 
information and communication.   

The  weak  investment  in  recent  years 
future 
paints  a  grim  picture 
productivity  developments. 
Investment 
declined  by  3.7%  in  2022  and  3.4%  in  2023, 
with a more pronounced decline in the private 
sector.  Skills  shortages,  high  energy  costs,  a 

for 

(2)  Regulatory limits are set on the loan-to-value ratio 
(maximum 85%), the debt service-to-income ratio 
(maximum 50%) and the maturity of loans (maximum 
30 years). 

(3)  A measure of productivity accounting for effects in total 
output not caused by traditionally measured inputs of 
labour and capital. 

3 

 
 
 
Estonia’s competitiveness is supported by its business-friendly environment and high 
business  and  government  efficiency.  The  country  has  an  enabling  start-up  and  scale-up 
system,  and  the  high  digitalisation  level  of  public  administration  significantly  reduces  the 
administrative burden on businesses. Moreover, Estonia continues to be well integrated into the 
single  market,  and  its  trade  within  the  EU  accounted  for  59.46%  of  GDP  in  2023,  the 
fifth-highest  share  among  EU  Member  States.  Furthermore,  Estonia  has  a  comparatively  low 
level of trade restrictiveness compared to the EU average (see Annex 12).  

However, competitiveness challenges remain:  

skills  mismatches  and  shortages,  which  hold  back  investment  and  productivity, 
negatively affecting the growth outlook.  

low  resource  efficiency  and  insufficient  innovation,  especially  as  regards 
bio-based  innovation  that  can  improve  resource  use  and  increase  the  valorisation  of 
natural  resources  such  as  forestry,  which  restrain  investment  and  growth  of  value 
added. 

Estonia’s competitiveness in brief 

• 

• 

Box 1: 
shortag
es have 
been a 
pivotal 
factor 
in the 
recent 
product
ivity 
losses. 
Busines
ses 
have 
identifi
ed the 
lack of 
skilled 
lack  of 
innovation,  uncertainty  about  the 
staff as 
future  and  increasing  financing  costs  are  the 
the 
main  obstacles  to  private  sector  investment 
main 
(see  Annexes  7,  11,  12,  14  and  18). 
long-
Underinvestment can hamper competitiveness 
term 
in the long run.  
barrier 
to 
Skills  shortages  have  been  a  pivotal 
investm
factor 
losses. 
in  recent  productivity 
ent and 
Businesses  have  identified  the  lack  of  skilled 
a major 
staff  as  the  main 
long-term  barrier  to 
challen
investment  and  a  major  challenge 
for 
ge for 
competitiveness.  Shortages  of  skilled  workers 
competi
have  been  particularly  acute 
ICT, 
tiveness
construction,  education,  healthcare  and  long-
. Skilled 
term  care,  while  other  sectors 
reported 
labour 
significant  skills  mismatches  (see  Chapter  3). 
shortag
In 
the  machinery,  metal  and 
es have 
electronics  sectors  suffer  from  a  lack  of 
been 
engineers and highly educated specialists (see 
particul
Annex 12). 
arly 
acute in 
The  underutilisation  of  female  talent  is 
ICT, 
also  holding  back  productivity  and 
constru
undermining  the  competitiveness  of  the 
ction, 
economy.  Female  employment  is  high  in 
eBox x: 
Estonia;  however,  the  gender  wage  gap 
remains  among  the  largest  in  the  EU.  While 
women 
in  Estonia  tend  to  have  higher 
educational  attainment  than  men,  firms  often 
hire  women  for  less  prominent  positions, 
failing to make use of their skills, slowing their 
progression  and  hindering  acquisition  of 

industry, 

in 

entrepreneurial  experience  that  could  foster 
innovation (see Chapter 3). 

Low  resource  productivity  persists  as  a 
feature  of  Estonia’s  industrial  system, 
to  competitiveness  concerns.  
adding 
Construction,  the  wood 
industry  and  the 
metalworking 
industry  –  major  Estonian 
exporters – are heavy users of energy and raw 
materials, such as wood and energy produced 
from  oil  shale.  Supply  used  to  be  cheap  and 
industries  were  not 
these 
abundant,  so 
increase 
innovate  and  to 
incentivised  to 
resource  productivity.  Shortages 
raw 
in 
materials  have  become  more  pronounced  in 
the  last  2  years  and,  in  future,  geopolitical 
their 
developments 
accessibility  (see  Annex  12).  Low  resource 
productivity 
relative 
weaknesses  when  it  comes  to  the  country’s 
innovation  capacity  and  competitiveness. 
Estonia  performs  below  the  EU  average  on 
eco-innovation 
inputs  and  activities  and 
resource-efficiency  outcomes.  Estonia’s  heavy 
reliance on oil shale has a negative impact on 
resource productivity and the green transition, 
making  Estonia  the  second-biggest  producer 
of hazardous waste in the EU (see Annex 9). 

is  one  of  Estonia’s 

affect 

could 

still 

its 

Despite 
business-friendly 
environment,  Estonia  remains  below  the 
innovation. 
in  terms  of 
EU  average 
Supported  by  a  dynamic 
research  and 
development (R&D) base and good framework 

4 

 
 
UN Sustainable Development Goals (SDGs) 

Estonia  is  performing  well  on  all  SDGs  related  to  competitiveness  and  productivity 
(SDGs  4,  8,  9),  but  still  needs  to  catch  up  with  the  EU  average  on  SDG  9,  which  is 
related  to  industry,  innovation  and  infrastructure.  While  Estonia  is  making  progress,  the 
country  is  performing  below  the  EU  average  on  SDG  9,  mostly  because  its  gross  domestic 
expenditure on R&D has not caught up with the EU average yet. While the country is performing 
well and improving on some SDG indicators related to fairness (SDGs 4, 7, 10), it still needs to 
catch  up  on  SDG  1  (No  poverty),  SDG  5  (Gender  equality)  and  SDG  3  (Good  health  and  well-
being).  

Out  of  the  17  indicators,  Estonia  is  performing  above  the  EU  average  on  eight 
indicators,  and  the  country  is  making  progress  on  16  indicators.  There  is  only  one 
indicator  (SDG  1)  where  Estonia  is  performing  below  the  average  EU  and,  at  the  same  time, 
moving  away  from the  targets  for  this  SDG.  This  is  because  in  recent  years,  the  proportion  of 
people  at  risk  of  poverty  or  social  exclusion  and  the  proportion  of  people  at  risk  of  monetary 
poverty after social transfers have been increasing. 

Box 2: 
indicat
ors 
regardi
ng 
poverty 
are 
worseni
ng and 
self-
reporte
d 
unmet 
needs 
for 
medical 
care 
remain 
conditions  for  tech  start-ups,  Estonia  still  has 
high. 
the  EU’s  highest  number  of  start-ups  per 
capita.  Estonia’s  R&D  intensity  has  increased, 
Accordi
and  research-based  innovation  activities  have 
ng to 
expanded 
in  recent  years.  Yet,  business 
the 
remains 
enterprise  expenditure  on  R&D 
Social 
relatively low (see Annex 11). Also, the use of 
Scorebo
some  advanced  digital  technologies,  such  as 
ard 
big  data  and  artificial  intelligence,  is  lower 
support
the  EU  average,  dragging  down 
than 
ing the 
competitiveness. 
Europe
an Pillar 
Graph 1.2: Interest rates for new loans to 
of 
non-financial corporations and households 
Social 
Rights, 
most 
social 
indicato
rs, 
includin
gBox x: 

Source: European Central Bank 

Financing  costs  have  markedly  increased 
over  the  past  2  years.  A  vast  majority  of 
bank  loans  to  businesses  and  households  in 
Estonia is granted with floating interest rates. 

5 

raised 

The rapid tightening of monetary policy, when 
the  European  Central  Bank 
the 
refinancing  rate  from  0%  to  4%  over  just 
slightly  more  than  a  year,  implied  that  banks 
passed  these  costs  directly  on  to  customers 
(see  Graph  1.2).  In  line  with  the  objective  to 
dampen  inflation,  this  led  to  much  higher 
financing  costs  for  business 
investment, 
housing  acquisition  and  consumption,  in  turn 
contributing  to  lower  investment  and  cooling 
of the housing market. 

Social inequality and regional 
disparities remain 

to 

the 

Estonia  faces  some  social  challenges, 
with  poverty  indicators  worsening  and 
high  self-reported  unmet  needs  for 
the  Social 
medical  care.  According 
Scoreboard  supporting  the  European  Pillar  of 
Social  Rights,  in  2022,  most  social  indicators, 
including 
risk  of  poverty  or  social 
exclusion,  worsened  among  disadvantaged 
groups, with high income inequality and a low 
impact  of  social 
than 
pensions)  on  poverty  reduction.  Also,  the  at-
risk-of-poverty  or  social  exclusion  (AROPE) 
rate  of  older  people  (65  and  over)  increased 
significantly, from 41.6% in 2021 to 53.1% in 
2022,  and  was  one  of  the  highest  in  the  EU 
(EU  average:  20.2%).  The  same  trend  was 
observed  for  the  monetary  poverty  rate 

transfers 

(other 

-101234567Feb-21Apr-21Jun-21Aug-21Oct-21Dec-21Feb-22Apr-22Jun-22Aug-22Oct-22Dec-22Feb-23Apr-23Jun-23Aug-23Oct-23Dec-23Non-financial corporationsHouseholdsECB policy rate 
   
 
 
 
(52.3%,  compared  with  an  EU  average  of 
17.3%), being higher for women than for men. 
The  AROPE  rate  of  people  with  a  disability 
increased in 2022 and it is one of the highest 
in  the  EU.  Self-employed  and  those  in  non-
standard  forms  of  work  continue  not  to  be 
covered by unemployment benefits, which puts 
them  at  risk  of  poverty.  Self-reported  unmet 
needs  for  medical  care  remain  among  the 
highest 
some 
EU 
improvements are observed thanks to ongoing 
reforms.  Estonia  also  has  further  scope  to 
reduce  early  school  leaving  and  the  gender 
gap in higher education. 

although 

the 

in 

6 

 
IMPLEMENTATION OF KEY REFORMS AND 
INVESTMENTS USING EU INSTRUMENTS 

Funding from the Recovery and Resilience 
Facility  (RRF)  and  cohesion  policy  is 
mutually  reinforcing  Estonia’s  efforts  to 
boost  its  competitiveness  and  stimulate 
In  addition  to  the 
sustainable  growth. 
EUR 953.2 million of RRF funding described in 
Annex 3, cohesion policy provides Estonia with 
EUR 3.4  billion  for  the  2021-2027  period. 
Support from these two instruments combined 
represents 11.47% of the country’s 2023 GDP, 
compared  to  the  EU  average  of  5.38%  of 
GDP (3) (see Annex 4).  

and  labour  market  policy.  For  the  current 
2021-2027  programming  period,  the  focus  is 
on  fostering  Estonia’s  competitiveness,  green 
and  digital  transition  and  skills  development, 
social  cohesion,  and  long-term  care,  and  on 
improving the living and working conditions of 
Estonia’s  people.  The  European  Regional 
Development  Fund  (ERDF)  and  Just  Transition 
Fund  are  also  investing  in  climate  change 
mitigation  and  supporting  municipalities  to 
address regional disparities. 

to 

In  particular, 

Under  its  RRP,  Estonia  has  launched 
important  policy  measures  that  are 
the  country’s 
improve 
expected 
competitiveness. 
the  RRP 
envisages  major  reforms  in  the  areas  of 
digitalisation  of  the  public  sector,  green  and 
social 
transition  of  businesses, 
digital 
protection, 
and 
transport, 
renewable  energy.  Also,  Estonia  is  making 
substantial  investments  in  healthcare,  energy 
of 
security, 
buildings,  and  decarbonisation  of  transport 
and of the economy overall.  

energy-efficient 

healthcare, 

renovation 

The implementation of Estonia’s recovery 
and  resilience  plan  is  well  underway. 
Estonia  submitted  2  payment 
requests, 
corresponding to 47 milestones and targets in 
the  plan  and 
in  an  overall 
resulting 
disbursement  of  EUR  505  million  on  19  April 
2024.  Beyond  the  second  payment  request, 
the  implementation  of  the  plan  is  broadly  on 
track (see Annex 3).  

Cohesion  policy  funding  helps  tackle 
Estonia’s  growth  and  competitiveness 
challenges  and  reduce  the  country’s 
territorial and social disparities. Under the 
2014-2020  cohesion  programming  period, 
support  focused  on  the  areas  of  support 
businesses,  energy  efficiency,  decarbonisation 
of industry, transport, research and innovation, 

7 

Supporting the green transition  
and fostering sustainable 
transport 

improving 

RRP  implementation  helps  companies  in 
the  green  transition.  The  Green  Fund  has 
been  set  up  with  the  support  of  the  RRF  to 
finance  the  development  and  scaling-up  of 
innovative  green  start-ups  and  small  to 
medium-sized  enterprises, 
their 
competitiveness.  With  the support  of  the  RRP, 
pilot  projects  are  being  set  up  to  boost  the 
uptake  of  green  hydrogen  technologies  in  the 
transport and chemical industry. Both the RRF 
and  cohesion  policy  funds  finance  multiple 
measures  in  Estonia  that  aim  to  develop  the 
developing 
circular 
resource-efficient  production  methods.  The 
Cohesion Fund also supports the improvement 
of waste collection.  

economy, 

such 

as 

The Estonian RRP includes major reforms 
and  investments  for  the  deployment  of 
renewable energy. These are complemented 
by  various  investments  from  the  ERDF.  The 
RRP  includes  a  major  reform  to  streamline 
permitting 
impact 
assessments  for  wind  energy  production.  The 
government  already  decided  to  relax  height 
restrictions  on  wind  energy  installations  and, 

environmental 

and 

 
 
as  a  next  step,  it  will  determine  priority 
development areas for wind energy, and a new 
West-Estonia  radar  will  be  installed  enabling 
wind  energy  developments  in  the  region  to 
take  off.  Furthermore,  local  authorities  have 
been  supported  in  improving  administrative 
procedures  for  wind  energy  development. 
Complementing  this  reform,  the  RRF  finances 
an  investment  to  increase  the  capacity  of  the 
electricity  distribution  network  aiming 
to 
enable  the  network  to  absorb  the  additional 
renewable  capacity  created.  The  RRP  also 
includes measures to develop the local biogas 
and 
are 
complemented by investments financed by the 
ERDF. Support to develop the infrastructure of 
biomethane  filling  stations  and  increase  local 
municipalities’  uptake  of  biomethane-based 
vehicles  in  public  transport  will  increase  the 
resilience  of  the  energy  sector,  strengthening 
overall competitiveness. 

sectors,  which 

biomethane 

Using various EU funding sources, Estonia 
is  improving  the  energy  efficiency  of 
buildings  and  working  to  reduce  regional 
disparities.  The  RRF  and  the  ERDF  support 
energy-efficient 
renovation  of  apartment 
buildings  and  private  residences,  especially  in 
areas  with  low  real  estate  values,  helping  to 
improve  the  quality  of  the  housing  stock, 
especially in regions that are lagging behind. In 
addition, the ERDF and the Cohesion Fund will 
support  energy-efficient  renovation  projects  – 
for  instance  renovation  of  public  buildings  in 
the healthcare sector and renovation of district 
heating  systems  –  and  the  connection  of 
buildings to the district heating network. These 
investments are facilitated by a reform under 
the  RRP  that  improves  advisory  services  and 
digital tools for energy-efficient renovations. 

is 

its 

improving 

Estonia 
transport 
infrastructure  and  making  its  transport 
sector  more  sustainable.  Estonia  has 
focused  on  developing  both  rail  transport  and 
the  capital  city  Tallinn’s  public  transport 
system,  as  emissions  from  road transport  are 
still a concern and rail transport electrification 
is low (see Annex 6). A major reform under the 
Estonian  RRP  concerned  the  adoption  of  the 
Transport  and  Mobility  Development  Plan  to 
accelerate  the  reduction  of  CO2  emissions  in 
includes 
the 

transport  sector.  The  plan 

supports 

the  ERDF 

measures  such  as  developing  the  Tallinn 
capital  region’s  public  transport  system  and 
measures  to  promote  sustainable  and  active 
urban  transport  in  bigger  towns.  To  boost  the 
use  of  public  transport,  the  RRP  supports  the 
construction  of  the  Tallinn  Old  Port  tramline, 
while 
further 
development  of  Tallinn’s  tram  infrastructure. 
Both  the  RRF  and  cohesion  policy  funds  will 
support  the  construction  of  cycle  lanes  and 
walkways  in  both  cities  and  municipalities.  In 
addition,  Estonia  is  decarbonising  its  ferry 
port 
connections 
infrastructure to reduce environmental impact. 
The  RRF  and  the  EU  Innovation  Fund  support 
deployment of low and zero emission vessels.  

improving 

and 

the 

its 

investing 

The  RRF  and  other  EU  funds  are 
supporting  Estonia’s  connectivity  and 
competitiveness  by 
in  the 
construction  of  Rail  Baltica.  In  particular, 
the  RRP  finances  the  ongoing  investments  in 
the construction of Rail Baltica viaducts, while 
the 
the  2021-2027  Cohesion  Fund  and 
Connecting  Europe  Facility  will  finance  the 
construction of the Rail Baltica main track, the 
terminal  infrastructure  in  Tallinn  and  Pärnu, 
and  local  stations.  In  doing  so,  EU  funds  are 
promoting the shift from road to rail transport 
for  both  passengers  and  freight,  helping  to 
reduce commuting times and CO2 emissions. 

Fostering the digital transition  

EU 
funds  are  supporting  Estonia’s 
reforms  and  investments  to  advance  the 
digital  transition  of  the  public  sector. 
Under  its  RRP,  Estonia  has  taken  steps  to 
transfer  basic  digital  public  services  to  the 
national  cloud  infrastructure  and  to  digitalise 
the  supply  of  public  services  for  individuals 
and businesses. This will also be supported by 
the  ERDF.  Another  investment  under  the  RRP, 
complemented  by  support  from  the  ERDF, 
improve  the  very  high  capacity 
aims  to 
broadband  networks  by  offering  access  to  a 
connection of at least 100 Mbps to 8 000 new 
households  and  socio-economically  important 
institutions,  such  as  hospitals,  schools,  public 
services and businesses.  

8 

 
Box 3: 

Combined action for more impactful EU funds: investing in skills 

To  boost  economic  growth  and  maximise  the  impact  of  EU  funding,  Estonia’s  RRP  includes 
measures  that  support  investments  under  other  EU  instruments,  creating  significant  synergies 
and  complementarities  between  the  various  funds.  For  example,  Estonia  is  strengthening  the 
capacity of  businesses in the digital transition  by increasing the availability of information and 
communication  technology  professionals.  The  ongoing  reform  aims  to  offer  new  career 
opportunities through upskilling and retraining, and through a better recognition of skills acquired 
outside  formal  learning.  In  addition,  the  RRP  investment  will  help  ensure  the  availability  of 
high-quality  expertise  to  implement  the  green  transition  in  businesses,  providing  upskilling  and 
retraining programmes for adults and modernising study curricula. These measures should help 
improve Estonia’s competitiveness by closing skills gap and tackling mismatches. 

Ongoing policy action is supported by the cohesion policy funds’ priority investment in skills and 
lifelong learning to address labour market needs. European Social Fund Plus investment will help 
raise  the  appeal  of  study  fields  related  to  the  green  and  digital  transitions,  offering  learning 
opportunities throughout all stages of life. The Just Transition Fund will support wider training in 
vocational and higher education, in areas with bigger potential for growth and in cooperation with 
local firms. The Fund will invest in Ida-Viru, Estonia’s region of oil shale extraction, to counteract 
the consequences of the green transition and stimulate job creation.  

of 

digital 

support 

technologies 

The  Estonian  RRP 

Estonia  has  been  promoting  the  digital 
transition  of  companies  by  implementing 
dedicated  grant  schemes.  The  Estonian 
business  ecosystem  includes  many  innovative 
and  growing  start-ups  that  are  driving  the 
country’s  growth  and  modernisation,  but  not 
all  Estonian  businesses  make  full  use  of  the 
potential 
(see 
Annex 10). 
includes 
measures  to  encourage  the  digitalisation  of 
companies, particularly small to medium-sized 
enterprises,  including  a  measure  to  provide 
financial 
digital 
for 
technologies,  promoting  industrial  R&D  and 
training  staff.  The  RRP  also  includes  a  tool 
enabling 
logistics 
transport 
companies  to  use  digital  waybills,  as  well  as 
an 
the  digital 
transformation  of  the  construction  sector. 
There  is  also  a  programme  that  will  help 
and 
export 
increase 
competitiveness  of  Estonian  businesses, 
including those operating with information and 
communication  technologies.  The  digital  skills 
reform  included  in  the  RRP  is  supported  by 
cohesion  policy 
(see 
investment 
Annex 4 and Box 3).  

to  accelerate 

investment 

in  skills 

adopting 

capacity 

road 

and 

the 

Strengthening social protection, 
social services and healthcare 

Under  the  RRP,  Estonia  adopted  major 
reforms  and  is  investing  to  improve 
access  to  healthcare.  Legislative  changes 
introduced in 2023 make it more attractive for 
health  workers  to  work  in  remote  areas,  thus 
strengthening primary care across the country. 
In  addition,  a  strategic  framework  was  put  in 
place  to  increase  the  attractiveness  of  the 
health  profession  and  the  number  of  health 
workers.  Also,  Estonia  set  up  a  new  e-health 
governance  framework  to  improve  access  to 
e-health. These reforms are complemented by 
a  major investment  in the  construction  of  the 
TERVIKUM health centre in Viljandi.  

Under  the  RRP,  Estonia  is  strengthening 
social  protection,  equality  and  access  to 
long-term  care.  Unemployed  people  will  be 
better protected thanks to the extension of the 
duration  of  unemployment  insurance  benefits 
in times of economic crisis. Estonia is creating 
an integrated care model for health and social 
services  to  support  people  with  complex  care 
needs. Steps were taken to reduce the gender 
pay gap by developing a prototype of a gender 
pay  gap  digital  tool  to  help  employers  take 
informed decisions.  

9 

 
 
 
 
The  RRF  and  other  EU  funds  have 
supported  better  provision  of  long-term 
care.  The  ongoing  reforms  under  the  RRP  to 
support  people  with 
care  needs  are 
complemented  by  investments  from  other  EU 
funds.  The  European  Social  Fund  Plus  will 
support  the  overall  reform  of  long-term  care 
and 
integration  of  healthcare  and  social 
through 
services 
measures  to  encourage  care  personnel  to 
enter and stay in the sector. ERDF investments 
will 
and 
independent living.  

deinstitutionalisation 

including 

Estonia, 

support 

in 

10 

 
FURTHER PRIORITIES AHEAD 

faces  additional 

Estonia 
challenges 
related  to  resource  productivity,  energy 
efficiency,  transport,  skills,  healthcare 
and long-term care, and social protection. 
Tackling  these  challenges  will  help  increase 
Estonia’s  long-term  competitiveness,  ensure 
the  resilience  of  its  economy,  and  foster  the 
well-being of its people. It will also help make 
the  UN 
further  progress 
Sustainable Development Goals.  

in  achieving 

is 

important  that  the 

It 
identified 
challenges  are  addressed  at  both 
national  and  regional  level.  This  will  help 
reduce  regional  disparities  and  improve  the 
administrative  and  investment  capacity  in  a 
balanced way across the country.   

Resource productivity, energy 
efficiency, and sustainable 
transport   

Estonia’s  green  transition  requires  more 
action. In particular, there is a need to specify 
the  funding  framework  for  the  climate  and 
energy transition and the policies to reach the 
2030  target  in  the  effort  sharing  sectors;  to 
reduce  emissions  from  road  transport  and 
buildings  and  to  improve  carbon  sinks  in  the 
land-use 
institutional 
and 
framework  on  climate  adaptation  and  the 
circular economy. 

sector; 

the 

Oil  shale  continues  to  have  a  significant 
share  in  Estonia’s  energy  mix,  hindering 
the  green  transition.  The  share  of  oil  shale 
in the energy mix halved in 2020 compared to 
2018  and  stood  at  37%.  However,  with  very 
high  electricity  prices 
in  2022,  oil  shale 
became  competitive  again,  and  its  share  in 
electricity  generation  rose  to  57%.  While  this 
is expected to be a short-term development, in 
order  to  be  able  to  gradually  phase  out  oil 

11 

independence, 

shale  while  at  the  same  time  keeping  a  high 
further 
degree  of  energy 
deployment of renewable energy production is 
needed. At the same time, action is required to 
ensure  that  the  phase-out  of  oil  shale  is 
accompanied  by  measures  to  ensure  a  just 
transition,  especially  in  the  Ida-Viru  region, 
where  40%  of  the  largest  employers  are  oil 
shale  companies  (see  Annex  7).  The  Estonian 
includes 
territorial 
measures  to  alleviate  the  impact  of  the 
transition by diversifying the region’s economy 
and  improving  the  living  environment.  The 
Estonian  recovery  and  resilience  plan  (RRP) 
includes  reforms  to  facilitate  the  deployment 
of renewables, with a focus on wind energy, as 
well  as  measures  to  increase  the  production 
and  storage  of,  and  access  to,  renewable 
energy.  However,  for  more  impact,  further 
investments are needed. 

transition  plan 

just 

The  Estonian  economy  remains  energy 
intensive while gains in energy efficiency 
are  slowing. 
In  2022,  primary  energy 
consumption  increased  by  6.5%  and  final 
energy  consumption 
increased  by  1.5% 
compared  to  2021.  The  economy  is  highly 
energy  intensive  due  to  the  still  relatively  big 
share  of  oil  shale  in  the  energy  sector,  the 
transport  sector  and  buildings.  High  energy 
intensity combined  with an increase in energy 
consumption 
the 
a 
competitiveness of the Estonian economy and 
increases inflation and energy poverty. Estonia 
aims  to  renovate  3%  of  the  floor  area  of 
public  buildings  per  year.  The  Recovery  and 
Resilience  Facility  finances  several  renovation 
schemes,  with  higher  support  rates  in  areas 
where  the  value  of  real  estate  is  lower,  but 
investments  are 
more  public  and  private 
needed to reach the annual renovation rate of 
3%.  

strain 

puts 

on 

Preparations  to  synchronise  Estonia’s 
electricity  grid  with  the  continental 
Europe  network  are  progressing  well. 

 
 
improving  waste  management.  Boosting 
eco-innovation  and  bio-based  innovation  will 
help 
resource  productivity  and 
competitiveness (see Annexes 9 and 11). 

improve 

Closing the skills gap and skills  
mismatches while strengthening  
innovation 

Skills shortages and mismatches in many 
sectors  persist  and  reduce  Estonia’s 
competitiveness.  Estonia’s  labour  market  is 
performing  well  and  has  one  of  the  highest 
levels  of  participation  and  employment  in  the 
EU.  Still,  around  80%  of  businesses  have 
identified the lack of skilled staff as a barrier 
to investment, and the persisting shortages of 
highly  educated  specialists 
in  exporting 
industries  are  hindering  the  country’s  export 
potential  in  the  long  run  (see  Annex  12).  The 
industries  such  as 
development  of  new 
information  technology  and  digital  services 
has 
increased  demand  for  workers  with 
specialised skills (see Annex 10). Shortages of 
skilled  workers  and  high  skills  mismatches 
in  many  traditional 
also  remain  present 
sectors,  most  notably 
in  education  and 
healthcare  (see  Annexes  15  and  16).  As  a 
result of Estonia’s market-based wage setting, 
skills shortages have led to rapid wage growth 
in  certain  sectors  and 
increased  cost  of 
labour (4), leading to a loss of competitiveness. 
Skills  shortages  have  a  notable  regional 
dimension,  as  rural  and  remote  areas  have 
bigger  problems 
in  attracting  qualified 
professionals.  Moreover,  these  challenges  are 
augmented  by  the  ageing  of  workers  and  the 
persistently high gender pay gap. 

challenge 

Over  the  years,  measures  have  been 
taken  to  alleviate  skills  shortages,  but 
remains.  Estonia  has 
the 
implemented  various  adult  and 
lifelong 
learning  programmes  to  upskill  and  reskill 
workers to address skills gaps. While the share 

(4)  European Commission, In-Depth Review, 2023, In-Depth 

Review 2023 - Estonia - European Commission 
(europa.eu). 

to 
Estonia,  Lithuania  and  Latvia  plan 
synchronise  their  electricity  grids  with  the 
continental  Europe  network  in  February  2025. 
Timely  finalisation  of  preparatory  work  is  of 
smooth 
utmost 
disconnection  from  Russia  and  Belarus  and 
integration of the Baltic states into the internal 
energy market. 

importance 

ensure 

to 

Estonia  would  benefit  from  investing 
further  in  the  transition  to  green  and 
sustainable  transport.  The  transport  sector 
accounts  for  15%  of  the  country’s  total 
greenhouse  gas  emissions.  Estonia  aims  to 
reduce  its  transport  emissions  by  24%  by 
2030 compared to 2005. With more than 90% 
of  emissions  stemming  from  road  transport 
and  having  one  of  the  highest  car  ownership 
rates  in  the  EU,  Estonia  has  planned  fiscal 
measures  to  decrease  car  dependency.  In 
particular,  a  vehicle  tax,  based  on  the  gross 
weight  and  CO2  emissions  of  the  vehicle,  is 
planned for 2025. In addition, Estonia is taking 
of 
increase 
measures 
electrification  of  railroads.  However,  action  is 
needed  to  ensure  actual  implementation  of 
the  Transport  and  Mobility  Development  Plan 
includes  fostering 
adopted 
electrification  and  increasing  the  number  of 
connections,  the  speed  and  the  safety  of  rail 
transport,  and  promoting  the  use  of  less 
polluting  means  of  transport,  especially  in 
urban areas.  

in  2023.  This 

level 

the 

to 

by 

low 

The  Estonian  economy  continues  to  be 
resource 
characterised 
productivity  and  circularity.  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. 
Estonia’s  municipal  waste  recycling  rate  was 
only  30.3%  in  2021,  much  below  the  EU 
average of 49.6% (see Annex 9).  

recent  available  data 

The  sector  of  land  use,  land-use  change 
and  forestry  has  become  a  CO2  emitter 
instead  of  absorber.  This  is  shown  by  the 
most 
(2021).  The 
forestry sector is characterised by high felling 
volumes, but also by low resource valorisation. 
Estonia  would  benefit  from  increasing  the 
efficiency  of  sustainable  forest  management, 
transitioning further to a circular economy, and 

12 

 
 
in 

employees 

participating 

training 
of 
increased  to  22%  in  2022  (well  above  the 
share  in  other  Baltic  countries),  the  share  of 
workers  reporting  a  qualification  mismatch  is 
almost  40% (5).  There  is  scope  to  address 
skills  mismatches  and  skills  shortages  by, 
among  other  things,  increasing  opportunities 
for reskilling and upskilling and steering young 
towards  occupations  with  high 
people 
shortages  of  workers.  In  addition,  addressing 
the  high  gender  pay  gap  is  also  critical  for 
that  workers  are  skilled  and 
ensuring 
and 
in 
competitive. 
development of female employees would offer 
better  career  opportunities  and  better  paid 
jobs.  

Investing 

training 

Estonia  has  performed  strongly 
in 
education,  but  a  moderately  worsening 
trend can be observed. The 2022 results of 
International  Student 
the  Programme  for 
Assessment  of  the  Organisation  for  Economic 
Co-operation  and  Development  show  that 
Estonia  has  performed  very  strongly  on  basic 
skills. Over the past decade, the proportion of 
low-achieving  students  has  remained  well 
below the EU average in mathematics, reading 
the  performance 
and  science.  However, 
deteriorated recently due to underachievement 
among  disadvantaged  students,  although 
Estonia remains the country with the smallest 
socio-economic gap (see Annex 15). Improving 
the  performance  of  underachievers  remains 
important  in  the  long  term  to  tackle  skills 
shortages and increase innovation capacity.   

strong 

performance 

Estonia’s 
in 
education  is  overshadowed  by  structural 
challenges  such  as  educational  staff 
shortages,  early  school  leaving  and  a 
large  gender  gap.  Early  school 
leaving 
increased  to  10.8%  in  2022,  compared  to  an 
EU  average  of  9.6%.  Furthermore,  there  are 
gender  gaps in  education as  more boys leave 
school early, and drop-out in higher education 
is  high.  These  trends  result  in  an  insufficient 
number of graduates (Annexes 14 and 15). At 
all  levels  of  education,  and  especially  in 

(5)  European Commission, Country Report – Estonia, 2023, 
2023 Country Report - Estonia - European Commission 
(europa.eu) and OECD, Economic Survey of Estonia, 
2024. 

sciences  and  mathematics,  there  are  severe 
teacher  shortages,  which  are  exacerbated  by 
the  large  share  of  teachers  who  will  be 
reaching retirement age in the next years, and 
a  high  rate  of  novice  teachers  who  quit. 
Moreover,  the  ongoing  transition  to  a  fully 
Estonian-speaking  education 
increases  the 
demand  for teachers  with  proficient  language 
In 
skills,  exacerbating 
parallel, there is a risk of growing educational 
inequalities as recent data show the increasing 
impact 
socio-economic 
students’ 
background (Annex 15). These challenges need 
to  be  taken  into  account  when  designing 
policies on skills and education. 

teacher  shortages. 

of 

in 

on 

factor 

system 

focuses 

innovation 

is  another 
Strengthening 
important 
strengthening 
Estonia’s  competitiveness.  Estonia  has  a 
dynamic  R&D  base  and  good  framework 
conditions  for  tech  start-ups,  which  support 
the  innovative  capacity  of  its  economy  (see 
Annex  11).  While  many  Estonian  businesses 
have  increased  R&D  investments  in  recent 
years,  R&D  spending  remains  limited,  and  the 
innovation 
digital 
innovation  and  start-ups.  Diversifying  the 
innovation  system  to  include  sectors  such  as 
advanced  manufacturing,  and  strengthening 
the  value  chain  of  wood  and  other  natural 
resources,  could  create  new  opportunities  for 
increase 
economic 
competitiveness,  if  workers  are  equipped  with 
the 
(see  Annex  15).  Closer 
collaboration between  academia, industry  and 
government  is  needed  to  promote  knowledge 
transfer,  technology  commercialisation,  and 
the development of high-value skills necessary 
for  innovation  performance.  Finally,  to  help 
address  these  challenges,  Estonia  could  step 
up  its  action  to  retain  and  attract  talent,  for 
instance  by  revising  the  quota  for  foreign 
workers  taking  into  account  the  shortages  of 
skilled workers in ICT, healthcare and industry.   

right  skills 

growth 

and 

Improving access to long-term 
care and healthcare 

Demographic changes put pressure on the 
provision  of  affordable  long-term  care 
is 
services.  Life  expectancy 

in  Estonia 

13 

 
 
increasing, driving up the number of those who 
will  need  care.  This  is  coupled  with  a  high 
share of people aged 65 and above in need of 
long-term care who lack assistance in personal 
In  addition, 
care  or  household  activities. 
Estonia  has  the  highest  proportion  of  persons 
with  disabilities  not  able  to  have  their  care 
is 
needs  met.  Access  to 
local 
unequal  across 
governments’ capacity to provide services and 
funding varies significantly (Annex 14). Lack of 
sufficient  care  services  may  put  pressure  on 
relatives,  mainly  women,  to  provide  the 
needed  care  themselves.  As  a  result,  only  a 
limited number of these people are working or 
looking 
reducing  Estonia’s 
for  a 
competitiveness. 

long-term  care 
country  as 

job, 

the 

authorities 

depends  mostly 

Local governments have broad power and 
autonomy  to  develop  their  policies,  but 
not all have enough capacity to fund and 
provide  services.  The  financial  capacity  of 
local 
on 
intergovernmental  transfers,  which,  in  turn, 
depend  on  the  number  of  inhabitants.  The 
share  of  Estonian  municipalities’  own  tax 
revenues  is  one  of  the  lowest  in  the  EU.  This 
creates  situations  in  which  local  governments 
may not be able to provide enough services to 
meet the demand (6), also resulting in regional 
disparities in care provision. Improvements are 
expected  from  reforms  of  long-term  care 
services, both as part of the RRP and under the 
separate  ‘Care  Reform’  that  started  in  2023 
and  aims  to  reduce  out-of-pocket  payments 
and  support  local  governments,  among  other 
things. 

Improving the working conditions of care 
workers  would  improve  the  provision  of 
quality long-term care. While the number of 
formal  long-term  care  workers  is  around  the 
EU  average,  hourly  earnings  in  social  services 
are  well  below  the  average  earnings 
in 
Estonia. Unattractive salaries may prompt care 
workers to leave the profession or not to enter 
it at all, while the demand for care is high and 
will  increase  in  the  future  in  Estonia.  This  is 

coupled  with  shortages  in  the  healthcare 
sector, where wages of doctors and nurses, as 
a  percentage  of  the  national  average  wage, 
are  among  the  lowest  of  all  EU  Member 
States (7). Quality care can only be provided by 
well-trained care workers, so it is important to 
ensure adequate training for those working in 
the care sector.  

in 

the  highest 

income,  so  there 

There  is  scope  to  improve  access  to 
healthcare.  Estonia  has  taken  steps  to 
improve  the  health  situation  of  its  people, 
which resulted in a steady decrease in deaths 
from  preventable  and  treatable  diseases. 
However,  death  rates  are  still  well  above  the 
EU average and unmet needs for medical care 
the  EU, 
remain  among 
suggesting  that  access  to  healthcare  remains 
a challenge. Waiting times have decreased, but 
this positive trend mostly concerns those with 
is  a  risk  of 
a  higher 
increasing  inequalities  in  access  to  treatment. 
In 2021, out-of-pocket spending accounted for 
total  spending  on  healthcare, 
22.1%  of 
compared to an EU average of 14.5% , which 
is  a  particular  concern 
low-income 
households.  Shortages  of  health  workers 
persist as in 2021, Estonia had fewer doctors 
and nurses per inhabitant than the EU average 
(Annex  16).  Ensuring  that  people  are  healthy 
contributes  to  people’s  well-being,  as  well  as 
to  Estonia’s  competitiveness,  as  workers  can 
stay  in  work  longer  and  without  interruption. 
address 
Estonia 
healthcare-related 
including 
through  reforms  contained  in  its  RRP,  but 
ensuring equal access to treatment as well as 
reducing  out-of-pocket  payments 
remain 
issues to be addressed. 

steps 
challenges, 

taking 

for 

to 

is 

Relatively low tax revenue limits 
the funding of public services 

The  success  of  healthcare  and  long-term 
care  reforms  depends  on  the  availability 
of  appropriate  and  sustainable  funding. 

(6)  OECD, ‘Revenues by level of government’, Government 
at a Glance 2023, 2023, Summary | OECD Government 
at a Glance. 

(7)  OECD, Health Statistics, 2023, OECD Health Statistics 

2023 - OECD. 

14 

 
 
 
Government  spending  on  healthcare  remains 
among  the  lowest  in  the  EU.  In  Estonia,  only 
76.24%  of  health  expenditure  was  publicly 
funded in 2021, well below the EU average of 
increasing, 
demand 
81.1%.  While 
government  spending  on  long-term  care  also 
remains among the lowest in the EU (0.4% of 
GDP, against an EU average of 1.7% in 2022). 
Due  to  demographic  changes,  demand  for 
healthcare  and  long-term  care  is  expected  to 
increase; 
therefore,  ensuring  appropriate 
funding for both is warranted.  

is 

to 

relies 

raise 

is  struggling 

Estonia 
tax 
revenues,  which  is  needed  to  fund  public 
services,  including  healthcare  and  long-
-term  care.  Total  tax  revenues  amounted  to 
32.9% of GDP in 2022, slightly lower than the 
33.8% in 2021, and well below the EU average 
of  40.2%  (see  Table  A19.1  in  Annex  19).  By 
component,  Estonia 
strongly  on 
consumption 
taxes,  which  are  generally 
considered  least  detrimental  to  growth.  They 
amounted to 13% of GDP in 2022, compared 
to  an  EU  average  of  11%.  However,  recurrent 
property  taxation,  which  is  also  considered  to 
be  one  of  the  sources  of  tax  revenue  least 
detrimental  to  growth,  made  up  only  0.2%  of 
GDP in 2022, against an EU average of 1%. In 
addition, capital taxes accounted for only 2.7% 
of  GDP  in  2022,  about  a  quarter  of  the  EU 
average  share  (8.9%).  Part  of  the  difficulty  in 
collecting  and  raising  taxes  is  due  to  the  fact 
that Estonia has been in recession since 2022. 
The  country  needs  to  avoid  procyclicality  in 
fiscal  policy  given  the  large  external  shocks 
that are hitting its economy.  

income 

increase 

lower  effective  rate 

The  tax  burden  is  unevenly  distributed, 
and the forthcoming tax reform is set to 
further 
inequality. 
Estonia’s income tax burden is close to the EU 
average,  but  it  is  regressive,  taxing  higher 
incomes  at  a 
(see 
Graph A19.2  in  Annex  19).  An  extensive  tax 
reform  is  envisaged  for  2025.  The  reform  is 
set  to raise the income tax rate from 20% to 
22%  while  also  increasing  the  basic  tax 
to  EUR 8 400  per  year  and 
exemption 
extending 
to  cover  everyone, 
its  scope 
regardless  of  income.  Overall,  the  proposed 
reform would reduce government revenues by 

15 

EUR 290 million and worsen income inequality 
(see Box 4). 

small 

relatively 

independent 

To  help  address  fiscal  challenges,  the 
independent  fiscal  institution  could  be 
strengthened.  The  Estonian  Fiscal  Council  is 
a 
fiscal 
institution,  with  only  two  staff  members.  It 
endorses  the  government’s  macroeconomic 
and  fiscal  forecasts  and  assesses  compliance 
with  the  budget  balance  rule.  Independence 
could be further strengthened, in particular as 
the Fiscal Council budget is part of the central 
bank budget. 

Strengthening social protection to reduce 
poverty and inequality 

those 

results 

The  social  protection  of  older  people, 
persons  with  disabilities  and  people  in 
non-standard  forms  of  work  and  with 
short work spells is weak.  Estonia  still  has 
one  of  the  EU’s  highest  at-risk-of-poverty  or 
social exclusion (AROPE) rates for older people, 
in 
persons  with  disabilities  and 
non-standard  forms  of  work  and  with  short 
work  spells.  In  2022,  the  AROPE  rate  for 
persons  with  disabilities  not  only  increased, 
but also was the second highest in the EU, and 
the  gap  compared  to  the  AROPE  rate  for 
people  without  disabilities  was  the  biggest  in 
the  EU  (Annex  14).  The  low  adequacy  of  the 
in  high,  and 
social  safety  net 
increasing,  income  inequality,  despite  a  few 
Income 
improvements 
inequality  started 
in  2021, 
to 
reversing  the  trend  of  a  decrease  observed 
since  2015.  Old-age  poverty  has  been  on  the 
rise, and it was one of the highest in the EU in 
2022.  The  gender  gap  in  old-age  poverty 
narrowed slightly in 2022, but only because of 
a  higher  increase  in poverty  for men than  for 
women  (Annex  14).  Pensions  are  still  low 
(the  aggregate 
incomes 
relative  to  work 
replacement ratio is 0.44, compared  to an EU 
average  of  0.58).  The  2021  pension  reform 
made  it  possible  to  opt  out  of  the  statutory 
funded  scheme, reducing the future adequacy 
of pensions and putting people at a higher risk 
of poverty in the long term. The low coverage 

in  previous  years. 

increase 

 
Box 4: 

Effects of the most relevant 2025 tax reforms in Estonia 

At the end of 2023, the Estonian government adopted a series of fiscal measures that will take 
effect  in  2024  and  2025  (including  reforms  of  the  value  added  tax,  pension  contributions, 
taxable income deductions, basic exemptions and the income tax rate). This box summarises the 
results  of  an  ex ante  assessment  of  the  distributional  effects  of  the  two  measures  with  the 
largest budgetary impact, both taking effect in 2025: (i) an increase in the income tax rate from 
20% to 22%, estimated to raise government revenues by EUR 260 million; and (ii) an increase in 
the basic tax exemption and an extension of its scope to cover all income tax payers, expected to 
reduce  government  revenues  by  around  EUR 550 million.  EUROMOD  simulations (10)  show  that 
the  increase  in  the  tax  rate  will  be  offset  by  the  increase  in  the  tax  exemption  for  most 
households (60.8% will be net gainers). Poorer households are mostly unaffected by the reform: 
they  will  only  benefit  from  the  small  increase  in  the  basic  tax  exemption  (from  EUR 7 848  to 
EUR 8 400)  and  they  often  rely  on  social  income  or  pensions  (rather  than  on  employment 
income), which are not affected by the increase in the income tax rate. For richer households, the 
combined effect of both measures is expected to be positive: the gain in income due to increase 
in the basic tax exemption is expected to fully offset the income loss due to the increase in the 
tax rate. Overall, the combined impact on poverty reduction is minimal, while income inequality is 
expected to rise (the Gini coefficient on disposable income increasing from 0.307 to 0.310). 

of  unemployment  benefits,  especially  for 
those  in  non-standard  forms  of  work  or  with 
short  work  spells,  plays  a  role  in  income 
inequality 
(see  Annex  14).  Although  the 
duration  of  unemployment  benefits  has  been 
adjusted (under the RRP), the extension of the 
coverage 
for  2025. 
Accelerating  the  legislative  work  would  help 
improve the situation of unemployed people in 
non-standard forms of work or with short work 
spells.  The  income  tax  reforms  planned  for 
2025 are set to increase income inequality as 
well (see Box 4). 

planned 

only 

is 

to 

linked 

inequality 

Rising 
the 
is 
significant  increase  in  cost  of  living.  This 
increase  was  not  accompanied  by  a 
corresponding  increase  in  social  benefits  and 
minimum wages. The 2022 nominal increases 
raised 
in  social  benefits  and  pensions 
household  disposable  income  on  average  by 
1.57%.  However,  these  positive  effects  were 
offset by the increased cost of living, resulting 
in  an  average  real  loss  in  household  disposal 
income  of  about  3.64% (8).  The  situation  of 

low-income  households  has  worsened  due  to 
high and persistent inflation in the past and is 
set  to  deteriorate  further  as  a  result  of 
planned tax reforms in 2024-2025 (see Box 4 
and Annex 14). Therefore, ensuring appropriate 
mitigation  measures,  including  as  regards 
pensions,  for  those  at  risk  of  poverty  will 
remain  a  key  challenge. 
the 
adequacy  of  the  social  protection  system 
could  reduce  poverty  and  inequalities.  This 
should  help  Estonia  achieve  the  2030  EU 
headline  target  on  poverty  reduction  of 
39 000  fewer  people  at  risk  of  poverty  or 
social exclusion compared to 2019.  

Increasing 

These  findings  are  consistent  with  the 
second-stage  analysis  in  line  with  the 
features  of  the  Social  Convergence 
Framework. The analysis points to challenges 
related  to  social  protection  and  inclusion,  and 
education  but  does  not  point  to  major  social 
convergence  challenges  for  Estonia  overall,  in 
light  of  the  positive  developments  recorded, 
especially in the area of employment (9). 

(8)  The EUROMOD methodology was used for the analysis 
in this chapter. See Paulus, A., & Tasseva, I. V., Europe 
Through the Crisis: Discretionary Policy Changes and 
Automatic Stabilizers, 2020, Europe Through the Crisis: 
Discretionary Policy Changes and Automatic Stabilizers 
- Paulus - 2020 - Oxford Bulletin of Economics and 
Statistics - Wiley Online Library. 

(9)  European Commission, SWD(2024)132. The analysis 
relies on all the available quantitative and qualitative 
evidence and analysing the policy response undertaken 
and planned. 

16 

 
 
 
 
 
 
 
Box 5: 

The mid-term review of cohesion policy funds for Estonia 

The  mid-term  review  of  cohesion  policy  funds  is  an  opportunity  to  assess  cohesion 
policy  programmes  and  tackle  emerging  needs  and  challenges  in  EU  Member  States 
and their regions. Member States are reviewing each programme taking into account, among 
other things, the challenges identified in the European Semester, including in the 2024 country-
specific recommendations. This review forms the basis for a proposal by the Member State for 
the definitive allocation of 15% of the EU funding included in each programme.  

Estonia has made progress in implementing cohesion policy programmes and the European Pillar 
of  Social  Rights,  but  challenges  remain  as  outlined  in  this  report  (see  Annexes  14  and  17).  In 
particular,  disparities  persist  in  terms  of  GDP  per  capita  and  productivity  between  the  capital 
region and the rest of the country. Against this background, it remains important to continue to 
implement  the  planned  investments,  with  particular attention  to:  (i)  increasing  competitiveness 
of  businesses,  especially  outside  the  capital  area,  and  improving  their  capacity  to  innovate; 
(ii) improving the energy efficiency of private and public buildings, as well as helping businesses 
to  become  more  energy-efficient;  (iii)  access  to  employment  through  active  and  preventive 
labour  market  measures  and  promoting  a  healthy  work  environment;  (iv)  the  quality, 
effectiveness  and  labour  market  relevance  of  education  and  training  and  promoting  lifelong 
learning,  notably  flexible  upskilling  and  reskilling;  and  (v)  active  inclusion  and  increasing  the 
accessibility, effectiveness and resilience of long-term care services. 

The  needs  related  to  accessibility  and  quality  of  long-term  care  prioritising  independent  living 
merit specific consideration in the preparation of the mid-term review. Estonia could also benefit 
from  the  opportunities  available  under  the  Strategic  Technologies  for  Europe  Platform  (STEP) 
initiative (11)  to  facilitate  investments  in  net-zero  technologies  manufacturing  and  support  the 
transformation of 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 as well as to perform R&D supporting it. 

(10)  Based on EU-SILC 2021 data (2020 income reference 

period). Budgetary and distributional results are 
expressed in 2023 prices. 

(11)  Regulation (EU) 2024/795 of the European Parliament 
and of the Council of 29 February 2024 establishing 
the Strategic Technologies for Europe Platform (STEP), 
and amending Directive 2003/87/EC and Regulations 
(EU) 2021/1058, (EU) 2021/1056, (EU) 2021/1057, 
(EU) No 1303/2013, (EU) No 223/2014, (EU) 
2021/1060, (EU) 2021/523, (EU) 2021/695, (EU) 
2021/697 and (EU) 2021/241 (europa.eu) 

17 

 
 
 
 
KEY FINDINGS 

resilience  plan 

With its wide policy scope and substantial 
financial  envelope,  Estonia’s  recovery 
and 
includes 
measures 
to  address  a  series  of 
structural  challenges,  in  synergy  with 
other  EU  funds,  including  cohesion  policy 
funds, by: 

(RRP) 

•  Reducing 

the 

economy’s 

energy 
intensity  by 
the  energy 
improving 
efficiency  of  buildings,  further  developing 
renewable  energy  production,  streamlining 
permitting and developing green skills; 

•  Improving  the  circular  economy  by 
valorising natural resources, in particular by 
local 
incentivising 
sustainable biomethane; 

the  production  of 

•  Addressing 

transport, 
sustainable 
including  by  introducing  a  common  pricing 
and  ticketing  system  in  the  Tallinn  area, 
advancing  the  Rail  Baltic  project,  and 
constructing the Tallinn Old Port tramline; 

•  Strengthening  the  productivity  and 
innovation  capability  of  businesses  and 
setting up a dedicated Green Fund to foster 
the  development  and  uptake  of  innovative 
green technologies; 

•  Upgrading  digital  government services 

and improving digital skills; 

•  Improving 

the 

accessibility 

and 
the  health  system, 
resilience  of 
including  by  increasing  the  number  of 
health  workers  and  strengthening  primary 
care; 

•  Strengthening  social  protection  by 
extending  the  duration  of  unemployment 
benefits, reducing the gender pay gap, and 
improving  long-term  care and  employment 
of young people. 

18 

Continued  efforts  are  key  for  a  successful 
the  measures  of 
implementation  of  all 
Estonia’s RRP by August 2026. 

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

•  Broadening the tax base, also to ensure 
adequate  and  sustainable  financing  for 
healthcare, 
long-term  care  and  social 
protection; 

•  To support upward social convergence, 
strengthening  social  protection  and 
tackling  inequalities,  by  addressing  old-
age  poverty,  increasing  support  for  people 
with  disabilities,  and  extending 
the 
coverage  of  unemployment  benefits,  in 
particular  to  those  with  short  work  spells 
and in non-standard forms of work;  

healthcare, 

•  Improving  access  to  long-term  care 
and 
by 
addressing  shortages  of  workers  and 
improving 
local 
governments  to  provide  affordable  long-
-term care services;  

particular 

capacity 

the 

of 

in 

strengthen 

shortages 

skills 
to 

•  Addressing 
and 
mismatches 
labour 
productivity  and  innovation  performance, 
including  by  reducing  early  school  leaving 
and  drop-out 
from  higher  education, 
improving  skills  supply  through  reskilling 
and  upskilling,  and  better  attracting  and 
retaining talent. 

•  Improving 

and 

energy 

resource 
efficiency  for  increased  competitiveness 
by  accelerating 
the  deployment  of 
renewables, reducing the overall reliance on 
fossil  fuels  and  phasing  out  oil  shale,  and 
the  valorisation  of  natural 
increasing 
resources,  such  as  forestry,  through  eco- 
and bio-innovation. 

 
 
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 – implementation 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy transition and competitiveness 

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 

LIST OF TABLES 

A2.1. 
A3.1. 

Summary table on 2019-2023 CSRs 
Key facts of the Estonian RRP 

21 

23 

23 

25 

29 

31 

34 

36 

36 

40 

45 

48 

48 

50 

52 

54 

59 

61 

61 

64 

67 

69 

72 

72 

74 

76 

77 

26 
29 

 
 
 
Support from EU instruments in Estonia 
Resilience indices across dimensions for Estonia and the EU-27 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
Key Energy Indicators 
Key indicators for a fair transition in Estonia 
Circularity indicators 

A3.2.  Measures in Estonia's RRP 
A4.1. 
A5.1. 
A6.1. 
A7.1. 
A8.1. 
A9.1. 
A10.1.  Key Digital Decade targets monitored by the Digital Economy and Society Index 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.  EU-level targets and other contextual indicators under the European Education Area strategic framework 
A16.1.  Key health indicators 
A17.1.  Selected indicators at regional level - Estonia 
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 

LIST OF GRAPHS 

A1.1. 
Progress towards the SDGs in Estonia 
A2.1. 
Estonia´s progress on the 2019-2023 CSRs (2024 European Semester) 
A3.1. 
Total grants disbursed under the RRF 
A4.1. 
Distribution of cohesion policy funding across policy objectives in Estonia 
A4.2. 
Distribution of RRF funding by pillar in Estonia 
A6.1. 
Greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2022 
A6.2. 
Changes to livestock density and organic farming 
A6.3. 
Environmental investment gap, annual average 
A7.1. 
Estonia's energy retail prices for households and industry & service 
A7.2. 
Trends in electricity prices for non-household consumers (EU and foreign partners) 
A7.3. 
Estonia's installed renewable capacity (left) and electricity generation mix (right) 
A8.1. 
Fair transition challenges in Estonia 
A8.2. 
Job vacancy rate in transforming sectors and mining and quarrying 
A9.1. 
ETS emissions by sector since 2013 
A9.2. 
Treatment of municipal waste 
A12.1.  Hourly productivity in PPS (% of EU-27) 
A12.2.  Labour productivity and unit labour costs at industry level 
A13.1.  Government effectiveness 
A15.1.  Underachievement rates in mathematics, PISA 2012, 2018 and 2022 
A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2024-2070 
A18.1.  Evolution of credit activity 
A19.1.  Tax revenues from different tax types, % of total revenue 
A19.2.  Tax wedge for single and second earners, % of total labour costs, 2023 

LIST OF MAPS 

A17.1.  Estonia, NUTS3: GDP per capita (in PPS), 2022 

22 

30 
33 
34 
39 
44 
47 
49 
51 
53 
58 
60 
61 
62 
65 
68 
69 
73 
74 
76 
79 
79 

23 
25 
30 
32 
32 
36 
38 
38 
40 
41 
41 
45 
46 
48 
48 
54 
55 
59 
64 
67 
67 
72 
75 
75 

69 

 
 
 
CROSS-CUTTING INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

h
e
a
l
t
h

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 performs well and is improving 
on  several  of  the  SDG  indicators  related  to 
environmental  sustainability  (SDGs 6,  7,  11, 
15), it needs to catch up with the EU average 
innovation  and 
on  SDG  9 
(Responsible 
infrastructure), 

(Industry, 

SDG 12 

consumption  and  production)  and  SDG 13 
(Climate  action).  The  country  performs  well, 
but is not improving, on SDG 2 (Zero hunger). 
(SDG 12) 
While  Estonians’  material  footprint 
decreased  from  28.0  tonnes  per  inhabitant  in 
2017  to  27.4  in  2022,  it  is  still  above  the  EU 
average  of  14.9 tonnes  per  inhabitant.  Similarly, 
while  net  greenhouse  gas  emissions  (SDG 13) 
decreased from 17.2 tonnes per capita in 2017 to 
10.7 in 2022, they are still above the EU average 
of  7.3 tonnes  per  capita.  However,  Estonia  is 
performing  well  and  has  made  progress  on  most 
of  the  affordable  and  clean  energy  indicators 
(SDG 7),  including  on  the  share  of  renewable 
energy  in  gross  final  energy  consumption,  from 
29.5%  in  2017  to  38.5%  in  2022  (EU  average 
23.0%).  Although  Estonia  is  not  improving  on 
SDG 2  as  regards  the  environmental  impacts  of 
agricultural production, with the amount of nitrate 
in  groundwater  increasing  from  4.6 mg  NO3  per 
litre  in  2016 to  5.2 mg  NO3  per  litre  in  2021,  the 
amount  remains  well  below  the  EU  average 

Graph A1.1: Progress towards the SDGs in Estonia 

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). 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 25 April 2024. Data refer mainly to the period 2017-2022 or 2018-2023. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

23 

 
 
 
 
 
 
 
connection (SDG 9; from 50.7% in 2017 to 79.2% 
in 2022; EU average 73.4%). However, while gross 
domestic  expenditure  on  R&D  (SDG  9)  increased 
from 1.3% of GDP in  2017 to 1.8% in 2022, it is 
still  below  the  EU  average  of  2.2%.  The  Estonian 
RRP  includes  significant  reforms  and  investments 
to  boost 
in 
is  still  room  for 
businesses.  However,  there 
improvement 
remaining 
challenges. 

innovation  and  digital  transition 

in  addressing 

the 

in  2018 

from  EUR 14 920 

Estonia  is  performing  well  and  improving  on 
one  SDG  indicator  related  to  macroeconomic 
stability  (SDGs  8  and  17).  However,  the 
country  needs  to  catch  up  with  the  EU 
average on SDG 16 (Peace, justice and strong 
(SDG 8) 
institutions).  Real  GDP  per  capita 
increased 
to 
EUR 15 370 in 2023 (EU average in 2023: EUR 28 
940).  Similarly,  Estonia  is  making  progress  on 
peace and personal security (SDG 16) but needs to 
catch  up  with 
the 
standardised  death 
to  homicide 
decreased from 2.7 per 100 000 in 2016 to 2.0 in 
2021,  it  is  still  above  the  EU  average  of  0.7. 
Estonia  is  improving  on  the  SDG  indicators  on 
global 
development 
assistance  (SDG 17)  increased  from  0.16%  of 
gross  national  income  (GNI)  in  2017  to  0.54%  of 
GNI  in  2021,  staying  below  the  EU  average  of 
0.58%.  

the  EU  average.  While 

partnerships. 

rate  due 

Official 

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

(20.5 mg NO3 per litre in 2021). 

to 

2018, 

tertiary 

While Estonia performs well and is improving 
on  some  SDG  indicators  related  to  fairness 
(SDGs 4,  7,  10),  it  still  needs  to  catch  up  on 
SDG 1  (No  poverty),  SDG 5  (Gender  equality) 
and  SDG 3  (Good  health  and  well-being).  
Compared 
educational 
attainment  (SDG 4)  increased  from  41.1%  of  the 
population  aged  25  to  34  to  43.5%  in  2023  (EU 
average:  43.1%).  The  country  also  performs  well 
on  low-achieving  15-year-olds  in  mathematics 
(SDG 4;  15.0%  of  15-year-old  students  in  2022; 
EU  average  in  2022:  29.5%),  although  there  has 
been an increase in recent years (10.2% in 2018). 
Estonia  still  needs  to  catch  up  on  some  gender 
equality indicators (SDG 5). Estonia is improving in 
terms  of  the  gender  pay  gap  in  its  unadjusted 
form (the average gross hourly earnings of women 
went  from  being  24.9%  lower  than  men  in  2017 
to 21.3% lower in 2022). However, it still needs to 
catch up with the EU average of 12.7%. Estonia is 
moving  away  from,  and  needs  to  catch  up  with, 
the  EU  average  on  poverty  reduction  (SDG 1), 
including  on  people  at  risk  of  poverty  or  social 
exclusion  (up  from  23.3  %  of  the  population  in 
2017  to  25.2%  in  2022;  EU  average:  21.6%). 
Similarly, the share  of  people  at  risk  of monetary 
poverty  after  social  transfers  increased  from 
21.0%  of  the  population  in  2017  to  22.8%  in 
2022  (EU  average:  16.5%).  As  for  SDG 3  (Good 
health and well-being), healthy life expectancy has 
plateaued  at  a  level  well  below  the  EU  average 
(falling  from  56.8 years  in  2016  to  56.5  years  in 
2021;  EU  average:  63.6).  There 
is  also 
improvement  on  self-reported  unmet  needs  for 
medical  care,  although  also  from  a  level  well 
below  the  EU  average  (falling  from  11.8%  of  the 
population  aged  16  or  over  in  2017  to  9.1%  in 
2022;  EU  average:  2.2%).  The  Estonian  recovery 
and  resilience  plan  (RRP)  includes  measures  to 
address  challenges  in  primary  healthcare  and 
long-term care. 

SDG 9 

(Industry, 

innovation 

Estonia  is  performing  well  and  improving  on 
two SDGs on productivity (SDGs 4 and 8), but 
still  needs  to  catch  up  with  the  EU  average 
and 
on 
infrastructure).  The  country  is  performing  well 
and 
(SDG 4; 
participation in learning in the past 4 weeks is up 
from  19.3%  of  the  active  population  aged  25-64 
in  2018  to  23.2%  in  2023;  EU  average  12.7%). 
Estonia  is  also  performing  well  and  improving  on 
the share of households with a high-speed internet 

improving  on  adult 

learning 

24 

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

Graph A2.1: Estonia´s progress on the 2019-2023 
CSRs (2024 European Semester) 

Source: European Commission 

The Commission has assessed the 2019-2023 
country-specific  recommendations  (CSRs) (12) 
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 (13) and the commitments 
in its recovery and resilience plan (RRP) (14). At this 
stage  of  RRP  implementation,  81%  of  the  CSRs 
focusing  on  structural  issues  from  2019-2023 
have recorded at least ‘some progress’, while 11% 
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.  

(12)  2023 CSRs: EUR-Lex - 32023H0901(06) - EN - EUR-Lex 

(europa.eu) 

      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) 

(13)  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). 

(14)  Member States were asked to effectively address in their 
RRPs all or a significant subset of the relevant country-
specific recommendations issued by the Council. 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. 

25 

No Progress8%Limited Progress11%Some Progress76%Substantial Progress5% 
 
 
 
 
 
 
      
 
 
 
Table A2.1:  Summary table on 2019-2023 CSRs 

(Continued on the next page) 

26 

EstoniaAssessment in May 2024RRP 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 ProgressStrengthentheadequacyofthesocialsafetynet,includingbybroadening 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 and 2023 SDG 8, 16and promote private investment to foster the economic recovery. Some ProgressRelevant RRP measures being planned as of 2021, 2022 and 2023SDG 8, 9Focus investment on the green and digital transition, in particular on digitalisation 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,Limited ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 7, 9, 13resource efficiency, and Limited ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 6, 7, 12, 15sustainable transport, contributing to a progressive decarbonisation of the economy. Some 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, 9 
 
 
 
  
 
Table (continued) 

(Continued on the next page) 

27 

2020 CSR 4Some progressStep up the efforts to ensure effective supervision and enforcement of the anti-money laundering framework. Some progressRelevant RRP measures being planned as of 2024 and 2026SDG 8, 162021 CSR 1Not relevant anymoreIn 2022, maintain a supportive fiscal stance, including the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment.Not relevant anymoreNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term. Not relevant anymoreNot applicableSDG 8, 16At the same time, enhance investment to boost growth potential.  Pay particular attention to the composition of public finances, on both the revenue and expenditure sides of the budget, and to the quality of budgetary measures in order to ensure a sustainable and inclusive recovery. Prioritise sustainable and growth-enhancing investment, in particular investment supporting the green and digital transition.Not relevant anymoreNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Not relevant anymoreNot applicableSDG 8, 162022 CSR 1Limited ProgressIn2023,ensurethatthegrowthofnationallyfinancedprimarycurrentexpenditureisinlinewithanoverallneutralpolicystance,takingintoaccountcontinuedtemporaryandtargetedsupporttohouseholdsandfirmsmostvulnerabletoenergypricehikesandtopeoplefleeingUkraine.Standreadytoadjustcurrentspendingtotheevolving situation.No ProgressNot applicableSDG 8, 16Expand 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.Substantial ProgressNot applicableSDG 8, 16Fortheperiodbeyond2023,pursueafiscalpolicyaimedatachieving prudent medium-term fiscal positions.No ProgressNot applicableSDG 8, 162022 CSR 2Proceedwiththeimplementationofitsrecoveryandresilienceplan,inlinewiththemilestonesandtargetsincludedintheCouncilImplementing 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, 10Improvetheaffordabilityandqualityoflong-termcare,inparticularbyensuringitssustainablefundingandintegratinghealthandsocialservices.Some ProgressRelevant RRP measures being planned as of 2022SDG 32022 CSR 4Some ProgressReduceoverallrelianceonfossilfuelsanddiversifyimportsoffossilfuelsSome ProgressRelevant RRP measures being planned as of 2022 and 2024SDG 7, 9, 13by accelerating the deployment of renewables, including through further streamlining of permitting proceduresSome ProgressRelevant RRP measures being planned as of 2022 and 2024SDG 7, 8, 9, 13ensuring sufficient capacity of interconnectionSome ProgressSDG 7, 9, 13and strengthening the domestic electricity grid.Some ProgressRelevant RRP measures being planned as of 2022SDG 7, 9, 13Increaseenergyefficiency,includingofbuildings,toreduceenergyconsumption.Some ProgressRelevant RRP measures being planned as of 2022SDG 7Intensify efforts to improve the sustainability of the transport system, including through electrification of the rail network and by increasing incentives to encourage sustainable and less polluting transport, including the renewal of the road vehicle stock.Limited ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 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. 
 
 
  
 
Table (continued) 

Note: 
*  See footnote (14). 
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the 
RRP may be 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.Measures indicated as “being implemented” are only those included in the RRF payment requests submitted and 
positively assessed by the European Commission. 

Source: European Commission 

28 

2023 CSR 1Some progressWinddowntheemergencyenergysupportmeasuresinforce,usingtherelatedsavingstoreducethegovernmentdeficit,assoonaspossiblein2023and2024.Shouldrenewedenergypriceincreasesnecessitateneworcontinuedsupportmeasures,ensurethatsuchsupportmeasuresaretargetedatprotectingvulnerablehouseholdsandfirms,arefiscallyaffordableandpreserveincentivesforenergysavings.Full implementationNot applicableSDG 8,16Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4,9%.Full implementationNot applicableSDG 8,16PreservenationallyfinancedpublicinvestmentandensuretheeffectiveabsorptionofgrantsundertheFacilityandofotherUnionfunds, in particular to foster the green and digital transitions.Full implementationNot applicableSDG 8,16For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, in order to achieve a prudent medium-term fiscal position.No progressNot applicableSDG 8,162023 CSR 2Proceed with the steady implementation of its recovery and resilience plan including its REPowerEU chapter. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.2023 CSR 3Some progressStrengthen social protection, including to address old-age poverty, and by extending the coverage of unemployment benefits, in particular for those with short work spells and in non-standard forms of work.Some progressRelevant RRP measures being planned as of 2023SDG 1,2,10Improve access to and the affordability of healthcare andSome progressRelevant RRP measures being planned as of 2020, 2021, 2022 and 2023SDG 3long-term care, in particular by ensuring their sustainable funding.Some progressRelevant RRP measures being planned as of 2022SDG 32023 CSR 4Some progressReduce overall reliance on fossil fuels,Some progressRelevant RRP measures being planned as of 2022 and 2024SDG 7,9,13acceleratethedeploymentofrenewableenergysources,includingby strengthening the domestic electricity grid capacity.Some progressRelevant RRP measures being planned as of 2022 and 2024SDG 7,9,13Ensure sufficient capacity of electricity interconnections to increase the security of supply and continue the synchronisation with the Union electricity grid.Substantial progressRelevant RRP measures being planned as of 2022SDG 7,9,13Strengthenenergyefficiencythroughnewfinancingandsupportmeasures to meet the targets of the long-term renovation strategy.Some progressRelevant RRP measures being planned as of 2022SDG 7Continue efforts to increase the share of sustainable transport by electrifying the rail network and through taxation that incentivises the gradual renewal of the vehicle stock towards zero or low-emission vehicles.Limited ProgressRelevant RRP measures being planned as of 2021 and 2022SDG 8, 10, 11, 12Stepuppolicyeffortsaimedattheprovisionandacquisitionofskillsand competences needed for the green transition.Some progressRelevant RRP measures being planned as of 2022SDG 4RRP implementation is monitored through the assessment of RRP payment requests and analysis of the bi-annual reporting on the achievement of the milestones and targets, to be reflected in the country reports. Progress with the cohesion policy is monitored in the context of the Cohesion Policy of the European Union. 
 
  
 
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN – IMPLEMENTATION 

This  Annex  provides  a  snapshot  of  Estonia’s 
implementation of its recovery and resilience 
plan  (RRP),  past  the  mid-way  point  of  the 
Recovery  and  Resilience  Facility’s 
(RRF) 
lifetime.  The  RRF  has  proven  central  to  the  EU’s 
recovery  from  the  COVID-19  pandemic,  helping 
speed  up  the  twin  green  and  digital  transition, 
while  adapting  to  geopolitical  and  economic 
resilience 
developments, 
against  future  shocks.  The  RRF  is  also  helping 
implement the UN Sustainable Development Goals 
and 
country-specific 
recommendations (see Annex 2).   

strengthening 

address 

and 

the 

The  RRP  paves  the  way  for  disbursing  up  to 
EUR 953.2  million  in  grants  under  the  RRF 
over  the  2021-2026  period,  representing 
2.5%  of  Estonia’s  GDP (15).  As  of  mid-May 
2024,  EUR  0.5  billion  has  been  disbursed  to 
Estonia under the RRF. 

Estonia still has EUR 450 million available in 
grants from RRF. This will be disbursed after the 
assessment  of  the  future  fulfilment  of  the 
remaining  86  milestones  and  targets (16)  included 
in  the  Council  Implementing  Decision (17)  (CID), 
ahead  of  the  2026  deadline  established  for  the 
RRF.  

Estonia’s progress in implementing its plan is 
recorded  in  the  Recovery  and  Resilience 
Scoreboard (18).  The 
scoreboard  gives  an 
overview  of  the  progress  made  in  implementing 
the RRF as a whole. Graph A3.1 shows the current 
state of play as reflected in the scoreboard. 

Estonia’s  RRP  includes  a  REPowerEU  chapter 
to phase out its dependency on Russian fossil 
its  energy  supplies,  and 
fuels,  diversify 
produce  more  clean  energy  in  the  coming 
years.  To  kick-start  the  REPowerEU  chapter’s 

(15)  GDP information is based on 2023 data. Source: 

https://ec.europa.eu/economy_finance/recovery-and-
resilience-scoreboard/index.html?lang=en   

(16)  A milestone or target is satisfactorily fulfilled once a Member 
State has provided evidence to the Commission that it has 
reached the milestone or target and the Commission has 
assessed it positively in an implementing decision. 

(17)  https://data.consilium.europa.eu/doc/document/ST-12532-

2021-ADD-1/en/pdf  

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

resilience-scoreboard/country_overview.html 

implementation,  EUR  18  million  was  disbursed  as 
pre-financing  on  13  December  2023.  This  helped 
launch  relevant  reforms  like  accelerating  the 
decarbonisation  of 
the  energy  system  and 
supporting the transition to renewable energy.   

The  plan  has  a  strong  focus  on  the  green 
transition, dedicating 59.5% of the available 
funds  to  measures  that  support  climate 
objectives  and  24.1%  of  its  total  allocation 
to support the digital transition. It also retains 
a  strong  social  dimension  with  social  protection 
measures,  especially  related  to  improving  the 
accessibility  and  resilience  of  the  health  system, 
improving  the  social  safety  net  and  access  to 
social services.   

Table A3.1:  Key facts of the Estonian RRP 

Source: RRF Scoreboard 

With  two  payment  requests  completed, 
Estonia’s  implementation  of  its  RRP  is  well 
underway.  The  Commission  gave  a  positive 
assessment  of  Estonia’s  first  payment  request, 
taking  into  account  the  opinion  of  the  Economic 
and  Financial  Committee.  This  led  to  EUR  0.2 
billion  being  disbursed  in  financial  support  on  6 
November  2023 (19).  The  related  28  milestones 
and targets covered reforms and investments such 
as  projects  related  to  green  skills  to  support  the 
green  transition  of  enterprises,  as  well  as  the 
creation  and  development  of  a  centre  of 
excellence  for  data  governance,  and  others in the 
areas  of  skills  for  the  digital  transformation  of 

(19)  When requested payments are disbursed, the pre-financing 
is cleared proportionally. The net amounts are quoted here.   

29 

Initial plan CID adoption date29 October 2021Scope Revised plan with REPowerEU chapterLast major revision16 June 2023Total allocation EUR 953 million in grants (2.5% of 2023 GDP)Investments and reforms 28 investments and 17 reforms Total number of milestones and targets133Fulfilled milestones and targets47 (35.3% of total) 
 
 
 
  
 
 
 
 
businesses,  the  competitiveness  of  enterprises  in 
foreign  markets  and  the  provision  of  long-term 
care. 

Table A3.2:  Measures in Estonia's RRP 

The  recent  payment  request,  which  the 
Commission assessed positively on 12 March 
2024,  led  to  the  disbursement  of  EUR  100 
million  on  19  April  2024.  The  disbursement 
the  positive  assessment  of  18 
reflected 
milestones  and  targets  covering  the  development 
of  proactive  digital  public  services  for  individuals, 
investment projects on green hydrogen integrated 
value  chains,  as  well  as  renewable  energy 
production, 
final 
consumption in different application areas, among 
others. 

solutions, 

supply 

and 

Graph A3.1: Total grants disbursed under the RRF 

Note: This graph displays the amount of grants, including pre-
financing, 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 

As  of  15  May  2024,  Estonia  is  working 
towards its third payment request. Table A3.2 
highlights  some  relevant  measures  achieved  so 
far,  and  some  that  will  be  implemented  before 
2026  to  keep  making  Estonia’s  economy  greener, 
more digital, inclusive, and resilient.  

Source: FENIX 

30 

EUR 504.79million (53%)Total allocation: EUR 953millionReforms and investments implemented• Creation of a Green Transition Task Force• Transport and Mobility Development Plan 2021-2035• Digital gender pay gap toolUpcoming reforms and investments• Deployment of national private cloud infrastructure by public authorities• Support for the construction of the Rail Baltic viaducts• New tramway line 
   
 
   
 
 
 
 
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

Development  Fund  (ERDF)  also  supported  the 
improvement  of  higher  education  infrastructure, 
which benefited more than 1 100 researchers, and 
invested  in  251  companies  to  help  them  develop 
new  products  and  bring  them  to  market.  During 
the  same  period,  the  European  Social  Fund  (ESF) 
helped  make  labour  markets  more  inclusive  by 
offering  labour-market  services  to  over  97 000 
people  with  reduced  work  ability.  The  ESF  also 
supported  more  than  2 000  people  who  had 
become  unemployed  or  were  at  the  risk  of 
unemployment  due  to  the  COVID-19  pandemic. 
Since  2022,  the  ESF  has  also  supported  people 
fleeing Russia’s war of aggression against Ukraine, 
including  by  providing  mentoring  and  training 
support. 

In  the  current  programming  period  (2021-
2027),  cohesion  policy will  provide a  further 
boost  to  Estonia’s  competitiveness,  to  the 
green  transition  and  to  social  cohesion, 
improving  the  living  and  working  conditions 
of  Estonia’s  people.    In  2021-2027,  the  ERDF 
and  Cohesion  Fund  (CF)  will  promote  innovation 
and cooperation between research and businesses 
by  supporting  more  than  290  businesses  closely 
cooperating  with  research  institutions.  Particular 
attention  will  be  paid  to  the  greening  of  the 
economy,  which 
in  2021-2027. 
is  a  priority 
EUR 2.6 billion will be invested in green transition, 
including in measures to help people overcome the 
challenges  of  the  green  transition.  The  CF  will 
support  the  electrification  of  450 km  of  railway. 
The  Just  Transition  Fund  will  support  further 
economic  diversification  and  help  create  jobs  in 
the Ida-Viru region, and 100 hectares of land will 
be  rehabilitated.  The  European  Social  Fund  Plus 
(ESF+)  will  invest  EUR 91 million  in  removing 
obstacles  to  the  labour-market  participation  of 
vulnerable  groups,  including  unemployed  people, 
older  people  and  minorities.  Active  labour  market 
measures  will  help  to  train  more  than  20 000 
people.  The  ESF+  will  also  address  gender 
segregation in the labour market, by offering more 
diverse  vocational  and  career  choices,  and  focus 
on  promoting  healthy  workplaces.  With  this  work, 
cohesion  policy  substantially  contributes 
to 
achieving  the  UN  Sustainable  Development  Goals 
(SDGs)  in  Estonia,  in  particular  SDG  9  (Industry, 
innovation,  infrastructure),  SDG  7  (Affordable  and 
clean energy) and SDG 1 (No poverty). 

to 

States. 

addition 

EU funding instruments provide considerable 
resources for recovery and growth to the EU 
Member 
the 
In 
EUR 953.2 million  of  Recovery  and  Resilience 
Facility  (RRF)  funding  described  in  Annex  3,  EU 
cohesion policy funds (20) provide EUR 3.4 billion to 
Estonia  for  the  2021-2027  period (21).  Support 
from  these  two  instruments  combined  represents 
around  11.47%  of  the  country’s  2023  GDP, 
compared to an EU average of 5.38% of GDP (22). 
Cohesion  policy  supports  regional  development, 
economic,  social  and  territorial  convergence  and 
competitiveness  through  long-term  investment  in 
line  with  EU  priorities  and  with  national  and 
regional strategies. 

During  the  2014-2020  programming  period, 
cohesion  policy  funds  boosted  Estonia’s 
competitiveness, with  tangible achievements 
notably  in  business  development,  energy 
efficiency,  transport,  research,  and  inclusive 
labour  market  measures.  By  the  end  of  the 
eligibility  period  in  December  2023,  2014-2020 
cohesion policy funds (23) had made EUR 3.7 billion 
available to Estonia (24), of which EUR 2 billion has 
been  disbursed  since  March  2020,  when  the 
COVID-19  pandemic  began (25).  Including  national 
financing,  the  total  investment  under  the  2014-
2020  programmes  amounted  to  EUR 4.9 billion  – 
around  2.9%  of  GDP.  The  achievements  of 
cohesion  policy  funds  over  the  programming 
period  included  the  reconstruction  of  214 km  of 
railway,  the  creation  of  5 220  new  full-time  jobs, 
and  the  improvement  of  the  energy  efficiency  of 
19 926  households.  The  European  Regional 

(20)  In 2021-2027, cohesion policy funds include the Cohesion 
Fund, the European Regional Development Fund, the 
European Social Fund Plus and the Just Transition Fund. 

(21)  European territorial cooperation (ETC) programmes are 
excluded from the figure. In 2021-2027, the total 
investment, including national financing, amounts to 
EUR 5.2 billion. 

(22)  RRF funding includes both grants and loans, where 

applicable. The EU average is calculated for cohesion policy 
funds excluding ETC programmes. GDP figures are based on 
Eurostat data for 2022. 

(23)  In 2014-2020, cohesion policy funds included the European 
Regional Development Fund and the European Social Fund. 
REACT-EU allocations are included but ETC programmes are 
excluded. 

(24)  In 2014-2020, the total investment, including national 

financing, amounted to EUR 4.9 billion. 

(25) Cut-off date: 14 May 2024. 

31 

 
 
 
 
Graph A4.1: Distribution of cohesion policy funding 
across policy objectives in Estonia 

Graph A4.2: Distribution of RRF funding by pillar in 
Estonia 

(1) Each RRP measure helps achieve the aims of two of the 
six policy pillars of the RRF. The primary contribution is shown 
in the outer circle while the secondary contribution is shown in 
the inner circle. Each contribution represents 100% of the RRF 
funds. Therefore, the total contribution to all pillars displayed 
on this chart amounts to 200% of the RRF funds allocated to 
Estonia. 
Source: European Commission 

Estonia  also  receives  funding  from  several  other 
EU 
in 
including 
Table A4.1.  

instruments, 

those 

listed 

Source: European Commission 

Through combined action, cohesion policy and 
the recovery and resilience plan (RRP) have a 
mutually  reinforcing  impact  in  Estonia.  For 
instance,  in  energy  efficiency,  the  RRP  has  been 
key  in  providing  financial  support  for  energy 
efficiency  measures  in  residential  and  private 
buildings  in  the  first  years,  while  substantial 
cohesion policy funding is planned until the end of 
the  2021-2027  programming  period  to  continue 
investments  in  this  area.  In  addition,  the  2021-
2027  cohesion  policy  funds  will  finance  energy 
efficiency  investments  in  public  buildings  in  the 
healthcare  sector.  Furthermore,  the  Connecting 
Europe Facility will invest in the construction of the 
Rail Baltic main track, while the CF will support the 
construction  of  Rail  Baltic  railway  stations.  The 
RRP  envisages  the  construction  of  five  viaducts, 
supplementing these investments. The contribution 
of  cohesion  policy  and  RRP  funding  by  policy 
objective is illustrated by Graphs A4.1 and A4.2. 

The Technical Support Instrument (TSI) helps 
Estonia  invest  in  its  public  administration 
and create a better enabling environment for 
EU  and  national  investment.  The  TSI  has 
funded  projects 
to  design  and 
in  Estonia 
implement growth-enhancing reforms since 2017. 
The  support  provided  in  2023  included  action  to 
develop  a  national  strategy  on  critical  entities;  to 
implement  the  action  plan  for  sustainable  water 
services;  and  to  promote  the  uptake  of  strategic 
public procurement in Estonia by professionalising 
the  public  procurement  workforce.  The  TSI  also 
helps  Estonia  to  implement  specific  reforms  and 
investments  included  in  its  RRP,  e.g.  relating  to 
setting  up  data  offices  and  increasing  public 
authorities’ capacity for managing and processing 
of data.  

32 

PO1 Smarter EuropePO2 Greener EuropePO3 Connected EuropePO4 Social EuropePO5 Europe closer to citizensPO8 JTF specific objectiveGreen transitionDigital transformationSmart, sustainable and inclusivegrowthSocial & territorial cohesionHealth & resilienceNext generation 
   
   
Table A4.1:  Support from EU instruments in Estonia 

(1) RRF implementation period is 2021-2026. 
(2) The public sector loan facility’s programming period is 2021-2025 and the amount reflects the national share in its grant 
component reserved until the end of the period.   
(3) Common agricultural policy programming periods are 2014-2022 and 2023-2027.   
(4) EMFF – European Maritime and Fisheries Fund, EMFAF – European Maritime, Fisheries and Aquaculture Fund. 
(5) Data on the Connecting Europe Facility covers transport and energy and has a cut-off date of 15 May 2024. 
(6) Data on Horizon Europe (2021-2027) has a cut-off date of 13 May 2024. 
(7) 2021-2027 data on the LIFE programme has a cut-off date of 15 May 2024. 
(8) The amount of the EU guarantee signed under the EFSI Infrastructure and Innovation Window was derived based on the 
signed amount of the operations and the average internal multiplier, as reported by the EIB (cut-off date is 31 December 2023). 
(9) The amount of the EU guarantee and of the volume of operations signed under InvestEU includes the EU compartment as well 
as the Member State compartments (cut-off date is 31 December 2023).   
(10) SURE - European instrument for temporary support to mitigate unemployment risks in an emergency. 
Source: European Commission 

33 

Amount 2021-2027 (EUR million)Cohesion policy3 369.3RRF grants (1)953.2Public sector loan facility (grant component) (2)26.9Common agricultural policy (3)1 449.0EMFF/EMFAF (4)97.4Connecting Europe Facility (5) 435.0Horizon 2020 / Horizon Europe (6) 168.6LIFE programme (7) 36.8Volume of operations (EUR million)European Fund for Strategic Investment 2015-2020 (8) 242.3InvestEU 2021-2027 (9) 18.0PeriodTotal amount available (EUR million)Disbursed amount (EUR million)SURE (10)2020-2022 230.0 230.0EU grantsAmount 2014-2020 (EUR million)3 702.1--2 200.0 88.3 10.8EU loans101 611.7 273.7 46.1EU guaranteesEU Guarantee (EUR million) 
 
  
 
ANNEX 5: RESILIENCE 

Table A5.1:  Resilience indices across dimensions for Estonia and the EU-27 

(1)  The synthetic indices aggregate the relative resilience situation of countries across all considered indicators. For an indicator, 
each country’s relative situation in the latest available year is compared with the collection of values of that indicator for all 
Member States and all years in the reference period. 
Source: Resilience Dashboards - version spring 2024, data up to 2022 

This  Annex  uses  the  Commission’s  resilience 
dashboards (RDB) (26) to show Estonia’s relative 
resilience  capacities  and  vulnerabilities (27)  that 
may be of relevance for societal, economic, digital 
and  green  transformations,  and  dealing  with 
future shocks and geopolitical challenges. (28) 

According  to  the  set  of  resilience  indicators 
in  the  RDB,  Estonia’s  overall  vulnerabilities 
have  decreased  from  last  year,  improving 
Estonia’s  situation  compared  to  the  EU 
average,  and  are  now  medium-low,  while  its 
capacities  have  remained  stable  at medium-
high, in line with the EU average. This situation 
is  also  reflected  in  the  distribution  of  indicators 
across the resilience dimensions and areas: around 
into  the 
50%  of  vulnerability 
medium-low  or  low  category,  almost  60%  of 

indicators  fall 

(26)  Https://ec.europa.eu/info/strategy/strategic-

planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en. Resilience is defined as the 
ability not only to withstand and cope with challenges but 
also to undergo transitions, in a sustainable, fair, and 
democratic manner. 2020 Strategic Foresight Report: 
Charting the course towards a more resilient Europe 
(COM(2020) 493). 

(27)  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, 
while capacities refer to enablers or abilities to cope with 
crises and structural changes and to manage transitions. 

(28)  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. 

capacities  fall  into  the  medium-high  or  high 
category. 

With  respect  to  the  2023  RDB,  Estonia’s 
vulnerabilities  in  the  social  and  economic 
dimension  continued  to  be  below  the  EU 
average,  while  its  capacities  remained  at 
medium level. Its medium-low vulnerability score 
is thanks to its good preparation for transitions: it 
has  one  of  the  lowest  gender  employment  gaps 
and  has  made  remarkable  improvements  with 
respect to employment in energy-intensive sectors 
and 
in  manufacturing  with  a  high  risk  of 
automation.  Despite  these  improvements,  Estonia 
is  still  the  country  with  the  highest  proportion  of 
individuals  reporting  unmet  needs  for  medical 
care,  and  income  inequality  has  increased.  The 
country  also  has  some  low  social  and  economic 
instance  with  respect  to  the 
capacities,  for 
household  saving  rate,  the 
impact  of  social 
transfers  on  poverty  reduction,  or  the  income 
stabilisation  coefficient  and  the  remaining  low 
insurance sector solvency capital ratio. 

In  the  green  dimension,  Estonia’s  capacities 
have remained stable and are in line with the 
EU  average  but 
its  vulnerabilities  have 
deteriorated  and  are  now  medium-high.  This 
situation  is  mainly  due  to  its  high  raw  material 
consumption  per  capita,  the  harmonised  risk 
indicator  1  for  pesticides,  and  farm 
income 
variability.  Estonia  could  also  do  with  improving 
capacities such as resource or energy productivity 
and the CO2 absorption of forests. 

34 

EEEEEU-272023 RDB2024 RDB2024 RDBHighMedium-highMediumMedium-lowLowHighMedium-highMediumMedium-lowLowCapacitiesGeopoliticalVulnerabilities0.420.440.41Capacities0.610.680.65DigitalVulnerabilities0.790.690.52Capacities0.800.800.65GreenVulnerabilities0.430.390.44Capacities0.650.650.70Social and economicVulnerabilities0.720.750.47Capacities0.540.490.67DimensionDistribution of indicators by vulnerabilities and capacitiesOverall resilienceVulnerabilities0.590.620.50Capacities0.650.690.67Vulnerabilities0%20%40%60%80%100%Vulnerabilities(59 indicators)Capacities(64 indicators) 
 
 
 
   
 
 
in 

capacities 

its  medium-low  vulnerabilities  and 
With 
the  digital 
medium-high 
dimension,  Estonia 
in  general  well 
is 
prepared  for  the  digital  transformation. 
However, its  capacities  have  decreased  from  high 
overall to medium-high. The main reasons for this 
are fewer young people doing any online learning 
activity  and  the  low  level  of  investment  per 
employee in high-technology sectors. 

In  the  geopolitical  dimension,  Estonia’s 
vulnerabilities and  capacities  have  remained 
stable with respect to the 2023 RDB, putting 
them on a par with the EU average. However, 
the  country  still  shows  some  high  vulnerabilities 
such  as  its  high  supplier  concentration  in  base 
metals  and  energy  carriers,  the  high  extra-EU 
import  partner  concentration,  its  decreased  net 
international  investment  position  (NIIP)  and  a  big 
increase in its borrowing. 

35 

 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

Estonia’s  green  transition  requires  more 
action  to  specify  the  funding  framework  for  the 
climate  and  energy  transition  and  the  policies 
needed  to  reach  its  2030  target  in  the  effort 
sharing  sectors,  to  reduce  emissions  from  road 
transport and buildings, to improve carbon sinks in 
the land-use sector, the institutional framework on 
climate  adaptation  and  the  circular  economy,  and 
in  other  areas  besides.  This  Annex  provides  a 
snapshot  of  climate,  energy  and  environmental 
aspects of the transition in Estonia (29). 

Estonia’s  draft  updated  national  energy  and 
climate plan (NECP) lacks key information on 
the  investment  needs  and  the  sources  of 
funding  to  achieve  its  2030  climate  and 
energy  targets.  The  plan  only  provides  partial 
information  on  the  investment  needs  for  the 
planned  policies  and  measures.  It  does  not 
describe  the  main  sources  of  financing  for  each 
planned policy and measure but gives an overview 
of  EU 
lacks 
information  on  the  financing  sources  of  each 
policy  or  measure  and  the  expected  share  of  EU 
financing (30). 

funding  programmes. 

It  also 

for 

target 

the  effort 

The  policies  and  measures  in  Estonia’s  draft 
updated  NECP  are  insufficient  to  reach  its 
2030 
sharing 
sectors (31).  Estonia's  2022  greenhouse  gas 
emissions  from  its  effort  sharing  sectors  are 
expected  to  come  in  at  3.9%  below  2005  levels. 
Current  policies  are  projected  to  reduce  effort 
sharing  emissions  by  9.8%  from  2005  levels  by 
2030. Additional policies set out in Estonia’s draft 
updated  NECP  are  projected  to  reduce  emissions 

(29)  This Annex is complemented by Annex 7 on energy transition 

and competitiveness, Annex 8 on the fair transition to 
climate neutrality, Annex 9 on resource efficiency, circularity, 
and productivity, and relevant topics in other annexes to this 
country report. 

(30)  See the Commission’s (2023) assessment of the draft 

national energy and climate plan of Estonia. 

(31)  The national greenhouse gas emission reduction target is 
laid down in Regulation (EU) 2023/857 (the Effort Sharing 
Regulation). The aim is to align action in the sectors 
concerned with the objective to reach the EU-level economy-
wide target of greenhouse gas reductions of at least 55% 
compared to 1990 levels. The target also applies to the 
sectors outside the current EU Emissions Trading System, 
notably buildings (heating and cooling), road transport, 
agriculture, waste, and small industry (known as the effort 
sharing sectors). 

36 

by  a  further  1.6  percentage  points,  achieving  a 
11.4%  reduction  compared  to  2005  levels (32). 
Estonia  is  therefore  projected  to  miss  its  effort 
sharing  target,  to  reduce  by  24%  from  2005 
levels,  by  12.6  percentage  points.  This  highlights 
the  importance  of  planning  and  implementing 
more  ambitious  climate  action.  Estonia’s  draft 
updated  NECP  reiterates  the  target  to  reduce 
economy-wide  greenhouse  gases  by  8 mt CO2eq 
by 2035 (including the land-use sector). 

Graph A6.1: Greenhouse gas emissions from the 
effort sharing sectors in Mt CO2eq, 2005-2022 

Source: European Environment Agency 

The  greenhouse  gas  emissions  generated 
from  road  transport  and  buildings  are  a 
particular  concern  for  Estonia.  In  2022,  the 
greenhouse  gas  emissions  from  road  transport 
increased  by  8.3%  compared  to  2005  levels,  and 
their share in the effort sharing emissions rose to 
39.3%,  from  34.5%  in  2005.  Between  2005  and 
2022,  Estonia’s  emissions  from  buildings  fell  by 
8%, much less than the EU average of 27.6%. It is 
essential to identify policies and measures to curb 
greenhouse  gas  emissions  in  these  sectors  to 
close  Estonia’s  gap  to  its  target  for  2030  in  the 
effort  sharing  sectors.  To  prepare  for 
the 
emissions trading system to include road transport 
and  buildings  as  of  2027,  it  is  most  pressing  to 
take measures to support vulnerable consumers. 

(32)  The effort sharing emissions for 2022 are based on 
approximated inventory data. The final data will be 
established in 2027 after a comprehensive review. 
Projections on the impact of current policies (‘with existing 
measures’, WEM) and additional policies (‘with additional 
measures’, WAM) as per Estonia’s draft updated NECP. 

0123456720052022MtCO2eWasteSmall industryAgricultureBuildings (under ESR)Domestic transport (excl.  aviation) 
 
 
 
     
 
 
Estonia  could  consider  increasing  its  target 
for energy efficiency in its final NECP (33). The 
energy  efficiency  contribution  of  5.13  Mtoe  in 
primary  energy  consumption  and  2.59  Mtoe  in 
final energy consumption for 2030 set in the draft 
updated  NECP  are 
less  ambitious  than  the 
contribution  required  by  the  Energy  Efficiency 
Directive.  However,  Estonia’s  renewable  energy 
contribution of 65% by 2030 is significantly above 
the target contribution of 50%. 

Sustainable  transport  has  yet  to  take  off  in 
Estonia (34). At 0.4% in 2022, the share of battery 
electric vehicles in Estonia’s passenger car fleet is 
still  very  low.  So  too  is  the  number  of  publicly 
accessible charging points, at 290 in 2023, or one 
charging point for every 13 e-vehicles (against the 
EU average of 1:10).  Passenger cars are used for 
89%  of  distances  travelled  (EU  average:  85%). 
Buses  and  coaches,  the  main  form  of  public 
transport,  are  used  for  9%.  In  the  capital,  Tallinn, 
public  transport  has  been  free  of  charge  since 
2013. The share of freight land transport by rail is 
high  (at  40%,  against  the  EU  average  of  16%). 
Only  19%  of  the  rail  network  is  electrified.  In 
maritime  transport,  it  is  important  to  concentrate 
action  on  reducing  the  environmental  impact  of 
ferry  traffic,  including  by  deploying  low  and  zero 
emission  vessels  and  developing  necessary  port 
and bunkering infrastructure.  

Better  forest  management  and  action  to 
restore  wetlands  could  help  Estonia  reverse 
the  recent  decline  in  net  carbon  removals 
from the atmosphere through its land use, land-
use  change  and  forestry  (LULUCF)  sector.  The 
sector  has  recently  gone  from  net  removals  of 
carbon  to  emissions.  To  reach  the  2030  LULUCF 
target,  additional  removals  of  434 kt CO2eq are 

needed (35).  The 
latest  projections  for  2030 
indicate  that  net  removals  in  Estonia  risk  falling 
short of the target (36). 

In  Estonia,  effective  climate  adaptation  is 
hampered  by  institutional  weaknesses.  The 
country  is  vulnerable  to  the  impacts  of  climate 
change  such  as  rises  in  temperature,  rainfall  and 
level,  and  extreme  weather  phenomena 
sea 
accompanied  by  coastal  and 
inland  floods, 
wildfires  and  new  pathogens.  Estonia’s  overall 
insurance coverage is low with only 5-20% of the 
economic  losses  from  1980-2020  being  insured. 
Estonia’s  adaptation  framework  has  weaknesses: 
its  national  adaptation  strategy  has  not  yet  been 
updated such that it integrates climate adaptation 
into key vulnerable sectors and tackles the barriers 
to  adaptation.  Likewise,  measures  to  protect 
densely  populated  areas  and  areas  around  inland 
water  bodies  and  forests  – 
issues  of  key 
importance – have not yet been taken (37). 

of 

and 

particularly 

concern, 
quality 

The  state  of  the  environment  remains  a 
source 
for 
biodiversity 
freshwater 
protection.  Although  Estonia  is  far  from  water 
scarcity,  freshwater  quality  remains  a  cause  for 
concern. Between 2000 and 2020, on average, 6% 
of land in Estonia was affected by droughts, rising 
to  7.1%  in  2022.  Forests  and  woodlands  tend  to 
be  the  ecosystems  most  damaged  by  drought 
events.  In  2021,  Estonia  generated  EUR 29  per 
cubic  meter  of  water  abstracted,  among  the 
lowest  rate  of  water  productivity  in  the  EU. 
According  to  the  2nd  river  basin  management 
plan, 60% of all surface water bodies achieved at 
least  a  good  ecological  status  and  only  9.7% 
achieved  a  good  chemical  status.  The  figures 
tracking eutrophication of coastal areas indicate a 
substantial  rise,  reflecting  a  more  widespread 
problem in the Baltic Sea. 

(33)  The EU target set out in the revised Renewable Energy 

Directive is to have 42.5% of gross final energy consumption 
coming from renewable energy sources by 2030, with the 
aspiration to reach 45%. The formula in Annex I to Directive 
(EU) 2023/1791 sets the indicative national contribution for 
Estonia at 3.93 Mtoe for primary energy consumption. The 
Commission communicated a corrected national contribution 
of 2.53 Mtoe in final energy consumption for 2030 in 
accordance with Article 4(5) of the Energy Efficiency 
Directive to increase the contribution towards the Union’s 
binding energy efficiency target. 

to 

Estonia  has  scope 
improve  nature 
conservation  and  biodiversity  protection.  By 
the  end  of  2021,  Estonia  had  protected  20%  of 
land  and  18.7%  of  its  marine  areas.  Anthropic 

(35)  National LULUCF targets of the Member States in line with 

Regulation (EU) 2023/839. 

(36)  Projections submitted in Estonia’s draft updated national 

energy and climate plan, 2023. 

(34)  Unless otherwise indicated, data in this section refer to 
2021. See European Commission, 2023, EU transport in 
figures, transport.ec.europa.eu. 

(37)  See the Commission’s 2023 assessment and 

recommendation on Estonia’s progress on climate 
adaptation. 

37 

 
 
 
 
Graph A6.3: Environmental investment gap, annual 
average 

activities such as logging, agriculture, industry and 
changes in land use are having a heavy impact on 
biodiversity.  The  Common  Farmland  Bird  Index 
dropped from 88.6 (above the EU average) to 68.9 
(below the EU average)  between 2011 and 2020. 
Estonia is under infringement for logging in Natura 
2000  sites  without  a  proper  assessment  and  for 
not  setting  conservation  objectives  and  measures 
in over 100 of its 541 Natura 2000 sites. 

Graph A6.2: Changes to livestock density and 
organic farming 

The numbers are computed by the European Commission 
based on the latest internal reports, Eurostat, EIB and national 
data sources. 
Source: European Commission 

Livestock unit (LSU)/ha of UAA: it measures the stock of 
animals (cattle, sheep, goats, equidae, pigs, poultry and 
rabbits) converted in LSUs per hectare of UAA. 
Source: Eurostat 

The  agri-food  system  has  yet  to  move  to 
sustainable  water  resource  management 
methods  and  to  optimise  the  use  of 
agricultural  residues.  Estonia  reuses  91.9%  of 
wastewater  sludge in  agriculture  and landfills  the 
remaining  8.1%.  There  remains  scope  to  reduce 
and  prevent  the  eutrophication  of  inland  and 
marine surface waters where agricultural pressure 
is  significant.  Estonia’s  composting  and  anaerobic 
digestion rate per person remained well below the 
EU  average. 
the  composting  and 
anaerobic  digestion  rate  and  producing  organic 
fertilisers  and/or  biomethane  could 
improve 
Estonia’s  strategic  autonomy.  Estonia’s  recovery 
and  resilience  plan  and  the  REPowerEU  plan 
include  measures 
increase 
biomethane production. 

Increasing 

designed 

to 

Estonia would benefit from investing more in 
biodiversity,  ecosystems  and  the  transition 
to  a  circular  economy, 
including  waste 
management.   The  financing  gap  was  estimated 
at  EUR 39  million  per  year  between  2014  and 
2020.    Between  2021  and  2027,  the  overall 
environmental  investment  needs  are  at  least 
EUR 1.2  billion  a  year,  against  the  financing 
baseline  of  EUR 558  million,  leaving  a  wider  gap 
than  under  the  previous  financing  period  of 
EUR 616  million. 
is  an 
estimated annual financing gap of EUR 434 million 
for  biodiversity  and  ecosystems.  Estonia  would 
also  benefit  from  investing  in  capacity  building, 
innovative  sustainable  solutions  and  awareness-
raising campaigns to accelerate the transition to a 
circular economy.  

In  particular, 

there 

38 

012051015202520162020% LSU per hectare% of total utilised agricultural areaLivestock density index Estonia (% LSU per ha)Livestock density index EU-27 (% LSU per ha)Organic farming Estonia (% of total utilised agricultural area)Organic farming EU-27 (% of total utilised agricultural area)337664245956664340100200300400500Pollution prevention &controlWater managementCircular economy andwasteBiodiversity andecosystemsmillion EUR2014-20202021-2027 
      
      
 
 
 
 
 
 
 
 
Table A6.1:  Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Sources:  (1)  Member  States’  emission  data  for  2019  and  2020  are  in  global  warming  potential  (GWP)  values  from  the  4th 
Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ 2005 base year emissions 
under  Regulation  (EU)  2018/842,  emissions  data  for  2021  and  2022,  and  2030  projections  are  in  GWP  values  from  the  5th 
Assessment Report (AR5) of the IPCC. 2021 data are based on the final inventory reports, 2022 data are based on approximated 
inventory reports and European Environmental Agency’s calculation of effort sharing emissions. The final data for 2021 and 2022 
will  be  established  after  a  comprehensive  review  in  2027.  The  2030  target  is  in  percentage  change  of  the  2005  base  year 
emissions. Distance to target is the gap between the 2030 target and projected effort sharing emissions with existing measures 
(WEM) and with additional measures (WAM), in percentage change from the 2005 base year emissions. The measures included 
for  the  2030  emission  projections  reflect  the  state  of  play  as  reported  in  Member  States'  draft  updated  national  energy  and 
climate plans or, if unavailable, as reported by 15 March 2023 as per Regulation 2018/1999. (2) Net removals are expressed in 
negative figures, net emissions in positive figures. Reported data are from the 2024 greenhouse gas inventory submission. 2030 
value  of  net  greenhouse  gas  removals  as  in  Regulation  (EU)  2023/839  –  Annex  IIa.  (3)  The  2030  national  objectives  for 
renewable  energy  and  energy  efficiency  are  indicative  national  contributions,  in  line  with  Regulation  (EU)  2018/1999  (the 
Governance  Regulation),  the  EU-level  2030  renewable  energy  target  set  out  in  Directive  EU/2018/2001  amended  by  Directive 
EU/2023/2413 (the revised Renewable Energy Directive) – 42.5% of gross final energy consumption with the aspiration to reach 
45% –, and the formula in Annex I to Directive (EU) 2023/1791 (the Energy Efficiency Directive). (4) Passenger battery electric 
vehicles (BEV) and fuel cell electric vehicles (FCEV). (5) The climate protection gap refers to the share of non-insured economic 
losses caused by climate-related disasters, based on modelling of the risk from floods, wildfires, windstorms, and the insurance 
penetration rate. Scale: 0 (no protection gap) –4 (very high gap) (European Insurance and Occupational Pensions Authority, 2022). 
(6) Total water consumption in renewable freshwater resources available for a territory and period. (7) Material extractions  for 
consumption and investment. (8) Years of potential life lost through premature death due to exposure to particulate matter with a 
diameter  of  less  than  2.5  micrometres.  (9)  Share  of  habitats  in  good  conservation  status  according  to  the  records  submitted 
under  Art.  17  of  the  Habitats  Directive  (Directive  92/43/EEC)  for  2013-2018.  (10)  Multi-species  index  measuring  changes  in 
population abundances of farmland bird species. (11) Source: annex 12 of the Commission’s proposal for a soil monitoring law, 
SWD (2023) 417 final. (12) Estimates of organic carbon content in arable land. 

39 

Target200520192020202120222030WEMWAMProgress to climate and energy policy targetsGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq, %, pp6,196.114%9%-7%-4%-24%-14-13Net greenhouse gas removals from LULUCF (2)Kt CO2eq-2 927 3 2791 243812.000339.000-2,545n/an/aShare of energy from renewable sources (1) (3)%17%32%30%37%38%50%--Energy efficiency: primary energy consumption (3)Mtoe5.34.84.34.54.73.9Energy efficiency: final energy consumption (3)Mtoe2.92.92.72.82.82.5Projected20182019202020212022202120222030Green transition: mobility         Greenhouse gas emissions: road transportMt CO2e---2.32.3769.0786.61.9Share of zero-emission vehicles in new registrations (4)% 0.40.31.92.33.3912.1n/aNumber of publicly accessible AC/DC charging points --191193275299178446956n/aShare of electrified railways%11.4%11.8%11.8%19.3%-56.1%-n/aGreen transition: buildings         Greenhouse gas emissions: buildingsMt CO2e---0.60.7537.0486.70.8Final energy consumption in buildings2015=100108.2%106.9%106.7%111.7%107.3%104.0%97.2% Climate adaptation         Climate protection gap (5)score 1-4--1.10.81.01.51.5n/a20182019202020212022202020212022State of the environmentWater | Water exploitation index (WEI+) (1) (6)% of renewable freshwater8.55.4---3.6--Circular economy | Material footprint (7)tonnes per person29.727.728.929.927.414.214.814.9Pollution | Years of life lost due to air pollution by PM2.5 (8)per 100.000 inhabitants202715184-545584-Biodiversity | Habitats in good conservation status (9)%56.714.7                       Common farmland bird index (10)2000=100747569--78--Green transition: agri-food sectorOrganic farming% of total utilised agricultural area20.9822.3322.4122.97-9.1--Nitrates in groundwatermg NO3/litre27.0526.3625.04--20.42--Food waste per capitaKg per capita125128-130131-Share of soil in poor health (11)%5941Soil organic matter in agricultural land (12)Mt per ha73----7,904--DistanceEU-27 
 
     
 
ANNEX 7: ENERGY TRANSITION AND COMPETITIVENESS 

This  Annex (38)  sets  out  Estonia’s  progress 
and  challenges  in  accelerating  the  net-zero 
energy  transition  while  bolstering  the  EU’s 
competitiveness 
energy 
sector (39). It considers measures and targets put 
forward in the draft updated National Energy and 
Climate Plan (NECP) (40). 

clean 

the 

in 

Estonia's  energy  sector  underwent  notable 
changes  in  2023.  Estonia's  strides  towards 
energy  transition  were  commendable,  with  an 
acceleration  of  renewables  and  ambitious  goals 
for  their  expansion.  Ongoing  challenges  in  energy 
efficiency  and 
for 
improvement.  

grids  highlight  areas 

Like EU trends, retail energy prices in Estonia 
declined  in  2023,  but  have  not  yet  reached 
2020  levels.  Average  household  gas  prices 
remained  high  and  stable  in  2022  and  beginning 
of 2023, before decreasing by 28% in the second 
half of 2023, reached an average 30% below the 
EU  average.  Industry  gas  prices  remained  high  in 
the first half of 2023, despite a clear decrease of 
37%  compated  to  the  2022  second  semester 
peak.  Prices  decrease  even  more  in  the  second 
half of 2023 to reach an average 18% below the 
EU  average.  Regarding  electricity,  prices  for 
household remain high, despite a 20% decrease in 
the first half of 2023 compare to the height of the 
crisis, prices rose again in the second semester of 
2023.  Nonethless,  estonian  prices  averages  for 
households  are  21%  below  EU  average.  Industry 
and  services  prices  for  electricity  plummeted  by 
40%  between  the  second  half  of  2022  and  the 
first  of  2023.  Prices  averages  remained  stable 
throughout  2023,  between  27%  and  21%  below 
EU averages.  

Estonia  is  one  of  the  most  energy  self-
sufficient  Member  States  in  the  EU,  and  it 
managed 
its  energy 
further  decrease 
dependency  towards  non-EU  countries,  from  13% 

to 

(38)  It is complemented by Annex 6 as the European Green Deal 

focuses on the clean energy transition and by Annex 8 on the 
action to protect the most vulnerable groups, complementing 
ongoing efforts under the European Green Deal, REPowerEU 
and European Green Deal Industrial Plan. 

(39)  In line with the Green Deal Industrial Plan and the Net-Zero 

Industry Act 

in 2013 to 5% in 2022, the lowest in the EU. This 
is  mainly  thanks  to  domestic  extraction  of  oil 
shale,  production  of  shale  oil  and  renewable 
energy  generation.  Estonia  is  fully  dependent  on 
imports  for  natural  gas,  but  its  role  is  relatively 
marginal  in  the  Estonian  energy  system,  as  in 
2022  it  accounted  only  for  7%  of  the  gross 
available  energy  and  0.6%  of  gross  electricity 
production (41). 

Graph A7.1: Estonia's energy retail prices for 
households and industry & service 

(1) For industry, consumption bands are I3 for gas and IC for 
electricity, which refer to medium-sized consumers and 
provide an insight into affordability 
(2) For households, the consumption bands are D2 for gas 
and DC for electricity 
(3) Industry prices are shown without VAT and other 
recoverable taxes/levies/fees as non-household consumers 
are usually able to recover VAT and some other taxes 
Source: Eurostat 

have 

consumers 

In  relative  terms,  electricity  prices  for  non-
household 
increased 
significantly compared to the US, Japan, and 
to  a  lesser  extent,  the  UK.  Although  there  has 
been  a  notable  decline  since  the  second  half  of 
2022,  Estonia’s  electricity  prices  have  persisted 
above  those  of  the  US  and  Japan.  This  could 
international 
potentially 
competitiveness  of  energy-intensive  industries  in 
the country. 

affect 

the 

(40)  Estonia submitted its draft updated NECP in August 2023; 

the Commission issued an assessment and country-specific 
recommendations on 18 December 2023.  

(41)  Eurostat 

40 

0.000.050.100.150.200.250.300.35€/KWhGas (industry & service) - EEGas (industry & service) - EUGas (households) - EEGas (households) - EUElectricity (industry & service) - EEElectricity (industry & service) - EUElectricity (households) - EEElectricity (households) - EU 
 
 
   
 
 
 
Graph A7.2: Trends in electricity prices for non-
household consumers (EU and foreign partners) 

(1) For Eurostat (EU and EE), the band consumption is ID 
referring to large-sized consumers with an annual 
consumption of between 2 000 MWh and 20 000 MWh, such 
as in electricity intensive manufacturing sectors, and gives an 
insight into international competitiveness 
(2) JP = Japan 
Source: Eurostat, IEA 

facility, 

storage 

Inčukalns 

Estonia also managed to reduce its exposure 
to  Russian  gas  imports,  fully  banning  them 
since  January  2023  while  maintaining 
security  of  supply.  This  diversification  has 
notably been allowed by the commissioning of the 
Balticconnector with Finland (42) and access to the 
Klaipeda  LNG  terminal  in  Lithuania  (via  Latvia). 
Further  to  this,  the  country  has  access  to  the 
Latvian 
has 
commissioned  an  LNG  terminal  in  Paldiski,  and  is 
jointly  renting,  with  Finland,  the  Inkoo  floating 
storage and regasification unit (FSRU). To continue 
to  reduce  its  import  dependence,  the  country  is 
also  aiming  to  boost  domestic  production  of 
biomethane  to  380  GWh  per  year  by  2030 
(against 161 GWh in 2022). Estonia can also count 
on a bilateral agreement for gas supply with both 
Finland and Latvia. Estonia managed to reduce its 
gas demand between August 2022 and December 
2023  by  31%  in  comparison  with  the  average  of 
the  previous  five  years.  Annual  consumption 
amounted to 0.4 bcm in 2022 (against 0.5 bcm in 
2021).  As  for  the  security  of  electricity  supply, 
there  were  no  adequacy  issues  recorded in  2023, 
nor  for  winter  2023/2024,  according  to  ENTSO-E. 
The country relies on electricity imports to cover its 
electricity 
demand,  with 
representing 13.8% of the electricity available for 

imports 

net 

of 

final  consumption  in  2022  (-18pp  compared  to 
2021) (43). 
In  the  electricity  sector,  one  of 
Estonia's main goals is its synchronisation with the 
continental  European  electricity  network  along 
with the other two Baltic States, by February 2025. 
Several  key  infrastructure  projects  are  currently 
being implemented. 

Estonia’s draft updated NECP  does not  refer 
to  the  commitment  to  phase  out  the  use  of 
shale oil made in its territorial just transition 
plan.  Estonia’s  adopted  plan  states  that  the 
government will end additional investment in fossil 
fuels  and  electricity  production  from  oil  shale  by 
2035  at  the  latest  and  will  phase  out  the  use  of 
shale oil by 2040 at the latest. This commitment is 
not  reflected  in  the  draft  updated  NECP,  which 
brings 
the  planned  measures 
financed by the Just Transition Fund.  

into  question 

in  Estonia 
installed  capacity 
Renewable 
surged  by  23%  in  2023.  The  total  renewable 
energy  capacity  in  Estonia  in  2023  stood  at 
1400MW.  The  total  wind  capacity  in  Estonia  for 
(+29%),  all  of  which 
2022  was  408MW 
onshore (44).  As  regards  the  acceleration  of  solar 
deployment,  the  total  installed  capacity  in  2022 
was 690MW (+32%).  

Graph A7.3: Estonia's installed renewable capacity 
(left) and electricity generation mix (right) 

(1) "Other" includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Ember 

According  to  the  draft  updated  NECP,  installed 
solar  capacity  in  2030  will  exceed  1  GW.  Estonia 
will  also  develop  1.3  GW  of  onshore  wind  and  1 
GW  of  offshore  wind  by  2030.  This  goal  aligns 
with  Estonia’s  non-binding  agreement,  defined  by 

(42)  In Early October 2023, the balticonnector sustained damage 
putting it temporarily out of operation, with no immediate 
impact on the security of Estonia’s gas supply. The 
Balticonnector was repaired and came back online as of the 
22nd of April 2024. 

(43)  Eurostat 

(44)  IRENA Report 2023 

41 

050100150200250300Index ( 2018 S2 = 100)JPUKUSEEEU 
  
 
 
 
 
the  non-binding  goals  in the  2023  EU  Sea  Basins 
agreements.  

steps 

significant 

Estonia  made 
in 
implementing  reforms  to  accelerate  the 
deployment  of  renewables.  Estonia  included  in 
its recovery and resilience plan an overview of the 
planned  legislative  changes  related  to  permitting, 
in particular to speed up the development of wind 
amendment 
farms,  with 
processes  already  ongoing. 
introduced  a 
consolidated  permit-granting  process  for  marine 
activities, combining separate licensing procedures, 
and 
local 
authorities  and  streamline  the  permit-granting 
process for wind energy projects.  

initiative  to  support 

launched  an 

legislative 

some 

It 

Estonia  is  pursuing  a  joint  offshore  grid 
project  with  Latvia  under  the  BEMIP  grids 
offshore  corridor,  having  secured  its  first 
offshore  hybrid  interconnector  on  the  1st 
PCI/PMI  list.  The  ELWIND  project  combines  both 
transmission  and  generation  assets,  consisting  of 
an  interconnector  and  a  joint  offshore  wind  park 
with  a  capacity  which  could  go  up  to  2  GW. 
Commissioning  is  expected  by  2035.  In  addition, 
Estonia, together with Germany is planning a joint 
hybrid  submarine  cable  project  called  Baltic 
WindConnector,  connecting  the  two  countries  in 
the Baltic sea. 

Estonia’s relatively high share of renewables 
in  heating  and  cooling  (65.4%  in  2022)  is 
mainly  related  to  biomass  use.  Heat  pumps 
cover  slightly  more  than  one  tenth  of  this  share, 
and  heat  pump  sales  increased  by  4%  in  2022, 
reaching a total national stock of around 240 000 
units. Heating and cooling account for 83% of the 
country’s residential final energy consumption. 

Consumer  empowerment  in  the  electricity 
and  gas  markets  has  potential  for  further 
development.  The  full-scale  deployment  of 
electricity  smart  meters  will  give  consumers  the 
opportunity to better manage their energy and will 
enable  new  retail  products  to  be  developed  and 
foester  prosumers  behaviours.  Regarding  energy 
communities,  implementation  of  the  framework 
and  development  of  energy  communities  is  still 
lagging behind.  

to  2012. 

primary  energy  consumption  of  4.7  Mtoe,  a  6.1% 
increase compared to 2021, and a 9.2% decrease 
It  had  a  final  energy 
compared 
consumption  of  2.8  Mtoe,  a  1.5% 
increase 
compared 
to  2021,  and  a  3.3%  decrease 
compared to 2012. In 2022, the best results came 
from  the  service  sector,  which  decreased  its  final 
energy consumption by 11.0%, and the worst from 
the  transport  sector  which  increased  its  final 
energy consumption by 3.6%. 

Increasing  investment  in  energy  efficiency 
and  renovation  is  critical  for  Estonia  to 
achieve 
further  energy  security,  while 
addressing  energy  poverty.  Estonia  has 
implemented  a  series  of  energy  efficiency 
measures  with  the  support  of  several  EU  funds. 
Most of the schemes cover buildings; schemes for 
SMEs  and  industries  are  proportionally  rather 
limited.  Support  under  the  country’s  recovery  and 
in  the 
resilience  plan  has  been  scaled  up 
framework  of the  REPowerEU  Chapter,  notably  by 
upscaling  investment  in  residential  and  services 
buildings.  Under  cohesion  policy,  17%  of  the 
overall funding allocated to Estonia covers energy 
efficiency  investment,  targeting  deep  renovations 
in  companies  and  public  buildings.  The  key 
enabling measures to increase energy efficiency in 
buildings target residential housing, with a specific 
focus on deep renovation. Most of the schemes on 
energy efficiency are still grant-based and the use 
of financial instruments is still very limited. In term 
of  existing  funding  schemes  seeking  to  mobilise 
investment  in  energy  efficiency,  Estonia  mainly 
relies on grant-based funding schemes.  

to 

for 

target 

reduce 

efforts 

reduction 

Estonia’s 
energy 
consumption  in  the  residential  sector  have 
not  made  a  meaningful  contribution  to  its 
energy 
2030 
consumption  by  buildings.  The  residential  final 
energy consumption was lower in 2022 than 2020 
but  has  increased  by  3.6%  since  2015 (45).  The 
Estonian  building  stock  presents  low  levels  of 
energy performance. The total number of buildings 
in  use  cover  76  million m².  Buildings  that  are  not 
completely  renovated  cover  70  million  m2.  The 
surface  to  be  renovated  per  year  in  2020  is  500 
000  m2.  As  highlighted  by  the  Long-Term 
Renovation  Strategy  assessment, 
it  will  be 
necessary  to  increase  public  funding  and  private 

Energy  efficiency  gains  have  slowed 
in 
Estonia  although  there  is  still  untapped 
potential in this respect. In 2022, Estonia had a 

(45)  Eurostat and JRC 

42 

 
 
investment  if  the  ambitious  target  of  renovating 
the country’s entire building stock (for all buildings 
built  up  to  2000)  by  2050  (turning  them  into 
nearly zero-energy buildings) is to be achieved.  

Estonia  is  not  reporting  any  checks  on 
products  covered  by  ecodesign  and  energy 
labelling13,  which  raises  serious  concerns  A 
regards  the  compliance  levels  of  the  products  in 
question,  the  conditions  for  fair  competition 
among  businesses,  missed  energy  and  CO2 
savings and consumer trust.  

Estonia remains highly dependent on non-EU 
countries  for  clean  energy  technologies  but 
is  poised  to  become  an  EU  leader  in  rare 
earth  manufacturing  and  is  developing  its 
hydrogen industry.  Supported by Just Transition 
Fund grants, the industrial-scale rare earth plan in 
Sillamäe will produce rare earth magnets, a critical 
element  for  green transition  technologies  such  as 
electric  cars  and  wind  turbines  (also  see  Annex 
12).  The  country  holds  a  small  PV  modules 
production capacity of less than 100 MW. Estonia 
also  has  electrolyser  manufacturing  capacity  as 
well as R&D infrastructure in this domain, notably 
supported by its status as an Important Project of 
Common  European  Interest  and  is  aiming  to 
develop  further  in  that  sector.  Estonia  also  holds 
several  elements  of  the  on/offshore  development 
ecosystem  such  as  the  main 
infrastructures, 
foundations and platforms.The country adopted its 
Hydrogen  Roadmap  in  February  2023,  but  does 
not  yet  have  an  objective  for  2030  in  terms  of 
target capacity for production of hydrogen. 

43 

 
Table A7.1:  Key Energy Indicators 

(1) The ranking of the main suppliers is based on the latest available figures (for 2022) 
(2) Venture Capital investment includes Venture Capital deals (all stages), Small M&A deals and Private Equity (PE) growth deals 
(for companies that have previously been part of the portfolio of a VC investment firm or have received Angel or Seed funding) 
Source: Eurostat, Gas Infrastructure Europe, JRC elaboration based on PitchBook data (03/2024), JRC SETIS (2024) 

44 

20192020202120222019202020212022Import Dependency [%] 4.7%10.5%1.4%6.2%60.5%57.5%55.5%62.5%of Solid fossil fuels 107.2%391.8%95.2%95.8%43.3%35.8%37.3%45.8%of Oil and petroleum products 129.6%130.0%54.9%108.6%96.7%96.8%91.7%97.7%of Natural Gas 100.0%100.0%100.0%100.0%89.7%83.6%83.6%97.6%Dependency from Russian Fossil Fuels [%]of Natural Gas 99.0%46.2%11.5%0.0%39.7%41.3%41.1%21.0%of Crude Oil0.0%0.0%0.0%0.0%28.8%26.7%26.4%19.5%of Hard Coal100.0%100.0%83.0%66.7%43.5%49.1%47.4%21.5%2016201720182019202020212022Gas Consumption (in bcm)0.5                   0.5                   0.5                   0.5                 0.4                 0.5                 0.4                 Gas Consumption year-on-year change [%]10.0%-5.0%2.9%-8.2%-8.2%14.1%-25.3%Gas Imports - by type (in bcm)0.5                   0.5                   0.5                   0.5                 0.4                 0.5                 0.4                 Gas imports - pipeline0.5                   0.5                   0.5                   0.5                 0.4                 0.5                 0.4                 Gas imports - LNG0.00.00.00.00.00.00.1                 Gas Imports - by main source supplier (in bcm) (1)Latvia-                   -                   -                   -                 0.2                 0.4                 0.4                 Lithuania-                   -                   0.0                   0.0                 0.0                 0.0                 0.1                 Russia0.5                   0.5                   0.5                   0.5                 0.2                 0.1                 -                 20192020202120222023LNG Terminals - storage capacity m3 LNGNumber of LNG Terminals0001                    1                    LNG Storage capacity (m3 LNG)00068,000          68,000          Underground StorageNumber of storage facilities00000Technical Capacity (bcm)0.00.00.00.00.020162017201820192020202120222023Gross Electricity Production (GWh) (2)12,170            13,160            12,364            7,616             6,078             7,204             8,937             -              Combustible Fuels11,531         12,397         11,682         6,836         4,959         6,095         7,650         -              Nuclear-               -               -               -              -              -              -              -              Hydro35                 26                 15                 19               30               23               23               -              Wind594              723              636              687             844             733             668             -              Solar10                 14                 31                 74               245             354             596             Geothermal-               -               -               -              -              -              -              -              Other Sources0                   0-                   0-                   -              0                 0                 -              -              Gross Electricity Production [%]Combustible Fuels94.8%94.2%94.5%89.8%81.6%84.6%85.6%-              Nuclear0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Hydro0.3%0.2%0.1%0.2%0.5%0.3%0.3%-              Wind4.9%5.5%5.1%9.0%13.9%10.2%7.5%-              Solar0.1%0.1%0.2%1.0%4.0%4.9%6.7%-              Geothermal0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Other Sources0.0%0.0%0.0%0.0%0.0%0.0%0.0%-              Net Imports of Electricity (GWh)2,037-              2,734-              1,897-              2,157             3,644             2,629             1,011             -              As a % of electricity available for final consumption -26.5%-35.3%-22.9%26.1%42.4%32.5%13.8%-              Electricity Interconnection [%]63.2%69.0%67.6%67.6%83.4%85.8%69.4%Share of renewable energy consumption - by sector [%]Electricity16.2%17.6%19.7%22.0%28.3%29.2%29.1%-              Heating/cooling51.8%52.2%53.7%52.2%58.8%61.3%65.4%-              Transport0.4%0.4%3.3%6.2%12.2%11.1%8.5%-              Overall29.2%29.5%30.0%31.7%30.1%37.4%38.5%-                 20192020202120222023VC investments in climate tech start-ups and scale-ups (EUR Mln)1.17             3.18             119.82         78.02             177.46          as a % of total VC investment (3) in Estonia start-ups and scale-ups0.6%3.0%9.5%5.1%41.3%Research & Innovation spending in Energy Union R&i prioritesPublic R&I (EUR mln)3.9               3.1               1.5               -              -              Public R&I (% GDP)0.014%0.011%0.005%-              -              Private R&I (EUR mln)2.7               4.2               -               -              -              Private R&I (% GDP)0.010%0.015%-                   -                 -                 ELECTRICITY/ENERGYCLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIESEstoniaEUENERGY DEPENDNCE 
 
   
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

This  Annex  monitors  Estonia’s  progress  in 
ensuring  a  fair  transition  towards  climate 
neutrality  and  environmental  sustainability, 
particularly  for  workers  and  households  in 
vulnerable  situations.  Estonia’s  green  economy 
is  expanding.  Between  2015  and  2021,  total  jobs 
in  the  environmental  goods  and  services  sector 
grew  by  6.5%  (to  32  133)  (EU:  18.2%),  reaching 
4.9%  of  total  employment  (EU:  2.7%).  Also, 
between  2015  and  2022,  the  greenhouse  gas 
emission  intensity  of  Estonia’s  workforce  (see 
Graph A8.1 and Table A8.1) declined from 29.6 to 
20.4 tonnes per worker. Although this is still above 
the  EU  average  (14.3  tonnes  per  worker  in 
2022) (46), it indicates a positive trend in the green 
transition. 
Council 
Recommendation  on  ensuring  a  fair  transition 
towards  climate  neutrality (47),  Estonia’s  recovery 
and  resilience  plan  (RRP)  outlines  crucial  reforms 
and  investment  for  a  fair  green  transition (48), 
the 
complementing 
territorial  just  transition  plan  (TJTP)  and  projects 
supported  by  the  European  Social  Fund  Plus 
(ESF+). 

the  REPowerEU  chapter, 

with 

line 

the 

In 

Graph A8.1: Fair transition challenges in Estonia 

Source: Eurostat, EU Labour Force Survey, EMPL-JRC GD-
AMEDI/AMEDI+ and DISCO(H) projects (see Table A8.1). 

(46)  Workforce-related calculations are based on the EU Labour 
Force Survey. Note, in the 2023 country report for Estonia, 
such indicators were calculated based on employment 
statistics in the national accounts. This may result in limited 
comparability across the two reports. 

(47)  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. 

(48)  See the 2022 country report (Annex 6) and Annex 3 for an 

In  2023,  employment 

Employment  in  Estonia’s  sectors  that  are 
most  affected  by  the  green  transition 
remains  stable. 
in 
Estonia’s energy-intensive industries (49) comprised 
2.1%  of  total  employment  (3.5%  in  the  EU). 
Employment  in  mining  and  quarrying  rose  to  a 
maximum  of  5 000  workers  in  2018  and  has 
fallen  constantly  since  then,  now  below  the  2015 
employment data (approximately 2 700 workers in 
2023).  The  transition  away  from  oil  shale  for 
energy  production  poses  a  risk  to  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  county  are  oil  shale  companies),  both  in 
terms  of  their  turnover  and  their impact  on  other 
companies.  Therefore,  the  shrinking  of  the  oil 
shale  sector  impacts  the  effective  functioning  of 
the  whole  region (50).  The  job  vacancy  rate  in 
construction (see Graph A8.2), a key sector for the 
green  transition,  is  much  lower  than  the  EU 
average  (0.1%  vs  3.6%  in  the  EU  in  2023). 
Nevertheless,  69%  of  small  and  medium-sized 
enterprises (SMEs) in the sector reported that skills 
shortages  are  holding  them  back  in  general 
business activities (51).  

for 

important 

(EU:  42%) (51). 

Upskilling  and  reskilling  in  energy-intensive 
industries is expected to grow due to a wide 
spectrum  of  measures 
the  green 
transition. In Estonia, 31% of SMEs think that the 
skills  required  for  greening  business  activities  are 
becoming  more 
In 
energy-intensive  industries,  workers’  participation 
in education and training increased from 8.68% in 
2015  to  19.6%  in  20232  (vs  10.94%  in  EU).If 
Estonia  matches  its  projected  contribution  to  the 
EU’s 2030 renewable energy target, between 300 
and 600 additional  skilled workers will  be needed 
for  the  deployment  of  wind  and  solar  energy , 
which  may  require  an  investment  in  skills  of  EUR 
1.4-1.7  million (52)  (see  Annex  15).  Investment 
under the RRP and the TJTP includes measures to 
mitigate the social and employment impact of this 

(49)  Mining and quarrying (NACE B), chemicals (C20), minerals 

(C23), metals (C24) and automotive (C29) 

(50)  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.  

(51)  Eurobarometer on skills shortages, recruitment, and retention 

strategies in small and medium-sized enterprises. 

overview. 

(52)  EMPL-JRC AMEDI+ project. 

45 

0.00.51.01.52.02.5Greenhouse gasemissions per workerEmployment inEnergy-IntensiveIndustriesEducation & trainingin Energy-IntensiveIndsutriesEnergy povertyTransport poverty(proxy)Carbon inequalityEE Latest vs EU LatestEU LatestEE 2015 vs EU Latest 
 
  
 
 
 
 
including 

transition, 
retraining  and  upskilling 
programmes  for  workers  in  the  oil  shale  industry 
and  effective  job  transition  measures  (see  Annex 
14).  The  ESF+  will  integrate  the  development  of 
green skills into the labour market, education and 
increase  the 
training  measures,  which  helps 
attractiveness  and  people’s  awareness  of  study 
fields related to green and digital change. 

Graph A8.2: Job vacancy rate in transforming 
sectors and mining and quarrying 

B - Mining and quarrying 
C - Manufacturing 
D - Electricity, gas, steam and air conditioning supply 
E - Water supply; sewerage, waste management and 
remediation activities 
F - Construction 
H - Transportation and storage 
Source: Eurostat jvs_a_rate_r2. 

Energy  poverty  indicators  have  remained 
well  below  the  EU  average,  but  the  spike  in 
energy prices has worsened the situation. The 
share  of  the  population  unable  to  keep  their 
homes  adequately  warm  increased  from  2.0%  in 
2015  to  3.4%  in  2022,  although  this  is  still  well 
below  the  EU  average  (9.3%) (53).  The  indicator 
increased by 1.4 percentage points between 2021 
and  2022  on  the  back  of  energy  price  increases 
due to supply constraints caused by the COVID-19 
pandemic  and  Russia’s  war  of  aggression  against 
the  emergency  measures 
Ukraine,  despite 
implemented in Estonia. In particular, 5.9% of the 
population  at  risk  of  poverty  (AROP)  (EU:  20.1%) 
and  3.5%  of  lower  middle-income  households  (in 
deciles 4-5) (EU: 11.6%) were unable to keep their 
homes  adequately  warm  in  2022.  On  the  other 
hand, in January 2023, 4.4% of the population at 
risk  of  poverty  spent  a  considerable  proportion  of 
their  budget  (more  than  6%)  on  private  transport 

(53)  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.   

46 

fuels (EU: 37.1%) (54). Estonia adopted a definition 
on  energy  poverty  in  2020.  Measures  addressing 
energy  poverty  are  mainly  linked  to  maintenance 
support  under  the  Social  Welfare  Act  and  receipt 
of  subsistence  allowance  for  households  that  do 
not earn the minimum wage. In this context there 
is  scope  to  focus  more  on  effective  and  well-
targeted  structural  measures  to  address  root 
causes  of  energy  poverty  as  per  Commission 
Recommendation on energy poverty (2023/2407). 

Despite  being  below 
the  EU  average, 
environmental inequalities remain an issue in 
Estonia.  In  2021,  the  consumption  footprint  for 
20%  of  the  population  with  the  highest  income 
was  1.2  times  higher  than  the  footprint  of  the 
poorest  20% (55)  (EU:  1.8).  For  both  groups,  the 
consumption  footprint  is  highest  for  housing  and 
food.  The  average  levels  of  air  pollution  in  2021 
stood  below  the  EU  average  (5.8  vs  11.4  µg/m3 
PM2.5),  and  all  regions  were  below  critical  levels 
of  air  pollution (56).  There  are  an  estimated  100 
premature deaths annually due to exposure to air 
pollution (57). 

Estonia  has  taken 
important  steps  as 
regards  achieving  a  fair  transition  towards 
climate  neutrality.  It  has  developed  the  new 
Green  Reform  action  plan,  which  is  expected  to 
facilitate  the  transition  to  climate  neutrality,  with 
activities still at an early stage of implementation. 
There are existing reskilling measures in place for 
those  people  impacted  by  the  green  transition 
through the public employment services. However, 
measures targeting the most vulnerable groups in 
the green transition are less prominent. Support to 
workers affected in the shale  oil industry is being 
provided 
the  Just  Transition  Fund, 
including  a  new  measure  for  acquiring  micro-

through 

(54)  Affordability of private transport fuels is one key dimension 

of transport poverty. The indicator has been developed in the 
context of the EMPL-JRC GD-AMEDI/AMEDI+ projects. 
Methodology explained in Economic and distributional effects 
of higher energy prices on households in the EU. 

(55)  Developed in the context of the EMPL-JRC DISCO(H) project. 
Methodology explained in Joint Research Centre, 2024. 
Carbon and environmental footprint inequality of household 
consumption in the EU. JRC137520. The EU average refers to 
EU27 without Italy (household income data not available for 
IT in the HBS) 

(56)  Two times higher than the recommendations in the WHO Air 

Quality Guidelines (annual exposure of 5µg/m3). 

(57)  EEA - Air Quality Health Risk Assessment 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%BCDEFHEU 2023EE 2023EE 2015 
      
 
 
Table A8.1:  Key indicators for a fair transition in Estonia 

Source: Eurostat (env_ac_ainah_r2, lfsa_egan2d, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-JRC 
GD-AMEDI/AMEDI+ and DISCO(H) projects. 

credentials  and  an  allowance  for 
transition to be introduced in 2024 (58). 

job-to-job 

(58)  Based on the monitoring review of the Council 

Recommendation on ensuring a fair transition towards 
climate neutrality, which took place in October 2023. 

47 

IndicatorDescriptionEE 2015EEEUGHG per workerGreenhouse gas emissions per worker – CO2 equivalent tonnes29.620.4 (2022)14.3 (2022)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24) and automotive (C29)2.3%2.1% (2023)3.5% (2023)Education & training EIIAdult participation in education and training (last 4 weeks) in energy-intensive industries8.6%19.6% (2023)10.9% (2023)Energy povertyShare of the total population living in a household unable to keep its home adequately warm2.0%3.4% (2022)9.3% (2022)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport3.8%4.4% (2023)37.1% (2023)Carbon inequalityRatio between the consumption footprint of the top 20% vs bottom 20% of the income distribution1.21.2 (2021)2.7 (2021) 
 
 
 
 
  
 
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The green transition of industry and the built 
environment,  in  particular  decarbonisation, 
resource  efficiency  and 
is 
Estonia’s 
essential 
competitiveness (59). In this regard, priorities for 
Estonia  are  waste  management  and  the  use  of 
circular materials in industry and construction. 

circularity, 

boost 

to 

Estonia  is  on  track  to  achieve  the  EU’s 
circular  economy  goals,  although  there  are 
room  for  improvements  in  some  areas.  The 
EU’s  2020  Circular  Economy  Action  Plan  aims  to 
double  the  circular  material  use  rate  between 
2020  and  2030.  The  plan  also  aims 
to 
significantly  decrease  the  EU’s  material  footprint. 
Estonia’s  material  footprint  is  well  above  the  EU 
average,  with  a  tendency  for  the  gap  to  increase 
further  (see  graph  A9.1).  With  a  circular  use  of 
material rate of 15.1%, Estonia was above the EU 
average  of  11.7%  in  2020.  There  is  still  room  to 
make  better  use  of  the  potential  of  the  circular 
economy transition to drive the decarbonisation of 
Estonia’s industry. 

Graph A9.1: ETS emissions by sector since 2013 

Source: European Commission 

In  2023,  the  sectors  covered  by  the  EU 
emissions trading system (ETS) in Estonia (60) 
emitted  38%  less  greenhouse  gases  than  in 
2019,  despite  an  increase  in  2022.  In  2023, 
61% of emissions from ETS installations in Estonia 
came from power generation. The remainder came 
almost entirely from refineries (37%). Since 2019, 
the  power  sector  has  been  the  driver  of  ETS 
emissions  reductions  in  the  country,  decreasing 
them  by  48%.  Emissions  from  cement  and  lime 

(59)  See also Annexes 6, 7 and 12. 

(60)  This analysis excludes air travel. For more details and the 
data sources, see Weitzel, M; van der Vorst, C. (2024), 
Uneven progress in reducing emissions in the EU ETS, JRC 
Science for policy brief, JRC138215, Joint Research Centre. 

production still accounted for about 7% of industry 
emissions  in  2019,  down  from  26%  in  the 
previous year, but vanished in 2022.   

have 

recycling.  Municipalities 

In  the  past  decade,  Estonia  has  made 
progress  in  waste  management,  but  there  is 
still  room  for  improvement.  The  treatment  of 
municipal waste needs considerable improvement. 
Estonia  is  at  risk  of  falling  short  of  the  EU’s 
recycling  targets  and  continues  to  experience 
structural  problems  leading  to  slow  progress  in 
waste 
the 
responsibility  to  organise  waste  management 
locally.  However,  there  is  no  incineration  tax  to 
recycling. 
shift  waste  management 
Although  the  municipal  waste  recycling  rate 
increased  from  28.2%  to  30.3%  between  2017 
and  2021,  it  remained  too  low  to meet the  2025 
recycling  target.  In  2021,  the  recycling  rate  of 
plastic  packaging  was  at  42.5%,  above  the  EU 
average  of  39.7%.  Furthermore,  Estonia  performs 
well in e-waste recycling, with 81.6% of electrical 
and electronic equipment recycled in 2021. Estonia 
is  on  track  to  meet  the  2035  landfilling  target. 
However, 
treatment 
technologies  has  been  slow,  as  no  new  patent  on 
waste recycling has been registered since 2016. 

in  waste 

innovation 

towards 

Graph A9.2: Treatment of municipal waste 

Source: Eurostat 

48 

00.20.40.60.81024681012141620132014201520162017201820192020202120222023Emissions relative to 2013Mt CO2eCement & LimeChemicalsMetalsRefineriesPower generationOtherEstonia (both axes)405369383395373010020030040050020182019202020212022Kg per capita Waste treatment to be determinedLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27 
 
 
  
 
          
 
 
at least secondary wastewater treatment.  

industries. 

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 
Furthermore, 
resource-intensive 
resource  productivity  is  one  of  Estonia’s  relative 
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). The resource-
intensive energy production from oil shale also has 
an impact on resource productivity (see Annex 12). 
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 
(Eurostat, 2020). 

is 

circular 

transition  of 

Additional  measures  are  planned  to  support 
the 
the  built 
environment  system.  In  2021,  Estonia  adopted 
its  2035  vision  for  the  construction  sector. 
Through seven steps, it focuses on identifying the 
best developments for the sector, shaping a high-
 -quality  built  environment.  Estonia  also  launched 
the  ‘Pattern  Buildings’  project  aiming  to  launch  a 
modular  buildings  platform 
circular 
construction industry. 

for  a 

for 

targets 

Estonia  is  on  track  to  meet  the  Waste 
Framework  Directive’s 
the 
construction  sector,  although  there  is  room 
for  improvement.  Between  2018  and  2020, 
waste generated from construction and demolition 
activities per capita decreased, and was below the 
EU  average.  The  proportion  of  backfilling  has 
increased since 2018 and stood at 55.7% in 2020, 
above the EU average of 9.9%. Estonia’s recovery 
rate  decreased  to  93%,  still  meeting  the  Waste 
Framework  Directive’s  target  for  2020.  In  2021, 
82% of the Estonian population was connected to 

Table A9.1:  Circularity indicators 

Source: Eurostat, European Environment Agency 

49 

201820192020202120222023EU-27Latest yearIndustryResource productivity (purchasing power standard (PPS) per kilogram)0.80.91.01.01.1-2.52022Circular material use rate (%)13.915.416.515.916.0-11.52022Eco-innovation index (2013=100)98.898.7106.8111.7115.5-121.52022Recycling of plastic packaging (%)37.740.640.942.5--40.72021Cost of air emissions from industry (EUR bn)3.61.71.01.2--352.72021Built environmentRecovery rate from construction and demolition waste (%)95.0-93.090.2--89.02020Soil sealing index (base year = 2006)102.4-----103.42018Non-residential floor area (m2 per capita)69.169.770.4---18.02020Waste backfilled (%)40.0-55.7-24.4-9.92020 
 
 
      
 
ANNEX 10: DIGITAL TRANSFORMATION 

infrastructure/connectivity 

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  Estonia's  Recovery  and  Resilience 
Plan. Estonia allocates 24.1% of its total Recovery 
and  Resilience  Facility  budget  to  digital  (EUR 208 
million) (61).  Under  Cohesion  Policy,  an  additional 
(11%  of  the  country’s  total 
EUR 0.4  billion 
Cohesion  Policy  funding) 
is  allocated  to  the 
country’s digital transformation (62). 

and 

The  Digital  Decade  policy  programme  sets 
out  a  pathway  for  EU’s  successful  digital 
transformation  by  2030.  Estonia's  national 
roadmap outlines the actions it intends to take to 
reach the objectives and targets at national  level. 
The first report on the state of the Digital Decade 
highlighted the need to accelerate and deepen the 
collective efforts to reach the EU-wide targets and 
objectives (63).  Among  others,  a  digitally  skilled 
population 
the  development  and 
adoption  of  digital  technologies  and  leads  to 
productivity  gains  and  new  business  models.  It 
also  leads  to  higher  inclusion  and  participation  in 
an environment increasingly shaped by the digital 
transformation (64). 
technologies, 
infrastructure  and  tools  all  play  a  role 
in 
addressing 
the  current  structural  challenges, 
including  strategic  dependencies,  cybersecurity 
and climate change. 

increases 

Digital 

(61)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII to the 
Recovery and Resilience Facility Regulation. 

(62)  This amount includes all investment specifically aimed at or 
substantially contributing to digital transformation in the 
2021-2027 cohesion policy programming period. The source 
funds are the European Regional Development Fund, the 
Cohesion Fund, the European Social Fund Plus, and the Just 
Transition Fund. 

(63)  European Commission (2023): Report on the state of the 

Digital Decade 2023, 2023 Report on the state of the Digital 
Decade | Shaping Europe’s digital future (europa.eu). 

(64)  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) and OECD (2019): Going Digital: 
Shaping Policies, Improving Lives – Summary, 
https://www.oecd.org/digital/going-digital-synthesis-
summary.pdf. 

Estonia  has  a  large  and  growing  pool  of 
digital  experts  and  a  population  with 
relatively  good  digital  skills.  Estonia  performs 
slightly  above  the  EU  average  as  regards  the 
percentage  of  the  population  with  at  least  basic 
digital  skills  and  has  a  very  high  share  of  ICT 
specialists.  However,  67%  of  Estonian  companies 
recruiting 
report  difficulties, 
confirming  that  a  skills  gap  still  exists.  With 
already the highest proportion of ICT graduates in 
the  EU  (9.6%  compared  to  the  EU  average  of 
4.5%),  Estonia  is  taking  targeted  measures  to  fill 
this  gap,  such  as  schemes  to  attract  foreign  ICT 
experts 
reskilling 
upskilling 
programmes (65).  The  Estonian  RRP  also  includes 
skills reform for the ICT sector. 

specialists 

and 

and 

ICT 

Estonia  still  suffers  from  relatively  average 
digital  infrastructure/connectivity,  although 
this  has  improved  significantly  in  recent 
(VHCN) 
years.  Very  high  capacity  network 
coverage 
is  below  the  EU  average 
(78.8%).  The country still lags behind in terms of 
overall  5G  coverage.  The  Estonian  RRP  includes  a 
measure  to  roll  out  very high  capacity broadband 
networks to new sites in rural areas. 

(76.9%) 

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 (55.9% compared to an EU average of 
57.7%),  but 
the  use  of  some  advanced 
technologies  is  more  common  among  Estonian 
enterprises  than  in  the  EU  on  average.  The 
includes  many 
Estonian  business  ecosystem 
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.  In 
2022, 3.1% of enterprises in Estonia reported ICT 
service  outage  due 
(e.g. 
ransomware  attacks,  denial  of  service  attacks). 
Over  the  same  year,  20.9%  of  enterprises 
developed  or  reviewed  their  ICT  security  policy 
within the previous 12 months. 

cyberattacks 

to 

(65)  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. 

50 

 
 
 
 
 
Table A10.1:Key Digital Decade targets monitored by the Digital Economy and Society Index 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 evolution will also be monitored separately and taken 
into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75% of EU 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 

Estonia’s  digital  public  services  (e-Estonia) 
are  very  advanced.  With  very  high  scores  from 
the  Digital  Economy  and  Society  Index  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  95.8  for  citizens  and 
98.8 for businesses). In the context of its RRP, the 
country  plans  to  make  these  services  even  more 
user-focused  and  proactive 
(anticipating  user 
needs  and  making  the  first  move).  Electronic 
identification  (eID)  is  widely  used  in  Estonia. 

51 

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’.  On  access  to 
e-health records, Estonia (98) performs way above 
the EU average (79). 

EUDigital Decade target by 2030 2022202320242024(EU)Digital skillsAt least basic digital skills56%56%63%56%80%% individuals20212021202320232030ICT specialists (1)6.2%6.6%6.7%4.8%20 million% individuals in employment aged 15-7420212022202320232030Digital infrastructure/connectivityFixed very high capacity network (VHCN) coverage73%76%77%79%100%% households20212022202320232030Fibre to the premises (FTTP) coverage (2)73%76%77%64%-% households2021202220232023Overall 5G coverage18%43%87%89%100%% populated areas20212022202320232030Digitalisation of businessesSMEs with at least a basic level of digital intensity54%NA56%58%90%% SMEs2021202320232030Data analyticsNANA26%33%-% enterprises20232023Cloud51%51%53%39%-% enterprises2021202120232023Artificial intelligence3%3%5%8%-% enterprises2021202120232023AI or cloud or data analytics (3)NANA61%55%75%% enterprises202320232030Digitalisation of public servicesDigital public services for citizens92949679100Score (0 to 100)20212022202320232030Digital public services for businesses98999985100Score (0 to 100)20212022202320232030Access to e-health recordsNA899879100Score (0 to 100)2022202320232030Estonia 
 
     
 
 
 
 
 
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  transition  and  ensuring  long-
term competitiveness. 

for 

tech 

(EIS). 

support 

start-ups 

Estonia  is  a  ‘moderate  innovator’  according 
to  the  2023  edition  of  the  European 
Its  overall 
Innovation  Scoreboard 
performance  remains  slightly  below 
the  EU 
(98.6%  of  the  EU  performance).  A 
average 
framework 
dynamic  R&D  base  and  good 
the 
conditions 
innovativeness  of  Estonia’s  economy.  Estonia’s 
research  and  development  (R&D)  intensity  (gross 
domestic  expenditure  on  R&D  as  a  percentage  of 
GDP)  increased  over  the  2015-2O22  period:  R&D 
intensity was 1.78% of GDP in 2022, compared to 
1.75%  in  2020  and  1.47%  in  2015.  According  to 
‘The  State  of  European  Tech  2023’ (66),  Estonia 
retains  its  leadership  position  in  the  number  of 
start-ups  per  capita.  In  2023,  Estonia  had  over 
400  start-ups  per  million  inhabitants,  the  highest 
rate in Europe. 

business 

The 
research-based 
sector’s 
innovation  activities  have  expanded  but  are 
still too limited. Many Estonian businesses have 
increased  R&D 
in  recent  years, 
investments 
particularly  by  hiring  researchers,  as  reflected  in 
the 
researchers  employed  by  business  per 
thousand  active  population.  In  2021  the  figure 
reached  3.5,  up  from  3.2  a  year  earlier.  Business 
enterprise  expenditure  on  R&D  reached  1.0%  of 
GDP  in  2022  as  compared  to  0.68%  in  2015. 
However,  this  is  well  below  the  EU  average  of 
1.47%  and  only  half  of  the  expected  2%  level 
required  to  meet  the  3%  national  R&D  intensity 
target, by complementing the 1% public part. 

While  the  level  of  direct  public  support  to 
business R&D has increased, the policy mixes 
beyond  grant  schemes  are  less  developed. 
Support  for  business  research  and  innovation  has 
been  strengthened  in  recent  years,  notably  under 
the Estonian recovery and resilience plan (RRP). For 
instance, the RRP includes the launch of the green 
technologies  development  programme,  which 
supports  the  development  of  green  technologies 
by  start-ups; 
the 
the  programme 
development  of  services  and  products  related  to 

targets 

R&D  of  materials, 
resource  efficiency  and 
reduction  of  the  use  of  chemicals.  Direct  public 
support  to  business  R&D  increased  from  0.056% 
of GDP in 2019 to 0.097% in 2022 in line with the 
EU average, but the policies beyond grant schemes 
are  less  developed.  The  corporate  income  tax 
system  has  no  special  provisions  to  favour 
investment  in  R&D  and  Estonia  does  not  apply 
other relevant tax exemptions, being an exception 
in  the  OECD  in  this  regard.  There  have  been  first 
talks  to  introduce  a  tax-related  measure  that 
would  facilitate  the  achievement  of  the  2%  R&D 
investment level compared to the GDP by business 
sector.  There  are  opportunities  to  better  address 
the  need  of  enterprises  with  minimal  absorptive 
capacity (e.g. through soft support services). 

Cooperation  between  public  research  and 
businesses  remains  limited,  but  the  new 
Applied  Research  Centre  (ARC)  will  help 
companies to better exploit research results. 
In 2021, R&D activities commissioned by business 
enterprises  to  universities  and  public  research 
organisations  represented  5.2%  of  public  R&D, 
less  than  the  EU  average  of  7.1%).  ARC  was 
formed  in  2023  as  part  of  the  Central  Office  of 
Metrology 
industrial 
innovation.  ARC  specialises  in  biorefining,  drone 
technologies,  autonomous  vehicles,  hydrogen 
technologies,  and  use  of  health  data.  Companies 
with  limited  R&D  capacity  are  expected  to  better 
exploit research results. 

to  support 

in  Estonia 

Investments  in  the  research  and  innovation 
system  will  enable  greater  valorisation  of 
important  natural 
wood,  Estonia’s  most 
resource,  into  advanced  materials.  The  peer 
review  of  the  Estonian  research  and  innovation 
system (67)  conducted  under  the  Horizon  2020 
Policy  Support  Facility  highlighted  the  importance 
of  setting  thematic  priorities  for  public  research 
and 
this 
recommendation,  five  focus  areas  and  national 
roadmaps  were  drawn  up  under  the  Estonian 
research  and  development, 
innovation  and 
entrepreneurship  strategy  2021-2035’.  ‘Wood’  is 
among  the  national  roadmaps  of  the  R&D  focus 
area  ‘Adding  Value  to  Local  Resources’.  While  the 
Estonian  wood  industry  is  still  dominated  by  low 
and  medium-low 
the 
development  of  new  technology  is  expected  to 

technology  enterprises, 

line  with 

innovation 

funding. 

In 

(66)  Available at https://stateofeuropeantech.com/  

2019, p. 8. 

(67)  ‘Final Report – Peer Review of the Estonian R&I System’ 

52 

 
 
 
 
 
Table A11.1:Key innovation indicators 

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

move  its  focus  to  biomaterials  and  biochemicals, 
increasing  the  efficiency  of  wood  utilisation,  as 
well  as  substituting  fossil  fuels.  The  most 
successful  business  R&D  project  is  in  the  field  of 
forest-based  innovative  materials,  receiving  the 
most support from EU R&I funding programmes. 

53 

EUaverage (1)R&D intensity (GERD as % of GDP)1.581.471.751.771.782.24Public expenditure on R&D as % of GDP0.770.770.760.750.770.73Business enterprise expenditure on R&D (BERD) as % of GDP0.790.680.960.991.001.48Scientific publications within the top 10% most cited publications worldwide as % of publications of the country 7.47.38.79::9.6Patent Cooperation Treaty (PCT)  patent applications per billion GDP (in PPS)2.31.01.21::3.4Public-private scientific co-publications as % of total publications6.66.08.58.78.27.6Public expenditure on R&D financed by business enterprise as % of GDP0.0290.0350.050.039:0.054New graduates in science & engineering per thousand pop. aged 25-3412.511.89.59.7:16.9Total public sector support for BERD as % of GDP0.0920.0650.0910.097:0.204R&D tax incentives: foregone revenues as % of GDP000000.104Share of environment-related patents in applications filed under PCT (%)18.711.117.5::14.7Venture capital (market statistics) as % of GDP0.0340.0320.0980.2460.3590.085Employment share of high growth enterprises measured in employment (%):11.0712.71::12.51Key indicators Estonia20102015202020212022Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation Finance for innovation and economic renewal 
 
 
 
 
   
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

it 

comes 

Estonia  generally  scores  well  and  outranks 
to 
its  Baltic  peers  when 
competitiveness.  The  country  ranks  26th  in  the 
IMD  World Competitiveness Ranking, a slight drop 
from 22nd the previous year. This is mostly due to 
a significant decline in the economic performance 
indicators (68).  The  economic  effects  of  Russia’s 
war  of  aggression  against  Ukraine  have  had  a 
considerable  impact  and  triggered  a  sharp  rise  in 
inflation.  The  lingering  recession  in  this  energy-
intensive economy  has led to  Estonian companies 
operating  in  an  environment  where  their  cost 
bases  have  been  rising  faster  than  that  of  some 
competitors,  with  nominal  unit  labour  costs  in 
industry having seen the sharpest increase across 
the  EU  in  2022  and  the  third  sharpest  in  2023. 
This  issue  has  worsened  due  to  weak  demand  in 
main  export  target  markets  as  well  as  broken 
supply  chains  with  Russia.  Estonian  companies 
have 
losing 
indicated  that  they  have  been 
competitiveness domestically as well as abroad to 
companies  from  other  countries  since  the  middle 
of 2022 (69). This follows remarkable progress and 
steady  convergence 
towards  some  western 
European  economies.  In  addition  to  comparatively 
high input  prices,  support measures  to  companies 
have also been much smaller in size.  

Competitiveness-wise,  Estonia’s  strengths 
are  its  business-friendly  environment  and 
high business and government efficiency (68). 
The country has an enabling start-up and scale-up 
environment,  and  the  high  digitalisation  level  of 
public  administration  significantly  reduces  the 
administrative  burden  for  businesses  (see  also 
Annex  13).  The  percentage  of  firms  reporting 
regulation  as  a  major  obstacle  to  doing  business 
(15.0%)  remains  well  below  the  EU  average 
(22.2%),  despite  an  increase  compared  to  2021 
and  2022  (Table  A12.1).  However,  a  2022  Flash 
Eurobarometer  indicated  that  46%  of  Estonian 
companies  were 
frequent 
legislative  changes that  can  create  confusion  and 
uncertainty  and  add  administrative  burden  for 
business  operations  in  this  challenging  economic 
climate (70).  

concerned  about 

(68)  IMB World Competitiveness Ranking 2023 

(69)  Estonian Competitiveness Report 2023 

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

54 

increase 
largely  attributed 

A  deceleration  of  productivity  is  adding  to 
Estonia’s  competitiveness  pressures.  The 
productivity  gap  between  Estonia  and  the  EU 
average  has  been  narrowing  for  the  past  decade. 
The  overall  considerable 
labour 
in 
to  capital 
is 
productivity 
deepening,  but  also  to  sustained  growth  in  total 
factor  productivity.  However,  in  2021,  2022  and 
2023, Estonia recorded a decline in its productivity, 
having been surpassed by Lithuania, with all three 
Baltic countries performing considerably below the 
EU  average  (Graph  A12.1).  In  2023,  Estonia’s 
hourly  productivity in  purchasing  power  standards 
(PPS)  per  hour  worked  stood  at  67.1%  of  the  EU 
average,  which  is  lower  than  in  each  of  the 
preceding  five  years.  Generally,  there  are  also 
in 
quite 
productivity  (see  Annex  17).  The  post-pandemic 
economic  recovery  allowed  labour  productivity  in 
industry  to  grow  by  2.8%  in  2021.  However,  this 
was followed by a sharp decline of 10.1% in 2022 
and  8.7%  in  2023  (Graph  A12.2),  the  second 
highest fall among all EU Member States.   

differences 

substantial 

regional 

Graph A12.1: Hourly productivity in PPS (% of EU-
27) 

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

prices 

affecting 

The  comparatively  high  energy  and  raw 
material 
the 
are 
industrial 
competitiveness  of  Estonian 
ecosystems  overall  (see  also  Annex  7).  They 
such  as 
particularly  affect 
some 
the 
construction,  forest-based 
metalworking industry, which tends to export 90% 
of the goods produced. In addition, the ICT and real 
estate  sectors  are  also  affected.  While  the  share 
of  industrial  companies  reporting  constraints  due 

industries  and 

sectors 

455055606570750708091011121314151617181920212223% of EU27EstoniaLatviaLithuania 
 
 
   
 
to  material  shortages  decreased  considerably 
between  2022  and  2023  and  is  now  one  of  the 
lowest,  well  below  the  EU  average  (see  Table 
A.12.1),  the  accessibility  of  raw  materials  is  still 
affected by geopolitical developments.  

Graph A12.2: Labour productivity and unit labour 
costs at industry level 

the field due to a high drop-out rate (75) (see also 
the  share  of 
Annex  14).  Overall,  however, 
industrial  companies  reporting  labour  shortages 
has  decreased  considerably  from  2022  to  2023 
and  is  now  well  below  the  EU  average  (see  Table 
A12.1).  The  Estonian  recovery  and  resilience  plan 
(RRP)  seeks  to  tackle  the  challenge  of  access  to 
skills  through  measures  to  facilitate  access  to 
transversal skills.  

The 

has 

The  production  value  of  firms 
in  the 
construction  sector,  both  in  Estonia  and 
Estonian 
decreased. 
abroad, 
construction  market  has  been  on  a  downward 
trend since Q2-2022 (76)  and the sector continues 
to  be  affected  by  rising  construction  prices,  high 
interest  rates  and  declining  consumer  confidence. 
Related  to  this,  the  recession  and  contracting 
construction  market  also  affect  forest-based 
industries.  While  the  price  of  roundwood  has 
decreased, prices in Estonia remain higher than in 
neighbouring 
the 
competitiveness of this sector. 

hampering 

countries, 

Despite 

When  it  comes  to  innovation,  one  of  the 
country’s  relative  weaknesses  is  resource 
productivity. 
continually  modest 
improvement  since  2017 (77)  (see  Annexes  9  and 
11),  Estonia  has  one  of  the  lowest  resource 
productivity  rates  among  EU  Member  States (78). 
This  can  be  partially  explained  by  the  country’s 
resource-intensive oil shale industry. In addition to 
causing  environmental  damage,  it  accounts  for 
90% of Estonia’s hazardous waste (see Annex 9).   

Estonia is taking a leading role in rare earth 
separation and magnet manufacturing.  These 
critical  raw  materials  are  of  high  economic 
importance  and  needed  for  a  wide  set  of 
such  as 
technologies 
renewable energy, digital, space and defence. This 
endeavour is supported by the Just Transition Fund 
(see  also  Annex  7).  However,  the  share  of  heavy 
rare  earth  metals  in  Estonia’s  own  raw  material 
reserves  is  very  small,  although  the  country  is 

strategic 

sectors 

in 

Source: Eurostat, NAMA_10_LP_A21__custom_9251004 

High  producer  prices  for  industrial  output, 
declining  exports  and  high  consumer  prices 
are  putting 
considerable  pressure  on 
Estonian  industries.  The  share  of  industry  in 
terms of value added to GDP is slightly above the 
EU average (24% in 2022 vs 23.5%) (71). While the 
producer  price  index  fell  moderately  in  2023 
compared  with  2022,  with  the  biggest  decrease 
registered  for  electricity,  petroleum  products,  and 
paper  and  paper  products,  prices  increased  the 
most  for  wood  products, in  mining  and  quarrying, 
and  for  motor  vehicles (72).  59%  of  Estonian 
businesses  see  their  enterprises  as  being  weaker 
than  12  months  before,  compared  to  a  European 
average  of  48% (73).  Additional  long-term barriers 
to  investment  and  major  challenges  include  the 
availability  of  skilled  staff  and  uncertainty  about 
the future (74).  

Industrial  companies  facing  constraints  in 
terms  of  labour  shortages  may  also  hamper 
exporting  industries  in  the  long  run.  These 
shortages are particularly severe in the machinery, 
metal and electronics industries, where companies 
report  a  lack  of  engineers  and  other  highly 
educated  specialists.  Furthermore,  the  number  of 
ICT graduates is not enough to meet the needs in 

(71)  World Bank – industry value added (% of GDP) 

(72)  Statistics Estonia 

(75)  Enterprise Estonia. 

(76)  Statistics Estonia 

(73)  Intrum European Payment Report 2023. 

(77)  European Innovation Scoreboard 

(74)  European Investment Bank Investment Survey 2023 

(78)  Eurostat, Resource Productivity by country, env_ac_rp. 

55 

5070901101301501701902015201620172018201920202021202220232015=100Agriculture, forestry and fishingIndustry (except construction)ConstructionWholesale and retail trade, transport, accommodation and food service activitiesInformation and communicationFinancial and insurance activitiesProfessional, scientific and technical activities; administrative and support service activities 
   
 
 
home  to  what  is  probably  the  largest  phosphorite 
deposit in Europe (79). 

As  an  open  economy  firmly  geared  to 
exports,  Estonia  continues  to  be  well 
integrated  into  the  Single  Market.  Intra-EU 
trade accounts for 58.6% of GDP, the fifth highest 
share  among  EU  Member  States 
in  2023. 
Furthermore,  Estonia  has  a  comparatively  low 
level of services trade restrictiveness compared to 
the  EU  average  (Table  A12.1.  The  launch  of  the 
unitary patent system on 1 June 2023 was a step 
in  the  completion  of  the  EU  Single  Market  for 
technology,  with  Estonia  one  of  the  17  Member 
States to become part of the system from the very 
beginning.  So  far  around  11 000  unitary  patents 
have  been  issued  by  the  European  Patent  Office, 
mostly  owned  by  EU-based  entities.  However,  as 
of  May  2024,  Estonia  had  submitted  only  14 
unitary  patent 
them 
registered (80). 

requests,  with  13  of 

Estonia  has  reached  the  intermediate  stage 
of  implementing  the  Once-Only  Technical 
System  (OOTS) (81),  with  most  components 
ready or approaching readiness.  As part of the 
Single  Digital  Gateway  Regulation (82),  the  system 
will  enable  the  automated  cross-border  exchange 
of  evidence  between  competent  authorities, 
improving 
information, 
access 
administrative  procedures  and  assistance  within 
the  EU.  The  onboarding  of  Estonian  competent 
authorities  is  crucial  for  the  system  to  function 
smoothly and to reduce administrative burden.     

online 

to 

the 

Estonia  remains  one  of  the  Member  States 
with 
lowest  number  of  pending 
infringements  (10  compared  to  the  EU  average 
of 26). This confirms its good record in the Single 
transposition 
Market.  However, 
deficit  increased  slightly  above  the  EU  average 
(Table  A12.1.  When  it  comes  to  SOLVIT,  Estonia 
solved  the  cases  (3)  it  handled  as  lead  centre  in 
the  EU  average  of 
2023,  which 
88.3% (83).  

the  country’s 

is  above 

Overall, the country is an average performer 
on  public  procurement,  with  26%  of 
contracts awarded after receiving only single 
bids  in  2023.  This  constitutes  a  slight  decrease 
compared  with  2022  (32%) (84).  However,  Estonia 
has the fifth highest share of direct awards (12%) 
among  Member  States,  above  the  EU  average  of 
6% (85). It widely recognises public procurement as 
a  strategic  tool  to  support  the  green  and  digital 
transition  and  contribute  to  social  sustainability. 
However, 
strategic  public 
procurement  is  still  limited.  Estonia  launched  a 
increase  the  uptake  by 
project 
professionalising 
procurement 
workforce.  The  aim  is  to  deliver  comprehensive 
strategies and hands-on technical guidance to the 
government,  Estonian  contracting  authorities  and 
economic  operators  on  how  they  can  strengthen 
their  administrative  capacity  to  promote  strategic 
use of public procurement (86).     

the  uptake  of 

in  2023  to 

public 

the 

of 

EU 

the 

terms 

professions, 

except 
for 

average 
agents (87), 

In 
regulatory 
restrictiveness  in  Estonia  is  generally  lower 
for 
than 
patent/trademark 
which 
reassessing  the  scope  of reserved  activities  could 
increase  competitiveness.  In  2023,  one  restriction 
–  the  requirement  for  professional  insurance  for 
patent/trademark  agents 
removed. 
Furthermore,  lawyers  in  Estonia  are  subject  to 
incompatibility 
and  multidisciplinary 
restrictions.  These  could  affect  their  potential  to 
innovate  and  roll  out  digital  solutions  and  new 
business models in this sector (88). 

–  was 

rules 

Tackling  process-related  barriers  to  the 
deployment  of  renewable  energy  sources  is 
important  for  the  energy  transition  and  for 
ensuring  energy  security  in  the  country.  As 
reviewed  by  the  Single  Market  Enforcement 
Taskforce,  barriers 
length  of 
relate 
administrative  authorisation  procedures  and  lack 
of  consistency  in  the  approaches  of  national  and 
municipal  authorities.  These  issues  are  being 

the 

to 

(79)  Geological Survey of the Republic of Estonia 

(84)  The currently available data is preliminary. Due to the 

technical preparation of a new public procurement platform, 
only the regular data available in Tenders Electronic Daily 
(TED) has been taken into account. 

(80)  European Patent Office 

(85)  Single Market Scoreboard – Public Procurement 

(81)  Implementing Regulation (EU) 2022/1463. 

(86)  Ministry of Finance of the Republic of Estonia 

(82)  Regulation EU 2018/1724. 

(83)  Single Market Scoreboard 

(87)   SWD 2021(185). 

(88)  COM(2021)385. 

56 

 
 
 
tackled in the recovery and resilience plan and as 
well  as  in  Estonia’s  REPowerEU  chapter  (see 
Annexes 3 and 7). 

The country is one of the top nine performers 
in  the  EU  on  access  to  equity  finance  for 
companies,  despite  dropping  down  in the  EIF 
SME  Access  to  Finance  Index  compared  to 
2021.  On  access  to  loans,  the  country  scores 
slightly  below 
the  EU  average,  which  also 
constitutes  a  drop  in  its  ranking  against  the  EU 
average  compared  with  2021 
(Table  A12.1. 
However, Estonia has a very high share of venture 
capital investment per GDP (see Annex 11) as well 
as  a 
level  of  regulatory  obstacles  to 
investment. The share of private as well as public 
net  investment  in  the  country  is  above  the  EU 
average. However, in 2023 net private investment 
as  a  percentage  of  GDP  dropped  from  9.2%  in 
2022  to  6.4%,  which  is  also  a  considerable 
decrease  when  compared  with  the  share  in  2021 
(10.9%). However, net public investment increased 
from  2.2%  in  2022  to  3.2%  in  2023,  which  is 
above the 2019 to 2021 levels and also above the 
EU average (Table A12.1). 

low 

in 

Small  and  medium-sized  enterprises  (SMEs) 
represent  99.8%  of  the  firms  in  the  country 
and  created  79%  of  the  value  added  in 
2022 (89).  Late  payments  remain  a  major  barrier 
to  their  resilience  and  growth.  Estonia  has  an 
the  EU 
above-average  share  of  SMEs 
experiencing  late  payments  (53.6%  in  2023), 
which  constitutes  an  increase  compared  to  2022 
and  surpasses  the  pre-pandemic  2019  level.  In 
2023, Estonia recorded a payment gap of 18 days 
for payments from the public sector – higher than 
the  EU  average.  This  was  a  slight  increase 
compared  to  2022  but  a  significant  one  if 
compared to the average of 11 days in 2021. The 
gap  for  payments  in  the  private  sector,  namely 
business-to-business,  is  exactly  the  same  as  the 
EU  average  (15  days),  which  also  follows  an 
increase  of  2  days  compared  to  2022  (see  Table 
A12.1).  The  current  geopolitical  situation  and 
global  economic  situation  can  be  seen  as  a 
contributing  factor  in  this.  Compared  with  other 
larger  share  of  Estonian 
Member  States,  a 
businesses found it difficult to pay their suppliers 
on time due to inflation (73).   

(89)  SME Performance Review 2022/2023 – Estonia country 

sheet 

57 

 
 
Table A12.1:Industry and the Single Market 

Source: (1) AMECO, (2) Eurostat, (3) Single Market Scoreboard, (4) OECD, (5) ECFIN BCS, (6) COMEXT and Commission 
calculations, (7) EIB Investment Survey, (8) Intrum Payment Report, (9) SAFE survey, (10) EIF SME Access to Finance Index.   
* Own Commission calculations for the EU27 average 

58 

POLICY AREAINDICATOR NAME20192020202120222023EU27 average*Net Private investment, level of private capital stock, net of depreciation, % GDP19,310,610,99,26,43,8Net Public investment, level of public capital stock, net of depreciation, % GDP11,82,62,62,23,21,2Real labour productivity per person in industry (% yoy)24,6-2,17,6-10,1-8,7-1,24Cost competitivenessNominal unit labour cost in industry (% yoy)24,42,90,519,720,79,83Single Market integrationEU Trade integration, % (Average intra-EU imports + average intra EU exports)/GDP252,051,058,664,358,642,9Transposition deficit, % of all directives not transposed30,50,51,20,40,90,7Conformity deficit, % of all directives transposed incorrectly31,41,40,90,91,11,1SOLVIT, % resolution rate per country3100,0100,0100,0100,0100,088,3Number of pending infringement proceedings39121281025,9RestrictionsEEA Services Trade Restrictiveness Index40,040,040,040,040,040,05Single bids, % of total contractors3342725322628,6Direct Awards, %3912911128,1Material Shortage (industry), firms facing constraints, %53,57,121,720,44,417,2Labour Shortage using survey data (industry), firms facing constraints, %520,87,927,223,39,223,3Vacancy rate, % of vacant posts to all available ones (vacant + occupied)21,8251,11,51,81,52,5Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials60,180,160,170,180,220,22Installed renewables electricity capacity, % of total electricity produced20,10,10,30,350Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle713,08,95,69,015,022,2Bankruptcies, Index (2015=100)2101,0107,472,966,5102,1105,6Business registrations, Index (2015=100)2129,3131,4148,7124,9131,2120,2Payment gap - corporates B2B, difference in days between offered and actual payment8-1514131515Payment gap - public sector, difference in days between offered and actual payment8-1411161816Share of SMEs experiencing late payments in past 6 months, %952,337,848,445,253,748,7EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1100,240,480,470,36-0,49EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 110 0,270,200,410,19-0,17EstoniaHEADLINE INDICATORSEconomic StructureSINGLE MARKETCompliancePublic procurement ECONOMIC STRUCTUREShortagesStrategic dependenciesBUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to finance 
 
   
 
ANNEX 13: PUBLIC ADMINISTRATION 

Estonia’s  public  administration  is  essential 
for  the  economy’s  competitiveness  by,  in 
particular,  shaping  the  conditions  for  the 
twin  transitions  and  creating  a  favourable 
business  environment.  The  level  of  perceived 
government  effectiveness  is  improving  (Graph 
A13.1).  It  rose  to  1.34  in  2022,  up  from  1.4  in 
2019,  and  is  above  the  EU  average.  The  national 
2035’ (90), 
development 
identifies  governance  as  a  strategic  goal  next  to 
people,  society,  economy  and  the  environment.  It 
focuses  on  digitalising  the  public  administration, 
increasing  the  quality  of  public  services,  ensuring 
fundamental  rights  and  making  country  more 
research-intensive. 

strategy, 

‘Estonia 

Graph A13.1: Government effectiveness 

Estonia’s civil service is relatively young and 
well-skilled  and  outperforms  the  private 
sector  in  terms  of  job  satisfaction (91).  The 
ratio of staff aged 25-49 compared to those aged 
50-64 is above the EU average and has remained 
stable  in  the  last  3  years.  The  share  of  public 
administration  employees  with  higher  education 
and  their  participation  rate  in  adult  learning 
relatively  high-skilled  workforce 
indicate  a 
compared  to  the  EU  average.  Gender  parity  in 
senior  civil  service  positions  is  above  the  EU 
average (Table A13.1). 

Estonia’s  e-government  maturity  and  the 
share of people using these services are well 
above the EU average. This can be attributed to 
the  extent  to  which  key  technologies  have  been 
put  in  place  to  deliver  digital  public  services  and 
the ease with which people are able to access and 
use  them.  Estonia  significantly  surpasses  the  EU 
average  across  all  four  dimensions  of  the  e-
government  benchmark  indicators  (namely  user 
centricity,  transparency,  key  enablers  and  cross-
border  digital 
Further 
improvements to digital public services remain one 
of  the  priorities  under  Estonia’s  national  digital 
agenda  for  2030  (see  also  Annex  12).  Ongoing 
challenges  include  ensuring  the  accessibility  of 
health  data  to  everyone  (including  people  with 
disabilities)  and  making  all 
relevant  portals 
accessible on mobile devices (93). 

services) (92). 

public 

Average value over 2018-2022 and change over 2018-2022. 
The GDP per head bar shows the mean value of the 
government effectiveness indicator for the group of EU 
countries belonging to the same GDP per head cluster as 
Estonia (EU countries are ranked in terms of their GDP per 
head and grouped into three equally sized clusters). 
Source: Worldwide Governance Indicators. 
Source:  

The  recovery  and  resilience  plan 
(RRP) 
focuses  mainly  on  the  green  and  digital 
transitions.  While  Estonia  is  a  front  runner  in  e-
government,  it  continues  to  modernise  its  digital 
public  services  and  to  strengthen 
its  digital 
capacity  to  fight  money  laundering.  Particularly 
good  progress  has  been  made  on  the  digital 
transformation of businesses. 

(90)  Strategic goals | Eesti Vabariigi Valitsus. 

their  quality (94).  However, 

Estonia  has  a  well-established  regulatory 
governance.  The 
impact  assessments  have 
improved over time. There is regular oversight and 
the 
reporting  on 
publication  of  ex post  evaluations  remains  at  the 
discretion  of  the  relevant  minister.  Accessibility 
and  transparency  of  regulatory  policy  is  ensured 
through  an  online  information  system  known  as 
EIS. EIS tracks legislative developments and makes 
regulatory  impact  assessments  available  on  a 

(91)  Roles and Attitudes in the Public Service 2023. 

(92)  European Commission, eGovernment benchmark 2023, 

eGovernment Benchmark 2023 | Shaping Europe’s digital 
future (europa.eu). 

(93)  2023 Report on the state of the Digital Decade, 2023 Report 
on the state of the Digital Decade | Shaping Europe’s digital 
future (europa.eu). 

(94)  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. 

59 

-0.20.00.20.40.60.81.01.21.4EEEU-27GDP perhead clusterChange 2018-2022Average 2018-2022 
 
   
 
 
 
Table A13.1:Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2023 value. If unavailable, the latest value available 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: E-government activities of individuals via websites, 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). 

central portal. In addition, for public consultations, 
other channels  are used to ensure information on 
them is available. 

improving.  On  judicial  independence,  no  systemic 
deficiencies have been reported (95). 

two  staff  members. 

To  help  address  fiscal  challenges,  the 
independent  fiscal 
institution  could  be 
strengthened.  The  Estonian  Fiscal  Council  is  a 
relatively small independent fiscal institution, with 
the 
only 
government’s macroeconomic and fiscal forecasts 
and assesses compliance with the budget balance 
rule.  Independence  could  be  further  strengthened, 
as the Fiscal Council’s budget is part of the central 
bank budget. 

It  endorses 

The  justice  system  performs  efficiently.  The 
length  of  court  proceedings  in  civil,  commercial 
and administrative cases is one of the shortest in 
the  EU  (28  days  at  first  instance  in  2022).  The 
quality  of  the  justice  system  is  good  overall.  The 
level  of  digitalisation  is  very  advanced  and  keeps 

(95)  For more detailed analysis of the performance of the 

Estonian justice system, see the 2024 EU Justice Scoreboard 
(forthcoming) and the 2024 country-specific chapter on 
Estonia in the Rule of Law Report (forthcoming). 

60 

EE20192020202120222023EU-27(2)1n/an/an/a93.094.775.02n/a91.690.091.892.075.830.70.90.90.91.00.8468.970.366.4 (b)69.771.152.9542.029.336.9 (b)41.442.417.964.41.03.03.43.89.272.42.62.4 (b)2.62.31.580.70.70.70.7n/a0.791.31.31.31.3n/a1.410n/an/a2.17n/an/a1.7Strength of fiscal rules indexEvidence-based policy makingRegulatory governanceMedium-term budgetary framework indexIndicator (1)E-government and open government dataShare of internet users within the last year that used a public authority website or appE-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with higher 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  
 
 
      
 
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  the  EU’s  headline  and  national  targets  for 
2030 on employment, skills and poverty reduction. 

relatively  low  proportion  of  workers  (19%  in 
2021),  and  membership  of  trade  union  and 
employers’ organisations is relatively low (6% and 
25% (97)  in 2019) (98).  

Table A14.1:Social scoreboard for Estonia 

(EU:  75.3%), 

in  2023  at  82.1% 

Estonia’s  labour  market  performed  strongly 
in  2022  and  2023,  but  the  recession  that 
started in Q2-2022 had a negative impact on 
the  trend.  While  the  employment  rate  was  still 
high 
the 
unemployment rate increased from 5.6% in 2022 
to 6.4.% in 2023 (EU: 6.1%) and is expected to rise 
further  in  2024.  The  recession  has  especially 
affected  employment  in  manufacturing,  such  as 
jobs  connected  with  wood  processing.  Estonia’s 
youth unemployment rate slightly decreased from 
18.6%  in  2022  to  17.3%  in  2023  and  is  much 
higher  than  the  EU  average  (14.5%).  To  tackle 
youth unemployment and assist those who are not 
in employment, education or training the Estonian 
government  adopted 
reinforced  Youth 
Guarantee  action  plan  in  2022  as  part  of  the 
recovery  and  resilience  plan  (RRP).  In  2022,  the 
disability  employment  gap  rose  significantly,  by 
7.5  percentage  points  (pps),  interrupting  a  steady 
decline since 2016 and exceeding the EU average 
for the first time in 2022 (26.2% vs 21.4% in the 
EU) (96).  The  latest  data  points  to  a  significantly 
lower  disability  employment  gap  in  Estonia  for 
2023  (at  20.2  pps).  Estonia  is  among  the  best 
performers  as  regards  the  gender  employment 
gap,  yet  it  continues  to  have  one  of  the  largest 
gender  pay  gaps  in  the  EU  (21.3%  vs  an  EU 
average  of  12.7%  in  2022).  That  rate  was  on  a 
downward  trend  until  2021,  partly  because  of 
reforms undertaken in recent years.  

the 

In-work  poverty  in  Estonia  is  high  (10.5%  in 
2022  vs  an  EU  average  of  8.5%).  The 
minimum  wage  (EUR  820  as  of  January  2024) 
increased  in  nominal  terms  by  10%  between 
January  2022  and  July  2023,  but  decreased  in 
real terms by 9.9%. Collective bargaining covers a 

(96)  The steep increase in the disability employment gap in 2022 
was affected by the increase in the overall employment rate, 
whilst the uptake of employment for persons with disability 
has been slower. 

Update of 25 April 2024. Members States are categorised 
based on the Social Scoreboard according to a methodology 
agreed with the EMCO and SPC Committees. Please consult 
the Annex of the Joint Employment Report 2024 for details on 
the methodology.  
Source: Eurostat. 

and 

labour 

shortages 

Skills 
persist, 
particularly  in  the  healthcare  and  education 
sectors.  The  most  significant  labour  and  skills 
IT, 
shortages  are 
in 
healthcare  and 
industry  and 
social  work, 
construction (99).  Teacher  shortages  are  severe 
across  the  education  system  and  have  been 
getting  worse  in  recent  years (100).  The  existing 
skills shortages in Estonia are also linked to early 

specialist  education, 

(97)  OECD: Negotiating Our Way Up : Collective Bargaining in a 
Changing World of Work | OECD iLibrary (oecd-ilibrary.org). 

(98)  Collective bargaining coverage (oecd.org) 

(99)  OSKA research report ‘An overview of the state of the 
Estonian labour market, labour demands and resulting 
training demands’: OSKA general forecast 2022-2031 - 
OSKA (kutsekoda.ee). 

(100) ETM 2023. 

61 

41.89.762.69.62.45.482.16.41.3125.625.216.628.0826.24.933.79.1Critical situationTo watchWeak but improvingGood but to monitorOn averagePolicy areaHeadline indicatorEqual opportunities and access to the labour marketAdult participation in learning (during the last 12 months, excl. guided on the job training, % of the population aged 25-64, 2022)Early leavers from education and training(% of  the population aged 18-24, 2023)Share of individuals who have basic or above basic overall digital skills(% of the population aged 16-74, 2023)Young people not in employment, education or training(% of the population aged 15-29, 2023)Gender employment gap(percentage points, population aged 20-64, 2023)Income quintile ratio (S80/S20, 2022)Dynamic labour markets and fair working conditionsEmployment rate(% of the population aged 20-64, 2023)Unemployment rate(% of the active population aged 15-74, 2023)Long term unemployment(% of the active population aged 15-74, 2023)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2022)Social protection and inclusionAt risk of poverty or social exclusion (AROPE) rate (% of the total population, 2022)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2022)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2022)Disability employment gap (percentage points, population aged 20-64, 2022)Housing cost overburden (% of the total population, 2022)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2022)Self-reported unmet need for medical care (% of the population aged 16+, 2022)Better than averageBest performers 
 
 
 
 
   
 
 
 
(VET)  graduates 
technology, 

school  leaving,  and  to  the  insufficient  number  of 
higher  education  and  vocational  education  and 
fields 
training 
(particularly 
and 
construction,  science  and  education).  Tackling 
challenges  related  to  the  skills  mismatch  could 
help  Estonia  reach  the  national  employment  rate 
target  of  81%  and  make  progress  towards  the 
adult learning target of 52.3% by 2030.  

in 
certain 
production 

Most  social  indicators,  including  the  risk  of 
poverty  or  social  exclusion,  worsened  in 
2022  among  vulnerable  groups.  The  rate  of 
older  people  (65  and  over)  at  risk  of  poverty  or 
social  exclusion  (AROPE)  increased  significantly, 
from 41.6% in 2021 to 53.1% in 2022, which was 
one  of  the  highest  in  the  EU  (EU:  20.2 %).  The 
monetary  poverty  rate  of  older  people  also 
increased  (to  52.3%  vs  an  EU  average  of  17.3%) 
and was even higher for women (57.1%, 13.5 pps 
more than for men), compared to only 16% for the 
Estonian  working  age  population.  The  AROPE  rate 
of persons with disabilities also increased in 2022, 
reaching 47.8%, the second highest in the EU, with 
the biggest gap with persons without disabilities in 
the  EU  (28  pps,  up  from  19.9  pps  in  2021,  and 
compared to EU average 10.5 pps in 2022). Some 
categories  face  a  high  risk  of  poverty  in  2023, 
the  self-
such  as  part-timers 
employed (29.6%). Income inequality measured by 
the  income  quintile  share  ratio  is  high  5.37  in 
2023 (slightly decreasing from 5.39 in 2022 after 
increasing from 5.03 in 2021 vs an EU average of 
4.74  in  2022)  Higher  living  costs  (inflation  in 
Estonia was 19.4% in 2022 and 9.1% in 2023 vs 
9.2% and 6.4% in the EU) put additional pressure 
on  households’  ability  to  make  their  ends  meet. 
However, social benefits have not increased to the 
same extent,  resulting in an  average  real  loss  for 
households  of  about  3.64% (101).  The  situation  is 
expected  to  further  deteriorate  due  to  the 
currently  high  inflation  environment  and  planned 
tax  increases (102).  Ensuring  adequate  mitigation 
measures  for  those  at  risk  of  poverty  will 
therefore remain a key challenge.  

(20.9%)  and 

(101) EUROMOD analysis (2023-2024): an assessment of the role 

of inflation in eroding the real value of social benefit 
between 2021 and 2022. 

(102) Increase of VAT from 20% to 22%, increase of income tax 
from 20-22% as of 2025, elimination of the regressivity of 
the basic tax allowance, car tax as of 2025. 

replacement 

(the  aggregate 

The  adequacy  of  the  Estonian  pension  and  social 
safety net is low. Pensions are low relative to work 
incomes 
ratio 
decreased  to  46%  in  2023  compared  to  49%  in 
2022  vs  an  EU  average  of  58%  in  2022,).  The 
limited  coverage  of  unemployment  benefits, 
especially for those in non-standard forms of work 
or  with  spells  of  short  work,  contributes  to 
increasing  income  inequality,  despite  some  policy 
developments (103) in previous years. In 2023, only 
27.9%  of 
the  newly  registered  unemployed 
received  unemployment  insurance  benefits  and 
unemployment 
28.2% 
allowance,  although 
total  coverage  of 
the 
unemployment  benefits,  including  the  redundancy 
benefit,  is  63.5%.  Estonia  is  planning  to  propose 
legislation in  2025  to  extend  the  coverage  of  the 
unemployment 
insurance  benefit  system  for 
people  in  non-standard  forms  of  work (104).  The 
impact  of  social  transfers,  excluding  pensions 
(already below the EU average), fell by 2.5pps. The 
2021 pension reform making the statutory funded 
scheme possible to opt-out anytime, risks reducing 
the  future  adequacy  of  pensions  and  puts  people 
at a higher risk of poverty in the long term. 

received 

fixed 

the 

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, special extraction excluding guided on-the-job 
training. 
(2) Change in the number of persons at risk of poverty of 
social exclusion (AROPE), reference year 2019. 
Source: Eurostat, DG EMPL. 

Access to healthcare and good quality social 
services,  in  particular  long-term  care  (LTC), 
remain  a  major  challenge.  Estonia  has  one  of 
the  highest  levels  of  self-reported  unmet  needs 

(103) Estonia has continued to raise pensions and subsistence 

allowance, amended the unemployment insurance benefit 
act, and compensated energy price increases. However, 
social transfers had a limited impact in 2022 given Estonia’s 
very high inflation and its negative impact on the cost of 
living. 

(104) Estonian Government coalition agreement 2023: 

Koalitsioonilepe 2023-2027 | Eesti Vabariigi Valitsus 

62 

IndicatorsLatest dataTrend            (2016-2023)2030 targetEU target 82.1(2023)41.8(2022)16(2023)Poverty reduction2 (thousands)-39-15 000Employment (%)81.378Adult learning1 (%)52.360 
 
 
  
 
 
into  force, 

for medical  care in the EU increasing to 12.9% in 
2023 (9.1% vs 2% in the EU in 2022. As both the 
share of the population aged 65 and over and the 
old-age dependency ratio are expected to increase 
significantly  by  2050,  the  demand  for  LTC 
becomes even more acute. Public spending on LTC 
is among the lowest in the EU (0.4% of GDP vs an 
EU average of 1.7% in 2022) (105). Public spending 
in  healthcare  is  also  well  below  the  EU  average 
and  has  been  decreasing  since  2021  (after  a 
temporary increase in response to COVID-19). Out-
of-pocket  payments  for  LTC  have  fallen  slightly 
but  remain  high,  accounting  to  43.8%  of  all  LTC 
health-related  expenditure  in  2020  (EU:  18.1%). 
The  local  governments’  capacity  to  provide  social 
benefits and services depends to a large extent on 
the  budgetary  resources  available  and  is  highly 
unequal. Estonia has planned several measures to 
tackle challenges in LTC. In 2023, the care reform 
entered 
reduce  out-of-pocket 
to 
payments  in  general  care  provision  and  thus 
improve  accessibility 
the 
implementation of the reform remains to be seen. 
This  is  the  first  major  step  in  changing  the 
provision  of  LTC  in  Estonia.  As  part  of  the  RRP, 
Estonia adopted an action plan on the coordination 
model  for  integrated  care  in  2023  but  full 
implementation  across  the  country  depends  on 
legal  and  budget  decisions.  In  Estonia,  the  ESF+ 
will  finance  measures  on  LTC,  on  integration  and 
action  to  tackle  material  deprivation.  This  should 
help Estonia achieve the 2030 EU headline target 
on  poverty  reduction  of  39 000  fewer  people  at 
risk  of  poverty  or  social  exclusion  compared  to 
2019.  The  available  quantitative  and  qualitative 
evidence  and  the  policy  response  undertaken  and 
planned  analysed  in  the  second-stage  analysis  of 
the  Social  Convergence  Framework  of  May  2024 
(SWD(2024)132)  point  to  challenges  related  to 
social protection and inclusion, and education, but 
do  not  point 
to  major  social  convergence 
challenges  for  Estonia  overall,  in  light  of  the 
positive  developments  recorded,  especially  in  the 
area of employment. 

to  LTC,  however 

(105) European Commission, 2024 Ageing Report (April 2024), 

Public LTC expenditure as a share of GDP. 

63 

 
 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  of 
Estonia’s  education  and  training  system 
based on the 2023 Education and Training Monitor 
and  the  2022  OECD  Programme  for  International 
Student Assessment (PISA) results. 

While Estonia performs very strongly in basic 
skills,  reaching  the  EU-level  targets,  a 
moderate  worsening  is  observable  over  the 
last  decade.  The  2022  PISA  results (106)  show 
that  the  share  of  low-achieving  students  has 
increased,  but  remains  low.  Estonia  is  the  only 
country meeting the EU-level targets of 15%: 15% 
vs EU 29.5% in mathematics, 13.8% vs EU 26.2% 
in reading and 10.1% vs EU 24.2% in science. Boys 
are  more  likely  to  underachieve  in  reading  and 
is 
science.  Underachievement 
more  frequent  among  foreign-born  students,  but 
the  gap  between  their  performance  and  that  of 
students  without  a  migrant  background  is  one  of 
the smallest within the EU (at 13.2 pps). 

in  mathematics 

Graph A15.1: Underachievement rates in 
mathematics, PISA 2012, 2018 and 2022 

Source: OECD (2023). 

The socio-economic gap in underachievement 
in  mathematics  remains  comparatively  low, 
but is widening. This can largely be explained by 
results  among  disadvantaged 
the  worsening 
students.  While  students  from  disadvantaged 
backgrounds are much less likely to underachieve 
in mathematics (24.5%) than in other EU countries 
(48%),  the  rate  has  increased  significantly  since 
2018  (16.1%).  Still,  the  socio-economic  gap  in 
underperformance  remains  the  lowest  in  the  EU 
(18.4 pps vs EU 37.2 pps). 

Although  the  share  of  top  performers 
remains  well  above  the  EU  average  for  all 
three  basic  skills,  its  decline  risks  limiting 

innovation  capacity.  Since  2018,  the  rate  has 
decreased  by  2.4 pps  in  mathematics  and  by 
3.3 pps in science, in line with EU trends. Boys are 
over-represented among top-achieving students in 
mathematics,  just  as  across  the  EU,  whereas,  in 
Among 
outperform 
girls 
reading, 
disadvantaged  students, 
top 
performers  in  mathematics  is  also  relatively  high 
(4.1% vs 1.8% at EU level). 

boys. 
the  share  of 

Teacher  and  support  specialist  shortages 
concern  all  levels  of  the  education  system. 
The  share  of  qualified  teachers  also  indicates 
shortages  in  general  education,  especially  for 
teachers  under  30.  The  teacher  population  is 
ageing, with 34% of teachers expected to retire in 
the coming 10 years. This will require around 770 
new  staff  in  education  every  year,  which  the 
education system is unable to supply. Additionally, 
around 50% of new teachers leave the profession 
within  the  first  5 years (107).  To  address  those 
shortages,  a  teacher  action  plan  was  adopted  in 
2022  to  improve  the  working  conditions,  training 
and  career  progression  of  teachers,  support 
specialists, school leaders and managers. In 2023, 
over  400 additional  study  places  for  teacher  and 
support  specialist  students  were  opened  and  new 
receive  a  EUR 400  monthly 
students  will 
scholarship.  In  addition,  pursuing  its  objective  of 
raising  teacher  salaries  to  120%  of  the  national 
average wage by 2027, the government granted a 
substantial pay rise of 23.9% in 2023, in a context 
of  high  inflation  (+ 19.4%),  and  an  additional 
increase  of  6.6%  follows  in  2024.  Nevertheless, 
teachers  generally  still  earn  less  than  other 
tertiary-educated workers (-14.3% vs EU -10.5%). 

While  participation 
in  early  childhood 
education  and  care  (ECEC)  is  increasing  for 
under-3-year-olds,  it  is  still  below  the  EU 
average. In 2022, the participation rate in formal 
childcare for under-3-year-olds reached 33.7% (vs 
EU 35.7%), below the national Barcelona target of 
40.5%. The enrolment rates for children between 3 
and primary school age remained stable (91.5% vs 
EU 92.5% in 2021, both below the EU-level target 
of 96% by 2030). To address capacity shortages a 
draft reform act is planned to be adopted in 2024 
to  ensure 
that  all  children  aged  between 
18 months and 3 years have access to childcare at 

(106) OECD (2023), PISA 2022 Results (Volume I): The State of 

Learning and Equity in Education. 

(107) Ministry of Education and Research. (2021). Õpetajate 

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

64 

05101520253035EEEU%2012201820222030 EU target 
 
  
 
 
 
 
Table A15.1:EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Notes: b = break in time series; d = definition differs; e = estimated; p = provisional; u = low reliability; : = data not available. 
Source: 1,3,4,5,7,8,9,10,12=Eurostat; 11= Eurostat, Adult Education Survey; 2,6=OECD, PISA. 

request  of 

their  parents,  additionally 
the 
establishing  an 
integrated  ECEC  system  with 
common  quality  standards,  including  a  common 
curriculum. 

grades, schools will gradually use Estonian as the 
sole  language  of  instruction.  The  government 
supports  the  language  transition,  by  covering 
continuous  training,  educational  materials  and 
salary top-ups for teaching in certain regions. 

Early school leaving and related gender gaps 
are of major concern, leading to severe skills 
shortages. Almost 1 in 10 young people leave the 
education and training system with very low or no 
qualifications,  of  which  more  boys  than  girls 
(11.4%  vs  8%  in  2023).  To  reduce  early  leaving, 
the  Education  Ministry’s  approach  includes  the 
integration of formal and non-formal education, as 
well  as 
special 
improving  the  school 
educational  needs  and 
climate.  In  2023,  the  government  updated  the 
national  curriculum  for  primary  and  secondary 
education,  focusing  on  transversal  competences 
and  the  autonomy  of  teachers  and  learners,  and 
intends  to  raise  the  mandatory  school  age  from 
17 to 18 years. 

students  with 

supporting 

transition 

Estonia  aims  to  complete  already  by  2030 
the 
language 
education,  accelerating  the  planned  reform. 
Starting from 2024-2025 with the first and fourth 

Estonian 

to 

To help students acquire green competencies, 
Estonia  adopted  in  early  2023  a  renewed 
action plan to integrate sustainability topics 
in  all  levels  of  education  and  subjects.  It 
encourages  cooperation  between  educational 
institutions,  environmental  education  centres  and 
to  develop  a 
communities,  and 
comprehensive 
for 
environmental education centres. 

it  plans 
formal  quality 

system 

Though  relatively  high,  tertiary  educational 
attainment  could  be  increased  by  reducing 
the  dropout  rate  and  the  gender  gap,  to 
improve  the  skills  supply  on  the  labour 
market. In 2023, 43.5% of Estonians between 25 
and  34  held  a  university  degree  (EU:  43.1%),  but 
the  dropout 
is 
relatively  high,  as  is  the  gender  gap  (24.2 pps  vs 

rate  from  higher  education 

65 

96%89.6%201391.8%201391.6%92.2%91.5%202192.5%2021,dReading< 15%9.1% 18.0%11.1% 22.5%13.8%202226.2%2022Mathematics< 15%10.5% 22.1%10.2%22.9%15.0%202229.5%2022Science< 15%5.0% 16.8%8.8%22.3%10.1%202224.2%2022< 9 %10.3%12.6%12.0%10.5%9.7%9.5%Men13.3%14.5%16.1%12.1%11.4%11.3%Women7.3%10.6%7.8%8.7%8.0%7.7%Cities7.6%b11.2%7.6%9.4%8.0%8.6%Rural areas13.5%b14.0%14.9%11.0%12.1%9.9%5By country of birthNative10.4%11.3%12.2%9.2%9.7%8.2%EU-born:u26.2%:u22.4%:u21.0%Non EU-born:u30.1%:u23.0%:u21.6%6Socio-economic gap (percentage points)11.3:11.529.518.4202237.220227Exposure of VET graduates to work-based learning≥ 60% (2025) ::: :83.7% 64.5%45%40.1%34.1%41.1%38.7%43.5%43.1%Men29.5%29.1%31.3%33.3%31.8%37.6%Women51.2%39.2%51.7%44.2%56.0%48.8%Cities48.9%b43.5%50.1%49.0%51.2%53.3%Rural areas29.0%b24.8%32.0%27.7%35.9%31.7%Native39.6%35.4%40.2%39.7%40.8%44.2%EU-born:u29.3%:u36.7%:u40.2%Non EU-born47.9%24.2%63.3%31.0%73.1%37.1%11Participation in adult learning (age 25-64)≥ 47% (2025) ::33.9%201637.4%201641.8%202239.5%202228.8%201322.7%201332.9%23.8%36.7%202124.5%2021Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth12Share of school teachers (ISCED 1-3) who are 55 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 urbanisation201220182023IndicatorTargetEstoniaEU-27EstoniaEU-27EstoniaEU-27 
 
  
 
EU  11.2°pps  difference  in  favour  of  women  in 
2023). 

66 

 
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. 

spending healthcare accounted for 22.1% of total 
spending,  compared  to  14.5%  for  the  EU  overall. 
Based  on  the  age  profile  of  the  Estonian 
population,  public  expenditure  on  health 
is 
projected  to  increase  by  0.6  percentage  points  of 
GDP by 2070, the same as for the EU overall (see 
Graph A16.2 and Annex 21). 

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2024-2070 

Life  expectancy  in  Estonia  remains  among 
the  lowest  in  the  EU.  The  increase  in  life 
expectancy in 2022 can be partially explained by a 
decrease  in  COVID-19  mortality  in  2022 (108).  The 
rates of mortality  from preventable and treatable 
causes  are  much  higher  than  the  EU  average.  In 
2021,  the  leading  causes  of  death  were  diseases 
of 
(‘cardiovascular 
diseases’)  and  cancer,  followed  by  COVID-19. 
Estonia’s  suicide  rate  is  one  of  the  highest  in  the 
EU.  A  suicide  prevention  plan  is  expected  to  be 
adopted by the end of 2024. 

circulatory 

system 

the 

Graph A16.1: Life expectancy at birth, years 

Baseline scenario 
Source: European Commission / EPC (2024) 

In  2021,  spending  on  prevention  in  Estonia 
amounted  to  8.3%  of  total  spending  on 
healthcare,  compared  to  6.0%  for  the  EU 
overall.  Between  2019  and  2021,  spending  on 
preventive  care  in  Estonia  more  than  doubled, 
exceeding  the  average  increase  across  the  EU. 
Proportionally, budget shares for prevention across 
the  EU  increased  most  for  emergency  response, 
disease detection and immunisation programmes. , 
In  Estonia,  the  main  factors  explaining  the  big 
increase  in  the  spending  on  preventive  care  in 
2021  are  disease  detection  programmes  that 
increased in spending by 610% and immunisation 
programmes that increased in spending by 957%. 

Estonia  faces  a  shortage  and  an  uneven 
distribution of health workers, both of which 
are  implicated  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);  9.1%  of  the  Estonian 
population 
in  2022 
reported  unmet  needs 
(compared  to  an  EU  average  of  2.2%),  with  long 
waiting  times  being  the  main  reason  The  level  of 
unmet  needs  decreased  from  15.5%  in  2019  to 
9.1% in 2022.                           

Source: Eurostat 

Health  expenditure  in  Estonia  is  among  the 
in  the  EU.  Only  76.4%  of  health 
lowest 
expenditure  was  publicly  funded  in  2021  –  below 
the  EU  average  of  81.1%.  Spending  per  capita  is 
below  the  EU  averages  for  outpatient  care, 
inpatient  care,  pharmaceuticals  and  medical 
devices  and  disease  prevention.  In  2021,  total 
healthcare spending amounted to 7.6% of GDP, up 
from  6.8%  in  2019,  but  provisional  data  suggest 
that it went down to 7.1% in 2022. The increased 
spending 
in  2021  reflects  the  allocation  of 
additional  resources  to  the  health  system  in 
response to the COVID-19 pandemic. Nevertheless, 
healthcare  spending  in  Estonia  remained  one  of 
the lowest in the EU and below the EU average of 
10.9%  of  GDP  in  2021.  In  2021,  out-of-pocket 

(108) Based on data provided directly by Member States to the 

European Centre for Disease Prevention and Control, under 
the European Surveillance System. 

67 

78.478.579.078.977.278.180.981.081.380.480.180.6201720182019202020212022EstoniaEU6.65.10.60.602468EUEstonia% of GDP20242070increase 
 
   
 
   
 
 
Table A16.1:Key health indicators 

Note: The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple 
average is used. Doctors’ density data refer to practising doctors in all countries except Greece, Portugal (licensed to practise) and 
Slovakia (professionally active). Nurses’ density data refer to practising nurses in all countries except Ireland, France, Portugal, 
Slovakia (professionally active) and Greece (hospital only). 
Source: Eurostat Database; except: * OECD, ** Joint Questionnaire on non-monetary healthcare statistics, *** ECDC, **** Council 
Recommendation on stepping up EU actions to combat antimicrobial resistance in a One Health approach. 

This  has  been  driven  by  improvements  for 
the  high-income  population  group,  where 
unmet medical  needs  decreased from 16.5% 
in  2019  to  7.7%  in  2022,  although  this  has 
widened 
inequalities  further.  A  national 
booking  system  for  medical  appointments  was 
introduced in March 2022, which has resulted in a 
reduction in waiting times for elective procedures. 
A  considerable  proportion  (24%)  of  Estonians 
reported  unmet  healthcare  needs  during  the 
pandemic,  of  which  nearly  one  quarter  were  for 
mental  healthcare (109).  Long  waiting  lists  have 
been  reported  as  the  most  frequent  barrier  to 
accessing  mental  health  services.  Estonia 
is 
actively  developing  policies  to  strengthen  mental 
health. In early 2022, a Mental Health Department 
was created within the Ministry of Social Affairs to 
centralise  efforts  to 
improve  mental  health 
outcomes.  A  mental  health  action  plan  for  2023-
2026  has  been  drawn  up,  identifying  concrete 
action  for  the  coming  years.  Estonia  experiences 
persistent shortages in health workforce. In 2021, 
(3.4  per  1 000 
Estonia  had  fewer  doctors 
population) and nurses (6.5 per 1 000 population) 
than the EU overall (with averages of 4.1 and 7.9 
respectively).  The  number  of  new  medical 
in  Estonia  remained  rather  static 
graduates 
between  2010  and  2022,  and  below  the  EU 
average.  A  significant  proportion  of  doctors 
(46.4%) and nurses (26.1%) are aged 55 or above, 
raising  concerns  about  the  long-term  accessibility 

of  health  services.  There  are  acute  workforce 
shortages  in  family  medicine  –  especially  outside 
the  biggest  cities  (Tallinn  and  Tartu)  –  and  in 
psychiatry.  Working  conditions  are  a  major  issue, 
with  low  pay  a  deterrent,  particularly  for  nurses. 
According  to  OECD  data,  pay  for  doctors  and 
nurses,  as  a  percentage  of  the  national  average 
wage,  is  among  the  lowest  in  EU  countries  (1.71 
times  the  national  average  wage  for  general 
practitioners,  2.28  for  specialists,  and  1.13  for 
hospital nurses) (110). 

address 

reforms, 

strengthen 

(RRP),  Estonia 
to 

EU  funds  support  substantial  investment  in 
healthcare in Estonia. Through its recovery and 
resilience  plan 
investing 
is 
health-related 
EUR 72 million 
challenges.  Investments  are  used  to  improve 
health  infrastructure  (construction  of  a  county 
hospital  and  health  centre  in  Vijandi),  implement 
organisational 
primary 
healthcare,  support  the  health  workforce,  and 
update 
institutional  framework. 
Capital  investment  in  the  Estonian  health  system 
has relied on EU cohesion policy funds. These have 
established  long-term  primary,  secondary  and 
tertiary  care  facilities  and  supported  primary  care 
digitalisation and disease prevention programmes. 
Under  the  cohesion  policy  funds  for  2021-2027, 
Estonia  will  invest  EUR 1.4 million  to  improve  the 
accessibility,  effectiveness  and  resilience  of  the 
health system (111). 

the  e-health 

(109) Eurofound (2021), Living, working and COVID-19 survey, 

rounds one, two and three (spring 2020, summer 2020 and 
spring 2021). Dublin & Eurofound (2022), Living, working and 
COVID-19 survey, rounds four and five (November 2021 and 
May 2022). Dublin. 

(110) OECD Health Statistics 2023 

(111) The EU cohesion policy data reflect the status as of 13 May 

2024. 

68 

20182019202020212022EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)133,5129,4123,9135,6NA93.3 (2021)Cancer mortality per 100 000 population292,4279,5265,0265,8NA235.4 (2021)Current expenditure on health, % GDP 6,76,87,67,67,110.9 (2021)Public share of health expenditure, % of current health expenditure73,774,577,176,4NA81.1 (2021)Spending on prevention, % of current health expenditure 3,53,64,88,3NA6.0 (2021)Available hospital beds per 100 000 population454453446439NA525 (2021)Doctors per 1 000 population3,53,53,53,4NA4.1 (2021)*Nurses per 1 000 population6,36,26,46,5NA7.9 (2021)Total consumption of antibacterials for systemic use, daily defined dose per       1 000 inhabitants per day ***11,811,810,510,112,419.4 (2022) 
 
 
 
  
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

Annex 17 showcases the economic and social 
regional  dynamics  in  Estonia.  It  provides  an 
analysis  of  economic,  social  and 
territorial 
cohesion  in  the  Estonian  regions  and  assesses 
investment  and  subnational  reform 
emerging 
social 
needs 
development and competitiveness in the country. 

foster  economic  growth, 

to 

of 
Overview 
performance at regional level 

economic 

and 

social 

Map A17.1:  Estonia, NUTS3: GDP per capita (in 
PPS), 2022 

highest  in  the  two  regions  of  Kirde-Eesti  (4.5%) 
and  Kesk-Eesti  (3.8%)  while  the  region  of  Lääne-
Eesti  experienced  a  rate  of  only  1.6%.  Annual 
average  growth  of  GDP  per  capita  in  2013-2022 
was highest in the region of Lõuna-Eesti (at 4.6%) 
while  a  growth  rate  of  1.4%  was  observed  in 
Põhja-Eesti.  

is  experiencing  depopulation 

Estonia 
in 
several  regions  outside  the  capital.  In  2013-
2021,  the  capital  region’s  population  grew  by  a 
staggering  9.8%  while  Lääne-Eesti  and  Lõuna-
Eesti  experienced  a  population  decline  of  -5.9% 
and  -2.4%, respectively. The population in Estonia 
grew  by  0.8%  between  2013  and  2021,  but 
population  projections  indicate  that  the  country 
could  experience  a  population  decline  of  5.5% 
between 2020 and 2050.  

Table A17.1:Selected indicators at regional level - 
Estonia 

Source: Eurostat 

The  lack  of  appeal  of  regions  outside  the 
capital  region 
is  accentuated  by  poor 
transport  accessibility.    For  example,  whereas 
83% of the population living in a radius of 120km 
can be  reached by car in less than 90 minutes in 
Põhja-Eesti,  this  ratio  drops  to  less  than  50%  in 
Lääne-Eesti.  The  best  performing  region  outside 
the  capital  region  is  Kesk-Eesti,  where  this  figure 
stands at 68%. 5G services are mainly focused on 
providing the service in urban areas by mid-2021, 
and  only  1.5%  of  Estonian  households  in  rural 
regions were covered by this mobile technology. 

Source: Eurostat, DG REGIO elaboration 

Estonia’s  regional  outlook  continues  to  be 
characterised  by  stable,  but  significant 
disparities between its capital region (Põhja-
Eesti)  and  the  rest  of  the  country.  In  2022, 
GDP  per  capita  (PPS)  of  Põhja-Eesti  stood  above 
the EU average at 110%. In the remaining 4 NUTS 
3  regions,  GDP  per  capita  ranged  between  55.7% 
in  Lääne-Eesti  and  69%  in  Lõuna-Eesti  (Map 
A17.1).  In  2022,  labour  productivity  was  much 
higher  in  the  capital  region  of  Põhja-Eesti,  at 
90.5%  of  the  EU  average,  whereas  the  other 
regions  ranged  between  57.3%  (in  Lääne-Eesti) 
and  74.5% 
real 
productivity growth between 2013 and 2022 was 

(in  Kirde-Eesti).  However, 

69 

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 European Union1001.441000.7Eesti852.6779.31.7Põhja-Eesti1101.4190.50.7Lääne-Eesti562.5757.31.6Lõuna-Eesti694.6168.32.5Kesk-Eesti583.8267.13.8Kirde-Eesti634.3574.54.5 EU27=100, 2022EU27=100, 20222013-20222013-2022 
 
 
 
 
 
  
 
 
The strong urban-rural divide also manifests 
in  other  statistics,  such  as  the 
itself 
percentage  of  NEETs (112),  as  well  as  of 
individuals with high educational attainment. 
In  rural  areas,  the  percentage  of  NEETs  stood  at 
12.1% in 2022 (but this was 5.2 percentage points 
(pps)  down  compared  to  2020)  while  the  EU 
average  in  rural  areas  stood  at  13.6%.  In  cities, 
the  figure  was  9.4%,  reflecting  a  remarkable 
performance gap. Young people not in education or 
training  face  more  difficulties  in  finding  a  job  in 
rural  areas.  There  is  also  a  much  higher  level  of 
educational  attainment  in  cities,  with  51%  of  the 
population aged 25-64 having a tertiary education 
degree,  compared  to  only  36%  in  towns  and 
suburbs,  and  33%  in  rural  areas.  In  rural  areas, 
24.9%  of  people  are  at-risk-of-poverty  or  social 
exclusion, which is only just above the rate in cities 
(24.3%). 
is 
somewhat higher at 27.7%. In all three territories, 
but  particularly  in  towns  and  suburbs,  the  rate  is 
higher than the EU average, which ranges between 
21 and 22%.  

In  towns  and  suburbs,  the  rate 

Russia's  war  of  aggression  against  Ukraine 
has  had  an  effect  on  the  Estonian  economy, 
in  particular  in  the  border  regions  of  Kirde-
Eesti  and  Lõuna-Eesti.  However,  the  impact  of 
the war in the regions concerned is not yet visible 
in  the  main  regional  indicators  used  in  the 
European  semester.  That  said,  some  data  shows 
that  raw  material  imports  from  Russia  have 
stopped,  and  that  the  transit  of  goods  and  the 
number of foreign tourists has declined.  

Investment  and  subnational  reform  needs 
ahead 

increasing 

investment  needs 

Investment priorities outlined in the cohesion 
policy programme remain relevant, but there 
are 
in  the 
regions  bordering  Russia.  This  is  the  case 
especially in the county of Ida-Viru, where the GDP 
per  capita  is  only  58%  of  the  Estonian  average 
and  south-east  Estonia,  where  the  GDP  is  higher, 
but  where  this  can  be  attributed  to  Tartu,  the 
region’s  biggest  employer  and  university  centre. 
Overall,  with  the  GDP  growth  rates  in  the  border 
regions  well  below  the  capital  region  and  the 
Russian war of aggression against Ukraine leading 

further  diminishing 

to  economic  sanctions  and  curtailed  cross-border 
activities,  these  regions  are  faced  with  additional 
challenges 
their  growth 
potential.  These  regions,  as  well  as  Estonia  in 
general,  could  also  benefit  from  facilitating 
technologies 
investments 
manufacturing  and  from  the  opportunities  of  the 
Strategic Technologies for Europe Platform.  

net-zero 

in 

Estonia  would  benefit  from  speeding  up 
investments in boosting the energy efficiency 
of  public  and  private  buildings.  Many  public 
their 
buildings  are  not  energy  efficient,  or 
condition  is  unknown  because  many  of  them  do 
not  have  an  energy  performance  certificate. 
According  to  the  updated  NECP  (2023)  the  total 
cost  of  a  full  renovation  of  the  public  building 
stock  would  cost  at  least  EUR  2  billion  (2019 
prices). 

could 

municipalities 

The  financial  capacity  and  autonomy  of 
Estonian 
be 
strengthened  further.  The  local  governments’ 
capacity  to  provide  social  benefits  and  services 
depends,  to  a  large  extent,  on  the  budgetary 
resources  available.  Local  governments  have 
broad power and autonomy to define their policies, 
and  their  capacities  to  fund  and  provide  services 
are  very  uneven.  The  share  of  Estonian 
municipalities'  own  tax  revenues  is  one  of  the 
lowest in the EU. The average dependence of local 
governments  on  intergovernmental  transfers  for 
is  49.8% (113). 
the  OECD-European  countries 
According  to  the  OECD  fiscal  decentralisation 
database (2021), Estonian municipalities have one 
intergovernmental 
of 
transfers 
between 
municipalities and counties could be strengthened 
to  optimise  use  of  resources.  While  several  good 
initiatives  exist,  improving  general  knowledge  and 
best-practice  transfer  between  municipalities  and 
better  planning  of  services,  infrastructure  and 
financing 
avoid 
duplication  and  contribute  to  a  more  optimal  use 
of resources. Reforms providing municipalities with 
more own-source revenues could be considered to 
strengthen their capacity to invest. These reforms 
would  be  most  effective,  if  accompanied  by 
sufficient  administrative 
capacity-building  of 
municipalities  to  plan,  develop  and  implement 
investment  projects, 
strategic  and  qualitative 

the  highest  shares  of 
(85.8%). 

counties  would 

Cooperation 

between 

(112) Young people (15-34) neither in employment nor in 

(113) OECD (2023), “Revenues by level of government”, in 

education and training. 

Government at a Glance 2023, OECD Publishing, Paris. 

70 

 
 
 
including  increasing  co-financing  capacities  of 
funds  projects.  The  Commission 
structural 
acknowledges  the  differentiated  regional  support 
rates and regional budget allocations for some of 
the  structural  funds  and  Recovery  and  Resilience 
Fund  measures,  e.g.  those  concerning  energy-
efficient renovations. 

71 

 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

Rising 
interest  rates  have  widened  net 
interest  margins  and  boosted  the  profits  of 
Estonian banks from lending operations. Their 
profitability  has  been  among  the  strongest  of  all 
banking sectors in the EU, with return on equity of 
29.6% in the first 9 months of 2023 (vs 9.9% for 
the  EU).  The  return  on  assets  climbed  from  0.5% 
in  Q2-2022  to  1.7%  at  the  end  of  Q3-2023.  The 
main driver  of  the  profitability  surge in  2023  has 
been the relatively large spreads between interest 
income  and  interest  expenses.  Tighter  monetary 
policy  is  feeding  through  both  to  higher  bank 
lending rates and greater net interest income, with 
net  interest  income  increasing  by  a  record-high 
81.5%  in  Q3-2023  compared  to  Q3-2022.  This 
has  boosted  profits,  most  notably  of 
the 
systemically important, or larger, banks. Moreover, 
the  Estonian  banking  sector  is  relatively  cost-
efficient,  which  is  partly  due  to  the  fact  that  the 
expenses  of  the  local  units  of  foreign  banking 
groups can be reflected at group level rather than 
local  level.  Profitability  is  also  aided  by  smaller 
loan losses than in other countries. Credit quality is 
strong,  with  a  record-low  non-performing-loan 
ratio of 1% in Q3-2023 (vs 1.8% in the EU). In July 
2023,  the  Parliament  of  Estonia  adopted  several 
amendments  to  the  tax  law,  providing  for  an 
increase  in  the  tax  rate  applicable  to  advance 
payments made by credit institutions from 14% at 
present to 18% from 2025. At the same time, the 
income tax paid on dividends by all companies will 
increase  to  22%  in  2025.  These  changes  may 
encourage the distribution of earnings before they 
come  into  force,  and  they  may  have  implications 
for capital buffers. 

Banks  operating  in  Estonia  are  among  the 
best  capitalised  in  the  EU.  They  have  built  up 
buffers  from  strong  profits  in  good  earlier  years. 
Capital  ratios  are  above  regulatory  requirements 
(their  Q3-2023  capital-adequacy  ratio  stood  at 
in  the  EU),  especially  for 
22.9%  vs  19.6% 
systemically  important  banks,  but  less  so  for 
banks that have not been in operation for long and 
are still rapidly expanding. Some banks have taken 
advantage  of  the  preferential  tax  rate  that  since 
2018  has  applied  to  dividends  paid  out  regularly, 
so  their  capital  buffers  have  been  gradually 
reduced. Therefore, the Estonian Central Bank and 
the  Estonian  Financial  Supervisory  Authority  have 
both  set  additional  requirements  for  banks’  own 
funds  to  ensure  their  resilience  and  continued 
to 
operation.  More  specifically,  banks  have 

maintain a capital conservation buffer of 2.5% of 
risk-weighted  assets  on 
the  base 
requirements for own funds. 

top  of 

Although  household  indebtedness  in  Estonia 
is  not  excessive  so  far,  banks’  exposure  to 
mortgage  debt  is  one  of  the  largest  in  the 
EU.  Mortgage  debt  accounts  for  44%  of  banks’ 
total  loan  portfolio.  Moreover,  over  90%  of  loans 
made  by  the  banking  sector  are  issued  with  a 
floating  interest  rate,  which  is  one  of  the  highest 
proportions  in  the  EU.  This  means  that  borrowers 
bear  the  interest  rate  risk  related  to  their  loans. 
The  Estonian  Central  Bank  has  set  limits  on  the 
conditions placed on loans issued by the banks to 
help keep balance in the housing loan market and 
limit excessive growth in lending. 

Graph A18.1: Evolution of credit activity 

Source: ECB. 

The  tighter  lending  environment  is  cooling 
down  the  real-estate  market,  where  prices 
expanded  rapidly  in  recent  years.  From  2010 
to late-2023, house prices increased by more than 
210% – the highest rate of house-price growth in 
the EU in this period. In parallel, lending for house 
purchases  has  also  grown  and  has  accelerated 
since 2020. More recently, house price growth has 
started to decelerate, and the share of loans that 
are  close  to  regulatory  limits  has  increased, 
suggesting  lower  affordability.  Although  the  stock 
of loans issued by banks increased more slowly in 
2023  than  a  year  earlier,  the  amounts  borrowed 
by  companies  and  households  at  the  end  of  Q3-
2023  were  still  8.6%  and  7.5%  greater 
respectively  than  in  Q3-2022.  Together,  housing 

72 

-10-505101520Total privateNFCHH% 
 
 
   
 
Table A18.1:Financial Soundness Indicators 

1Last data: Q3 2023. 
2Data are annualised. 
3Data available for EA countries only, EU average refers to EA area. 
Source: ECB, Eurostat. 

and  real-estate  loan  volumes  currently  make  up 
over 60% of banks' loan portfolios. 

in  total  bank 

Banks’  loan  portfolios  have  become  more 
exposed  to  risks  from  the  highly  cyclical 
market  for  commercial  real  estate.  According 
to 
the  European  Banking  Authority’s  Risk 
Dashboard,  the  share  of  commercial  real-estate 
loans as a proportion of total bank loans is almost 
20%  in  Estonia,  the  highest  percentage  of  all  EU 
countries.  At  60%,  the  share  of  commercial  real 
loans  to  non-financial 
estate 
corporations 
is  also  very  high.  Moreover, 
commercial real-estate loans represent a relatively 
high  (40%)  and  sharply  increasing  share  of  total 
banking  non-performing  loans.  The  strong  growth 
in real-estate lending in recent years has occurred 
primarily at smaller banks. As a result, real-estate 
loans  now  make  up  a  larger  share  of  the  loan 
portfolios  of  some  smaller  banks  than  they  do  at 
the bigger banks. Part of the bank loans taken by 
real-estate  companies  has  been  used 
for 
leveraging 
institutional 
investors  (insurers,  pension  funds  and  real-estate 
investment  funds),  implying  higher  interlinkages 
between these groups. Estonian insurers have the 
greatest exposure in the EU to the banking sector, 
according  to  the  EIOPA.  Although  the  financial 
leverage of the investor’s funds generally remains 
at around 40-60%, this could potentially become a 
channel  of  risk  transmission  and  contagion.  In 
response to rapid credit growth, the countercyclical 
capital  buffer  was  further  tightened  to  1.5%, 
effective since December 2023. 

investments  of 

the 

liability  side,  changes  have 
On  banks’ 
occurred  in  the  composition  and  cost  of 
funding.  The  loan-to-deposit  ratio  of  Estonian 
banks  has  remained  relatively  stable  compared 
with  a  year  earlier,  reaching  90.2%  at  the  end  of 
Q3-2023  (vs  93%  in  the  EU).  Although  the  loan 
portfolio  has  still  been  expanding  quite  rapidly 
(though  moderating  more  recently),  growth  in 
deposits  was  modest.  Nevertheless,  there  were 
major  changes  in  the  structure  of  these  deposits, 
as  demand  deposits  have  been  replaced  by  term 
deposits. As a result, the cost of funding for banks 
has  increased  substantially.  Since  the  share  of 
parent funding has increased somewhat alongside 
the  growth  in  term  deposits,  the  performance  of 
Swedish banks remains important for the fortunes 
of their Estonian subsidiaries. Estonian banks have 
also become more exposed to both the prevailing 
conditions  in  money/capital  markets  and  investor 
sentiment,  as  they  have  had  to  make  large 
issuances of bonds outside of Estonia (where both 
the  stock  and  bond  markets  are  still  very  thin). 
While  reliance  on  wholesale  funding  is  high  for 
some  banks,  systemic  liquidity  remains  ample. 
Liquid  assets,  most  of  which  are  claims  on  the 
central bank, were 26% of total assets at the end 
of  September  2023.  The  strong  resilience  is 
confirmed  by  the  liquidity  coverage  ratio  of 
176.7% at the end of Q3-2023. 

73 

2017201820192020202120222023EUMedianTotal assets of the banking sector (% of GDP)106.8101.1103.0125.3122.5105.9109.0257.0184.6Share (total assets) of the five largest banks (%)90.391.093.093.793.090.8--69.6Share (total assets) of domestic credit institutions (%)125.927.349.549.649.052.253.5-62.9NFC credit growth (year-on-year % change)5.54.03.03.17.412.55.7-2.4HH credit growth (year-on-year % change)7.06.66.45.07.811.06.3-1.4Financial soundness indicators:1        - non-performing loans (% of total loans)1.91.31.61.61.10.81.01.81.8- capital adequacy ratio (%)30.631.026.327.824.322.022.919.620.1- return on equity (%)29.29.88.37.49.510.919.69.913.2Cost-to-income ratio (%)146.345.352.552.653.848.338.152.844.9Loan-to-deposit ratio (%)189.893.590.076.777.390.690.293.380.2Central bank liquidity as % of liabilities0.50.30.16.45.70.50.0-0.7Private sector debt (% of GDP)106.2101.298.3101.596.994.3-133.0118.4Long-term interest rate spread versus Bund (basis points)----43.7114.3146.7107.7104.2Market funding ratio (%)23.124.524.122.222.320.4-50.839.8Green bonds outstanding to all bonds (%)3-------4.02.71-34-1011-1718-2424-27Colours 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  were  32.9%  of  GDP  in 
2022, considerably below the EU average (40.2%). 
They  increased  slightly  to  34.0%  in  2023.  Labour 
and capital taxes generated revenue below the EU 
aggregate,  while  consumption  taxes  generated 
revenue  above  the  EU  aggregate.  As  regards 
environmental  taxation,  Estonia  levies  relatively 
high  excise  duties  on  road  fuels  and  has 
introduced  a  new  vehicle 
(see  below). 
Regarding  further  pollution  and  resources  taxes, 
Estonia  has  already  implemented  four  of  the  six 
main  types  of  pollution  and  resources  taxes 
(i.e. taxes  on  NOx  emissions,  waste  landfilling, 
into  water,  and  plastic 
discharge  of  waste 
products).  There  may  be  scope  to  expand  waste 
disposal taxes, including incineration. Estonia does 
not  have  taxes  on  fertilisers  and  pesticides  (for 
to  environmental 
related 
more  on  policies 
sustainability,  see  Annex 6).  Very  little  revenue  is 
generated  from  property  taxes,  including  from 
recurrent taxes on immovable property (0.3% and 

tax 

Table A19.1:Taxation indicators 

0.2%  of  GDP in  2022  respectively  compared  with 
the  EU  aggregates  of  2.1%  and  1.0%).  These  are 
among the taxes least detrimental to growth. The 
average 
corporate 
forward-looking  effective 
income  tax  rate  was  below  the  EU  average  in 
2022. 

and 

(9%) 

services 

The  new  Estonian  parliament  has  adopted 
several  amendments  to  the  tax  law,  which 
will  come  into  effect  in  2024  or  2025.  The 
standard VAT rate increased from 20% to 22% in 
January  2024,  while  the  reduced  VAT  rates  for 
press 
accommodation 
publications (5%) will be increased to 13% and 9% 
respectively in 2025. Also in 2025, income tax will 
increase for both corporations and natural persons 
from 20% to 22%, with a projected impact on tax 
revenues of between 0.1 and 0.3% of GDP. A new 
tax  on  motor  vehicles,  which  was  adopted  in 
January 2024 and includes a registration fee and 
an  annual  tax  component  (both  of  which  will 
depend  on  the  car’s  emissions),  will  enter  into 
force  from  2025.  The  tax  is  intended  to  restrain 
motorisation  (especially  in  cities),  and  promote 
sustainable  mobility  and  the  adoption  of  more 
environmentally-friendly vehicles. 

(1) Forward-looking effective tax rate (OECD). 
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average. 
(**) Forecast value for 2022, if available. For more details on the VAT gap, see European Commission, Directorate-General for 
Taxation and Customs Union, 2023, VAT gap in the EU, https://data.europa.eu/doi/10.2778/911698. 
For more data on tax revenues as well as the methodology applied, see the Data on Taxation webpage, 
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en. 
Source: European Commission and OECD 

74 

EE2010202020212022202320102020202120222023Total taxes (including compulsory actual social contributions) (% of GDP)33.233.333.832.934.037.940.040.440.2Labour taxes (as % of GDP)17.717.717.517.220.021.320.720.3Consumption taxes (as % of GDP)13.213.013.213.010.810.711.211.0Capital taxes (as % of GDP)2.32.63.22.77.18.08.68.9Of which, on income of corporations (as % of GDP)1.31.61.51.72.42.53.03.4Total property taxes (as % of GDP)0.40.30.30.31.92.32.22.1Recurrent taxes on immovable property (as % of GDP)0.30.20.20.21.11.21.11.0Environmental taxes as % of GDP2.92.42.32.32.42.22.32.0Tax wedge at 50% of average wage (Single person) (*)37.330.831.532.330.333.931.732.131.831.7Tax wedge at 100% of average wage (Single person) (*)40.137.338.239.139.441.040.139.940.040.2Corporate income tax - effective average tax rates (1) (*)17.017.017.019.519.019.0Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)6.48.07.96.78.68.18.27.9Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)6.85.540.935.5VAT Gap (% of VAT total tax liability, VTTL)(**)12.25.01.41.09.75.4EU-27EstoniaTax structureProgressivity & fairnessTax administration & compliance 
 
 
 
       
 
Graph A19.1: Tax revenues from different tax types, % of total revenue 

Source: European Commission 

Graph A19.2: Tax wedge for single and second 
earners, % of total labour costs, 2023 

The second earner tax wedge assumes a 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’s labour tax burden is close to the EU 
average.  Graph A19.2  shows  that  the  labour  tax 
wedge for Estonia in 2023 was close to but below 
the  EU  average  for  single  people  at  various 
earnings levels. Second earners at a wage level of 
67%  of  the  average  wage,  whose  spouses  earn 
the  average  wage,  are  subject  to  a  higher  tax 
wedge than single earners at the same wage level. 
The  tax  wedge  for  workers  earning  50%  of  the 
average  wage  was  reduced  from  37.3%  in  2010 
to  30.  3%  in  2023.  The  ability  of  the  tax  and 
benefit  system 
inequality 
(measured  by  its  ability  to  reduce  the  GINI 
coefficient)  was  somewhat  below  the  EU  average 
in 2022 (see Table A19.1).  

to  reduce 

income 

Estonia performs well on tax compliance and 
tax  administration,  including  digitalising  the 
tax  administration.  Outstanding  tax  arrears 
decreased  slightly  in  2021  by  0.7 pps  to  5.5%  of 
total net revenue (by comparison with the previous 
year) and were significantly below the EU average 
of  35.5%.  The  2023  Annual  Report  on  Taxation 
shows that the rate of tax return e-filing in Estonia 
was  100%  for  corporate  income  taxation  and 
close  to  100%  for  personal  taxation (1).  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) further decreased to 
1.4% in 2021 (partly due to COVID-19 effects) but 
remained  significantly  below  the  EU-wide  gap  of 
5.4% and is forecast to have decreased further to 
1% in 2022. 

75 

30.333.139.441.235.32025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - EESingle earner - EU averageSecond earner -  EESecond earner -  EU average50.627.322.152.339.58.2Tax revenue shares in 2022, Estonia (outer ring) and EU (inner ring)Taxes on labourTaxes on consumptionTaxes on capital6.43.90.10.90.50.20.52.50.32.7012345678Estonia -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) NIIP excluding direct investment and portfolio equity shares. 
Source: Eurostat and ECB as of 2024-5-17, where available; European Commission for forecast figures (Spring forecast 2024). 

76 

2004-072008-122013-2020212022202320242025Real GDP (y-o-y)8.4-1.72.97.2-0.5-3.0-0.53.1Potential growth (y-o-y).0.63.22.71.51.30.71.0Private consumption (y-o-y)9.8-2.73.39.12.0-1.31.62.8Public consumption (y-o-y)4.11.22.33.80.10.92.01.5Gross fixed capital formation (y-o-y)13.3-4.15.67.3-3.7-3.4-1.74.0Exports of goods and services (y-o-y)14.85.41.822.13.0-6.9-2.04.7Imports of goods and services (y-o-y) 16.62.03.223.23.2-5.2-0.24.4Contribution to GDP growth:Domestic demand (y-o-y)10.5-2.93.67.5-0.1-1.40.82.8Inventories (y-o-y)0.5-0.50.12.21.0-1.60.00.0Net exports (y-o-y)-2.52.3-0.9-0.9-0.2-1.4-1.40.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y).-0.70.41.21.31.70.90.7Capital accumulation (y-o-y).1.41.42.01.61.31.11.2Total factor productivity (y-o-y).0.01.3-0.4-1.4-1.7-1.3-0.9Output gap7.2-3.90.41.9-0.1-4.4-5.6-3.5Unemployment rate7.211.66.26.25.66.47.46.9GDP deflator (y-o-y)7.93.52.56.016.17.93.82.3Harmonised index of consumer prices (HICP, y-o-y)4.64.51.44.519.49.13.42.1HICP excluding energy and unprocessed food (y-o-y)3.83.71.82.411.810.14.53.3Nominal compensation per employee (y-o-y)15.73.36.49.38.17.65.53.8Labour productivity (real, hours worked, y-o-y)6.31.13.3-0.8-5.0-5.90.02.6Unit labour costs (ULC, whole economy, y-o-y)8.53.44.32.113.614.55.51.4Real unit labour costs (y-o-y)0.5-0.11.8-3.6-2.16.11.6-0.9Real effective exchange rate (ULC, y-o-y)6.51.02.81.39.07.31.0-1.0Real effective exchange rate (HICP, y-o-y)2.81.51.01.58.24.9..Net savings rate of households (net saving as percentage of net disposable income)-8.93.87.23.6-4.7...Private credit flow, consolidated (% of GDP)25.11.94.36.89.2...Private sector debt, consolidated (% of GDP)104.4130.7107.096.994.3...of which household debt, consolidated (% of GDP)36.149.739.338.436.8...of which non-financial corporate debt, consolidated (% of GDP)68.381.067.758.557.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (1).5.61.71.00.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.51.91.59.52.03.22.12.4Corporations, gross operating surplus (% of GDP)32.930.330.030.531.228.225.926.7Households, net lending (+) or net borrowing (-) (% of GDP)-6.41.01.9-0.5-5.2-2.7-2.2-1.4Deflated house price index (y-o-y).-10.55.410.44.5-3.0..Residential investment (% of GDP)5.33.14.54.95.15.8..Current account balance (% of GDP), balance of payments-12.6-1.01.1-2.6-3.2-2.1-2.7-2.6Trade balance (% of GDP), balance of payments-7.93.03.0-1.0-0.50.6..Terms of trade of goods and services (y-o-y)1.8-0.30.80.50.83.20.9-0.2Capital account balance (% of GDP)1.23.11.59.00.41.3..Net international investment position (% of GDP)-78.4-65.8-33.3-13.4-20.2-21.6..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)-16.8-16.223.541.828.730.9..IIP liabilities excluding non-defaultable instruments (% of GDP) (2)79.493.169.766.968.271.7..Export performance vs. advanced countries (% change over 5 years)..6.823.521.015.0..Export market share, goods and services (y-o-y)7.91.31.19.1-1.5-7.9-5.31.0Net FDI flows (% of GDP)-6.4-5.0-3.9-2.4-0.2-7.5..General government balance (% of GDP)2.3-0.8-0.8-2.5-1.0-3.4-3.4-4.3Structural budget balance (% of GDP)..-1.0-4.4-1.1-1.3-0.7-2.6General government gross debt (% of GDP)4.66.910.717.818.519.621.424.6forecast 
 
 
 
  
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  annex  assesses  fiscal  sustainability 
risks for Estonia over the short, medium and 
long  term. 
It  follows  the  multi-dimensional 
approach  of  the  European  Commission’s  2023 
Debt Sustainability Monitor, updated based on the 
Commission 2024 spring forecast. 

1  –  Short-term  risks  to  fiscal  sustainability 
low.  The  Commission’s  early-detection 
are 
indicator  (S0)  does  not  point  to  any  major  short-
term  fiscal  risks  (Table A21.2) (114).  Government 
gross financing needs are estimated at around 4% 
(Table A21.1, Table 1). 
of  GDP 
Financial  markets’  perceptions  of  sovereign  risk 
are  positive,  as  confirmed  by  the  ratings  of  the 
main agencies in 2024. 

in  2024-2025 

2  –  Medium-term  fiscal  sustainability  risks 
appear medium.   

The baseline DSA shows that the government 
debt  ratio  is  projected  to  remain  at  a  low 
level over the medium term, with debt rising 
to  around  27%  of  GDP  in  2034  (Graph 1, 
Table 1) (115).  The  assumed  structural  primary 
balance (a deficit of 0.3% of GDP prior to changes 
in 
these 
developments.  Compared  to  historical  data,  the 
deficit  appears  plausible, 
indicating  that  the 
country  has  considerable  room  for  corrective 
action.  Indeed,  most  of  past  fiscal  positions  were 
more  stringent  than  the  one  assumed  in  the 
baseline  (Table  A21.2) (116).  The  debt  dynamics 

contributes 

ageing 

costs) 

to 

(114) The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of fiscal and financial-
competitiveness indicators that have proven to be a good 
predictor of emerging fiscal stress in the past.  

(115) The assumptions underlying the Commission’s ‘no-fiscal 

policy change’ baseline include in particular: (i) a structural 
primary deficit, before ageing costs, of 0.3% of GDP from 
2024 onwards; (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 
ahead); (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; (iv) 
real GDP growth rates from the Commission 2024 spring 
forecast, followed by the EPC/OGWG ‘T+10 methodology 
projections between T+3 and T+10 (average of 1.3%); (v) 
ageing costs in line with the 2024 Ageing Report (European 
Commission, Institutional Paper 279, April 2024). For 
information on the methodology, see the 2023 Debt 
Sustainability Monitor (European Commission, Institutional 
Paper 271, March 2024). 

(116) This assessment is based on the fiscal consolidation space 

indicator, which measures the frequency with which a tighter 
fiscal position than assumed in a given scenario has been 

benefit  from  a  moderately  favourable  snowball 
effect in 2025-2034. 

four 

The  baseline  projections  are  stress-tested 
against 
deterministic 
alternative 
scenarios to assess the impact of changes in 
key  assumptions  relative  to  the  baseline 
(Graph 1).  Under  the  historical  structural  primary 
balance  (SPB)  scenario  (i.e.  the  SPB  returns  to  its 
historical  15-year  average  of  -0.5%  of  GDP)  the 
debt ratio would be about 4 pps. higher than under 
the  baseline  in  2034.  Under  the  adverse  interest-
growth  rate  differential  scenario  (i.e.  the  interest-
growth  rate  differential  deteriorates  by  1 pp. 
compared with the baseline), the debt ratio would 
be about 2 pps. of GDP higher in 2034 than under 
the  baseline.  Under  the  financial  stress  scenario 
(i.e.  interest  rates  temporarily  increase  by  1 pp. 
compared with the baseline) the government debt 
ratio  would  be  similar 
lower 
the 
structural  primary  balance  scenario 
projected  improvement  in  the  SPB  in  2024  is 
halved)  raises  the  projected  debt-to-GDP  ratio  by 
about 4 pps. 

in  2034.  The 

(i.e. 

These 

stochastic 

The  stochastic  projections  indicate  medium 
risk,  pointing  to  some  sensitivity  of  the 
baseline  projections  to  plausible  unforeseen 
events  (117). 
simulations 
indicate a 71% probability that the debt ratio will 
be higher in 2028 than in 2023, implying medium 
risks  given  the  low  debt  level.  There  is  some 
the  baseline  debt 
uncertainty 
projections,  as  measured  by 
the  difference 
between  the  10th  and  90th  debt  distribution 
percentiles  of  29  pps.  of  GDP  in  five  years’  time 
(Graph 2).  

surrounding 

3  –  Long-term  fiscal  sustainability  risks 
appear overall low. This assessment is based on 
the  combination  of  two  fiscal  gap  indicators, 
capturing  the  required  fiscal  effort  to  stabilise 

observed in the past. Technically, this consists in looking at 
the percentile rank of the projected SPB within the 
distribution of SPBs observed in the past in the country, 
taking into account all available data from 1980 to 2023. 

(117) The stochastic projections show the joint impact on debt of 

10,000 different shocks affecting the government’s 
budgetary position, economic growth, interest rates and 
exchange rates. This covers 80% of all the simulated debt 
paths and therefore excludes tail events. 

77 

 
 
 
 
 
 
 
debt (S2 indicator) and bring it to 60% of GDP (S1 
indicator) in the long term (118).  

indicator  points  to 

The  S2 
low  fiscal 
sustainability  risks.  The  indicator  shows  that, 
relative to the baseline, maintaining the SPB at its 
current  level  would  ensure  debt  stabilisation  over 
the long term. This result is driven by the projected 
decrease  in  ageing-related  spending  (contribution 
of  -0.5 pp.),  which  compensates  for  the  initial 
budgetary  position  (0.4 pp.).  The  decline in  ageing 
costs 
is  mainly  driven  by  public  pension 
expenditure (-1.1 pps.) (Table A21.1, Table 2).  

The  S1  indicator  also  points  to  low  fiscal 
sustainability risks. The indicator shows that the 
fiscal  position  could  permanently  deteriorate  by 
0.6 pp. of GDP in 2025, without debt exceeding the 
60% of GDP reference value by 2070. This mainly 
reflects  the  government  debt-to-GDP  ratio  that  is 
currently  much  lower  than  60%  (Table A21.1, 
Table 2).  

4  –  Finally,  several  additional  risk  factors 
need to be considered in the assessment.  On 
the one hand, risk-increasing factors relate to the 
recent  increase  in  interest  rates,  the  share  of 
short-term  debt  and 
large  share  of 
government  debt  held  by  non-residents.  On  the 
other hand, risk-mitigating factors include the low 
gross  financing  needs  and  the  fact  that  the, 
is  fully 
overall  still 
denominated in euro.  

low,  government  debt 

the 

(118)The S2 fiscal sustainability indicator measures the 

permanent SPB adjustment in 2025 that would be required 
to stabilise public debt over an infinite horizon. It is 
complemented by the S1 indicator, which measures the 
permanent SPB adjustment in 2025 to bring the debt ratio to 
60% by 2070. The impact of the drivers of S1 and S2 may 
differ due to the infinite horizon component considered in the 
S2 indicator. 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% of GDP, 
‘medium risk’ if it is between 2% and 6% of GDP, and ‘low 
risk’ if the effort is negative or below 2% of GDP. The overall 
long-term risk classification combines the risk categories 
derived from S1 and S2. S1 may notch up the risk category 
derived from S2 if it signals a higher risk than S2. See the 
2023 Debt Sustainability Monitor for further details.. 

78 

 
 
Table A21.1:Debt sustainability analysis - Estonia 

Source: Commission services. 

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

Source: Commission services. 

79 

Table 1. Baseline debt projections20212022202320242025202620272028202920302031203220332034Gross debt ratio (% of GDP)17.818.519.621.423.725.125.425.626.026.326.526.726.826.8Changes in the ratio-0.80.71.11.82.31.40.30.10.40.30.20.20.10.0of whichPrimary deficit2.40.93.03.02.61.90.90.40.40.30.30.20.20.1Snowball effect-2.2-2.3-0.5-0.2-0.3-0.5-0.5-0.20.00.00.0-0.1-0.1-0.1Stock-flow adjustments-1.12.2-1.5-1.00.00.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)2.64.13.23.94.74.23.43.03.13.13.13.13.13.0S1S2Overall index  (pps. of GDP)-0.6-0.1of which Initial budgetary position0.30.4Debt requirement-0.8Ageing costs-0.1-0.5of which    Pensions-0.4-1.1     Health care0.40.5     Long-term care0.30.5Education-0.4-0.5Table 2. Breakdown of the S1 and S2 sustainability gap indicators0510152025303520212022202320242025202620272028202920302031203220332034Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p90102030405020212022202320242025202620272028% of GDPGraph 2. Stochastic debt projections 2024-2028MedianBaselineBaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWMEDIUMDebt level (2034), % GDP26.830.630.428.726.9Debt peak year20332034203420342034Fiscal consolidation space57%61%63%57%57%Probability of debt ratio exceeding in 2028 its 2023 level71%Difference between 90th and 10th percentiles (pps. GDP)28.6(1)Debtlevelin2034.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)Probabilityofdebtratioexceedingin2028its2023level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)thedifferencebetweenthe90thand10thpercentilesmeasuresuncertainty,basedonthedebtdistributionunder10000differentshocks.Green,yellowandredcellsindicateincreasinguncertainty.(Forfurtherdetailson the Commission's multidimensional approach, see the 2023 Debt Sustainability Monitor)LOWMEDIUMLOWLOWLOWShort termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)