COMMISSION STAFF WORKING DOCUMENT 2025 Country Report - Estonia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Estonia
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Estonia, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, labour market, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  SWD(2025) 206 final  COMMISSION STAFF WORKING DOCUMENT 2025 Country Report - Estonia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION  on the economic, social, employment, structural and budgetary policies of Estonia {COM(2025) 206 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC DEVELOPMENTS AND KEY POLICY 
CHALLENGES 

Muted growth with high inflation 
but steady employment 

In  2024,  Estonia’s  economy  shrank  for 
the second year in a row. Real GDP declined 
by 0.3%. The recession was broad-based, with 
contractions 
in  private  consumption  and 
exports, and a sharp fall in investment. Growth 
showed signs of picking up in the last quarter 
of  2024,  supported  by  goods  exports  and 
consumption,  but  investment  remained  weak. 
The  outlook  for  the  recovery  is  muted  for  a 
number  of  reasons:  Estonia’s  main  trading 
partners  are  expected  to  grow  only  modestly; 
investment  expectations  are  very  uncertain;  
and several tax increases in 2025 will dampen 
private  spending.  Rising  government  spending 
may  support  growth  but,  as  it  is  directed 
towards  defence,  could  also  mean  higher 
imports.  Real  GDP  is  projected  to  grow  by 
1.1% in 2025 and 2.3% in 2026. 

High inflation accompanied the recession. 
The  harmonised  index  of  consumer  prices 
(HICP) increased by 3.7% in 2024. It fell in the 
first  half  of  the  year  but  that  was  later 
reversed,  with  inflation  in  services  and  food 
particularly  high  (see  Graph  1.1).  Inflation  is 
set  to  stay  on  the  high  side  in  2025,  as  the 
new  budget  plans  substantial  tax  increases. 
The HICP was up by around 5% at the start of 
the year. 

The  Estonian 
labour  market  remains 
resilient.  After  rising  to  historical  levels  in 
2023, employment and activity rates remained 
steady  at  81.8%  and  88.3%  respectively  in 
2024  –  among  the  highest  in  the  EU  (see 
Annex  10).  The  increase  has  been  particularly 
marked  among  older  workers  in  recent  years, 
due  the  rising  retirement  age  and  relatively 
low  pensions  compared  to  wages,  which 
age. 
incentivise  work 

pension 

beyond 

Unemployment  has  risen  as  a  result  of  the 
recession,  reaching  7.6%  in  2024  (see  Social 
Scoreboard  in  Annex  13).  Labour  shortages, 
previously widely reported, have eased. 

Graph 1.1: HICP breakdown 2020-2025 

Source: Eurostat 

spending. 

revenues  and 

(down  from  3.1% 

tax 
government 

Public  finances  improved  in  2024.  The 
general  government  deficit  stood  at  1.5%  of 
in  2023).  This 
GDP 
improvement  was  due  to  a  combination  of 
lower-than-
stronger 
expected 
Firstly, 
increased  rates  of  value  added  tax  (VAT)  and 
environmental taxes were coupled with higher 
revenues from labour taxes, due to rapid wage 
growth,  and  from  VAT  and  corporate  income 
taxes, due to purchases of motor vehicles and 
distribution  of  profits  in  anticipation  of  future 
tax increases. Secondly, the state spent less on 
defence, social benefits and local  government 
operating  expenses  than  was  budgeted  for. 
The  general  government  deficit  is  forecast  to 
be  1.4% 
in  2026. 
in  2025  and  2.4% 
Government  debt  is  expected  to  rise  from 
23.6% of GDP in 2024 to 23.8% in 2025 and 
reach 25.4% in 2026. 

2 

-5051015202530202122232425y-o-y % change, pps.ServicesProcessed foodNon-energy industrialUnprocessed foodEnergyHICP 
 
  
revenue 

Net  expenditure  is  projected  to  grow 
below the recommended maxima. In 2024, 
net  expenditure(1)  in  Estonia  grew  by  1.8% 
(see  Annex  1).  This  was  mainly  driven  by 
discretionary  revenue  measures,  mentioned 
above,  whose 
increasing  annual 
impact  is  deducted  from  net  expenditure.  On 
the  expenditure  side,  also  mentioned  above, 
fully 
the 
implemented.  In  2025,  net  expenditure  is 
forecast by the Commission to grow by  2.1%, 
which  is  below  the  maximum  growth  rate 
The 
recommended 
cumulative  growth  rate  of  net  expenditure  in 
2024 and 2025 taken together is projected at 
3.9%,  which  is  also  below  the  maximum  rate 
recommended by the Council. 

budget  was 

Council(2). 

foreseen 

not 

the 

by 

Some macroeconomic challenges… 

the 

cost 
amid 

Price 
and 
competitiveness 
protracted 
deteriorated 
recession  while  the  current  account 
remains  in  deficit  and  house  prices  have 
risen  considerably.  This  was  highlighted  in 
the  in-depth  review  for  Estonia  that  was 
undertaken  as  part  of  the  macroeconomic 
imbalance  procedure  earlier  this  year.  The 
review  also  highlighted  the  limited  progress 
made on the policy front(3). 

been 

In recent years, Estonia’s current account 
signalling 
has 
deteriorating  competitiveness.  The  current 
account swung from surplus in the second half 
of  the  2010s  to  deficit  since  2020,  widening 

deficit, 

in 

expenditure, 

(1)  Net expenditure is defined in Article 2(2) of Regulation 
(EU)  2024/1263  as  government  expenditure  net  of  (i) 
interest 
revenue 
(ii) 
measures, (iii) expenditure on programmes of the Union 
fully  matched  by  revenue  from  Union  funds,  (iv) 
national  expenditure  on  co-financing  of  programmes 
funded  by 
(v)  cyclical  elements  of 
unemployment  benefit  expenditure,  and  (vi)  one-off 
and other temporary measures. 

discretionary 

the  Union, 

(2)  Council Recommendation of 21 January 2025 

endorsing the national medium-term fiscal-structural 
plan of Estonia (OJ C, C/2025/655, 10.2.2025, ELI: 
http://data.europa.eu/eli/C/2025/655/oj). 

(3)  SWD(2025)123 final 

to  3.6%  of  GDP  in  2021  and  3.9%  in  2022, 
before narrowing to 1.7% in 2023 and 1.5% in 
2024.  The  decline  in  goods  exports  was 
particularly pronounced. 

House  prices 
in  Estonia  have  risen 
markedly.  They  were  63%  higher  in  2024 
than in 2019 (20% in real terms, allowing for 
inflation).  In  both  2023  and  2024,  nominal 
house prices increased by 6%, and are thought 
to  be  overvalued,  fuelled  by  a  set  of  one-off 
liquidity  boosts,  such  as  a  release  of  the 
second  pillar  pension  funds  and  buyouts  of 
several  Estonian  startups,  and  rising  nominal 
wages.  The  lack  of  alternative  investment 
opportunities  amid 
limited  housing  supply 
added to house price appreciation (see more in 
Annex  9).  However,  Estonia’s  ratio  of  non-
performing  loans  is  one  of  the  lowest  in  the 
euro area, so risks to macroeconomic stability 
seem to be limited. 

…with several factors contributing 
to competitiveness losses 

export 

performance 

has 
Estonia’s 
deteriorated  in  the  past  few  years.  Its 
world  market  share  increased  between  2019 
and  2021  but  has  since  been  stagnating. 
Russia’s  war  of  aggression  against  Ukraine 
has  changed  the  geopolitical  landscape  and 
driven  Estonia  to  cut  its  remaining  economic 
ties  with  Russia.  At  the  same  time,  Estonia’s 
major  trading  partners,  Finland,  Sweden  and 
Germany, have  experienced very weak growth 
over the past few years, which was one of the 
factors  in  the  decline  in  exports  in  2023  and 
2024. 

A  new  challenge  in  this  respect  is  the 
uncertainty in global trade. As a very open 
economy, Estonia heavily relies on trade for its 
growth. While  Estonia’s  direct  exposure to the 
US is relatively small, the country is vulnerable 
to  US  tariffs  through  their  impact  on  main 
trading  partners  and  also  uncertainty  that 
impacts investment decisions. 

Estonia faced  a  sharp  increase in  energy 
and  raw  material  prices  following  Russia’s 
full-scale invasion of Ukraine and a decline in 

3 

 
 
in 

recent  years.  Tax 

revenues 
collected 
increased  to  33.7%  of  GDP  in  2023,  but they 
remained  substantially  below  the  EU  average 
of 39% (see Table A13.1 in Annex 2). 

Estonia  relies  heavily  on  labour  and 
consumption taxes, while capital taxation 
remains  limited.  Estonia  continues  to  rely 
heavily  on  taxes  on  labour,  which  are  often 
seen  as  detrimental  to  growth  (see  Graph 
A13.1  in  Annex  2).  A  flat-rate  tax  on  labour 
leads  to  relatively  high  taxation  of  low-wage 
earners,  reducing  the  redistributive  power  of 
the  tax  system. 
In  2023,  the  share  of 
consumption  taxes  was,  at  38.9%,  well  above 
the  EU  average  of  26.9%,  and  is  bound  to 
increase  further  in  2024  mainly  due  to  the 
VAT  rate  increase  from  20%  to  22%.  In 
addition, a security surcharge (until end 2028) 
will  be  levied  as  of  mid-2025,  temporarily 
increasing the VAT rate to 24%. In 2023, taxes 
on  capital  accounted  for  8.5%  of  total  tax 
revenues  in  Estonia,  versus  an  EU  average  of 
21.9%.  The  corporate  income  tax  rate  for 
distributed dividends has increased from 20% 
to  22%  in  2025(5).  In  2025  the  reduced  tax 
rate  of  14%  applied  to  regular  dividends  will 
also be abolished. These measures will reduce 
the gap with the EU average. 

Increasing  the  share  of  land  or  property 
taxes  in  overall  tax  revenues  could  help 
boost  public  revenues,  without  weighing 
on  economic  growth.  Recurrent  taxes  on 
immovable  property  amounted  to  0.5%  of 
total  revenues  (EU  average  of  2.5%) in  2023. 
Estonia  levies  a  yearly  land  tax  of  between 
0.1%  and  1.0%  on  all 
residential  and 
commercial land. Although a land tax still puts 
some pressure on property owners to rent out 
or  dispose  of  vacant  properties,  the  effect  is 
modest. According to the 2021 Population and 
Housing  Census(6),  24%  of  all  dwellings  in 
Estonia  were  classified  as  vacant  (up  from 
16%  in  2011).  Increasing  the  land  tax  rate in 
taxing  vacant 
more  affluent  areas  and 

(5)  The government also approved an additional 2% 

security surcharge on corporate income tax as of 2026, 
but the new coalition government announced in March 
that this increase would be abolished. 

(6)  Population census 2021 | Statistikaamet 

prices 

energy 

neighbours, 

domestic energy production. In Estonia as in its 
Baltic 
have 
remained  high,  feeding  into  production  and 
transport  costs.  In  addition,  Estonia  has  seen 
strong increases in the price of raw materials, 
particularly  wood  and  metals,  key  inputs  in 
construction and furniture production. 

fed 

through 

Nominal wage growth was strong amid a 
tight  labour  market.  After  sizeable  rises  in 
the  last  two  years,  nominal  wage  growth 
slowed  to  5.6%(4)  in  2024.  Much  higher 
into  sharp 
nominal  wages 
increases in unit labour costs (ULCs).  Nominal 
ULCs  per  hour  increased  by  15.6%  in  2023 
and  7.6%  in  2024,  compared  to  increases  of 
6.7%  and  5.0%  respectively  in  the  EU  as  a 
whole. Labour productivity per hour worked in 
Estonia decreased in 2023 and 2024 by 6.3% 
and 0.8% respectively, whereas in the EU as a 
whole  it  decreased  by  0.6%  in  2023  and 
increased by 0.4% in 2024. 

Much  higher  costs  led  to  productivity 
losses.  Rising  input,  capital  and  labour  costs 
with  no  accompanying  growth  affected 
productivity,  particularly  labour  productivity, 
which fell to its lowest level in over five years 
in 2023, to 67.1% of the EU average per hour 
worked.  Permanently  higher  wage  and  input 
costs  call  for  policies  that  would  enable 
Estonia to move up the value added ladder to 
remain competitive. 

Public finances under pressure to 
address rising structural spending 
needs 

to 

raise 

is  struggling 

Estonia 
tax 
revenues,  which  is  needed  to  fund  public 
spending.  As  mentioned  across  this  report, 
Estonia  faces  several  challenges  which  will 
require  additional  public  spending,  including 
spending  on  healthcare,  long-term  care  and 
defence. 
economic 
conditions  have  lowered  the  amount  of  tax 

unfavourable 

The 

(4)  European Commission, European Economic Forecast. 

Spring 2025. 

4 

 
 
 
properties could increase supply in the housing 
market  and  bring  in  additional  public  revenue 
to finance key policies. The negative impact on 
low-income  households  could  be  remedied 
support 
with 
mechanisms. 

need-based 

targeted, 

integrating 

A  regular  expenditure-review  process  is 
on  track  to  be  implemented.  Estonia  is 
working  on 
regular  spending 
reviews  and  policy  evaluations  into  medium-
term  budget  planning,  using  the  European 
Commission’s  Technical  Support  Instrument. 
The  project  is  due  to  be  completed  in  the 
autumn  of  2025,  but  some  key  conclusions 
can  already  be  drawn:  (i)  introduce  annual 
integrate  spending 
(ii) 
spending 
reviews  into  budget  planning;  and  (iii)  amend 
the  legal  framework  to  improve  the  spending 
reviews 
governance. 
and 
Implementing  such  reviews  to  prioritise  key 
areas  of  expenditure  would  contribute  to  a 
more efficient allocation of public funds in the 
face of rising structural spending needs. 

reviews; 

process 

its 

Key challenges holding back 
growth and competitiveness in 
Estonia 

in 

R&D, 

remains  below 

There 
is  a  growing  need  to  boost 
innovation  and  R&D  investment.  Estonia’s 
business  R&D  expenditure  as  a  percentage  of 
the  EU  average. 
GDP 
Underinvestment 
the 
outside 
information  and  communications  technology 
sector,  impedes  technological  advancement. 
Direct  public  support  for  business  R&D  has 
increased,  but  policies  beyond  grant  schemes 
are  underdeveloped.  The  effective  use  of 
public  funds,  national  and  EU,  is  crucial  for 
Estonia 
innovation  and 
productivity  gap  and  achieve  sustainable 
economic growth (see Section 2). 

to  bridge 

the 

Skills 
labour 
shortages  hold  back 
productivity and competitiveness. The lack 
of  skilled  labour  is  a  particular  constraint, 
especially  for  Estonia’s  manufacturing  and 
information  and  communications  technology 
sectors.  The  supply  of  skilled  graduates  is 

inadequate and skill levels are highly  variable 
across  regions,  limiting  companies’  ability  to 
develop higher value added activities. Estonian 
policy  actively tackles  this,  but  more  could  be 
done  to  focus  the  training  policy  on  the  low-
skilled  and  to  improve  the  hiring  rules  for 
foreign  workers  with  technical  qualifications 
(see Section 2). 

Estonia  needs  to  reduce  its  dependence 
on  fossil  fuels  and  oil  shale  and  invest 
more in renewable energy. Despite progress 
in  reducing  oil  shale  production  and  use, 
Estonia  faces  a  significant  challenge  in  its 
clean transition due to the high reliance on this 
resource-intensive  fossil  fuel.  Transitioning 
away from oil shale and supporting companies 
in  their  green  initiatives  is  therefore  essential 
to  improve  competitiveness.  Estonia  would 
also  benefit  from  reducing  high  emissions 
from  road  transport  by  electrifying  railways, 
improving  rural  public  transport  and  reducing 
dependence on private cars (see Section 3). 

Estonia could benefit from an accelerated 
transition  to  a  circular  economy.  Despite 
progress in waste management, recycling and 
reuse  rates  remain  below  EU  standards.  To 
address  this,  Estonia  needs  new  policies  and 
economic 
incentives  to  promote  separate 
waste collection and increase recycling efforts 
(see Section 3). 

transfers 

faces  persistent 

Estonia 
challenges 
regarding  its  social  protection  system. 
The  proportion  of  older people,  single-  person 
households and people with disabilities at risk 
of  poverty  or  social  exclusion  remains  high, 
due to low social  spending and low impact of 
(excluding  pensions)  on 
social 
poverty  reduction.  In-work  poverty  is  high 
among  part-time  workers  and 
the  self-
employed,  and  there  are  people  in  non-
standard forms of employment not yet eligible 
for unemployment benefits. Pension adequacy 
is  strained  by  demographic  pressures.  While 
Estonia  has  taken  steps  to  address  the 
challenges, they do not appear to be sufficient 
to  reduce  poverty  for  some  groups  (see 
Section 4). 

Despite  reforms  and  investments,  access 
to healthcare and long-term care remains 

5 

 
Box 1: 

UN Sustainable Development Goals (SDGs) 

Estonia  performs  well  and  is  improving  on  several  of  the  SDGs  related  to  environmental 
sustainability (SDGs 2, 7 and 15), but needs to catch up with the EU average on others (SDGs 6, 
9,  12, 13 and 14). The  country is similarly improving on  one (SDG 5) and performing well and 
improving on two SDGs (4 and 7)  related to fairness.  However, Estonia is  diverging from SDGs  
related to macroeconomic stability and still needs to catch up on one SDG indicator (SDG 8). 

Although Estonia is performing well and improving on quality education (SDG 4), the country still 
needs to catch up with the EU average on other indicators (SDG 8 and 9) related to productivity. 

uneven  due  to  lack  of  adequate  funding. 
While  reforms  and  investments  are  ongoing, 
self-reported  unmet  needs  for  medical  care 
are  still  among  the  highest  in  the  EU,  as  are 
out-of-pocket 
(on-the-spot 
payments 
payments  made  by  patients  to  healthcare 
providers), 
to  be 
decreasing.  Long  waiting  times  and  uneven 
quality  and  availability  of  health  and  long-
term  care  across  municipalities  are  linked  to 
inadequate  public  funding,  among  the  lowest 
levels in the EU (see Section 4). 

they  appear 

though 

6 

 
 
 
 
 
Box 2: 

Barriers to private and public investment 

According  to  Eurostat,  total  investment  in  Estonia  as  a  percentage  of  GDP  is  relatively  high 
compared to the EU average. 

As regards private investment, foreign direct investment plays a bigger role in the economy than 
in other EU Member States (in 2023, inflows  amounted to around 4.5% of GDP), particularly in 
the tech and information technology sectors. Estonian firms, by contrast, invest much less than 
their European counterparts. Several barriers contribute to this, especially the following. 

•  Uncertainty about the future. This is probably the greatest obstacle to investment in 
Estonia, with 88% of firms  reporting it as an obstacle. The war in Ukraine and overall 
geopolitical context is a key factor. 

• 

Lack  of  skilled  workers.  According  to  a  recent  survey,  this  remains  an  obstacle  for 
75% of businesses, and the major obstacle to investment for 32% of businesses. 

•  High  energy  costs.  This  is  an  investment  barrier  for  73%  of  Estonian  companies, 

according to 2024 data. 

•  Access  to  finance.  16%  of  firms  face  financial  constraints,  more  than  double  the 
figure for last year and well above the EU average of 6.9%. Estonian firms rely mostly 
on  own  resources  and  equity  and  much  less  on  capital  markets  to  finance  new 
investments, with a market funding ratio of just 15.8% as of end 2023, compared to an 
EU average of 49.6%. 

Public  investment  in  Estonia  is  shaped  by  the  green  and  digital  transitions  and  increased 
defence spending due to Russia’s full-scale invasion of Ukraine. In addition, public investment is 
hampered  by  the  difficulties  of  investing  in  outlying  and  eastern  border  regions  where  the 
particular lack of private finance makes public investment all the more important. 

• 

• 

• 

The implementation of Estonia’s RRP is well underway. At present, Estonia has fulfilled 
49 % of the milestones and targets in its RRP. 

It  remains  important  to  accelerate  the  implementation  of  the  cohesion  policy 
programme. The mid-term review offers opportunities to speed up progress and better 
address  EU  strategic  priorities  related  to  competitiveness,  defence,  housing,  water 
resilience and the energy transition. 

Estonia  has  not  yet  taken  advantage  of  the  opportunities  provided  by  the  Strategic 
Technologies  for  Europe  Platform  under  Cohesion  Policy  and  the  Recovery  and 
Resilience Facility to reallocate resources towards this priority. However, Estonia can still 
seize  these  opportunities  to  support  the  development  or  manufacturing  of  critical 
technologies  in  the  areas  of  digital  and  deep  tech,  clean  and  resource  efficient 
technologies, and biotechnologies.  

7 

 
 
 
 
 
INNOVATION, BUSINESS ENVIRONMENT AND 
PRODUCTIVITY 

Graph 2.1: Gross value added per employee in 
2023, NACE activities 

(1) Real estate activities (L), activities of households as 
employers (T), and activities of extraterritorial 
organisations (U) are not shown. 
(2) Sector codes: A agriculture; B mining; C 
manufacturing; D energy; E water supply; F construction; 
G wholesale and retail trade; H transport; I 
accommodation and food services; J information and 
communication; K financial services; M professional and 
scientific services; N administrative and support services; 
O public administration and defence; P education; Q 
health services; R arts and entertainment; S other 
services. 
Source: Eurostat 

To  ensure  that  the  supply  of  skills 
matches  the  demands  of  the  labour 
market,  skills  development  policies  are 
planned  from  primary  education  to  adult 
learning.  Estonia  actively  promotes  science, 
technology,  engineering  and  mathematics 
education  at  all  levels,  focusing  on  updating 
curricula,  enhancing  teaching  quality  and 
fostering  student  interest  (see  section  4).  It 
has  set  up  ICT  and  engineering  academies, 
supported  by  EU  cohesion  policy.  Although 
Estonia  performs  well  in  adult  learning,  there 
are  considerable  differences  across  age  and 
skills  groups  (see  Annex  12).  Participation  is 
lowest  among the low-skilled population,  with 
less  than  19%  participating  in  adult  learning. 
The  Estonian  recovery  and  resilience  plan 
contains  measures  to  improve  the  skills  of 

Competitiveness is hampered by 
low labour productivity and skills 
shortages 

Recent  economic  trends  have  resulted  in 
for  Estonian 
losses 
competitiveness 
companies.  As  described  in  the  previous 
section,  the  Estonian  economy  has  been  in 
recession  for  two  consecutive  years.  Yet  the 
labour  market  has  remained  quite  resilient, 
with  high  employment  rates  and  strong 
increases  in  nominal  wages.  This  has  driven 
labour  productivity  down  to  well  below  the 
euro  area  average  in  most  sectors  (7)  (Graph 
2.1). 

Skills mismatches and low levels of skills 
challenge 
labour  productivity  growth. 
While  the  shortage  of  labour  has  eased,  the 
lack  of  skilled  workers  remains  the  major 
obstacle to investment for 32% of businesses, 
and  there  are  skills  mismatches,  with  both 
over-  and  under-qualification  (see  Annexes  4 
and  10).  With  a  growing  information  and 
communications  technology  (ICT)  sector,  the 
most  critical  gap  is  in  science,  technology, 
engineering,  maths,  computers  and  software. 
Current  challenges  will  become  even  more 
acute  as  the  digital  and  green  transitions 
require  more  specialists  than  are  expected  to 
graduate 
vocational 
education.  Without  more  skilled  people, 
Estonia  risks  getting  stuck  in  a  low-skills  trap 
in  some  sectors,  limiting  companies'  ability to 
develop higher value added activities. 

tertiary  and 

from 

(7)  See In-Depth Review 2025 Estonia, SWD(2025) 123 

final. 

8 

020406080100120140160ABCDEFGHIJKMNOPQRSTOTALEuroEstoniaEuro area 
 
 
   
young  people  through  the  ‘My  First  Job’ 
scheme,  helping  to  closing  the  skills  gap. 
Investing  more 
in  career  guidance  and 
increasing  training  opportunities  could  reduce 
skill mismatches, especially for the low-skilled. 

Graph 2.2: Composition of NFC funding in % of GDP 

and 

retaining 

Attracting 
qualified 
workers  can  help  Estonia  address  skills 
shortages. While Estonia’s capacity to attract 
and retain foreign talent has grown in the last 
years, it still falls short of meeting the growing 
demand  for  skills  in  key  sectors,    considering 
the  recent  data  on  the  most  requested 
occupations  and  OSKA  projections(8) 
(see 
Annex  10).  Simpler  rules  to  hire  foreign 
workers  with technical  qualifications targeting 
sectors  with  persistent  skills  shortages  could 
help alleviate skills gaps. 

Becoming more competitive is 
especially pressing at regional 
level 

At  regional 
level,  policies  aimed  at 
closing  productivity  gaps  have  had 
limited effect. Regional GDP per capita data 
show  that  Tallinn  and  Harju  county  have  a 
much higher economic output per person than 
other  regions  (Annex  17).  Scaling-up  and 
larger  tech-based  companies  are  based  in 
Tallinn and Tartu, as are ICT companies, which 
are  the  main  investors  in  innovation.  At  the 
same  time,  Estonia’s  economic  restructuring, 
aimed  at  reducing  oil  shale  reliance,  is  set  to 
cause  significant  job  losses  in  Ida-Virumaa 
county,  where  oil  shale  companies  are  major 
green 
employers. 
Simultaneously, 
transition 
in 
technical 
specialised 
occupations,  despite  growing  awareness  of 
green  skills  among  small  and  medium-sized 
In  other  regions,  the 
enterprises 
economy 
forestry, 
agriculture,  wood  and  food  processing,  which 
have less added value (see Annex 17). 

largely  based  on 

labour  shortages 

is  creating 

professions 

(SMEs). 

and 

the 

is 

(8)  The Estonian Qualification Authority (OSKA) General 

labour forecast 2022 -2031 : OSKA üldprognoos 2022-
2031 | OSKA uuringud; The need for foreign labour until 
2035: Välistööjõud | OSKA uuringud 

9 

(1) The sum of NFC liabilities reflects only the total of 
the NFC liabilities considered. Reference period 2023. 
Source: Eurostat, FISMA E2 calculations 

and 

energy 

Some  market  failures  are  related  to  the 
to  close 
ineffectiveness  of  policies 
disparities.  Regional  economies  are  more 
exposed  to  risks  stemming  from  the  limited 
supply  of  skills,  high  uncertainty  and 
limits 
insufficient  access  to  finance.  This 
domestic  and  foreign  private  investment.  It 
also affects policy outreach in critical domains 
resource 
like 
renewables, 
innovation, 
productivity,  and  research  and 
where 
required  exceeds 
companies’  profits  or  savings  (see  Annex  5). 
Estonia's  performance  on  licensing  processes 
is  only  average  compared  to  other  OECD 
countries  (see  Annex  4).  Improving  it,  and 
taking  further  action  to  lessen  the  personal 
cost of insolvency for entrepreneurs could help 
boost  investment  at  local and other levels, as 
could 
in  building 
regulations(9) (see Annex 4). 

reducing  uncertainty 

investment 

the 

Improving access to finance and 
leveraging public funding could 
help raise competitiveness 

Access  to  finance  remains  a  constraint 
for  businesses,  hampering 
innovative 
investment. According to the SME access-to-
finance survey, a higher proportion of Estonian 

(9)  OECD Economic Survey Estonia, 2024. 

050100150200250EEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
  
 
SMEs report financing constraints compared to 
the  EU  average,  demonstrating  the  need  for 
improved  financial  instruments  and  market 
access  (see  Annex  5).  SMEs  also  report  a 
particularly  high  degree  of  late  payments, 
resulting in delays in the repayments of loans, 
and  forcing  companies  to  look  for  additional 
financing  (See  Annex  4).  Estonian  firms  rely 
less on funding from capital markets than the 
EU  average,  with  a  significant  share  of 
investment  funded  internally  (see  Graph  2.2). 
This  is  influenced  by  the  income  tax  system, 
and the prevalence of SMEs contribute to this 
trend.  A  modest  institutional  investor  base 
further 
Further 
promoting  institutional  investors’  participation 
in  the  venture-capital  market,  and  the  equity 
market more generally, could help address this 
problem (Annex 5). 

compounds 

issue. 

the 

the 

A  coordinated  approach  targeting  the 
diverse  funding  sources  could  help  to 
boost  innovation  potential.  The  effective 
use  of  public  funds,  national  and  EU,  could 
help  Estonia  bridge 
innovation  and 
productivity  gap  and  achieve  sustainable 
economic  growth.  There  is  also  scope  to 
leverage  national,  private  and  institutional 
financing  through  financial  instruments  and 
coordinated 
Addressing 
investments. 
fragmentation  in  funding  programmes  could 
improve policy effectiveness and facilitate the 
shift towards higher value added activities. To 
adapt to new challenges, it could be useful to 
strengthen  long-term  strategic  planning.  This 
could  be  done  through stronger integration of 
new strategic sectors like defence, and raising 
resource efficiency (see Annex 17). 

A growing need to boost 
innovation and R&D investment, 
particularly in defence 

in 

research 

and 
Underinvestment 
development,  outside  the 
ICT  sector, 
impedes technological advancement. Data 
from the Innovation Scoreboard (see Annex 3) 
show that Estonia’s business R&D expenditure 
as a percentage of GDP remains below the EU 
average,  underscoring  the  need  for  enhanced 

investment  strategies.  The  overall  picture  is 
distorted  by  the  strong  ICT  sector,  which 
accounts  for  nearly  half  of 
total  R&D 
expenditure.  Concurrently, 
the  number  of 
patent  applications  filed  under  the  Patent 
Cooperation  Treaty  per  EUR 1 billion  of  GDP 
has  declined,  suggesting  that  the  public 
science  base  does  not 
into 
technological  performance  and  business 
innovation  as  well  as  it  might  (see  Annex  3). 
While  direct  public  support  for  business  R&D 
has  increased,  policies  beyond  grant  schemes 
are underdeveloped, hindering Estonia's ability 
to  address  the  needs  of  firms  with  limited 
ability to make use of research discoveries.  

translate 

In addition, the share of applied research 
in total R&D financing decreased to 23% 
in  2023.  The  Applied  Research  Centre  was 
launched  in  2024  and  is  expected  to  help 
companies  to  better  exploit  research  results. 
Still,  it  will  take  time  to  develop  a  fully 
functional  research  technology  organisation 
capable  of  benefiting  a  wide  range  of 
businesses.  Strong  collaboration  between 
business and academia is missing, and there is 
scope  to  strengthen  the  role  of  universities in 
innovation,  to  enable  faster  deployment  of 
new technologies. 

Since  the  start  of  Russia’s  war  of 
aggression  against  Ukraine,  Estonia  has 
been  increasing  its  spending  on  defence. 
In  line  with  the  NATO  rules,  the  country  has 
allocated  at  least  2%  of  its  GDP  to  military 
expenditure  since  2015.  The  budget  strategy 
for  2025  to  2028  calls  for  yearly  defence 
allocations  of  no  less  than  3.3%  of  GDP.  In 
addition,  in  March  2025,  the  government 
declared  its  plan  to  increase  it  further,  to  at 
least  5%  from  2026  onwards.  This  strong 
focus  on  defence  aims  to  reassure  investors 
as  to  the  credibility  of  Estonia’s  military 
deterrence  and  thereby  reduce  geopolitical 
investment risks. 

Increased  defence  spending  could  also 
benefit  Estonia’s  innovative  defence  and 
aerospace  companies.  More  than  half  the 
military  budget  is  earmarked  for  acquiring 
equipment.  In  2024,  around  20%  of  the 
defence-equipment-related  tenders  were  won 
by  Estonian  suppliers.  The  number  of 

10 

 
companies  in  the  sector  has  already  grown 
from  a  handful  at  the  start  of  the  decade  to 
more than 140. The Estonian government has 
decided to develop a defence industry park for 
the  production  of  ammunition  and  military 
explosives,  which  will  also  boost  foreign 
into  Estonia(10).  However,  the 
investments 
Estonian 
faces 
challenges  in  raising  funds  from  the  private 
market  due  to  the  rules  and  restrictions  that 
some  banks,  mutual-,  pension-  and  venture-
capital  funds  have  against  investing  in  lethal 
technologies. 

industry 

defence 

also 

(10)  Estonian Public Broadcasting (ERR) 

11 

 
 
 
DECARBONISATION, ENERGY AFFORDABILITY AND 
SUSTAINABILITY 

Estonia faces high energy prices 
and security challenges on critical 
energy infrastructure 

Estonia’s  is  moving  towards  renewable 
energy  though  domestically  sourced  oil 
shale  remains  a  significant  part  of  the 
energy  mix.  After  prohibiting  imports  and 
purchases  of  Russian  natural  gas  in  2022, 
Estonia  reduced  its  natural  gas  demand  by 
28%  between  August  2022  and  July  2024, 
significantly  exceeding  the  EU’s  15%  target. 
From  2022  to  2023,  Estonia’s  energy  mix 
shifted  significantly  towards  renewables  (the 
share  rose  from  27.2%  to  34.6%).  Despite  a 
slight  decrease  in  its  share  in  the  energy  mix 
from  60.5%  in  2022  to  58.2%  in  2023, 
domestically  sourced  oil  shale  remained  the 
primary energy source (see Annex 8). 

Electricity  prices  in  Estonia  remain  high 
and  volatile  due  to  the  intermittent 
nature  of  renewable  energy.  In  2024, 
Estonia’s  average  wholesale  electricity  price 
was  EUR 87.3/MWh,  similar  to  other  Baltic 
states  but  higher  than  the  EU  average  of 
EUR 81/MWh (see Annex 8). Renewable energy 
sources  account  for  a  growing  proportion  of 
electricity generation, up from 50% in 2023 to 
57%  in  2024.  Unfortunately,  the  supply  of 
(subject  to 
renewable  energy 
is  volatile 
insufficient 
weather  conditions)  and  often 
when  demand  is  largest  (for  example  during 
dark winter months). This pushes up electricity 
prices  and 
impacts  the  economy,  driving 
inflation  and  affecting  households  and 
businesses’  competitiveness.  For  instance,  in 
2024,  73%  of  Estonian  companies  cited 
energy costs as an investment barrier. 

with 

In addition, Estonia faces energy security 
issues  due to  hybrid attacks on  pipelines 
and  submarine  cables  in  the  Baltic  Sea. 
Successful 
the 
synchronisation 
continental  European  electricity  network  as  of 
9 February  2025  strengthens  energy  security 
but demands additional efforts to improve grid 
resilience 
energy 
protect 
infrastructure. In addition, recent disruptions in 
the  energy  connection  with  Nordic  countries 
have  shown  the  vulnerabilities  of  the  energy 
supply  system  in  Estonia. The  implementation 
of  measures  to  ensure  security  of  supply  in 
the Estonian energy market is therefore crucial 
(see Annex 8). 

critical 

and 

Investing  in  renewable  energy  capacity 
and  streamlining  permitting  processes 
are  crucial.  In  line  with  the  recovery  and 
resilience  plan,  legislation  was  amended  in 
2024  to  streamline  planning,  permitting  and 
environmental  impact  assessment  processes 
for  wind  energy  projects,  and  wind  priority 
development  areas  were  set  up  (with  a  total 
capacity  of  1 000 MW).  However,  there  is 
scope  for  additional  measures  to  promote 
investment 
support 
flexibility technologies such as battery storage 
systems, 
stability  and 
to  ensure  grid 
renewable energy integration. 

renewables  and 

in 

Energy-intensive industry and low 
resource productivity undermine 
Estonia’s competitiveness 

Estonia is among the worst performers in 
the  EU  in terms of  resource  productivity, 
largely  due  to  the  resource-intensive  oil 
shale  industry.  The  Estonian  economy  is 
highly  energy-intensive  due  to  the  still  quite 
considerable  use  of  oil  shale  in  the  energy 
sector, and for transport and heating buildings. 

12 

 
 
 
the  competitiveness  of 

High  energy-intensity  combined  with  an 
increase  in  energy  consumption  puts  a  strain 
on 
the  Estonian 
economy.  In  2023,  Estonia  generated  only 
EUR 0.63  per  kg  of  material  used  consumed, 
compared to the EU average of EUR 2.22 (see 
Annex  7).  The  construction,  wood  and 
metalworking  industries,  which  are  significant 
exporters  in  Estonia,  are  heavy  consumers  of 
energy  and  raw  materials,  such  as  wood  and 
energy produced from oil shale, contributing to 
the  country’s  poor  resource  productivity.  This 
could  be  improved  by  switching  away  from 
fossil fuels, which account for almost 30% of 
domestic  extraction  used 
(a  significant 
component  in  the  calculation  of  resource 
productivity).  Despite  a  decrease  in  2023,  the 
domestic  extraction  of  fossil  fuels  remains 
high at 8.1 tonnes per capita, above the 2020 
level  of  7.4  tonnes.  Efforts  are  underway  to 
phase out oil shale production and use, which 
could  be  accelerated.  Beyond  the  shift  away 
from  oil  shale,  other  significant  measures  to 
boost  resource  productivity  and  decarbonise 
further  development  of 
could 
resource-efficient  green  technologies,  support 
for  energy  and  resource  efficiency  in  major 
sectors,  as  outlined  in  the  2023  Circular 
Economy 
further 
Plan 
improvements in circularity. 

include: 

Action 

and 

in  their  green 
Supporting  companies 
transition  and 
in  developing  clean 
technologies  is  crucial  to  reducing  the 
Estonian  economy's  resource  intensity. 
The  Green  Fund,  supported  by  the  Recovery 
and 
the 
Facility, 
development  and  scaling-up  of  innovative 
green  start-ups  and  small  to  medium-sized 
enterprises,  enhancing  their  competitiveness. 
Estonia  has  high  potential  for  net-zero 
technologies  and  should  continue  to  further 
develop 'clean industry' (see Annex 7). 

Resilience 

finances 

improvement.  Although  Estonia’s  circular 
material  use  rate  is  above  the  EU  average 
(18.1% in 2023 after reaching 21.4% in 2022, 
see Annex 7 for further details), Estonia’s rate 
of  preparing  for  reuse  and  recycling  of 
municipal  waste  is  33%,  significantly  below 
the EU average of 49% (see Annex 7). 

Estonia  could  take  further  steps  to  fully 
embrace  circular  economy  practices  and 
align  with  EU  standards.  Accelerating  the 
transition  to  a  circular  economy  is  crucial  for 
enhancing  Estonia’s  competitiveness,  as  it 
promotes  sustainable  economic  development, 
improves  resource  efficiency  and  reduces 
reliance  on  imported  raw  materials.  To  speed 
up the transition to a circular economy, Estonia 
could  introduce  new  policy  instruments  to 
support  municipalities  in  organising  separate 
types  and 
collection  of  different  waste 
improve 
recycling  performance.  Economic 
policy instruments to make reuse and recycling 
more  economically  attractive 
could  be 
pay-as-you-throw 
as 
such 
introduced, 
schemes  and  financial  penalties  for  not 
meeting  recycling  targets.  An  incineration  tax 
to  incentivise  recycling  practices  could  be 
introduced at municipality level. 

Climate  risks  pose  significant  threats  to 
Estonia’s  economy  and  society.  In  the 
period  from 1980 to  2023, insurance covered 
only  15%  of  economic  losses  due  to  extreme 
weather  and  climate-related  events.  From 
2013  to  2022  considerable 
life 
resulted from extreme heat, one of the highest 
figures  in  northern  Europe.  With  the  trend 
increasing  over  time,  climate  impacts  are 
posing  a  risk  to  public  health,  especially  for 
9). 
vulnerable 
Strengthening  the  capacity  for  systemic  risk 
assessments  would  be  key  to  drawing  up 
proper adaptation action plans and to ensuring 
that the public and businesses were prepared. 

loss  of 

groups 

Annex 

(see 

Estonia’s transition to a circular 
economy is underway but could be 
faster 

Improving energy efficiency is 
needed 

Estonia  has  made  progress  in  waste 
management  but  there  is  still  room  for 

Estonia  continues  to  make  significant 
progress  in  its  efforts  towards  reaching 

13 

 
achieve  the  target  under  Effort  Sharing 
Regulation,  policies  would  have  to  be 
designed and implemented swiftly. Estonia 
has  recently  introduced  vehicle  taxes  for 
private  passenger  cars  based  on  weight  and 
CO2  emissions.  However,  taxes  with  lower 
rates  for  older  vehicles  –  designed  to  avoid 
negative impacts on vulnerable  groups – may 
fail to induce a shift towards a cleaner vehicle 
fleet, while  still placing a burden on the most 
vulnerable  in  rural  areas  with  inadequate 
public  transport.  To  ensure  a  just  and  fair 
transition,  structural  measures  could  help  to 
support  transport  for  Estonia’s  vulnerable 
populations who may be negatively affected. 

the 

To reduce people’s dependence on private 
cars,  Estonia 
is  making  efforts  to 
electrify the railway network and develop 
other means of public transport. Currently, 
12%  of 
is  electrified 
rail  network 
compared  to  an  EU  average  of  57%  (2022), 
but investments  are  being  made  with  support 
from various EU budget instruments. Estonia is 
considering  purchasing  sustainable  electric 
buses 
recharging 
infrastructure  to  provide  green,  on-demand 
public  transport  in  rural  areas.  It  would  take 
the  share  of  sustainable  buses  in  the  whole 
public  bus  fleet  up  to  42%  from  the  current 
30%. 

associated 

with 

The  shift  of  freight  transport  from  road 
to  rail  has  been  lagging.  Creating  incentives 
for  companies  would  help  speed  up  the  shift 
of freight to rail. 

Better  transport  policy  can  help  reduce 
Improving  transport 
regional  disparities. 
mobility by integrating local transport systems 
can  address  regional  disparities.  Integrated 
ticketing  and  planning  systems  are  crucial. 
(including  Tallinn)  has 
Harjumaa  county 
implemented  such  a  system  under 
the 
recovery  and  resilience  plan,  but  further 
efforts and digitalisation are needed. 

targets 

for  energy 
the  2030  EU 
efficiency.  However, 
the  country  could 
intensify  its  efforts  in  the  residential  sector 
and  better  target  energy  renovation  schemes 
towards  the  most  vulnerable  households,  to 
reach 
the  2030  building  decarbonisation 
objective set in its latest long-term renovation 
strategy  and  achieve  the  target  for  reduction 
the  Effort  Sharing 
of  emissions  under 
Regulation. Estonia continues to rely mostly on 
grant-based  funding  schemes  for  energy 
efficiency, and the use of financial instruments 
remains limited. 

Decarbonising transport and 
improving urban mobility 

in 

Estonia’s  record  on  transport  could  be 
the  EU 
improved.  Estonia  outperforms 
average 
transport 
such  as 
factors 
infrastructure (Annex 17). However, the sector 
is  a  high  greenhouse  gas  emission  producer 
accounting  for  about  15%  of  the  country’s 
total  emissions,  with  90%  of  those  just  from 
road transport. Estonia’s car ownership rate is 
one of the highest in the EU. In 2023, its cars 
were amongst the oldest in the EU and 75.5% 
were petrol-powered. As a corollary, only 6.3% 
of  new  vehicles  were  electric  (see  Annex  7). 
Although  the  increase  in  electric  cars  is  a 
positive  trend,  the  figure  is  worse  than  both 
Estonia’s  Baltic  neighbours  and 
the  EU 
average  of  14.5%.  The  cross-border  Rail 
Baltica  project,  which  aims  to  strengthen 
connectivity between the Baltic states and the 
rest of the EU, is crucial for shifting transport 
from  road  to  rail  and  enhancing  sustainable 
mobility.  However, its  progress  has  been  slow 
and would benefit from measures to speed up 
implementation. 

To  reach  the  2030  target  for  reducing 
(11)  and 
greenhouse  gas  emissions 

(11)  The national greenhouse gas emission reduction target 
is  set  in  Regulation  (EU)  2023/857  (the  Effort  Sharing 
Regulation),  to  align  action  in  the  sectors  concerned 
with  the  objective  of  reaching  the  EU-level  economy-
wide target of achieving a 55% reduction in greenhouse 
gas emissions relative to 1990 levels. 

14 

 
 
SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS 

Strengthening social protection 

Due  to  gaps  in  social  protection,  Estonia 
continues  to  face  challenges  related  to 
poverty  and  social  exclusion,  despite 
recent improvements. Effective social policy 
is  key  to  Estonia’s  competitiveness.  While 
increases  in  pensions  and  child  benefits  have 
improved  some  social  indicators,  the  risk  of 
poverty  and  social  exclusion  rate  (AROPE) 
remains high in 2024, especially among older 
people,  in  particular  people  aged  65  and  over 
living  alone,  persons  with  disabilities  and 
single-person  households.  Behind  Estonia's 
relatively  high  poverty  figures  is  its  low 
expenditure  on  social  protection  benefits  – 
remaining  among  the  lowest  in  the  EU  at 
15.4% of GDP in 2023, against 26.8% for the 
EU  as  a  whole.  The  impact  of  social  benefits 
(excluding  pensions)  on  poverty  also  remains 
well  below  the  EU  average  (see  Annex  11). 
Reviewing  the  adequacy  and  efficiency  of  the 
benefits  system  could  help  reduce  poverty 
risks,  as  could  targeting  support  towards 
vulnerable  groups  such  as  persons  with 
disabilities,  single-person  households  and 
older people. 

In-work  poverty  remains  relatively  high, 
particularly  for  those  in  non-standard 
forms of work. The In-work poverty rate was 
10.3%  in  2024  (EU:  8.2%).  It  was  particularly 
high  among  part-time  workers  and  the  self-
employed, and is aggravated by relatively low 
minimum  wages,  despite  recent  increases  to 
adjust for inflation and agreements with social 
partners  (see  Annex  11).  The  share  of  low-
wage earners is among the highest in the EU. 
Increasing  collective  bargaining  coverage  and 
the  membership 
in  trade  unions  and 
employers’  organisations  could  help  improve 
working  conditions  and  their  involvement  in 
policymaking. 

in 

Graph 4.1: At risk of poverty or social exclusion 
(AROPE) rates for different population categories 

Source: Eurostat, EU-SILC [ilc_peps01n] 

remain 

covered 

not 
insurance,  which 

Gaps  in  unemployment  benefit  coverage 
remain  a  challenge,  particularly  gaps  for 
those  in  non-standard  forms  of  work, 
including  self-employed  people.  The  self-
employed 
by 
unemployment 
increases 
their  risk  of  poverty.  They  continue  to  rely  on 
the  non-contributory  state  unemployment 
allowance  (under  the  same  conditions  as 
employees)  and  have  access  to  sickness 
benefits  only  through  voluntary  coverage. 
Estonia  plans  to  reform  its  unemployment 
insurance  system  by  2026  and  to  expand 
eligibility 
to 
individuals in non-standard forms of work who 
are currently excluded (12). 

for  unemployment  benefits 

(12)  These include sole proprietors, entrepreneur account 

holders and members of management and supervisory 
bodies. Those in temporary employment, part-time and 
on-call work, temporary agency work, other multi-party 
employment relationships and dependent self-
employment are already covered. 

15 

01020304050602015201620172018201920202021202220232024% of populationEESingle-parentsPersons with disabilitiesElderly (65+)Total 
 
   
 
 
Regional  disparities  remain  pronounced,  with 
rural  areas  and  the  eastern  border  regions 
facing greater poverty risks. Poverty rates are 
more than twice as high in the Ida-Viru (35%) 
and Lääne-Viru (29.2%) counties than in Harju 
(15.5%)  and  Rapla  (14.1%)  (see  Annex  11). 
The  north-east  and  south-east  border  regions 
are 
lagging  behind  the  national  average 
poverty  rate  due  a  lack  of  entrepreneurial 
activity,  leading  to  fewer  paid  jobs  and  lower 
incomes,  as  well  as  lower  skills  levels  and 
limited access to services in rural areas. Rural 
areas  also  report  the  highest  rates  of  young 
people  not 
in  employment,  education  or 
training,  along  with  higher  school  leaving 
rates.  There  is  scope  for  special  support  for 
the  border  areas,  to  further  address  income 
and  regional  inequalities  and  to  strengthen 
social protection mechanisms so as to provide 
an  effective  safety  net  for  the  most  affected 
households  and  vulnerable  groups,  and  to 
support entrepreneurship (see Chapter 2). 

Estonia  faces  difficulties  maintaining 
in  part  due  to 
adequate  pensions, 
demographic  pressures.  Despite 
recent 
pension  increases,  driven  mostly  by  inflation 
adjustments and rising social tax contributions, 
pensions  remain  among  the  lowest  in  the  EU 
relative to wages, contributing to high old-age 
poverty  (see  Annex  11)(13).  The  adequacy  of 
minimum pensions (EUR 372 as of April 2024) 
remains  an  issue.  The  2021  pension  reform, 
which  made  it  possible  to  opt  out  of  the 
statutory funded pension scheme, risks further 
undermining pension adequacy and increasing 
the  long-term  poverty  risk  for  retirees.  To 
mitigate this, Estonia has introduced measures 
such  as  an 
income  tax  exemption,  the 
to 
to 
possibility 
mandatory funded pensions (the second pillar) 
and  allowances  for  pensioners  living  alone.  In 
spite  of  these  efforts, 
improving  pension 
adequacy  remains  key  to  reducing  the  risk  of 
poverty for older people. 

contributions 

increase 

Improving access to health and 
long-term care 

Despite  past  measures,  Estonia  faces 
persistent  challenges  in  healthcare  and 
long-term  care  provision.  Access 
to 
long-term  care 
adequate  healthcare  and 
contributes  to  competitiveness  by  ensuring 
that  skilled  workers  need  not  stop  working 
prematurely  for  health  reasons  or  to  care  for 
family  members.  Thanks  to  reforms  and 
increased  investment  in  recent  years,  self-
reported  unmet  needs  for  medical  care  fell 
from  12.5%  in  2023  to  8.5%  in  2024. 
However,  unmet  needs  remain  among  the 
highest  in  the  EU,  due  to  long  waiting  times 
and  the  uneven  quality  and  availability  of 
healthcare services across the country. Unmet 
needs  are  twice  as  high  for  persons  with 
disabilities,  mostly  as  a  result  of  regional 
disparities  in  access  to  services  (see  Annex 
11).  Public expenditure on long-term  care and 
healthcare  services  remains  low  and  well 
below 
the  EU  average,  and  workforce 
shortages  and  reliance  on  municipal  funding 
further  limit  service  provision.  Low  public 
to  high  out-of-pocket(14) 
spending 
payments for healthcare (see Annex 14). 

leads 

strengthening 

Estonia  is  developing  community-based 
service centres, reorganising special care 
institutions, 
primary 
healthcare  and  developing  home  care 
services,  to  address  these  issues,  with  the 
support of the Recovery and Resilience Facility 
and  EU  cohesion  funds.  The  2023  long-term 
care  reform  allocated  additional  funding  to 
local  governments,  reducing  out-of-pocket 
costs for general care services. Estonia is also 
gradually  increasing  dental  care  benefits  and 
reducing co-payments for medical goods. 

However,  Estonia  has  not  reformed  the 
financing of its health and long-term care 
systems.  To  further  reduce  the  unmet  need 
for  medical  care  and  high  out-of-pocket 

(13)  Under current policies, public pension spending is 

(14)  "Out-of-pocket payments" refer to direct payments 

projected to decline by about 1 pp of GDP by 2070 (see 
Annex 11). 

made by individuals to healthcare providers at the time 
of service use 

16 

 
 
 
payments,  adequate  financing  and  quality 
remain crucial, especially as population ageing 
is expected to increase demand. Strengthening 
home  and  community-based  care,  alongside 
assistive  technologies,  would  help  improve 
service  accessibility  and  effectiveness  across 
the  country.  Innovative  healthcare  solutions 
could  be  further  explored,  such  as  integrating 
healthcare  with  the  social  sector  and  using 
mobile  trailers  with  facilities  for  medical 
examinations. 

Lack of affordable and low quality 
of housing 

issue  for 

House  prices  have  increased  rapidly  and, 
although wages had mostly caught up by 
2024,  the  lack  of  affordable  housing  in 
Tallinn  remains  an 
labour 
mobility.  Residential  property  prices  boomed 
in  2021  and  2022,  outpacing  wage  growth 
and  reducing  housing  affordability.  The  boom 
was fuelled by – among other things – pension 
fund  withdrawals  and  the  conversion  of  stock 
options  from  Estonian  unicorns(15)  into  real 
estate  investments,  particularly  in  and  near 
Tallinn.  In  2023  and  2024,  residential  real 
estate  prices  have  more  or  less  stagnated 
while  wages  have  continued  to  increase.  Still, 
compared  to  incomes,  real  estate  prices  per 
square  metre  remain  above  the  EU  average. 
Furthermore,  partly  due 
lack  of 
competition  between  mortgage  providers, 
which  is  hindered  by  high  costs  associated 
with  refinancing,  mortgage  interest  rates  in 
Estonia (and Latvia) are the highest in the  EU 
(16).  High  interest  rates  and  rising  average 
property  prices  have  reduced  households' 
borrowing capacity over the past decade, with 
a  higher  share  of  annual  income  going  on 
cost 
mortgage  payments.  The  housing 
overburden  rate  has  almost  doubled  since 
2021, reaching 8.6% in 2024 (see Annex  11). 
The  cost  of  housing  is  a  particularly  acute 

to  a 

issue  in  Tallinn,  which  accounts  for  a  third  of 
the population and over half of GDP. In 2024, 
apartments  were  2.9  times  more  expensive 
per square metre in the capital than in the rest 
of Estonia (up from 2.3 in 2010) (17). This is an 
obstacle for labour mobility and results in lost 
competitiveness. 

There  is  room  to  improve  the  quality  of 
the  housing  stock,  especially  outside 
major  urban  areas.  While  Estonia  has  very 
high levels of property ownership, with 80.7% 
of  people  living  in  homes  they  own  in  2023 
(EU  average:  69.2%),  investment  in  existing 
properties  is  limited  outside  major  urban 
areas.  Low  incomes  and  low  property  values 
are  an  obstacle  in  rural  areas,  resulting  in 
incremental deterioration of the housing stock. 

Investment in education will help 
alleviate skills shortages 

intense 

The performance of the education system 
is relatively strong but teacher shortages 
are a challenge. According to the OECD PISA 
is  one  of  the  EU’s  top 
results,  Estonia 
performers 
However, 
skills. 
basic 
in 
inequalities  have  been  widening  slightly  over 
the past decade, and teacher shortages pose a 
risk  to  the  quality  of  education.  Shortages 
remain  particularly  severe  in  science  and 
mathematics,  with 
labour  market 
for  graduates  and  support 
competition 
specialists.  Many  new  teachers  leave  the 
profession, leading to an insufficient supply of 
fully  qualified  staff.  The  shortages  of  fully 
qualified  teachers are  exacerbated  by  an 
ageing 
Estonian 
teaching  force  is  one  of  the  oldest  in  the  EU 
(see Annex 12). Estonia could improve teacher 
shortages  by  implementing  the  2022-2026 
teacher  action  plan,  focusing  on  teacher 
retention,  while  preparing  a  follow-up  to  the 
plan that goes beyond 2026. 

population; the 

teacher 

(15)  A unicorn is a privately owned start-up company, which 

has reached a valuation of $1 billion or more. 

(16)  European Central Bank (2025), Loans for house 

purchases. 

(17)  KV.EE real price statistics. The rest of Estonia refers to 
unweighted average price in all counties except 
Harjumaa, where Tallinn is located. 

17 

 
 
 
Estonia,  also 
implemented or planned.(18) 

light  of 

in 

the  measures 

The education system could still be better 
aligned  with  skills  needs  in  the  labour 
market. The high rate of early school leavers 
(11%  in  2024)  is  a  persistent  challenge  for 
skills supply to the labour market. Early school 
leavers  have  significantly  lower  employment 
rates  and  are  at  greater  risk  of  poverty  and 
social  exclusion.  (see  Annex  12).  The  dropout 
rate  from  higher  education  is  relatively  high, 
as  is  the  gender  gap  in  favour  of  women. 
While  educational  attainment  tends  to  be 
higher  among  women  than  men,  women  are 
less  prominent  positions, 
often  hired  for 
limiting the full use of their skills. The dropout 
rate is also higher for people with disabilities. 
Estonia  has  raised  the  compulsory  education 
age  to  18.  However,  the  effectiveness  of  this 
reform will depend on its implementation  and 
appropriate  funding.  The  high  rate  of  early 
school  leaving  could  be  reduced  by  fully 
implementing 
reform  of  vocational 
education  and  training  (VET),  which  seeks  to 
better  integrate  VET  with  upper  secondary 
general  education.  Furthermore,  persisting 
skills  shortages  (see  Section  2)  could  also  be 
better  addressed  by  better  aligning  education 
policy  with 
labour  market 
forecasting  system,  to  improve  the  labour 
market  relevance  of  education  and  training. 
Increasing tertiary educational attainment and 
reducing dropout rates could improve the skills 
available in the workforce. There is also scope 
for 
in 
designing  education  policies  relevant  to  the 
labour  market.  Addressing  these  challenges 
could  also  help  reduce  skills  shortages  and 
thus  improve  Estonia’s  competitiveness  (see 
Section 2). 

involving  social  partners 

the  OSKA 

further 

the 

These  findings  are  consistent  with  the 
second-stage  analysis  in  line  with  the 
Social  Convergence  Framework. 
The 
analysis  points  to  challenges  related  to  the 
high share of the population at risk of poverty 
or social exclusion, high income inequality, the 
low  impact  of  social  transfers  on  poverty 
reduction, and high self-reported unmet needs 
for  medical  care.  However,  it  does  not     point 
to  overall  social  convergence  challenges  for 

(18)  European Commission, SWD(2025)95. The analysis 

relies on all the available quantitative and qualitative 
evidence and the policy response undertaken and 
planned. 

18 

 
 
 
KEY FINDINGS 

To  boost  competitiveness,  sustainability  and 
social fairness, Estonia would benefit from: 

enabling 
technologies; 

faster  deployment  of  new 

• 

chapter; 

implementing  the  RRP,  including  the 
REPowerEU 
swiftly 
implementing  cohesion  policy,  taking 
advantage  of  the  opportunities  under  the 
mid-term  review  and  making  optimal  use 
of EU instruments, including InvestEU and 
STEP, to improve competitiveness; 

•  securing 

critical 

capacity, 

investing 

energy 
infrastructure,  while 
in 
reducing 
renewable  energy 
overall  dependence  on  fossil  fuels  and 
moving  away  from  oil  shale,  streamlining 
permitting  processes  and  enhancing 
flexibility  technologies  such  as  battery 
storage systems; 

•  ensuring  new  and  stable  sources  of 
public  revenue,  including  increasing  the 
in  public 
share  of  property 
revenue  and 
spending 
reviews; 

taxation 
implementing 

• 

•  strengthening 

societal 

and 
the 
economic  resilience  of  regions,  paying 
particular  attention  to  Estonia’s  eastern 
borders; 

•  addressing 

skills 

shortages  and 
labour 
mismatches  to  strengthen 
productivity 
innovation 
and 
performance, including by reducing early 
leaving,  making  education  and 
school 
labour 
training  more  relevant  to  the 
market and better attracting and retaining 
talent from third countries; 

• 

improving  access  to  financing  and 
funding,  especially  for  small  businesses 
and  companies 
in  remote  regions,  to 
facilitate  innovative  investment,  including 
investors’ 
by  promoting 
participation  in  the  venture  capital  and 
equity 
addressing 
fragmentation in funding programmes; 

institutional 

market 

and 

•  boosting 

innovation 

R&D 
investment 
applied 
research funding, strengthening the role of 
universities  in  the  innovation  system  and 

prioritising 

and 

by 

improving  resource  productivity  and 
reducing  the  energy  intensity  of  the 
economy  by  continuing  to  support  the 
green 
take-up 
resource 
technologies  and  supporting 
efficiency and circularity more generally; 

resource-efficient 

of 

•  decarbonising  transport  and  achieving 
the  target  under  the  Emission  Sharing 
Regulation  by  shifting  freight  transport 
from 
up 
electrification  of  railways  and  supporting 
the transition to electric vehicles; 

speeding 

road 

rail, 

to 

and 

disabilities 

to support upward social convergence, 
reducing  poverty  by  strengthening 
social protection for older people, people 
with 
single-person 
households  by  increasing  the  adequacy 
and  efficiency  of  the  benefit  system  and 
better targeting vulnerable groups, and by 
extending  coverage  of  unemployment 
benefits,  in  particular  to  those  in  non-
standard  forms  of  work  who  are  still 
excluded; 

improving  access  to  long-term  care 
and  healthcare  to  reduce  unmet  needs 
for medical care and reduce out-of-pocket 
payments,  by  reforming  the  funding  of 
healthcare and long-term care. 

• 

• 

19 

 
 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Fiscal 

A1.  Fiscal surveillance and debt sustainability 

A2.  Taxation 

Productivity 

A3. 

Innovation to business 

A4.  Making business easier 

A5.  Capital markets, financial stability and access to finance 

A6.  Effective institutional framework 

Sustainability 

A7.  Clean industry and climate mitigation 

A8.  Affordable energy transition 

A9.  Climate adaptation, preparedness and environment 

Fairness 

A10.  Labour market 

A11.  Social policies 

A12.  Education and skills 

A13.  Social Scoreboard 

A14.  Health and health systems 

Horizontal 

A15.  Sustainable development goals 

A16.  CSR progress and EU funds implementation 

A17.  Competitive regions 

LIST OF TABLES 

General government balance and debt 
Net expenditure growth 
Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation 
Defence expenditure and the national escape clause 

A1.1. 
A1.2. 
A1.3. 
A1.4. 
A1.5.  Macroeconomic developments and forecasts 
A1.6. 
A1.7. 
A1.8. 
A1.9. 

General government budgetary position 
Debt developments 
RRF – Grants 
Projected change in age-related expenditure in 2024-2040 and 2024-2070 

23 

25 

25 

31 

34 

34 

38 

44 

53 

58 

58 

64 

70 

75 

75 

79 

83 

87 

88 

91 

91 

93 

101 

26 
26 
27 
27 
27 
28 
28 
29 
29 

 
 
 
Financial indicators 
Estonia. Selected indicators on administrative burden reduction and simplification 
Key Digital Decade targets monitored through the Digital Economy and Society Index 
Key clean industry and climate mitigation indicators: Estonia 
Key Energy Indicators 
Key indicators tracking progress on climate adaptation, resilience and environment 

A1.10.  Fiscal Governance Database Indicators 
A2.1. 
Taxation indicators 
A3.1. 
Key innovation indicators 
A4.1.  Making Business Easier: indicators. 
A5.1. 
A6.1. 
A6.2. 
A7.1. 
A8.1. 
A9.1. 
A13.1.  Social Scoreboard for Estonia 
A14.1.  Key health indicators 
A16.1.  Selected EU funds with adopted allocations - summary data (million EUR) 
A16.2.  97 
A17.1.  Selection of indicators at regional (NUTS 3) level in Estonia 
A17.2.  Socio-demographic indicators by degree of urbanisation, 2024 

LIST OF GRAPHS 

Retail energy price components for household and non-household consumers, 2024 

Tax revenue shares in 2023 
Tax wedge for single and second earners, % of total labour costs, 2024 

A2.1. 
A2.2. 
A4.1.  Making Business Easier: selected indicators. 
A5.1. 
Net savings-investment balance 
A5.2. 
International investment position 
A5.3. 
Capital markets and financial intermediaries in Estonia 
A5.4. 
Composition of NFC funding as % of GDP 
A5.5. 
Composition of household financial assest per capita and as % of GDP 
A6.1. 
Trust in justice, regional / local authorities and in government 
A6.2. 
Indicators of Regulatory Policy and Governance (iREG) 
A6.3. 
Participation rate of 25-64 year olds in adult learning (%) by occupation 
A7.1. 
GHG emissions intensity of manu-facturing and energy-intensive sectors, 2022 
A7.2. 
Greenhouse gas emissions in the effort sharing sectors, 2005 and 2023 
A7.3.  Municipal waste treatment 
A8.1. 
A8.2.  Monthly average day-ahead wholesale electricity prices and European benchmark natural gas prices (Dutch TTF) 
A8.3. 
A9.1. 
A9.2. 
A10.1.  Key labour market indicators 
A10.2.  Labour market outcomes of young people (15-24) 
A11.1.  At-risk-of-poverty or social exclusion rate, age groups 
A11.2. 
A12.1.  Teacher shortages (2015-2022) 
A12.2.  Employment rate by educational attainment (annual) 
A14.1.  Life expectancy at birth, years 
A14.2.  Treatable mortality 
A15.1.  Progress towards the SDGs in Estonia 
A16.1.  Distribution of RRF funding in Estonia by policy field 
A16.2.  Distribution of cohesion policy funding across policy objectives in Estonia 
A17.1.  GDP per capita in 2010-2022 in capital region (Harjumaa) and counties at EUs external border (% of Estonian average) 

Estonia's installed renewable capacity (left) and electricity generation mix (right) 
Direct dependency(1) on ecosystem services(2) of the gross value added generated by economic sector in 2022 
Investment needs and gaps in EUR million, in 2022 constant prices 

In-work-poverty rate, groups 

LIST OF MAPS 

A17.1.  GDP per head (in purchasing power standard PPS), NUTS 3, 2023 

24 

30 
32 
37 
43 
52 
54 
55 
63 
69 
74 
87 
89 
96 

102 
103 

31 
32 
40 
44 
44 
46 
48 
49 
53 
54 
56 
60 
61 
61 
64 
64 
66 
72 
72 
75 
76 
79 
80 
83 
84 
88 
88 
91 
94 
94 
103 

101 

 
 
 
 
FISCAL 
ANNEX 1: FISCAL SURVEILLANCE AND DEBT SUSTAINABILITY 

This  Annex  contains  a  series  of  tables  relevant  for  the  assessment  of  the  fiscal  situation  in  Estonia, 
including  how  Estonia  is  responding  to  Council  recommendations  issued  under  the  reformed  Economic 
Governance Framework. 

The  reformed  framework,  which  entered  into  force  on  30  April  2024(19),  aims  to  strengthen  debt 
sustainability  and  promote  sustainable  and  inclusive  growth  through  growth-enhancing  reforms  and 
priority investments. The medium-term fiscal-structural plans (hereinafter, MTPs or plans) constitute the 
cornerstone  of  the  framework,  setting  the  budgetary  commitment  of  Member  States  over  the  medium 
term. The latter is defined in terms of net expenditure growth, which is the single operational indicator for 
fiscal surveillance.  

Estonia submitted its plan on 11 October 2024. The plan covers the period until 2028, presenting a fiscal 
adjustment  over  four  years.  On  21  January  2025,  the  Council  adopted  the  Recommendation  endorsing 
Estonia’s plan.(20)  

The assessment of the implementation of the Council Recommendation endorsing Estonia’s plan is carried 
out  on the basis  of  outturn  data  from  Eurostat  and  the Commission’s  Spring 2025  Forecast  and taking 
into  account  the  Annual  Progress  Report  (APR)  that  Estonia  submitted  on  29  April  2025.  Furthermore, 
given  Estonia’s  request  to  activate  the  National  Escape  Clause  (21)  in  accordance  with  the  Commission 
Communication  of  19  March  2025(22),  the  assessment  also  considers,  as  appropriate,  the  projected 
increase in defence expenditure based on the Commission Spring 2025 Forecast.  

The Annex is organised as follows. First, developments in government deficit and debt are presented 
based  on  the  figures  reported  in  table  A1.1.  Then,  the  assessment  of  the  implementation  of  the 
Council  Recommendation  endorsing  the  plan  follows,  based  on  the  relevant  figures  presented  in 
Tables A1.2 to A1.8, including data on defence expenditure. 

The Annex also provides information on the cost of ageing and the national fiscal framework. Fiscal 
sustainability risks are discussed in the Debt Sustainability Monitor 2024.(23) 

Developments in government deficit and debt  

Estonia’s government deficit amounted to 1.5% of GDP in 2024. Based on the Commission’s Spring 2025 
Forecast,  it  is  projected  to  decrease  to  1.4%  in  2025.  The  government  debt-to-GDP  ratio  amounted  to 
23.6% of GDP at the end of 2024 and, according to the Commission, it is projected to increase to 23.8% 
end-2025. 

(19)  Regulation (EU) 2024/1263 of the European Parliament and of the Council (EU) on the effective coordination of economic policies 
and on multilateral budgetary surveillance, together with the amended Regulation (EC) No 1467/97 on the implementation of the 
excessive deficit procedure, and the amended Council Directive 2011/85/EU on the budgetary frameworks of Member States are the 
core elements of the reformed EU economic governance framework. 

(20)  OJ C, C/2025/655, 10.02.2025, ELI: http://data.europa.eu/eli/C/2025/655/oj. 

(21)  On 30 April 2025, Estonia requested to the  Commission and to the Council the activation of the National Escape Clause. On this 
basis, the Commission adopted a Recommendation for a Council Recommendation allowing Estonia to deviate from, and exceed, 
the net expenditure path set by the Council, COM(2025)604. 

(22)  Communication  from  the  Commission  accommodating  increased  defence  expenditure  within  the  Stability  and  Growth  Pact of  19 

March 2025, C(2025) 2000 final. 

(23)  European Commission (2025) ‘Debt Sustainability Monitor 2024,’ European Economy-Institutional Papers 306. 

25 

 
 
 
 
 
 
Table A1.1:  General government balance and debt 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

Developments in net expenditure  

The  net  expenditure(24)  growth  of  Estonia  in  2025  is  forecast  by  the  Commission(25)  to  be  below  the 
recommended  maximum.  Considering  2024  and  2025  together,  the  cumulative  growth  rate  of  net 
expenditure is also projected below the recommended maximum cumulative growth rate.  

Table A1.2:  Net expenditure growth 

* The cumulative growth rates are calculated by reference to the base year of 2023.  
Source: Council Recommendation endorsing the national medium-term fiscal-structural plan of Estonia, Annual Progress Report 
(APR) and Commission's calculation based on Commission Spring 2025 Forecast (COM). 

General government defence expenditure in Estonia amounted to 2.0% of GDP in 2021, 2.2% of GDP in 
2022 and 2.7%  of GDP in 2023.(26) According to the Commission 2025 Spring Forecast,  expenditure on 
defence is projected to amount to 3.4% of GDP in 2024 and 3.8% of GDP in 2025. 

(24)  Net expenditure is defined in Article 2(2) of Regulation (EU) 2024/1263 as government expenditure net of (i) interest expenditure, 
(ii) discretionary revenue measures, (iii) expenditure on programmes of the Union fully matched by revenue from Union funds,  (iv) 
national  expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of  unemployment  benefit 
expenditure, and (vi) one-off and other temporary measures.  

(25)  European Commission Spring 2025 Forecast European Economy-Institutional paper 318, May 2025. 

(26)  Eurostat, government expenditure by classification of functions of government (COFOG).  

26 

2024OutturnAPRCOMAPRCOM1General government balance% GDP-1.5-1.5-1.4-2.5-2.42General government gross debt% GDP23.622.523.824.025.4Variables20252026RECAPRCOMRECAPRCOM2024n.a.1.1%1.8%n.a.n.a.n.a.20257.1%1.0%2.1%9.2%2.1%3.9%20265.1%5.0%4.1%14.8%n.a.8.2%AnnualCumulative*Growth rates 
 
                    
 
 
 
                    
 
 
 
Table A1.3:  Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the 
recommendation 

* The growth rate for 2024 is not a recommendation but serves to anchor the base, as the latest year with outturn data when 
setting the net expenditure path is year 2023. 
Source: Commission Spring 2025 Forecast and Commission's calculation  

Table A1.4:  Defence expenditure and the national escape clause 

Source:  Eurostat (COFOG), Commission Spring 2025 Forecast and Commission's calculation 

Table A1.5:  Macroeconomic developments and forecasts 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

27 

2023202420252026OutturnOutturnCOMCOM1Total expenditurebn NAC16.717.418.719.72Interest expenditurebn NAC0.10.20.20.33Cyclical unemployment expenditurebn NAC0.00.00.00.04Expenditure funded by transfers from the EUbn NAC0.70.50.70.85National co-financing of EU programmesbn NAC0.10.10.10.16One-off expenditure (levels, excl. EU funded)bn NAC0.00.00.00.07=1-2-3-4-5-6Net nationally financed primary expenditure (before discretionary revenue measures, DRM)bn NAC15.816.517.718.58Change in net nationally financed primary expenditure (before DRM)bn NAC0.71.20.89DRM (excl. one-off revenue, incremental impact)bn NAC0.40.90.110=8-9Change in net nationally financed primary expenditure (after DRM) bn NAC0.30.30.711Outturn / forecast net expenditure growth% change1.82%2.1%4.1%12Recommended net expenditure growth*% change1.9%7.1%5.1%13=(11-12) x 7Annual deviationbn NAC0.0-0.8-0.214 (cumulated from 13)Cumulated deviationbn NAC0.0-0.8-1.015=13/17Annual balance% GDP0.0-2.0-0.416=14/17Cumulated balance% GDP0.0-2.0-2.317p.m. Nominal GDP  bn NAC38.239.541.543.5Variables2021202220232024202520261Total defence expenditure% GDP2.02.22.73.43.84.12of which: gross fixed capital formation% GDP0.70.71.31.21.51.53Flexibility from increases in defence expenditure% GDP1.51.54Cumulated balance after flexibility% GDP-3.5-3.82024OutturnAPRCOMAPRCOM1=7+8+9Real GDP% change-0.31.71.12.52.32Private consumption% change-0.3-0.41.41.52.43Government consumption expenditure% change0.30.01.22.02.54Gross fixed capital formation% change-6.97.61.61.13.15Exports of goods and services% change-1.12.52.23.02.46Imports of goods and services% change0.02.02.62.62.9Contributions to real GDP growth 7- Final domestic demandpps-2.01.91.41.52.68- Change in inventoriespps1.2-1.70.0-0.90.09- Net exportspps-0.90.4-0.30.2-0.310Output gap% pot GDP-4.3-3.6-3.4-2.1-1.511Employment % change0.2-0.1-0.10.50.212Unemployment rate%7.67.17.66.67.313Labour productivity% change-0.51.81.22.02.014HICP % change3.75.13.83.42.315GDP deflator% change3.73.93.92.82.616Compensation of employees per head% change5.65.24.55.14.017Net lending/borrowing vis-à-vis the rest of the world% GDP-0.8n.a.-0.7n.a.-0.420252026Variables 
 
                      
 
 
 
       
 
 
 
                    
 
 
Table A1.6:  General government budgetary position 

Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) 

Table A1.7:  Debt developments 

* End of period. 
** The 'snow-ball' effect captures the impact of interest expenditure on accumulated general government debt, as well as the 
impact of real GDP growth and inflation on the general government debt-to-GDP ratio (through the denominator). The stock-flow 
adjustment includes differences in cash and accrual accounting (including leads and lags in Recovery and Resilience Facility grant 
disbursements), accumulation of financial assets, and valuation and other residual effects. 
Source: Commission Spring 2025 Forecast and Commission's calculation (COM), Annual Progress Report (APR) 

28 

2024OutturnAPRCOMAPRCOM1=2+3+4+5Revenue42.543.543.842.742.8of which:2- Taxes on production and imports14.114.414.914.615.23- Current taxes on income, wealth, etc.9.09.99.99.19.24- Social contributions12.712.612.712.612.65- Other (residual)6.76.66.36.45.88=9+16Expenditure 44.045.045.245.245.3of which:9- Primary expenditure43.444.544.644.744.7of which:10- Compensation of employees 12.311.811.911.711.911- Intermediate consumption6.46.56.66.76.812- Social payments15.115.315.415.215.413- Subsidies0.70.80.80.80.814- Gross fixed capital formation6.17.17.27.07.115- Other2.93.02.83.32.716- Interest expenditure0.60.50.50.50.618=1-8General government balance-1.5-1.5-1.4-2.5-2.419=1-9Primary balance-0.9-1.0-0.8-1.9-1.820Cyclically adjusted balance0.6n.a.0.3n.a.-1.721One-offs0.00.00.00.00.022=20-21Structural balance0.60.20.3-1.5-1.723=22+16Structural primary balance1.20.80.8-0.9-1.1Variables (% GDP)202520262024OutturnAPRCOMAPRCOM1Gross debt ratio* (% of GDP)23.622.523.824.025.42=3+4+8Change in the ratio (pps. of GDP)3.4-1.10.21.51.5Contributions**3Primary balance0.91.00.81.91.84≈5+6+7'Snow-ball' effect-0.1-0.7-0.6-0.6-0.5of which:5- Interest expenditure0.60.50.50.50.66- Real growth effect0.1-0.4-0.2-0.5-0.57- Inflation effect-0.7-0.9-0.9-0.6-0.68'Stock-flow' adjustment2.6-1.30.00.10.220252026Variables 
 
                    
 
 
 
 
                    
 
 
Table A1.8:  RRF – Grants 

Source: Annual Progress Report 

Cost of ageing  

Total age-related spending in Estonia remains stable overall, at around 17% of GDP (see Table 
A1.9). This aggregate stability results from a projected decrease in pension and education spending being 
offset by rising expenditure on healthcare and long-term care. The decline in public pension spending of 
about 1 pp of GDP by 2070 is situated mostly in the 2060s. 

Public healthcare (27) and long-term care (28) expenditure remain below the EU average and are 
set to remain mostly stable over the forecast horizon. Public healthcare expenditure is projected at 
5.1% of GDP in 2024 (below the EU average of 6.6%) and is expected to increase by 0.3 pps by 2040 and 
by a further 0.3 pps by 2070. Public expenditure on long-term care is projected at 0.5% of GDP in 2024 
(below the EU average of 1.7%) and is expected to increase by 0.2 pps of GDP by 2040 and by a further 
0.4 pps of GDP by 2070.  

Table A1.9:  Projected change in age-related expenditure in 2024-2040 and 2024-2070 

Source: 2024 Ageing Report (EC/EPC). 

(27)  Key performance characteristics, recent reforms and investments are discussed in Annex 11.  

(28)  The quality and the accessibility of the long-term care system are covered in Annex 9. 

29 

Revenue from RRF grants (% of GDP)20202021202220232024202520261RRF grants as included in the revenue projectionsn.a.0.00.10.30.40.60.42Cash disbursements of RRF grants from EUn.a.0.30.00.60.30.60.420202021202220232024202520263Total current expenditure0.00.00.00.00.10.10.04Gross fixed capital formation0.00.00.00.00.10.20.05Capital transfers0.00.00.00.20.30.30.36=4+5Total capital expenditure0.00.00.10.30.30.50.320202021202220232024202520267Reduction in tax revenue0.00.00.00.00.00.00.08Other costs with impact on revenue0.00.00.00.00.00.00.09Financial transactions0.00.00.30.00.00.00.0Expenditure financed by RRF grants (% of GDP)Other costs financed by RRF grants (% of GDP)EE17.3-0.30.30.2-0.5-0.217.1EEEU24.30.50.30.4-0.30.925.2EUEE17.3-1.10.60.6-0.5-0.516.9EEEU24.30.20.60.8-0.41.325.6EUage-related expenditure 2024 (% GDP)change in 2024-2040 (pps GDP) due to:age-related expenditure 2040 (%GDP)pensionshealthcarelong-term careeducationtotalage-related expenditure 2024 (% GDP)change in 2024-2070 (pps GDP) due to:age-related expenditure 2070 (%GDP)pensionshealthcarelong-term careeducationtotal 
 
                     
 
 
 
   
 
 
National fiscal framework 

The  Estonian  Fiscal  Council  is  a  relatively  small  Independent  Fiscal  Institution  (IFI)  closely 
attached to the central bank. It performs the legally required activities of a euro area IFI (endorsement 
of the macroeconomic forecast and assessment of compliance with the budget balance rule). It is involved 
in the assessment of the budgetary plans but does not provide an endorsement. There is logistical support 
from  the  Estonian  central  bank  and  the  three  economists  also  come  from  the  central  bank.  While  the 
current set-up seems to be working, issues of independence may arise. 

Table A1.10: Fiscal Governance Database Indicators 

The Country Fiscal Rule Strength Index (C-FRSI) shows the strength of national fiscal rules aggregated at the country level based 
on i) the legal base, ii) how binding the rule is, iii) monitoring bodies, iv) correction mechanisms, and v) resilience to shocks. The 
Medium-Term Budgetary Framework Index (MTBFI) shows the strength of the national MTBF based on i) coverage of the 
targets/ceilings included in the national medium-term fiscal plans; ii) connectedness between these targets/ceilings and the 
annual budgets; iii) involvement of the national parliament in the preparation of the plans; iv) involvement of independent fiscal 
institutions in their preparation; and v) their level of detail. A higher score is associated with higher rule and MTBF strength. 
Source: Fiscal Governance Database 

30 

2023EstoniaEU AverageCountry Fiscal Rule Strength Index (C-FRSI)13.6514.52Medium-Term Budgetary Framework Index (MTBFI)0.720.73 
 
     
 
 
ANNEX 2: TAXATION 

This  annex  provides  an 
indicator-based 
overview  of  Estonia’s  tax  system.  It  includes 
information on: (i) the tax mix; (ii) competitiveness 
and  fairness  aspects  of  the  tax  system;  and  (iii) 
tax collection and compliance. 

(GDP) 

domestic 

Estonia’s  recent  tax  reforms  will  help  the 
government 
much-needed 
generate 
additional revenue in light of its defence and 
healthcare  spending  needs.  Overall, 
tax 
revenues  were  equivalent  to  33.7%  of  Estonia’s 
gross 
in  2023, 
product 
considerably  below  the  EU  average  of  39%  (see 
Table A2.1). They increased to 35.5% in 2024. The 
tax  mix  relies  strongly  on  taxes  on  labour  and 
consumption,  which  accounted  for  52.7%  and 
38.9%  of  total  tax  revenues  respectively  in  2023 
(see  Graph  A2.1).  In  particular,  the  share  of 
consumption taxes was significantly above the EU 
average of 26.9%, and may rise even further due 
to the increase in the standard VAT rate from 20% 
to  22%  in  January  2024  and  the  increase  in  the 
reduced  VAT  rates  for  accommodation  services 
(from  9%  to  13%)  and  press  publications  (from 
5% to 9%) that came into effect in January 2025. 
In  addition,  a  ‘security  surcharge’  will  be  levied 
from  July  2025, 
the 
standard VAT rate by a further 2 percentage points 
to 24% for three years.  

temporarily 

increasing 

Graph A2.1: Tax revenue shares in 2023 

Source: Taxation Trends Data, DG TAXUD 

tax 

recent 

Despite 
reforms,  Estonia’s 
corporate-tax system is likely to continue to 
encourage  business  reinvestment.  A  2% 
security  surcharge  will  be  levied  on  corporate 
profits  from  January  2026  to  December  2028. 
This will come on top of the recent increase in the 
corporate-tax rate from 20% to 22%, effective as 
of  January  2025.  Together  with  the  abolition  of 
the  reduced  14%  tax  rate  that  applied  to  regular 
dividends, 
this  may  somewhat  diminish  the 
attractiveness  of  Estonia’s  tax  environment  for 

businesses. At the same time, Estonia continues to 
not  levy  corporate-income  tax  on  reinvested  or 
retained  earnings,  encouraging  businesses  to 
instead  reinvest  profits  for  growth  rather  than 
distributing 
innovation  and 
expansion.  The  forward-looking  average  effective 
tax  rate,  which  indicates  the  expected  tax  burden 
for investment (29), was 15.7% in 2023, below the 
EU average of 18.9%.  

fostering 

them, 

resources 

Revenues  from  environmental  taxes  as  a 
share  of  GDP  are  0.6  percentage  points 
higher in Estonia than the EU average (2.6% 
vs  2.0%),  but  have  decreased  over  time. 
Estonia levies relatively high excise duties on road 
fuels,  and  has  introduced  a  new  vehicle  tax  that 
came  into  effect  in  January  2025.  On  pollution 
and 
taxes,  Estonia  has  already 
implemented  four  of  the  six  main  types  of 
pollution  and  resources  taxes  (i.e. taxes  on  NOx 
emissions,  waste  landfilling,  discharge  of  waste 
into  water,  and  plastic  products).  There  may  be 
scope  to  expand  waste  disposal  taxes,  including 
taxes on incineration. Estonia does not have taxes 
on  fertilisers  and  pesticides.  The  share  of 
environmental taxes in total revenues was 7.7% in 
2023.  

The  personal  income  tax  system  remains 
simple  and  predictable  in  Estonia,  but  it  is 
somewhat  less  progressive  than  that  of 
other  Member  States.  This  is  borne  out  by  the 
labour  tax  wedge(30),  which  is  below  the  EU 
average  for  single  people  with  high  incomes  (see 
Graph A2.2).  The  recent  replacement  of  the 
progressive  basic  exemption  with  a  universal  flat 
exemption from tax of EUR 8 400 per year is likely 
to  reduce  the  progressivity  of  the  tax  system  at 
the  upper  end  of  the  income  spectrum  even 
further.  On  the  other  hand,  Estonia  has  been 
successful  in  increasing  work  incentives  for  low-

(29)  Effective average tax rates measure the effect of taxation 

on investment projects earning economic rents. This indicator 
is based on a comparison of the net present value of pre-tax 
and post-tax cash flows. It is used to analyse investment 
decisions at the extensive margin, e.g. when a multinational 
enterprise decides to locate a plant in one of many 
jurisdictions (for the first time) or to make one of a number 
of technology choices. 

(30)  The  tax  wedge  is  defined  as  the  sum  of  personal  income 
social-security 
taxes  and  employee  and  employer 
contributions  net  of  family  allowances,  expressed  as  a 
percentage of total labour costs (the sum of the gross wage 
and social-security contributions paid by the employer). 

31 

51.226.921.952.738.98.5Tax revenue shares in 2023, Estonia (outer ring) and EU (inner ring) 
 
          
 
 
Table A2.1:  Taxation indicators 

(1) Forward-looking effective tax rate (KPMG).       
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average. 
(**) Forecast value for 2023. For more details on the VAT gap, see European Commission, Directorate-General for Taxation and 
Customs Union, VAT gap in the EU - 2024 report,  https://data.europa.eu/doi/10.2778/2476549  
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, OECD 

income earners, which is reflected in the reduction 
in  the  tax  wedge  for  workers  earning  50%  of  the 
average  wage  from  37.3%  in  2010  to  31.4%  in 
2024. Overall, however, the redistributive effect of 
Estonia’s 
remains 
tax  and  benefits  system 
somewhat below the EU average. The reduction in 
income 
inequality  as  measured  by  the  Gini 
coefficient  was  7.2  points  in  2023,  which  was 
below the EU average of 7.7 points.  

Graph A2.2: Tax wedge for single and second earners, 
% of total labour costs, 2024 

Estonia performs well on tax compliance and 
tax  administration,  including  digitalising  the 
tax  administration.  Outstanding  tax  arrears 
decreased  in  2022  by  0.6 percentage  points  to 
4.9% of total net revenue (in comparison with the 
previous  year).  The  amount  of  arrears  that  the 
Estonian  tax  administration  considers  collectable 
was  rather  stable  between  2018  and  2022,  at 
around 87%. The VAT compliance gap (an indicator 
of  the  effectiveness  of  VAT  enforcement  and 
compliance)  was  estimated  at  EUR  152 million  or 
4.4%  of  the  VAT  total  tax  liability  in  2022,  an 
increase  of  2.9  percentage  points  compared  with 
2021.  Nevertheless,  with  an  EU  average  VAT 
compliance  gap  of  approximately  7.0%,  Estonia 
still ranked ninth among the EU Member States in 
2022  (i.e.  only  eight  EU  Member  States  had  a 
lower  VAT  compliance  gap).  Between  2018  and 
2022,  the  VAT  compliance  gap  fell  from  5.6%  to 
4.4%. 
In  Estonia,  the  cost-of-collection  ratio 
(expressed  as  a  percentage  of  total  net  revenue) 
remained  stable  at  below  0.5%  during  the  period 
2018-2022. 

The tax wedge for second earners assumes a first earner at 
100% of the average wage and no children. For the full 
methodology, see OECD, 2016, Taxing Wages 2014-2015. 
Source: European Commission 

32 

of 

digitalisation 

tax 
Estonia’s 
administration is well-advanced. Estonia is one 
of  only  seven  EU  countries  which  has  both 
launched  and  implemented:  (i)  a  strategy  for 
digital transformation; (ii) a strategy to identify the 

the 

31.435.040.641.235.02025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - EESingle earner - EU averageSecond earner -  EESecond earner -  EU averageEEMedian (EU-27)2010202120222023202420102021202220232024Tax structureTotal taxes (including compulsory actual social contributions) (% of GDP)33.033.832.833.735.537.840.239.739.0Taxes on labour (% of GDP)17.117.317.017.819.820.520.120.0of which, social security contributions (SSC, % of GDP)12.211.611.312.012.913.012.712.7Taxes on consumption (% of GDP)13.613.413.113.110.911.210.910.5of which, value added taxes (VAT, % of GDP)8.59.19.19.16.87.37.47.1Taxes on capital (% of GDP)2.33.12.72.97.18.58.78.5Personal income taxes (PIT, % of GDP)5.36.86.36.38.69.69.49.3Corporate income taxes (CIT, % of GDP)1.31.51.61.92.22.93.23.2Total property taxes (% of GDP)0.40.30.30.31.92.22.11.9Recurrent taxes on immovable property (% of GDP)0.30.20.20.21.11.11.00.9Environmental taxes (% of GDP)3.32.62.52.62.52.42.12.0Effective carbon rate in EUR per tonne of CO2 equivalentsNA76.9NA73.4NA86.0NA84.8Tax wedge at 50% of average wage (single person) (*)37.331.532.330.831.433.931.831.531.531.8Tax wedge at 100% of average wage (single person) (*)40.138.239.139.940.640.939.939.940.240.3Corporate income tax - effective average tax rates (1) (*)16.515.715.715.721.319.319.118.9Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)6.47.96.77.28.68.27.97.7Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)5.54.935.532.6VAT gap (% of VAT total tax liability, VTTL) (**)1.54.45.96.67.0Progressivity & fairnessTax administration & complianceBy tax baseSome tax typesEstoniaEU-27 
 
          
 
     
 
a 

for 

required 

successful 

skills 
digital 
transformation;  and  (iii)  a  strategy  for  building  a 
digital  culture  within  the  tax  administration. 
Estonia’s tax administration pre-fills only personal-
income-tax files;  corporate-income-tax  and value-
pre-filled. 
added-tax 
Nevertheless,  the percentage  of  e-filing  stands  at 
above  95%  for  corporate-income-tax  returns, 
personal-income-tax  returns  and  VAT  returns 
(100%  of  all  three  types  of  returns  have  been 
submitted electronically since 2018).   

returns 

remain 

not 

Estonia scores well on dispute resolution. The 
number of mutual-agreement-procedure (31) cases 
initiated  in  the  year  2023  was  only  two (32).  No 
cases were pending from previous years. 

(31)  The Mutual Agreement Procedure (MAP) is an administrative 

procedure between tax authorities of Member States 
engaged in a tax dispute. During the MAP, national 
authorities endeavour to resolve the dispute within 2 years, 
or 3 years if the procedure is extended due to a justified 
request. 

(32)  See page 4 in the following document: https://taxation-

customs.ec.europa.eu/document/download/6bab1a20-40a1-
4b97-852d-
29246fd11cae_en?filename=DRM_2023_Final.pdf 

33 

 
 
 
PRODUCTIVITY 
ANNEX 3: INNOVATION TO BUSINESS  

is 

not 

fully 

does 

system 

translate 

innovation 

Estonia’s 
now 
performing  slightly  above  the  EU  average, 
but  the  progress  made  in  the  public  science 
into 
base 
technological  performance  and  business 
innovation.  According  to  the  2024  European 
Innovation Scoreboard(33), Estonia has rejoined the 
group  of  ‘strong  innovators’.  In  2022,  Estonia’s 
performance  in  the  Summary  Innovation  Index 
was  98.6%  of  the  EU  average,  while  the  figure 
in  2024.  Estonia’s  R&D 
reached  104.8% 
intensity (34) 
the  2017-2O23 
period:  R&D 
in  2023, 
compared  to  1.76%  in  2022.  While  the  country 
possesses a dynamic R&D base, in particular in the 
ICT sector, and good framework conditions for tech 
innovativeness  of 
start-up  support 
Estonia’s 
in 
performance 
technological developments as captured by patent 
data  has  declined  in  recent  years.  Innovation  in 
green  technologies could  be  further  strengthened. 
Research  and  innovation  (R&I)  funding  of  data 
science is lagging behind given the increasing pace 
of developments in AI tools.  

increased  over 
intensity  was  1.84% 

for 
economy, 

the 
its 

Science for innovative ecosystems 

Estonia  has  a  good  quality  public  research 
base,  with  stable  funding.  The  quality  of 
research  outputs,  as  measured  by  the  share  of 
scientific  publications  within  the  top  10%  most 
cited  publications  worldwide  as  a  percentage  of 
total publications, is slightly above the EU average 
(10.2%  in  2021  vs  9.6%)  and  has  increased  over 
the last decade (7.0% in 2012). Public expenditure 
on R&D as a percentage of GDP is also just above 
the EU average (0.76% vs 0.72%), remaining more 
or less unchanged over the last few years.  

R&I funding of data science is lagging behind 
given the increasing pace of developments in 
AI tools. Estonia has established itself as a hub of 

(33)  2024 European Innovation Scoreboard (EIS), country profile 

Estonia. The EIS provides a comparative analysis of 
innovation performance in EU countries, including the relative 
strengths and weaknesses of their national innovation 
systems (also compared to the EU average). 

data  science  and  informatics.  While  the  new 
national  Applied  Research  Centre  has  health  data 
solutions  among  its  five  priorities,  the  Estonian 
Research Agency has so far dedicated just a small 
percentage  of  funding  from 
to 
computer science and informatics (35). Investments 
in  AI  research  in  the  fields  where  Estonia  has 
developed  scientific  strongholds  over  the  years 
could  allow  it  to  exploit  many  underused  or  even 
untapped opportunities. For instance, Estonia could 
further  capitalise  on  its  extensive  work  on  health 
data and genome research.  

its  budget 

Business innovation 

The  volume  of  business  R&D  activities  has 
expanded  in  recent  years.  Many  Estonian 
businesses  have  increased  R&D  investments  in 
recent  years,  particularly  by  hiring  researchers. 
This  is  reflected  in  the  researchers  employed  by 
business  per  thousand  of  the  active  population. 
Business  enterprise  expenditure  on  R&D  reached 
1.06%  of  GDP  in  2023  compared  to  0.59%  in 
2017.  However,  this  is  still  well  below  the  EU 
average  of  1.49%  and  only  around  half  of  the 
expected  2%  level.  ICT  is  the  core  sector  of  the 
Estonian  R&I  ecosystem:  business  expenditure  in 
the  ICT  sector  accounts  for  49.2%  of  total  R&D 
expenditure.  On 
developments 
captured  by  patent  data,  Estonia’s  patent 
applications  filed  under  the  Patent  Cooperation 
Treaty  per  billion  euro  of  GDP  steadily  declined 
from  1.52  in  2017  and  1.02  in  2021  to  0.6  in 
2022.  

technology 

While  the  level  of  direct  public  support  to 
business  R&D  has  increased  in  recent  years, 
the  policy  mixes  beyond  grant  schemes  are 
less  developed.  Support  to  business  R&I  has 
been  strengthened  in  recent  years.  Overall,  direct 
public  support  to  business  R&D  increased  from 
0.056% of GDP in 2017 to 0.100% in 2022, in line 
with  the  EU  average  of  0.100%.  However,  the 
policies beyond grant schemes are less developed. 
The  corporate  income  tax  system  has  no  special 
provisions to favour investment in R&D.  

(34)  Defined as gross domestic expenditure on R&D as a 

(35)  https://www.etag.ee/wp-

percentage of GDP. 

content/uploads/2022/01/Eesti_teadus_2022.pdf, p. 72. 

34 

 
 
 
 
 
 
Cooperation  between  public  research  and 
businesses  remains  limited,  but  the  new 
Applied Research Centre will help companies 
to  better  exploit  research  results.  In  2022, 
R&D  activities  commissioned  by  businesses  to 
universities  and  public  research  organisations 
represented  6.8%  of  public  R&D.  This  is  an 
improvement compared to 5.2% a year earlier and 
reaches nearly the EU average of 6.96%. In 2024, 
Estonia  launched  the  national  Applied  Research 
Centre,  co-funded  by  the  European  Regional 
Development Fund and partly also by the recovery 
and  resilience  plan.  However,  it  will  take  years  to 
develop  a  fully  functional  research  technology 
organisation  that  benefits  a  wide  range  of 
businesses.  The  Applied  Research  Centre  will  help 
Estonian  businesses  develop  knowledge-intensive 
products and services. Its fields of activity  will  be 
health  data,  biorefining,  drone 
technologies, 
hydrogen  technologies  and  autonomous  vehicles. 
Its first laboratories are expected to be established 
in 2025, starting with a biorefining lab. Estonia is 
strengthening  R&I  Centres  of  Excellence  that  are 
also  enablers  of  cooperation  between  academia 
and  business:  in  2024,  the  Estonian  Research 
Agency launched 10 Centres of Excellence.  

be 

inventions 

technologies 

could 
to 

Business  R&D  that  supports  innovations  in 
green 
further 
strengthened.  According 
the  European 
Innovation  Scoreboard,  the  share  of  Estonian 
environment-related 
in 
patented 
technologies dropped substantially in recent years. 
As  part  of  the  recovery  and  resilience  plan,  the 
Enterprise and Innovation Foundation supports the 
development  of  new  green  and  energy  efficient 
technologies  by  innovative  start-ups  through  the 
SmartCap  investment  funds.  Moreover,  as  part  of 
the  national  Applied  Research  Programme,  the 
Estonian Business and Innovation Agency has been 
managing  a  new  clean-tech  programme  since 
2024, including support in recycling materials and 
developing  sustainable  technologies.  Estonia  has 
launched  several  notable  R&D  projects  co-funded 
by Horizon Europe programmes in the field of bio-
based  industry.  However,  implementation  of  the 
bio-based solution by industry has been lagging.  

Estonia  has  made  considerable  progress  in 
business  digitalisation,  but  areas  such  as 
data  analytics  still  need  attention  to  fully 
align  with  its  EU  Digital  Decade  targets.  The 
adoption  of  digital  technologies  by  businesses  in 
Estonia 
Estonia 
outperforms  the  EU  average  in  cloud  computing 

shows  mixed 

progress. 

adoption (52.6% vs 38.9%) but its performance in 
data  analytics  (25.6%  vs  33.2%)  remains  below 
average.  In  2024,  AI  adoption  by  Estonian  firms 
surpassed  that  of  European  ones  (13.3%  vs 
12.6%), while small and medium-sized enterprises 
(SMEs)  with  at  least  a  basic  level  of  digital 
intensity  accounted  for  71.2%,  slightly  below  the 
EU  average  of  72.9%.  To  drive  digital 
transformation,  Estonia  has  launched  initiatives 
under  its  recovery  and  resilience  plan  together 
with  national  strategies  such  as  European  Digital 
Innovation  Hubs.  The  AI  &  Robotics  Estonia  Hub 
provides businesses with assistance in testing and 
validating innovative robotics, AI technologies and 
algorithms.  

The  government’s  commitment  to  digital 
transformation and its supportive regulatory 
environment  further  fuel  the  growth  of  the 
digital sector. Estonia has already demonstrated 
its  strong  position  in  the digital  economy,  ranking 
4th  in  EU  in  terms  of  its  digital  economy’s 
contribution  to  gross  value  added.  Estonia  is  a 
front  runner  in  providing  key  public  services 
digitally  both  for  businesses  and  for  citizens (36). 
Nevertheless, in 2021 the Estonian Digital Agenda 
2030  revealed  three  priorities:  (i)  developing 
further  digital  public  services;  (ii)  focusing  on 
improving  connectivity 
cybersecurity;  and 
across  the  country.  The  Digital  Agenda  2030 
strategy 
R&D 
to 
programmes  aimed  at  establishing  Estonia  as  a 
centre of excellence for deep-tech start-ups.  

far-reaching 

linked 

(iii) 

is 

Financing innovation 

The venture capital level stabilised at above 
0.3%  of  GDP  in  2022  and  2023,  the  highest 
level  in  the  EU.  Venture  capital  intensity  picked 
up  from  2018,  quadrupling  in  five  years.  Estonia 
has  a  well-established  tech  ecosystem  that  has 
attracted  investments  of  over  1%  of  GDP  in  the 
last decade (37).  

Alternative  financing  has  gained  traction  in 
the  Estonian  financial  ecosystem  thanks  to 
public-funded  initiatives  together  with  a 

(36)  Estonia 2024 Digital Decade Country Report. 

(37)  ‘State of European Tech 24: The definitive take on European 

tech’. 

35 

 
 
universities  had  introduced  or  were  implementing 
entrepreneurship  education.  Nevertheless,  further 
efforts could be made in higher education to align 
the  entrepreneurship  education  curriculum  with 
labour  market  needs  as  practical  entrepreneurial 
experiences in higher education remain limited. 

of 

the 

from 

support 

organisations 

supranational 

thriving  ecosystem  for  start-ups  and  tech 
businesses.  New  private  equity  and  venture 
largely 
capital  funds  aimed  at  SMEs  have 
benefited 
national 
promotional  institutions  (e.g.  Enterprise  Estonia) 
(European 
and 
Investment Fund, Baltic Innovation Fund, European 
Bank  for  Reconstruction  and  Development)  over 
the  past  decade.  They  have  played  an  essential 
role  in  expanding  alternative  sources  of  funding 
and creating a critical mass of investors. Initiatives 
such  as  EstFund  (established  in  2016  by  the 
European 
Estonian 
Investment  Fund)  have  encouraged  the  growth  of 
local  private  equity/venture  capital  funds.  The 
availability  of  venture  capital  has  fuelled  the 
innovation  ecosystem.  Fundraising  has  benefited 
significantly  from  the  creation  of  the  Baltic 
Innovation Fund in 2012 and a five-year extension 
of  the  initiative  in  July  2019.  This  public  support 
range  of 
complemented  by  a 
has  been 
organisations 
the 
not 
entrepreneurial  spirit  among  Estonians,  but  also 
seek to attract foreign founders and investors. The 
tax  system 
business-friendly 
supports entrepreneurship.  

legislation  and 

government 

foster 

only 

that 

and 

the 

Innovative talent 

The  shortage  of  skilled  workers  affects 
Estonia’s  innovation  capacity.  The  number  of 
ICT graduates is one of the highest in the EU, but 
the declining number of new graduates in science 
and  engineering  is  of  particular  concern.  This 
number  has  fallen  several  years  in  a  row  to  9.2 
per  thousand  of  those  aged  25-34  in  2022, 
compared  to  the  EU  average  of  17.5.  The  decline 
in  engineering,  construction,  manufacturing  and 
maths  may 
innovation 
performance  in  the  long  run  (see  Annex  on 
Education and Skills).  

Estonia’s 

hinder 

Entrepreneurship education in Estonia is high 
quality and well developed in all educational 
levels. It is an important education policy priority, 
and  it  has  been  anchored  in  the  Education 
Strategy  2035  and  in  national  curricula.  Between 
2016-2023 
entrepreneurship 
systematic 
education  program,  Edu  ja  Tegu,  was  run  which 
successfully  developed  and  expanded 
this 
educational  area.  As  a  result,  by  2023,  43%  of 
kindergartens,  83%  of  schools  and  94%  of 

a 

36 

 
 
Table A3.1:  Key innovation indicators 

(1) EU average for the last available year or the year with the largest number of country data 
Source:  Eurostat, DG JRC, OECD, Science-Metrix (Scopus database), Invest Europe, European Innovation Scoreboard 

37 

R&D intensity (gross domestic expenditure on R&D as % of GDP)2.101.251.731.751.761.84:2.243.45Public expenditure on R&D as % of GDP0.880.650.750.750.760.76:0.720.64Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 7.08.08.810.2:::9.612.3Researchers (FTE) employed by public sector (Gov+HEI) per 1000 active population4.64.544.54.74.9:5.7:International co-publications as % of total number of publications50.659.065.867.867.769.8:55.939.3Business enterprise expenditure on R&D (BERD) as % of GDP1.210.590.950.980.991.06:1.492.70BERD performed by SMEs as % of GDP0.400.290.500.980.50::0.400.30Researchers employed by business per thousand active population2.12.43.23.54.34.3:5.7:Patent applications filed under the Patent Coop. Treaty per billion GDP (in PPS €)0.71.51.21.00.6::2.8:Employment share of high-growth enterprises measured in employment (%)11.4810.9412.71::::12.51:SMEs with at least a basic level of digital intensity % SMEs (EU Digital Decade target by 2030: 90%)::::66.95:71.272.91:Data analytics adoption % enterprises (EU target by 2030: 75%):::::25.57:33.17:Cloud adoption % enterprises (EU Digital Decade target by 2030: 75%):::50.52:52.6:38.86:Artificial intelligence adoption % enterprises (EU target by 2030: 75%):::2.77:5.1913.8913.48:Public-private scientific co-publications as % of total number of publications6.48.78.78.88.58.6:7.78.9Public expenditure on R&D financed by business enterprises as % of GDP0.0260.0320.0490.0390.052::0.0500.020Total public sector support for BERD as % of GDP0.1160.0560.0910.0970.100::0.2040.251R&D tax incentives: foregone revenues as % of GDP0.0000.0000.0000.0000.000::0.1020.141BERD financed by the public sector (national and abroad) as % of GDP 0.1160.0560.0910.0970.100::0.1000.110Venture capital as a % of GDP (calculated as a 3-year moving average)0.0330.0240.1040.2310.3430.335:0.074:Seed stage funding share (% of total venture capital) 14.213.823.519.414.815.3:7.3:Start-up stage funding share (% of total venture capital)76.848.122.038.747.846.1:44.0:Later stage funding share (% of total venture capital)9.038.154.441.937.438.6:48.7:New graduates in science and engineering per 1000 population aged 25-3413.610.79.519.759.18::17.5:Graduates in the field of computing per thousand population aged 25-343.033.724.195.504.9::3.6:Estonia2012201720202023USAEU average(1)202220212024Headline indicatorScience and innovative ecosystemsR&D investment & researchers employed in businessesPublic support for business innovationInnovation outputsDigitalisation of businessesAcademia-business collaborationFinancing innovationInnovative talent 
 
 
 
 
 
  
 
ANNEX 4: MAKING BUSINESS EASIER 

Estonian  companies’  competitiveness  has 
suffered  from  the  weak  economic  situation 
and  declining  productivity  of  recent  years. 
Strong  integration  into  the  Single  Market,  high 
business  efficiency  and  a  supportive  regulatory 
framework  (especially  in  entrepreneurship)  are 
among the key strengths of the Estonian business 
environment.  Cost  pressures  and 
increasing 
competition  are  some  of  the  key  challenges  for 
the 
industry  and  particularly  for  small  and 
medium-sized enterprises (SMEs). 

Economic framework conditions 

GDP  growth  is  expected  to  be  moderate  in 
2025,  but  productivity  is  still  weak.  Total 
factor  productivity  declined  by  1.3%  in  2024  and 
is expected to continue declining in 2025. Inflation 
and  cost  pressures  in  Estonia  remain  among  the 
highest  in  the  euro  area  and  a  large  increase  in 
nominal labour costs is continuing to weigh on the 
economy.  Uncertainty  about  the  future  is  the 
greatest  obstacle  to  investment  in  Estonia,  with 
88%  of  firms  reporting  it  as  an  obstacle (38).  The 
share  of  firms  investing  has  remained  relatively 
stable, but the share of firms expecting to increase 
their  level  of  investment  dropped  significantly  in 
2024 to a net balance of -12% (39).  

Estonia performed relatively well in terms of 
labour  and  material  shortages  in  2024.  Only 
8.6%  of  firms  faced  constraints  related  to  labour 
shortages  (EU  average  20.2%),  which  was  also 
slightly  lower  than  in  the  previous  year  when  the 
share  had  already  considerably  decreased  (40). 
Similarly,  only  4.2%  of  firms  faced  material 
shortages in 2024 (less than half the EU average 
of  10%)  (41).  The  vacancy  rate  has  also  been 
decreasing  since  2022(42),  with  unemployment 
increasing  in  the  last  two  years.  Unemployment 
reached  7.6%  in  2024  and  is  expected  to  remain 
at the same level in 2025. 

(38)  EIB Investment Survey 2024: European Union overview 
(39)  EIB Investment Survey 2024 Country Overview: Estonia 

(40)  ECFIN BCS 

(41)  ECFIN BCS 

(42)  Eurostat 

in 

for 

the 

Centre 

European 

investment 

The  level  of  labour  shortages  is  relatively 
low, but the non-availability of skilled labour 
remains  an  issue  for  Estonia.  75%  of  the 
companies (in line with EU average) listed it as an 
the  2024  EIB 
obstacle 
investment  survey  (43)  and  32%  stated  it  as  a 
major  obstacle (44).  Shortages  are  particularly 
prevalent  in  the  STEM  sector  (see  Annex  12).  For 
the 
example, 
Development of Vocational Training estimates that 
almost  14 000  new  jobs  will  be  created  between 
2025 and 2035 in computer programming. This is 
over  10 000  more  jobs  than  in  any  other  sector, 
demonstrating the changing skill requirements and 
employee  profile (45).  The  share  of  enterprises 
providing ICT training in Estonia was still below EU 
average  in  2024  (46).  However,  Estonia’s  recovery 
and  resilience  plan 
(RRP)  has  measures  to 
facilitate  access  to  transversal  skills  and  Estonia 
has reported significant progress in digital skills in 
2023.  

for 

Estonia  is  performing  above  the  EU  average 
in innovation (47). However, fewer Estonian firms 
reported  innovation  activity  in  the  last  financial 
year than in the previous year (only 24% in 2024, 
lower  to  43%  in  2023  and  the  2024  EU  average 
32%)  (48).  Estonia  generally  underperforms  in 
business  R&D  investment  and  public  support  for 
business  R&D  (49).  Estonian  firms  also  reported  a 
share  of  investment  in  intangible  assets  of  26%, 
significantly lower than the EU average of 38% (50) 
(see Annex 3).  

SMEs  make  up  a  particularly  large  share  of 
Estonia’s  industrial  firms  –  99.9% (51).  The 
share of value added by SMEs in the non-financial 
business  sector  (NFBS)  was  81.7%  in  2023,  the 
highest  within  EU.  The  share  of  SME  employment 
was  82.7%,  significantly  higher  than  the  EU 
average 65.2%, so Estonian SMEs are particularly 

(43)  EIB Investment Survey 2024: European Union overview 
(44)  EIB Investment Survey 2024 Country Overview: Estonia. 
(45)  CEDEFOP Skills Forecast. 
(46)  European Innovation Scoreboard 2024 Country Profile 

Estonia 

(47)  European 
Estonia. 

Innovation  Scoreboard  2024  Country  Profile 

(48)  EIB Investment Survey 2024 Country Overview: Estonia 

(49)  European Innovation Scoreboard 2024 Country Profile 

Estonia 

(50)  EIB Investment Survey 2024 Country Overview: Estonia. 

(51)  SME Performance Review 2024 - Estonia country sheet 

38 

 
 
 
 
 
important to Estonia’s competitiveness (52). Estonia 
is  also  known  for  its  start-ups  and  has  produced 
10 unicorn companies (53). 

Estonian  SMEs  reported  costs  of  production 
and  labour  as  their  biggest  challenge  in 
2023.  This  was  still  slightly  better  than  the  EU 
average  and  Estonia’s  Baltic  peers  –  at  6.1  (on  a 
scale  from  1  to  10;  the  EU  average  was  6.8, 
Lithuania  6.3  and  Latvia  6.5).  Other  significant 
challenges  are  competition  (where  Estonia  ranked 
worse  than  the  EU  average)  and  the  non-
availability  of  skilled  staff  and  experienced 
managers.  Estonian  SMEs  reported  a  particularly 
low  level  of  challenges  in  access  to  finance  and 
regulation (54). The availability of skilled staff was 
investment  by  a 
considered  an  obstacle  to 
large  share  of  micro  and  small 
particularly 
(55). 
companies 
Estonia 
(78%) 
experienced  the  worst  decline  in  the  value  added 
of  SMEs  (inflation-adjusted)  among  EU  Member 
States (minus 20.4%) (56). Estonia is also expected 
to remain one of the worst performers in 2024 (57). 

In  2023, 

Regarding  enabling  business  infrastructure, 
Estonia performs well in logistics. Estonia has 
a good overall score in the World Bank’s Logistics 
Performance  Index  and  better  than  the  scores  of 
its  Baltic  peers  Latvia  and  Lithuania (58).  However, 
strongest 
infrastructure 
component  within  the 
is 
needed  in  both physical  and  digital  infrastructure, 
but neither of these two areas was flagged up as 
a  significant  obstacle  to  investment  in  Estonia 
(fewer than 30% of respondents considered them 
to be an obstacle) (59). 

Improvement 

Estonia’s 

index. 

not 

is 

has 

Estonia 
digital 
strengthened 
infrastructure with significant advancements 
in  connectivity.  Fibre  to  the  premises  (FTTP) 
coverage reached 76.9% in 2023 – well above the 
EU  average  of  64%  –  although  rural  areas  still 

its 

(52)  SME Performance Review Annual Report 2023/2024. 
(53)  why estonia - Startup Estonia. 
(54)  SME Performance Review Annual Report 2023/2024. 

(55)  EIB Investment Survey 2024 Country Overview: Estonia 

(56)  Annual  growth  rate  of  SME  adjusted  for  inflation  value 
added  in  the  NFBS  in  2023  in  the  EU-27  and  across  EU 
Member  States  –  Estonia,  available  in  SME  Performance 
Review Annual Report 2023/2024 . 

(57)  SME Performance Review Annual Report 2023/2024 

(58)  Logistics Performance Index (LPI). 
(59)  EIB Investment Survey 2024: European Union overview 

initiatives  under 

require substantial improvement (67.8% vs the EU 
average  of  52.8%).  Very  high  capacity  network 
(VHCN)  coverage  stands  at  76.9%,  slightly  below 
the EU average of 78.9%. To address connectivity 
challenges, Estonia has allocated EUR 24.3 million 
its  RRP. 
through  different 
Estonia’s  overall  5G  coverage  reached  87.5%  in 
2023, just below the EU average of 89.3%. Estonia 
has  demonstrated 
in  5G 
deployment,  with  a  102%  annual  increase  that  is 
significantly  above  the  EU  average  of  10%. 
However,  5G  coverage  in  the  critical  3.4-3.8  GHz 
spectrum band remains at 43.7%  – below the EU 
average of 50.6%. 

strong  growth 

In  terms  of  cybersecurity,  Estonia  has  made 
commendable  strides  in  enhancing  digital 
resilience.  90.9%  of  enterprises  deploy 
ICT 
security measures – slightly below the EU average 
of  92.8%.  The  number  of  enterprises  in  Estonia 
that  experienced  ICT  security  incidents  leading  to 
unavailability  of  ICT  services  due  to  attack  from 
outside  increased  slightly  from  3.1%  in  2022  to 
3.6% in 2024, exceeding the EU average of 3.4%. 

56.7%  of  Estonian  SMEs  experienced  late 
business-to-business  payments  in  2024.  This 
was  significantly  higher  than  the  EU  average  of 
47.9%,  showcasing  payment  issues  in  Estonian 
businesses  (60).  In  2023,  54%  of  companies  in 
Estonia were affected by late payments. This was 
the  highest  share  in  the  last  five  years  and  well 
above  the  EU  average.  These  late  payments 
resulted  in  44%  of  firms  delaying  their  own 
payments  to  their  suppliers  in  2023,  triggering  a 
domino  effect  in  late  payments  down  the  value 
chain.  39%  of  firms  indicated  that  late  payments 
were  affecting  their  production  and  operations, 
and  30%  indicated  that  late  payments  were 
delaying  their  repayments  of  loans  or  obliging 
them to use additional financing (61). The share of 
finance-constrained  firms  has  more  than  doubled 
since  last  year  (according  to  the  latest  EIBIS), 
mainly  due  to  a  greater  share  of  firms  being 
rejected when applying for finance or thinking that 
it was too expensive (see Annex 5).  

(60)  SAFE survey 

(61)  EU Payment Observatory Analysis. 

39 

 
 
 
Graph A4.1: Making Business Easier: selected 
indicators. 

Share of (1) enterprises, (2) average intra-EU exports and 
imports in GDP, (3) firms, (4) SMEs. 
Sources: (1) EIB IS, (2) Eurostat, (3) ECFIN BCS, (4) SAFE 
survey. 

The  attractiveness  of  Estonia  to  foreign 
investors  has  generally  been  quite  high. 
Estonia  is  outperforming  its  Baltic  peers  and 
Finland  on  foreign  direct  investment  (FDI).  The 
inward FDI stocks dropped significantly as a share 
of  GDP  in  2022  but  returned  to  almost  the 
previous  level  of  around  100%  in  2023  (97.7%). 
This was higher than the EU average of 84.1% (62).  

Regulatory and administrative 
barriers 

Regulation  is  less  of  an  obstacle  in  Estonia 
but  further  simplification  is  warranted.  48% 
of  firms  see  Estonia’s  business  regulations  as  an 
labour 
investment.  52% 
obstacle 
regulations as an obstacle. Both scores are better 
than  the  average  for  the  EU  (66%  for  business 
and  62%  for  labour  regulations)  and  its  Baltic 

see 

to 

(62)  Eurostat. 

peers (e.g. 61% for both in Latvia) (63). In addition, 
Estonia  is  one  of  the  best  performers  in  the 
OECD’s Product Market Regulation indicator, which 
shows  that  Estonia  has  fewer  regulatory  barriers 
in  product  markets  than  the  OECD  average. 
its 
However,  Estonia  could  further  simplify 
regulatory  and  administrative  burden,  particularly 
in  licensing  where  Estonia  is  ranked  around  the 
OECD  average.  It  could  also  further  align  itself 
with  best  practices,  for  example  by  regularly 
reviewing  and  updating  the  licences  required  to 
start a business (64). The share of firms in Estonia 
regulatory 
to  deal  with 
employing 
compliance is above EU average (65).  

staff 

the 

Tax  compliance  costs 
for  SMEs  have 
traditionally  been  relatively  low  in  Estonia 
compared  to  the  EU  average  as  well  as  its 
Baltic  peers.  While  several  recent  tax  reforms 
may  imply  some  adjustment  costs  for  smaller 
businesses,  Estonia’s digitised  tax  system  is  likely 
to  ease 
transition  and  help  minimise 
compliance  burdens.  In  2022,  Estonia  was  at  the 
lower end for both total enterprise tax compliance 
cost  and  corporate  income  tax  (CIT).  In  terms  of 
value  added  tax  (VAT)  compliance  cost,  Estonia 
was  around  the  EU  average  in  2022 (66).  The 
recent  tax  reforms  may  make  Estonia’s  tax 
environment less attractive for businesses, but the 
corporate tax system is likely to remain favourable 
(see Annex 2). 

in 

in 

treatment 

particularly 

Estonia  has  taken  steps  to  improve  its 
insolvency  framework 
recent  years. 
Previously,  Estonia  was  considered  to  have  an 
average  framework  in  place  but  scored  relatively 
low 
failed 
entrepreneurs.  This  might  have  deterred  aspiring 
entrepreneurs.  Improvement  on  this,  for  example 
in  relation  to  time  to  discharge,  has  taken  place 
already between 2016 and 2022 (67). However, the 
personal  cost  of  insolvency  could  yet  be  further 
reduced  in  Estonia (68).  In  2023,  both  business 
declarations 
registrations 
increased in Estonia, with bankruptcies growing by 

bankruptcy 

and 

of 

(63)  EIB Investment Survey 2024: European Union overview 

(64)  OECD PMR country note Estonia. 
(65)  EIB Investment Survey 2024 Country Overview: Estonia 

(66)  Tax compliance costs for SMEs 2022. 
(67)  OECD  working  paper  Enhancing  insolvency  frameworks  to 

support economic renewal 2022. 
(68)  OECD Economic Surveys: Estonia 2024. 

40 

56.794.257.014.947.916.61041.624.50102030405060from private entitiesfrom public entitiesMaterial shortages as afactor limiting productionEU Trade IntegrationRegulation as a majorobstacle to investment(4) Late payments(3) Shortages(2) SingleMarket(1) RegulatoryburdenShare (%)EU27EE 
     
 
 
51.7%  (the  third  fastest  rate  in  the  EU).  This 
increasing trend continued in 2024 (69). 

Estonia  is  considered  to  have  a  supportive 
national context for entrepreneurship. Estonia 
scored fifteenth (with a score of 5.4) in the Global 
Entrepreneurship  Monitor  National  Entrepreneurial 
Context  Index  2024/2025,  which  provides  an 
overview of how supportive the national context is 
to  start  a  new  enterprise.  Despite  a  good  overall 
score,  Estonia’s  score  dropped  significantly  from 
previous  year  largely  due  to  declines  in  two 
‘Support  and 
government  policy  conditions, 
Relevance’ and ‘Taxes and Bureaucracy’ as well as 
in  the 
‘Entrepreneurial  Education  Post-School’ 
condition.  Estonia  could  improve  in  particular  in 
entrepreneurial  education,  with  only  44.7%  of 
adults  in  Estonia  (which  ranked  45  out  of  51 
countries)  considering  themselves  to  have  the 
skills  and  knowledge  to  start  a  business  (70).  The 
self-employment  rate  of  10%  in  Estonia  was 
below  the  EU  average,  particularly  in  terms  of 
female and youth self-employment (71). 

Single Market 

Estonia 
is  a  small  open  economy  and 
continues  to  be  well  integrated  into  the 
Single  Market  and  to  actively  engage  in 
international trade. 74% of Estonian companies 
engage  in  international  trade (72)  and  Estonia 
scored  fifth  in  terms  of  EU  trade  integration, 
demonstrating  a  high  degree  of  EU 
trade 
integration  (measured  using  the  percentage  ratio 
of  trade  volumes  to  GDP).  This  percentage 
decreased  slightly  from  last  year,  in  line  with  a 
general  trend  among  EU  Member  States  (57%  in 
2024, 60% in 2023) (73). However, a large majority 
of  Estonian  exporters  (88%  vs  the  EU  average  of 
60%)  reported  that  they  have  to  comply  with 
different standards and consumer protection rules 
in  different  EU  Member  States.  This  share  is 
particularly  high 
the  manufacturing  and 
construction  sector  (94%  in  2024),  indicating 

in 

in 

those  sectors (74).  Estonia’s 
fragmentation 
services  trade  restrictiveness  is  generally  below 
the  OECD  average  and  is  particularly  low  in  the 
insurance  sector.  However,  architectural  and  legal 
services  are  more  restricted  than  the  global 
the  movement  of 
for 
average,  particularly 
professionals (75).  This 
less 
reflected  in  the  intra-EEA trade,  Estonia  having in 
contrast a low level of intra-EEA trade restrictions 
e.g. in legal services (76). 

restrictiveness 

is 

Estonia generally complies well with EU law. 
Estonia’s  single  market  transposition  deficit  was 
just above the EU average in December 2024 and 
was  at  the  same  level  as  the  previous  December 
at  0.9%.  This  signals  that  some  further  work  on 
the timely transposition of directives into national 
law could be  warranted. The transposition of nine 
single market directives was overdue (in December 
2024) and the average delay in transposing those 
directives  was  also  higher  than  EU  average.  In 
terms of the conformity deficit (the percentage of 
wrongly  transposed  single  market  directives), 
Estonia  is  performing  better  than  the  EU  average 
(it  ranks  12).  Estonia  had  12  pending  single 
market  infringement  proceedings  in  December 
2024,  which  was  half  the  EU  average  of  24.  This 
was  an  increase  on  the  previous  year  but  Estonia 
in  the 
is  still  one  of  the  best  performers 
infringement  category  this  year.  In  2024,  Estonia 
resolved 100% of the SOLVIT cases it handled as 
lead centre (the EU average was 84.9%) (77). 

Regulatory  restrictiveness  for  professions  is 
generally 
lower  than  the  EU  average. 
However, legal professions are subject to relatively 
heavy  regulation. Lawyers and notaries in Estonia 
face  particularly  stringent  entry  and  conduct 
regulations (78). This can impact competitiveness in 
the legal sector. 

Public procurement  

Estonia  continues  to  have  an  average 
performance  in  public  procurement.  In  single 

(69)  Eurostat 

(70)  GEM Global Entrepreneurship Monitor 2024/2025 

(71)  OECD report The Missing Entrepreneurs 2023. 
(72)  EIB Investment Survey 2024 Country Overview: Estonia 

(73)  Eurostat 

(74)  EIB Investment Survey 2024 Country Overview: Estonia 

(75)  OECD Services Trade Restrictiveness Index 2024 Estonia. 
(76)  OECD Services Trade Restrictiveness Index 2024 Simulator. 
(77)  Country data: Estonia | Single Market and Competitiveness 

Scoreboard 

(78)  OECD PMR country note Estonia. 

41 

 
 
 
previous 

bids,  Estonia  scored  around  the  EU  average  in 
2024  with  27%,  slightly  decreasing  from  26%  in 
the 
average 
year.  Despite 
performance  in  general,  Estonia  was  still  among 
the worst performers in direct awards in 2024 (the 
percentage  of  public  procurement  negotiated 
without any call for bids), with a score of 13% (79).  

an 

Estonia  is  making  progress  on  strategic 
public  procurement.  In  particular,  Estonia  is 
taking  steps  in  green  public  procurement,  though 
social and innovation procurement is lagging a bit 
behind. On socially responsible public procurement, 
Estonia has a comprehensive legal framework but 
there  are  only  a  few  good  examples  in  practice, 
and there is a general lack of awareness about the 
possibilities  it  offers  and  how  to  apply  it  in 
practice. One of the key factors hindering progress 
in  strategic  public  procurement  is  a  lack  of 
professionalism.  Estonia  has  launched  (together 
with  the  OECD)  a  project  called  ‘Promoting  the 
Uptake of Strategic Public Procurement in Estonia 
through  Professionalising  the  Public  Procurement 
Workforce’ (80).  Completion  of  this  project  would 
enable  both  Estonian  enterprises  and  public 
authorities  to  better  leverage  strategic  public 
procurement. 

(79)  Commission internal 

(80)  Ministry of Finance, 2023. 

42 

 
 
Table A4.1:  Making Business Easier: indicators. 

*Change in methodology in 2024: reporting late payments from public and private entities separately. 
** Data on single bids for 2024 is provisional and subject to revision. Due to missing data, the EU average of direct awards data is 
calculated without Romania. 
Sources: (1) ECFIN BCS, (2) Eurostat, (3) EIB IS, (4) Digital Decade Country reports, (5) Intrum Payment Report, (6) SAFE survey, (7) 
OECD, (8) up to 2023: Single Market and Competitiveness Scoreboard, 2024: Public procurement data space (PPDS). 

43 

POLICY AREA20202021202220232024EU-27 average7.121.720.44.44.210.07.927.223.39.18.620.21.11.51.81.51.32.36.72.85.58.68.313.4-73.476.376.9-78.8-73.476.376.9-64.0-18.343.387.5-89.3Regulatory environment8.95.69.514.714.924.515.013.913.215.3-15.613.911.015.918.1-15.1from public or private entities in the last 6 months37.848.445.253.7--from private entities in the previous or current quarter----56.747.9from public entities in the previous or current quarter----9.016.650.358.165.459.757.041.60.0390.0390.0390.0390.0420.0500.51.20.40.90.90.81.40.90.91.10.80.910010010010010084.912.08.07.010.012.024.42725322627-1291112137.0EstoniaINDICATOR NAMEInvestment climateShortagesMaterial shortage, firms facing constraints, %1Labour shortage, firms facing constraints, %1Vacancy rate, vacant posts as a % of all available ones (vacant + occupied)2InfrastructureTransport infrastructure as an obstacle to investment, % of firms reporting it as a major obstacle3VHCN coverage, %4FTTP coverage, %45G coverage, %4Reduction of regulatory and administrative barriersImpact of regulation on long-term investment, % firms reporting business regulation as a major obstacle3Late paymentsPayment gap - corporates B2B, difference in days between offered and actual payment5Payment gap - public sector, difference in days between offered and actual payment5Share of SMEs experiencing late payments, %*6Single MarketIntegrationEU trade integration, % (Average intra-EU imports + average intra EU exports)/GDP2EEA Services Trade Restrictiveness Index7ComplianceTransposition deficit, % of all directives not transposed8Conformity deficit, % of all directives transposed incorrectly8SOLVIT, % resolution rate per country8Number of pending infringement proceedings8Competition and transparency in public procurementSingle bids, % of total contractors**8Direct awards, %**8Public procurement 
 
 
       
 
ANNEX 5: CAPITAL MARKETS, FINANCIAL STABILITY AND ACCESS TO FINANCE 

Estonian  firms  access  only  a  part  of  the 
above  average  savings  of  the  country’s 
households, also as direct retail participation 
in  capital  markets  is  low.  Moreover,  pension-
fund  assets  have  been  decreasing  following  a 
policy  change  in  2021  that  turned  the  ‘second 
pillar’ of pensions into a voluntary savings scheme. 
Apart  from  its  very  modest  size,  the  country’s 
institutional investor base also has a conservative 
investment  profile  and  mostly  invests  outside 
Estonia.  In  addition,  over  95%  of  companies  in 
Estonia  are  SMEs,  which  find  it  difficult  to  access 
the  capital  markets  and  their  opportunities.  This 
leaves internal financing as the main alternative to 
bank  funding  for  Estonian  firms.  Thanks  to  public 
support  initiatives,  alternative  funding  through 
private  equity  and  venture  capital  has  gained 
traction 
in  the  country,  boosting  early-stage 
entrepreneurial  activity.  Nevertheless,  financing 
gaps  remain  for  companies  in  the  later  financing 
stages.   

Availability and use of domestic 
savings 

The Estonian economy invests part of its net 
savings abroad. Over the last decade, the private 
savings  ratio,  net  of  fixed  capital  consumption, 
fluctuated  around  its  ten-year  average  of  10.1% 
of  GDP,  reaching  a  maximum  of  13.6%  in  2020 
(see Graph A5.1). The net private investment ratio, 
which measures the net contribution of the private 
sector  to  capital  accumulation  in  the  country, 
exhibited a ten-year average of 7.3% of GDP and 
reached  a  maximum  of  11.1%  in  2022.  At  the 
same 
the 
time,  during 
in  regular  surplus, 
government  balance  was 
averaging  0.8%  of  GDP.  Thus,  except  for  the  last 
couple of years, the high positive balance between 
net domestic savings and net investment, together 
with  the  government  surpluses,  resulted  in  net 
lending abroad by Estonia, averaging 0.7% of GDP, 
with  a  peak  of  5.4%  in  2021.  Hence,  some  of 
Estonia’s  net  savings,  i.e. after  accounting  for  the 
investments that are necessary to merely maintain 
the  existing  capital  structure  of  the  economy,  are 
used  to  finance  projects  abroad,  except  over  the 
last couple of years. 

the  same  period 

Graph A5.1: Net savings-investment balance 

Source: AMECO. 

in 

investment 

international 

The  Estonian  economy  exhibits  a  negative 
position. 
net 
Between  2009  and  2023 
the  NIIP  has 
strengthened  almost  every  year,  reflecting  an 
improvement 
international  competitiveness, 
however remaining in negative territory (see Graph 
A5.2).  As  of  Q3-2024,  total  assets  on  foreigners 
reached  172.1%  of  GDP,  while 
liabilities  to 
foreigners stood at 185.8% of GDP, resulting in a 
negative  NIIP  of  13.7%  of  GDP  (see  Graph  A3.2). 
The  accumulated  net  portfolio  investment,  which 
reached  38%  of  GDP  as  of  Q3-2024,  did  not 
suffice  to  counterbalance  a  negative  net  foreign 
direct  investment  balance  of  -54.7%,  together 
with net other investments of -2.3%. The stock of 
official  foreign  reserve  assets  amounted  to  5.3% 
of GDP. The Estonian economy thus appears to be 
a net capital importer, notably mainly by means of 
foreign direct investments in the country. 

Graph A5.2: International investment position 

Source: ECB. 

44 

-10-50510152025302017201820192020202120222023% of GDPPrivate investment, netLending to the governmentPrivate saving, netPrivate saving, grossBorrowing from the rest of the world-250-200-150-100-5005010015020025020172018201920202021202220232024-Q3% of GDPForeign Direct Investment, AssetsPortfolio Investment, AssetsOther investment, AssetsOfficial reserve assetsForeign Direct Investment, LiabilitiesPortfolio Investment, LiabilitiesOther investment, LiabilitiesNIIP 
 
   
  
 
 
Structure of the capital markets and 
size of the financial sector 

than 

In  terms  of  capital  market  development, 
Estonia  lags  behind  the  rest  of  the  EU. 
Nevertheless,  despite 
the  similar  economic 
structure  and  size,  stock  exchanges  of  Estonia 
have  been  able  to  achieve  a  somewhat  higher 
level  of  development 
its  neighbouring 
countries.  Whereas  the  market  capitalisation  of 
listed  stocks  reached  5.9%  in  Lithuania  and  only 
1.2%  in  Latvia,  it  amounted  to  12.2%  of  GDP  in 
Estonia at the end of Q3-2024. In comparison, the 
EU  average  is  69.3%  of  GDP.  State  and  local 
government-controlled  companies  account  for 
slightly more than a third of market capitalisation 
in  Estonia.  The  situation  is  similar  in  the  debt 
securities  market:  the  corporate  bond  market  is 
very  thin  and  activity  there  was  very  weak  even 
when  low  interest  rates  prevailed  in  financial 
markets over the previous decade. 

prospects 

capital  market 
for 
The 
development  are  limited  by  the  low  number 
of  listed  enterprises.  Estonia  has  established  a 
good market infrastructure, as well as a regulatory 
framework  that  meets  international  standards, 
ensuring  adequate  market 
transparency  and 
investor protection.  Nevertheless,  local  businesses 
tend  to  rely  on  bank  intermediation  rather  than 
attracting  investments  through  stock  and  bond 
issues  or  from  alternative  sources.  This  results  in 
low interest from institutional and retail investors, 
and  thus  few  local  opportunities  to  raise  share 
capital.  As  there  is  a  relatively  large  share  of 
in  Estonia,  some 
foreign-owned  companies 
companies 
their  parent 
from 
can  borrow 
companies. The small size of the local market also 
leads  large  companies  to  borrow  abroad  to  a 
significant  extent  and  to  issue  bonds  in  foreign 
markets.  Lacking  market  activity  by  institutional 
investors  creates  conditions  for  weak  demand  for 
corporate  stocks  and  bonds.  Furthermore,  the 
level  of  borrowing  by  the  Estonian  general 
government is low, and so few government bonds 
are  issued.  In  terms  of  the  international  market, 
projects  developed  in  Estonia  are  relatively  low 
value,  which  makes  them 
less  attractive  to 
international investors. The relative lack of liquidity 
in  the  market,  which  is  reflected  in  the  sluggish 
trading activity and in the relatively large spreads 
between  bid  and  offer  prices,  even  for  the  most 

liquid  shares,  hampers  attractiveness  for  short-
term investors and traders.  

Over  the  course  of  2024,  the  Minister  of 
Finance  put  together  a  strategy  for  the 
Estonian  capital  markets.  In  this  respect,  in 
September  2024,  for  the  first  time,  the  state 
issued  bonds  aimed  at  Estonian  retail  investors. 
The  offer  was  oversubscribed  more  than  four 
times. The bond has been listed on Nasdaq Tallinn 
where  it  can  be  traded  on  the  secondary  market. 
Moreover,  the  listing  of  state-owned  companies 
was discussed.  

Estonia’s  monetary  financial  sector  is  very 
small  compared  with  the  EU  average  and 
concentration  is  high.  At  the  end  of  Q3-2024, 
banks’  total  assets  were  equivalent  to  108.7%  of 
GDP,  significantly  below  the  EU  average  of 
248.1%. The banking sector is highly concentrated, 
and borrowing costs are among the highest in the 
EU  in  almost  all  lending  segments.  The  top  five 
monetary  financial  institutions  represent  more 
than  90%  the  sector,  vs.  an  EU  average  of  54%. 
Foreign  presence  is  high  and  accounts  for  over 
half  of  total  assets.  Notably,  Swedbank  (81)  and 
SEB  Pank,  which  are  the  second  and  third  largest 
banks  in  Estonia,  are  Swedish  owned.  While  in 
2016  the  share  of  domestic  banks  was  still  only 
6.6%,  this  share  had  amounted  to  almost  half  of 
the sector by end 2023, which is largely due to the 
establishment  of  the  Luminor  head  office  in 
Estonia in 2019, now the largest bank in terms of 
assets,  and  currently  majority  owned  by  US 
investment firm Blackstone. Luminor has branches 
in  Latvia  and  Lithuania  and  has  sizeable  loan 
portfolios  in  these  countries.  At  the  end  of  2023, 
AS  Luminor  was  the  biggest  entity  in  terms  of 
total  assets  (31%),  followed  by  Swedbank  AS 
(27%), AS SEB Pank (16%) and then AS LHV Pank 
(12%).  The  financial  groups  that  own  the  biggest 
banks  in  Estonia  often  also  own  the  insurance 
companies,  fund  managers  and  lease  companies 
with  the  largest  market  share  through  the  banks. 
Due  to  its  integration  with  the  Nordic  banking 
systems,  the  financial  sector  of  Estonia  depends 
partly  on  developments in  parent  banks  and  their 
strategic decisions. 

(81)  In October 2021, the ownership of the subsidiary banks in 
Estonia,  Latvia  and  Lithuania  was  placed  in  the  holding 
company  Swedbank  Baltics  AS  which  is  wholly  owned  by 
Swedbank  AB,  and  which  is  under  the  supervision  of  the 
European Central Bank. 

45 

 
 
Graph A5.3: Capital markets and financial 
intermediaries in Estonia 

Source: ECB, EIOPA, AMECO. 

life 

The  Estonian  insurance  sector  is  very  small. 
The total value of assets of the insurance sector in 
EU  countries  is  equivalent  to  54.8%  of  GDP  on 
average.  By  contrast,  the  figure  for  insurers 
registered in Estonia was only 6.6% at the end of 
Q3-2024.  The  small  size  of  insurance-sector 
assets  in  the  country  can  be  explained  by  the 
underdevelopment  of 
insurance.  Non-life 
insurance  has  the  largest  share  of  the  total 
insurance market (86% at the end of Q1-2023). A 
major  role  in  the  Estonian  insurance  sector  is 
played  by  mandatory  insurance  products  that  are 
compulsory either by law or as a requirement of a 
lender  financing  the  purchase  of  an  asset.  This 
structure is very different from that found in most 
EU countries, where life insurance is often used as 
a  long-term  savings  product  (e.g.  to  build  up 
pension pots). About half of all insurers operating 
in  the  Estonian  market  are  branches  of  foreign 
insurance  companies;  several  Estonian  insurers 
also  operate 
in  the  Latvian  and  Lithuanian 
markets. 

Assets  held  by  Estonian  pension  funds  have 
been decreasing following a policy change in 
2021  that  turned  the  second  pillar  pension 
into  a  voluntary  savings  scheme.  The  total 
value of pension funds was equivalent to 12% of 
GDP at the end of 2022, down from 19% in 2020. 
Since the start of 2021, pension investors can exit 
the  second  pension  pillar  before 
reaching 
retirement  age,  which  20%  of  Estonian  pension 
savers did over 2021. More money was withdrawn 
in  subsequent  waves  of  exits.  In  2022,  the  value 
of pension fund assets declined mainly because of 

the drop in securities prices (82). According to Eesti 
Pank,  Estonia's  three-pillar  pension  system  saw 
assets  reach  22%  of  GDP  again  in  Q3-2024, 
driven  by  significant  growth  in  third-pillar  funds 
and strong second-pillar returns. 

Resilience of the banking sector 

Financial  soundness  indicators  suggest  that 
Estonian  banks  have 
remained  strong, 
despite  facing  a  challenging  macroeconomic 
environment. Estonia’s banking sector has coped 
relatively  well  with  the  multiple  shocks  in  recent 
years,  from  the  pandemic  crisis  to  Russia’s 
aggression  against  Ukraine  and  the  energy  crisis. 
Despite  remaining  high  and  still  above  the  EU 
average  of  20.1%,  capital  adequacy  of  Estonian 
banks has been steadily declining over time, from 
30%  in  2017  to  21.2%  in  Q3-2024  (see  Table 
A5.1).  This  ratio  comes  with  heterogeneity  across 
banks: the two subsidiaries of Swedish banks rely 
internal  ratings-based  models  for  certain 
on 
segments  of 
loan  portfolios,  which 
traditionally result in lower risk-weights and higher 
capital  ratios,  even  though  in  the  last  two  years 
these  ratios  have  declined.  The  Common  Equity 
Tier  1  (CET1)  ratio  has  exhibited  a  notable 
downward trajectory, falling from 30% in 2017 to 
19.9%  in  Q3-2024,  however  still  above  the  EU 
average of 16.6%. The decline reflects reforms to 
corporate  taxation,  which  have  incentivized  banks 
to prioritize dividend payouts over profit retention, 
but also growing bank leverage and the extension 
loan  portfolios.  Differences  across 
of  banks’ 
institutions  are  also  significant;  especially  small 
banks exhibit lower buffers.  

their 

Eesti  Pank  and  Finantsinspektsioon  have 
both set additional requirements for the own 
funds  held  by  the  banks  in  order  to  ensure 
their  resilience.  In  response  to  rapid  credit 
growth  over  2022,  the  countercyclical  capital 
buffer 
from 
December  2022  and  was  further  raised  to  1.5% 
effective since December 2023 on top of the base 
requirement  for  own  funds  and  the  capital 
conservation  buffer.  The  four  largest  banks  have 
to  hold  an  additional  2%  in  own  funds  for  the 

(CCyB)  was 

tightened 

to  1% 

(82)  Eesti Pank, 2023, The Structure of the Estonian Financial 

Sector. 

46 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIs​Insurance corporationsInvestment funds020406080100120Listed equity                        Bonds                    Assets by sector% of GDP 
   
 
important 

systemically 
institution  buffer.  The 
internal  ratings-based  banks  have  to  meet  the 
own  funds  requirement  by  applying  a  minimum 
risk  weight  of  at  least  15%  on  average  to  the 
mortgage-backed claims of Estonian residents.  

The  profitability  of  Estonian  banks  is  high. 
Over 2023 Estonian banks achieved a record-high 
return on equity ratio of 18.5%, which fell back to 
17.7% in Q3-2024, still significantly exceeding the 
EU  average  (10%).  The  profitability  of  the  banks 
was  mainly  bolstered  because  current  accounts 
are  a  large  share  of  total  deposits  and  are 
generally  not  remunerated 
in  Estonia,  which 
contributes to quite large spreads between interest 
income  and  interest  expenses.  The  dominance  of 
floating-rate loans, together with the still resilient 
quality  of  the  loan  portfolio  and  a  relatively  high 
cost-efficiency  have  also  contributed 
to  a 
significant increase in banks' profitability.  

Banks’  balance  sheets  show  improved  asset 
quality.  With  an  aggregate  non-performing  loan 
(NPL) ratio of 1.2% in Q3-2024, which is below the 
EU  average  of  1.9%,  credit  quality  has  improved 
significantly  over  the  past  years.  The  level  of 
problem  loans  remains  good  taking  into  account 
the extent of the decline in the economy. Although 
problem loans have been growing slowly since the 
start  of  2023  as  a  share  of  the  bank  portfolios, 
that  share  remains  small  compared  to  what  was 
seen  in  earlier  episodes  or  in  other  EA  countries. 
The  biggest  deterioration  in  quality  has  been  in 
consumer  loans,  mostly  at  smaller  banks.  The 
quality of the corporate loan portfolio is generally 
good.  Companies  in  real  estate  and  construction 
account for a large part of the loan portfolio of the 
Estonian  banking  sector,  but  the  share  of  those 
loans  that  are  overdue  has  remained  small 
throughout the recession. With 31.7% in Q3-2024, 
banks’  aggregate  coverage  ratio  of  NPLs  by  the 
provisions  made  in  Estonia  remains  short  of  the 
EU  average  by  almost  10  percentage  points.  Yet, 
the  statistics  from  the  European  Central  Bank 
show  that  the  ratio  of  restructured,  or  forborne, 
loans  to  NPLs  in  Estonia  has  been  one  of  the 
highest  in  the  EA  for  the  past  couple  of  years, 
which  may  indicate  that  the  banks  operating  in 
Estonia  handle 
difficulties  more 
payment 
proactively  and  before  the  loans  become  non-
performing.  

Funding  risk  remains  low  in  general  and 
liquidity  ratios  remain  at  a  good  level.  The 
banks  get  a  lot  of  their  funding  from  local 

depositors, but those deposits are still not enough 
to finance all of the lending activity of the banks: 
the  loan-to-deposit  ratio  was  101%  in  Q3-2024, 
comparable  to  the  EU  average  of  106.7%. 
Alternatives to local deposits are intragroup loans 
from  foreign  parent  banks,  deposits  from  other 
countries  including  those  taken  through  deposit 
platforms,  and  covered  bonds.  Over  2024,  the 
liquidity coverage ratio increased to 203.6% in Q3-
2024, as demand deposits were partially replaced 
by term deposits. As a result, banks’ funding costs 
also  rised,  especially  for  smaller  banks,  as  these 
have lower shares of demand deposits. 

Resilience of the non-bank financial 
intermediaries 

total 

Estonian  insurers  have  a  relatively  strong 
exposure  towards  the  banking  sector.  At  the 
end  of  2020  on  average  approximately  42%  of 
insurers’ 
investment  was  concentrated 
towards  banks,  according  to  EIOPA.  Moreover,  the 
bank  exposure  was  predominantly  situated  with 
cross-border  banks  (65%)  and  in  bank  bonds 
(mainly  covered  bonds).  Estonian  insurers  hold 
more  liquid  assets,  above  the  EA  median  (57%). 
Solvency is below the EU average, but significantly 
above regulatory limits. 

Sources of business funding and the 
role of banks 

Firms  in  Estonia  rely  less  than  the  EU 
average  on  funding  from  capital  markets. 
More  specifically,  the  market-funding  ratio  (83)  as 
of  end-2023  was  only  15.8%,  compared  with  an 
EU  average  of  49.6%.  At  the  end  of  2023,  bank 
finance  through  loans  accounted  for  25%  of  all 
funding 
for  Estonian  non-financial 
corporations  (NFCs),  whereas  listed  shares  and 
bonds  accounted  for  only  2.3%  of  funding.  The 
equivalent  figures  for  the  EU  average  are  27.2% 
for bank funding and 23.8% for listed shares and 
bonds. The small share of listed shares and bonds 
in the capital structure of firms is compensated for 

sources 

(83)  i.e. the volume of corporate bonds and listed shares of NFCs 
relative to the volume of those two and bank loans to NFCs. 

47 

 
 
investments  or  taking 

Although the rate of growth in borrowing by 
Estonian  companies  and  households  slowed 
down in 2023, it is still one of the highest in 
the  euro  area.  Companies’  interest  in  increasing 
loans  has  been 
their 
hampered  by  falling  profits  and  a  large  part  of 
production  capacity  in  the  economy  remaining 
underutilised amidst unusually high interest rates. 
Over the course of 2024, credit growth recovered, 
as  lending  standards  eased  on  the  back  of 
expectations  of  monetary  policy  easing.  However, 
credit  growth  generally  remains  modest,  with  the 
exception  of  the  real  estate  and  construction 
sectors, which have again become the sectors with 
the fastest growth in borrowing. For NFCs, annual 
credit  growth  stabilised  over  2024  reaching  6.5% 
in November 2024. At the end of November 2024, 
bank  credit  accounted  for  26.6%  of  the  total 
corporate  debt  portfolio  of  Estonian 
firms. 
Households  have  continued  to  borrow  quite 
actively  despite  the  recession,  as  unemployment 
has remained moderate while nominal wages have 
grown.  For  households,  the  annual  rate  of  credit 
growth  for  adjusted  loans  gradually  edged  up 
from  6.3%  in  mid-2023  to  7.5%  in  November 
2024.  The  yearly  growth  in  the  stock  of  housing 
loans  has  accelerated  gradually  and  reached  7% 
by  the  end  of  September 2024.  As  debt liabilities 
increased  at  a  similar  rate  to  disposable  income, 
the debt burden of households did not change over 
2024. 

Graph A5.4: Composition of NFC funding as % of GDP 

The sum of NFC liabilities only reflects the total for the NFC 
liabilities considered. Reference period 2023. 
Source: Eurostat and FISMA E2 calculations. 

by  the  high  share  of  unlisted  shares  in  Estonia, 
which  is  60%  vs  an  EU  average  of  24.5%.  At 
214%,  NFC  funding  as  a  share  of  Estonian  GDP 
more  or  less  corresponds  to  the  EU  average  of 
230.3% of GDP (see Graph A.1).  

Estonia  has  a  large  share  of  investment 
funded 
internally.  The  primary  and  most 
significant source of funds for companies is equity, 
or  the  internal  funds  from  within  that  company. 
These  internal  funds  are  primarily  current  cash 
flows  and  financial  buffers  that  were  built  up  by 
in  previous  years.  This 
the  country’s  firms 
favouring  of  internal  funding  is  partly  because  of 
the  Estonian  income  tax  system,  under  which 
profits  are  not  taxed  until  they  are  paid  out  as 
dividends.  It  is  also  partly  because  Estonian 
companies  are  generally  small  or  medium-sized, 
and external funding is more expensive for smaller 
companies 
large  companies. 
According to the 2024 EIB Investment Survey (84), 
74%  of  Estonian  firms’  investment  needs  are 
covered by internal funding, compared with an EU 
average of 66%. Moreover, the country has a high 
share of finance-constrained firms (16% vs an EU 
average of 6.9%).  

is  for 

than 

it 

that 

in  2024  believed 

At the same time, 23% of all Estonian firms 
their 
surveyed 
investment  activities  over  the  last  three 
years  were  not  sufficient.  This  is  –  together 
with the other two Baltic countries (Lithuania and 
Latvia) – one of the highest levels of self-reported 
underinvestment  among  the  EU  (EU  average  of 
14%),  suggesting  that  there  is  a  financing  gap  in 
Estonia  relative  to  investment  demand,  especially 
for  SMEs.  Although  firms  have  no  major  problem 
accessing loans in Estonia, there has been a sharp 
increase  in  the  share  of  firms  in  the  country that 
are  dissatisfied  with  the  cost  of  finance  (up  from 
5% 
level  of 
dissatisfaction  among  Estonian  firms  is  higher 
than in the EU overall (14%).  The widespread use 
of  loan  contracts  with  floating  interest  rates 
means  that  the  recent  rise  in  interest  rates  has 
almost entirely passed through into the loan costs 
of  Estonian  companies,  which  has  put  Estonian 
companies  in  a  more  difficult  position  than  their 
foreign  competitors  because  the  interest  rates  on 
loans are higher in Estonia. 

to  26%  now).  The 

in  2022 

(84)  EIB Investment Survey 2024 - Estonia. 

48 

050100150200250EEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
  
opportunities.  Although  Nasdaq’s  Baltic  First 
North Market offers a trading facility with reduced 
reporting requirements, targeting primarily smaller 
cap  issuances,  SMEs  and  start-ups  seeking  to  list 
on  Baltic  First  North  face  a  significant  challenge 
due  to  the  mandatory  audit  of  their  financial 
statements  every  six  months.  Moreover,  Estonia 
cannot  take  advantage  of  this  SME  market 
because  there  are  no  established  SME  growth 
markets in Estonia, nor in the other Baltic states.  

Graph A5.5: Composition of household financial assest 
per capita and as % of GDP 

Capital markets and the participation 
of retail investors 

reforms,  which  enabled  savers 

The  market  capitalisation  of  Estonia’s  stock 
market expressed as a percentage of GDP is 
among the lowest in the EU. The equity market 
is  extremely  small  in  terms  of  capitalisation 
(equivalent to 12.2% of GDP vs an EU average of 
69.3%  as  of  2024-Q3)  and  volumes  traded.  The 
capital  markets  in  Estonia  have  contracted  in 
recent  years,  partly  due  to  the  country's  2021 
pension 
to 
withdraw funds from pillar 2 pension schemes. In 
addition, the start of Russia's war of aggression on 
Ukraine has led to a decline in investor sentiment, 
resulting 
in  reduced  trading  and  holding  by 
Estonian  investors  of  international  securities.  The 
small size and low liquidity of the equity markets 
has prompted major index providers to continue to 
classify Estonia, and also Latvia and Lithuania, as 
‘frontier’  markets  despite  their  sound  macro-
economic and institutional frameworks.  

funds 

rather 

The  funding of  NFCs  via  the  capital  markets 
is  very  low  in  comparison  with  other  EU 
countries.  The  market-funding  ratio  stood  at 
15.8% at the end of 2023, vs 49.6% for the EU on 
average (85). Local businesses tend to rely on bank 
intermediation  and  own 
than 
attracting  investments  through  stock  and  bond 
issues  or  from  alternative  sources.  As  there  is  a 
relatively large share of foreign-owned companies 
in Estonia, some companies can borrow from their 
parent  companies.  The  small  size  of  the  local 
market  also  leads  large  companies  to  borrow 
abroad  more  often  and  to  issue  bonds  in  foreign 
markets.  Furthermore,  the  level  of  borrowing  by 
the  Estonian  general  government  is  low,  and  so 
few sovereign bonds are issued. This all results in: 
(i)  few  local  investment  opportunities;  (ii)  low 
interest from institutional and retail investors; and 
thus  (iii)  few  local  opportunities  to  raise  share 
capital. The lack of market activity by institutional 
investors  further  weakens  demand  for  corporate 
stocks and bonds.   

In  addition,  most  companies  (over  95%)  in 
Estonia  are  SMEs,  which  find  it  difficult  to 
gain access to the capital markets and their 

(85)  CMU Dashboard indicators 

49 

The sum of household assets only reflects the total for the 
household assets considered. Reference period 2023. 
Source: Eurostat and FISMA E2 calculations. 

Estonian  households’  financial  assets  have 
almost  no  exposure  to  bonds,  listed  shares, 
pension funds, or insurance funds. The saving 
rate  of  Estonian  households  is  relatively  low  and 
they  hold  relatively  few  financial  assets. 
In 
particular,  they  hold  very  little  in  investment  and 
pension  products.  Since 
the  country’s  2021 
pension reforms, households’ financial assets held 
in pension and insurance funds has fallen from the 
equivalent  of  21%  of  GDP  in  2020  to  perhaps 
1.4%  of  GDP  in  2023  (vs.  58.3%  in  the  EU  on 
average  in  2023),  according  to  Eurostat  data 
(Graph A5.5). Instead, households’ financial assets 
held  in  investment  funds  has  increased  over  the 
last couple of years to 16% of GDP in 2023, (still 
below the EU average of 21% of GDP in 2023). All 
in  all,  the  share  of  households’  total  financial 
assets  held  in  pension  funds,  insurance  funds  or 
directly  in  financial  investment  instruments  was 
equivalent  to  barely  17%  in  2023,  substantially 
short of the EU average of 79%. Instead, the most 
investment instrument most preferred by Estonian 
households  is  private  equity  (unlisted  shares), 
followed  by  bank  deposits.  The  government 
introduced an investment account system in 2011, 

0501001502002500102030405060708090EEEUEEEUper capita (000 EUR) (lhs)% of GDP GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
 
   
but this has achieved only moderate success. One 
reason  for  this  is  that  certain  popular  investment 
vehicles,  such  as  equity  crowdfunding,  have  been 
excluded  from  the  benefits  of  this  system, 
including the ability to defer income tax. 

for 

the 

state 

Recent  policy  initiatives  aim  to  promote  the 
degree  of  retail  participation  in  Estonian 
financial  markets.  In  September  2024,  the 
Estonian 
first 
issued, 
time, government  bonds  to  retail  investors.  These 
government  bonds  offer  small  investors  a  fixed 
interest  rate  and  the  opportunity  to  trade  those 
bonds  on  the  Tallinn  Stock  Exchange.  The  offer 
was 
four 
times. Encouraging 
the  build-up  of  universal 
funded  supplementary  pension  schemes  would 
positively  contribute  to  (i)  the  sustainability  and 
adequacy  of  pension  benefits;  (ii)  investment  in 
equity;  (iii)  access  to  finance;  (iv)  growth;  and  (v) 
innovation.  

oversubscribed 

by  more 

than 

The role of domestic institutional 
investors 

Estonia’s institutional investor base remains 
very  small.  Total  assets  under  the  management 
of  domestically  based  pension  funds,  insurance 
corporations  and  investment  funds  at  the  end  of 
2022  were  equivalent  to  22.4%  of  Estonian  GDP, 
one  of  the  lowest  levels  in  the  EU  (where  the 
average is equivalent to more than 100% of GDP). 
Domestic  institutional  investors  allocate  only  a 
very  small  portion  of  their  portfolio  to  domestic 
financial assets.   

and 

have 

investment 

instruments 

Estonian insurers favour secure fixed-income 
investment 
a 
relatively  large  exposure  to  the  banking 
sector.  The 
instruments  most 
insurance  companies  are  fixed-
preferred  by 
income  securities  (about  70%),  mostly  comprised 
of  corporate  bonds  (e.g.  of  banks)  and  (foreign) 
government bonds. Estonian insurers hold another 
investment  funds  and  equity.   The 
15% 
European  Insurance  and  Occupational  Pensions 
Authority 
average 
approximately  42%  of  Estonian  insurers’  total 
investment  was  concentrated  in  banks  at the  end 
of 2020. These investments were predominantly in 
the  equity  of  cross-border  banks  (65%)  and  in 
bank  bonds  (mainly  covered  bonds).  The  large 

calculated 

that 

on 

in 

majority of the insurance sector’s investments are 
made abroad.  

the  Estonian 

Pension  funds  have  contributed  to  the 
development  of 
capital 
investment 
markets,  but  their  domestic 
remains low. Thanks to the Investment Funds Act 
of 2016, pension funds in the country  were given 
more  opportunities  to  invest  in  Estonia.  However, 
only  about  11%  of  pension-fund  assets  are  now 
held  in  Estonian  assets.  One  of  the  challenges  of 
developing  the  Estonian  capital  markets  would 
therefore  be  to  incentivise  the  pension  funds  to 
invest  more  domestically  by  creating  the  right 
capital markets eco-system. 

The  participation  of  domestic  institutional 
investors  in  providing  funding  for  start-ups 
and  venture-capital  investors  is  increasing. 
The  three  Baltic  states  (Estonia,  Latvia  and 
Lithuania)  and  the  European  Investment  Fund 
have  created  the  Baltic  Investment  Funds,  a  joint 
‘fund  of  funds’  investing  in  private  equity  and 
venture  capital  in  the  region.  This  has  injected 
significant  momentum  into  the  Estonian  private-
equity  market.  This  initiative  has  encouraged 
pension funds and other private investors to enter 
the  market,  investing  in  domestic  private-equity 
funds. 

The depth of venture and growth 
capital  

Even though its venture-capital and private-
equity  markets  are  very  young,  Estonia  is 
one  of  the  leading  private-equity/venture-
capital ecosystems in the EU. According to the 
CMU  Dashboard,  Estonia  leads  Europe  in  annual 
venture-capital  investments  relative  to  GDP,  with 
new  venture-capital  investments  equivalent  to 
0.44%  in  2022,  and  0.15%  in  2023  (vs.  an  EU 
average  of  0.08%  and  0.05%  respectively). 
Equally,  the  country  leads  in  terms  of  annual 
private-equity 
to  GDP 
(equivalent  to  1.3%  of  GDP  in  2022  vs  and  EU 
average  of  0.6%).  Finally,  Estonia  also  dominates 
in terms of capital raised through IPOs, which was 
equivalent to  1.5%  of  the  country’s GDP in  2023, 
vs an EU average of 0.1%. In the past eight years, 
listed companies in Estonia have raised more than 
EUR  1.2  bn  through  public  share  offerings. 
Moreover,  crowdfunding  and  peer-to-peer  (P2P) 

investments 

relative 

50 

 
companies, the SmartCap Green Fund set  up with 
is  now  providing  anchor 
the  EU  money 
investments  in  two  specialist  green-tech  venture-
capital  funds  and  extending  its  direct  investment 
focus to take in companies ready to scale up. The 
Green  Fund  was  set  up  in  2022  by  state-owned 
fund-management  company  SmartCap,  whose 
main role is to act as a fund of funds, using public 
money  to  attract  in  private  investment.  Estonia 
also  uses  European  Investment  Bank  finance  and 
EU cohesion policy funds to move faster towards a 
carbon-neutral and more digital society. 

Financial literacy  

Financial  literacy  in  Estonia  is  above  the  EU 
average.  According  to  a  2023  Eurobarometer 
survey  (87),  Estonians  exhibit  a  higher  level  of 
financial literacy than the EU average. Specifically, 
23%  of  Estonians  have  a  high  level  of  financial 
literacy,  61%  a  medium  level,  and  16%  a  low 
level,  outperforming  the  EU  averages  of  18% 
(high),  64%  (medium),  and  18%  (low).  Financial 
literacy  is  crucial  for  promoting  retail-investor 
participation  in  capital  markets  but  also  for 
familiarising  SMEs  with  alternatives  to  bank 
financing. 

lending  platforms  have  grown  rapidly  to  offer 
alternative debt-based funding. Nevertheless, gaps 
have been identified in both: (i) the later financing 
stages for companies, where capital requirements 
are  higher;  and  (ii)  the  very  early  stages,  where 
risk  is  too  high  for  some  investors.  Nevertheless, 
early-stage  entrepreneurial  activity  in  Estonia  is 
significantly  higher  than  the  EU  average.  The 
country  also  has  a  high  number  of  unicorn 
companies,  relative  to  its  size  (see  annex  on 
Innovation to business). 

Estonia  has  high  ambitions  to  become  a 
major  European  hub  for  the  finance  sector 
and for those developing pioneering financial 
solutions.  In  this  regard, Finantsinspektsioon, the 
country’s financial supervisory authority has taken 
the initiative to create an innovation hub. In 2023, 
Finantsinspektsioon  also  launched  a  regulatory 
sandbox  to  help  FinTech  companies  adapt  their 
technology  to  local  regulatory  requirements.  The 
government  is  also  in  the  midst  of  creating  a 
FinTech strategy, as the country does not have one 
yet,  unlike  Latvia  and  Lithuania. Furthermore, 
Estonia’s  high  ambitions  in  the  e-finance  domain 
are  underscored  by  new  legislation  introduced  by 
the  Ministry  of  Finance  that  will  set  operational 
and  supervisory  requirements  for  the  FinTech 
includes  provisions  to  cover 
sector.  The  bill 
crowdfunding  platforms  and  platforms 
that 
facilitate  investment  in  crypto  assets.  Moreover, 
the  bill  will  require  all  virtual  currency-service 
providers licensed by the FSA to apply for activity 
licences.  

Financing the green transition  

Sustainable  finance  in  Estonia  is  still  in  the 
initial  stages  of  development.  The  average 
issuance in the country over 2021-2023 of bonds 
with  environmental,  social,  and  governance 
objectives  as  a  share  of  Estonia’s  total  bond 
issuance was one of the lowest of all EU Member 
States 
leveraging 
EUR 100 mn  from  the  NextGenerationEU  recovery 
fund 
for  green 
technology  start-ups  and  scale-ups.  After  initially 
early-stage 
investment 
offering 

to  bolster  venture  capital 

(86).  However,  Estonia 

direct 

to 

is 

(86)  Source: AFME CMU Key Performance Indicators, Seventh 

(87)  Source: Monitoring the level of financial literacy in the EU - 

Edition, November 2024. 

July 2023 - Eurobarometer survey. 

51 

 
 
 
 
 
Table A5.1:  Financial indicators 

Source: ECB, ESTAT, EIOPA, DG FISMA CMU dashboard, AMECO. 

52 

20172018201920202021202220232024-Q3EUTotal assets of MFIs (% of GDP)104.799.1101.1123.4121.4104.7109.3108.7248.4Common Equity Tier 1 ratio30.030.325.727.023.320.920.919.616.6Total capital adequacy ratio30.631.026.327.824.322.022.221.220.1Overall NPL ratio (% of all loans)1.91.31.61.61.10.81.11.21.9NPL (% loans to NFC-Non financial corporations)3.22.22.51.91.41.21.01.33.5NPL (% loans to HH-Households)1.61.31.71.60.90.61.01.12.2NPL-Non performing loans coverage ratio25.425.034.430.930.632.934.131.742.1Return on equity19.29.88.37.49.510.918.517.710.0Loans to NFCs (% of GDP)28.827.725.627.426.325.325.725.630.0Loans to HHs (% of GDP)33.632.932.535.032.931.532.032.644.5NFC credit annual % growth5.84.72.73.46.811.75.84.20.8HH credit annual % growth7.16.66.45.17.911.16.47.00.7Stock market capitalisation (% of GDP)10.89.99.811.117.112.813.112.269.3Initial public offerings (% of GDP)0.210.840.000.020.840.231.45-0.05Market funding ratio23.124.524.122.322.520.515.8-49.6Private equity (% of GDP)0.040.672.411.271.601.260.28-0.41Venture capital (% of GDP)0.020.120.090.100.470.420.14-0.05Financial literacy (composite)------46.5-45.5Bonds (as % of HH financial assets)0.20.30.30.30.30.30.4-2.7Listed shares (as % of HH financial assets)1.51.41.62.03.42.83.2-4.8Investment funds (as % of HH financial assets)1.41.21.31.411.910.412.3-10.0Insurance/pension funds (as % of HH financial assets)14.514.315.415.41.51.11.1-27.8Total assets of all insurers (% of GDP)7.37.27.07.37.25.96.36.654.8Pension funds assets (% of GDP)--16.719.0----23.41-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States.1 Annualised data.Credit growth and pension funds EU data refers to the EA average.Banking sectorNon-banks sector 
 
 
 
 
 
   
 
ANNEX 6: EFFECTIVE INSTITUTIONAL FRAMEWORK 

in 

regulatory 

regional  and 

Estonia’s  institutional  framework  influences 
its  competitiveness.  While  trust  in  the  national 
government  and  justice  is  above  the  EU  average, 
trust 
local  authorities  has 
decreased  recently.  Overall,  Estonia  has  a  well-
a 
established 
productive  civil  service.  Estonia  has  made 
remarkable  progress  in  digital  public  services, 
surpassing  EU  Digital  Decade  targets  for  both 
citizens  and  businesses (88)  The  country 
is 
perceived as a good place for doing business, with 
effective  justice  and  relatively  low  administrative 
burden.  

framework 

and 

Graph A6.1: Trust in justice, regional / local authorities 
and in government 

(1) EU27 from 2019; EU28 before 
Source: Standard Eurobarometer surveys 

Public perceptions 

administration (EU: 23%) (89). The perceived quality 
of  government  has  improved  and  stands  above 
the  EU  average  (90).  In  2022  the  government 
launched  a  pilot  project  for  regional  development 
agreements  with  wider  territorial  scope.  These 
agreements  bring  together  central,  regional  and 
local  administrations  and  non-governmental 
organisations  to  agree  on  the  design  of  sectoral 
policies 
encourage 
entrepreneurship and competitiveness. 

and  measures 

to 

Quality of legislation and regulatory 
simplification 

in  developing  and 
Overall  performance 
evaluating 
is  above  the  EU 
legislation 
average. It has also remained broadly stable over 
2021-2024.  Performance  in  regulatory  tools  like 
ex  ante  impact  assessments  and  stakeholder 
engagement 
for  ex  post 
evaluation  of  legislation.  It  is  also  stronger  for 
primary  laws  than  for  subordinate  regulations. 
There  is  scope  for  strengthening  oversight  and 
quality controls of regulatory impact assessments 
and  ex  post  evaluation  of  legislation  for  both 
primary and secondary legislation (Graph A6.2). 

is  stronger 

than 

which 

contained 

In  2023,  the  government  prepared  an  open 
government  roadmap (91)  to  improve  public 
30 
consultations 
recommendations  for  state  institutions  and  local 
governments. It also drew up a roadmap on public 
engagement  in  EU  affairs (92).  One  of  the  new 
requirements  is  that  all  ministries  will  prepare  an 
annual  public  engagement  plan  and  make  this 
available to stakeholders. 

Trust  in  national  government  and  justice  is 
above the EU-27 average (Graph A6.1). Trust in 
regional  and 
local  authorities  has  decreased 
recently.  When  asked  about  aspects  that  can 
increase  trust  in  Estonia’s  public  administration, 
53%  of  citizens  pointed  to  more  transparency 
about decisions and the use of public money (EU: 
44%),  46%  to  less  bureaucracy  (EU:  52%)  and 
in  the  public 
34%  to  more  moral 

integrity 

Estonia  has  mechanisms  for  simplifying 
regulation  and 
identifying  administrative 
burdens.  However,  these  typically  apply  to  some 
(and  not  all)  primary  laws.  Additional  practices, 
such  as  conducting  in  depth  reviews  of  specific 
regulatory  areas  and  public  stocktakes  of 

(89) Understanding Europeans’ views on reform needs - April 

2023 - - Eurobarometer survey 

(88)  The Digital Decade Policy Programme sets out a pathway for 

(90) Inforegio – European Quality of Government Index 

the EU’s digital transformation, including concrete 
commitments from Member States to jointly achieve 
objectives (e.g. competitiveness, resilience, sovereignty) 
and digital targets by 2030. 

(91)  Open government roadmap (2023).  

(92)  Public engagement roadmap in EU matters: sample 

documents. 

53 

00.10.20.30.40.50.60.70.80.9AutumnSpringAutumnSpringAutumnSpringAutumnSpringAutumnSpringAutumnSummerWinterSummerWinterSpringAutumnSpringAutumn2014201520162017201820192020202220232024Justice,  legal system EU27Justice,  legal system EERegional or local public authorities EU27Regional or local public authorities EEGovernment  EU27Government  EE 
 
   
 
 
 
 
Table A6.1:  Estonia. Selected indicators on administrative burden reduction and simplification 

(1) This table presents a subset of iREG indicators focusing on regulatory costs. The indicators refer to primary legislation. 
Source: OECD (2025), Regulatory Policy Outlook 2025 [https://doi.org/10.1787/56b60e39-en] and Better Regulation across the 
European Union 2025 (forthcoming). 

procurement volume and 5% of total procurement 
costs to innovation procurement (96). 

Graph A6.2: Indicators of Regulatory Policy and 
Governance (iREG) 

could 

further 

enhance 

in  Estonia.  Since  2020, 

legislation 
such 
mechanisms  (table  A6.1).  Reducing  administrative 
burden  is  closely  linked  to  advancing  digital 
the 
government 
government  has  launched  a  set  of  measures  to 
reduce  reporting  burden  for  companies  by  means 
of data-sharing between agencies. The first phase 
was  aimed  at  sharing  data  from  reporting  on 
wages,  salaries  and  labour  costs.  The  next  phase 
to  economic 
will 
transactions, 
the 
environment (93). 

relating 
accommodation 

focus  on  data 

and 

innovation 

Estonia  actively  promotes 
in 
policymaking (94). An innovation award funded by 
the  2021-2027  EU  cohesion  policy  encourages 
projects  that  contribute  to  economic  growth  and 
business  development  in  Estonia,  as  well  as 
innovation  procurement.  One  such  example  of 
innovation  procurement 
is  a  public  sector 
experimentation  guide  created  for  public  sector 
entities (95).  Moreover,  Estonia  has  committed  in 
the  future  to  allocating  2%  of  the  total  public 

(93) Data-based reporting | Statistikaamet 

(94) Public Sector Innovation Awards | Government Office 

Source: OECD (2025), Regulatory Policy Outlook 2025 and 
Better Regulation across the European Union 2025 
(forthcoming). 

(95) Innotiim esitleb avaliku sektori katsetamise juhendit | 

(96) Riigihangetes hakatakse hindama innovatsiooni | Majandus- 

Riigikantselei 

ja Kommunikatsiooniministeerium 

54 

0.00.51.01.52.02.53.03.54.0Primary lawsSubordinateregulationsPrimary lawsSubordinateregulationsPrimary lawsSubordinateregulationsEE_StakeholderengagementEE_Regulatory ImpactAssessmentEE_Ex-post evaluation oflegislationMethodologySystematic adoptionTransparencyOversight and quality control2021EU-27Ex ante impact assessment of legislationEx post evaluation of legislationIdentify and assess the impacts of the baseline or ‘do nothing’ option.Is required to consider the consistency of regulations and address areas of duplication.Identify and assess the impacts of alternative non-regulatory options.Is required to contain an assessment of administrative burdens.Quantify administrative burdens of new regulations.Is required to contain an assessment of substantive compliance costs.Quantify substantial costs of compliance of new regulations.Compares the impact of the existing regulation to alternative options.Assess macroeconomic costs of new regulations. Periodic ex post evaluation of existing regulations is mandatory.Assess the level of compliance.Government uses stock-flow linkage rules when introducing new regulations (e.g., one-in one-out).Identify and assess potential enforcement mechanisms.A standing body has published an in-depth review of specific regulatory areas in the last 3 years.In the last 5 years, public stocktakes have invited businesses and citizens to assess the effectiveness, efficiency, and burdens of legislation.When developing new legislation, regulators are required to …Yes /  For all primary laws For major primary laws For some primary lawsNo / Never 
 
     
 
 
 
 
   
 
Table A6.2:  Key Digital Decade targets monitored through the Digital Economy and Society Index 

Source: State of the Digital Decade report 2024 

The  OECD  product  market 
regulation 
licensing 
indicators  show  that  Estonia’s 
system is slightly more burdensome than the 
EU-27  average  and  could  be  further  aligned 
with  best  practices.  For  example,  although  the 
government  keeps  an  up-to-date  online  inventory 
of  all  permits  and  licences  required/issued  to 
businesses  by  public  bodies, 
is  no 
requirement  for  the  government  to  regularly 
assess whether such licences and permits are still 
required  or  should  be  withdrawn 
(see  also 
Annex 4).  Moreover,  the  B-READY  indicators (97) 
show considerable potential for cutting the time it 
takes 
to  obtain  building  and  environmental 
permits.  Unlike  19  other  EU  Member  States, 
Estonia  does  not  have  a  dedicated  institution  for 
promoting pro-productivity policies. 

there 

Social Dialogue 

The 
in 
involvement  of  social  partners 
reforms and policies in Estonia has improved 
in recent years but remains limited. The main 
challenges  are  related  to  the  relatively 
low 
collective  bargaining  coverage  rate  (only  19%  in 
2021)  as  well  as  the  extremely  low  density  of 
trade  union  and 
employers’  organisations 
(respectively  6%  and  25%  in  2019(98)).  The  last 
measure  concerning  the  social  dialogue  was 
implemented in November 2021, when changes in 

(97)  World Bank. 2024. Business Ready 2024. Washington, DC: 

World Bank. doi:10.1596/978-1-4648-2021-2. 

(98)  OECD/AIAS database on Institutional Characteristics of Trade 
Unions, Wage Setting, State Intervention and Social Pacts 
(ICTWSS) 

to 

three 

extend 

criteria 

sectoral 

the  Collective  Agreements  Act  entered  into  force, 
collective 
establishing 
agreements.  Prior  to  the  legislative  change,  there 
were  altogether 
(extended) 
collective agreements in two sectors: one in health 
care  and  two  in  transport  (one  covering  freight 
transport, the other covering passenger transport). 
Strengthening social dialogue remains important in 
order  to  increase  collective  bargaining  coverage. 
Technical Assistance allocates nearly EUR 1 million 
to trade union and employers’ main organisations. 
In addition, ESF+ currently supports social dialogue 
with around EUR 400 000.(99) 

Digital public services 

Estonia is among the EU’s top performers in 
terms of digital public services (Table  A4.2)  It 
is  using  AI  to  improve  quality  of  digital  public 
services (100). Estonia has excelled also in terms of 
access  to  e-health  records.  It  achieved  a  score  of 
97.5 in 2023, compared to an EU average of 79.1. 
Citizens can access all relevant health data online 
the  national  e-health  portal  which 
through 
from  public  and  private 
integrates 
and 
accessibility 
providers. 
interoperability  are  hindered  slightly  by 
the 
absence of an e-health mobile application. 

However, 

records 

(99)  For  an  analysis  of  the  involvement  of  Estonia’s  social 
partners at national level in the European Semester and the 
Recovery  and  Resilience  Facility,  see  Eurofound  (2025), 
National-level  social  governance  of  the  European  Semester 
and the Recovery and Resilience Facility. 

(100) https://www.ria.ee/en/state-information-system/machine-

learning-and-language-technology-
solutions/burokratt#implementation 

55 

Digital Decadetarget by 20302022202320242024EU-27Digitalisation of public services192949679100Score (0 to 100)20212022202320232030298999985100Score (0 to 100)202120222023202320303na899879100Score (0 to 100)20212022202320232030Digital public services for businessesAccess to e-health recordsEstoniaEU-27Digital public services for citizens 
 
 
 
  
 
Estonia 
is  advancing  towards  seamless, 
automated exchange of authentic documents 
and  data  across  the  EU.  It  has  developed  the 
necessary  infrastructure  and  is  beginning  the 
process  of  connecting  up  the  first  authorities  to 
the Once-Only Technical System (101). 

The  proportion  of  e-government  users 
reached  94.7%  in  2023  (EU  75%),  while  the 
proportion  of  Estonians  using  eID  reached  more 
than double the EU average (EE 89.4%; EU 41.1%) 
(102).  However,  Estonia  has  not  yet  set  up  and 
notified  eID  schemes  for  legal  persons  under  the 
eIDAS  Regulation(103).  This  means  that  Estonian 
businesses  cannot  authenticate  themselves  to 
access  public  services  provided  by  other  Member 
States,  including  those  enabled  by  the  Once-Only 
Technical System(104), part of the EU Single Digital 
Gateway.  

Graph A6.3: Participation rate of 25-64 year olds in 
adult learning (%) by occupation 

Source: European Commission, based on the Labour Force 
Survey 

(101) European Commission, Once-Only Technical System 

Acceleratormeter. 

Civil service  

A  high  level  of  skills  among  Estonian  civil 
servants  has  enabled  a  productive  civil 
service. Estonia has a very high proportion of civil 
servants  with  higher  education  qualifications  (EE 
72.2%;  EU  54%(105)).  The  proportion  of  civil 
servants  pursuing  continuous  training  is  also  far 
above  the  EU  average  (Graph  A6.3).  Although  the 
average  age  of  civil  servants  in  Estonia  is  among 
the  lowest  in  the  EU,  the  country  has  identified 
several  agencies  where  ageing  may  become  a 
concern.  Workforce  ageing  is  occurring  faster  at 
local  government  level.  In  2023,  staff  turnover 
decreased to 14.2%, compared to 16.4% in 2022. 
A major reason why civil servants are leaving their 
jobs  is  an  increase  in  the  public  administration’s 
workload  without  a  corresponding  increase  in 
resources.  Civil  service  restructuring  is  another 
reason (106).  In  2023,  legal  amendments  reduced 
salary  growth  for  senior  civil  servants  up  until  1 
April 2028. 

Integrity 

A lower percentage of companies than the EU 
average consider corruption to be a problem. 
In  Estonia,  only  36%  of  companies  consider  that 
corruption is widespread (EU average 64%), while 
only  10%  consider  that  corruption  is  a  problem 
when  doing  business  (EU  average  36%)  (107). 
Moreover,  52%  of  companies  believe  that  people 
and businesses caught for bribing a senior official 
are appropriately punished (EU average 31%) (108). 
Some  high-level  corruption  cases  are  ongoing, 
including  proceedings  against  a  former  minister. 
However,  there  are  no  ongoing  foreign  bribery 
cases. (109) Furthermore, only 7% of companies (EU 

(105) Eurostat. Employees by educational attainment level, sex, 

age. 

(106) Civil Service Yearbook 2023, MoF (2024). Available at: 
https://www.fin.ee/sites/default/files/documents/2024-
05/ATAR%202023.pdf (Accessed on 05/01/2025). 

(107) Flash Eurobarometer 543 on businesses’ attitudes towards 

(102) European Commission. Digital Decade 2024: Country reports 

corruption in the EU (2024). 

(103) European Commission, eIDAS Dashboard. 

(108) Ibid. 

(104) European Commission, The Once Only Principle System: A 

(109) See the 2024 country-specific chapter for Estonia of the 

breakthrough for the EU’s Digital Single Market 

Rule of Law Report, p. 10. 

56 

051015202530354045EEEU-27EEEU-27EEEU-27EEEU-272021202220232024Public administration and defence; compulsory social securityHigh-skilled occupationsMedium-skilled occupationsUnskilled occupationsArmed forcesTotal economy 
     
 
 
average 27%) think that corruption has prevented 
them  from  winning  a  public  tender  or  a  public 
procurement  contract  in  practice  in  the  last  three 
years  (110).  Healthcare,  the  local  government  and 
political  party  financing  as  well  as  obtaining 
residence  and  work  permits  are  considered  to  be 
at high-risk of corruption (111). 

Estonia  has  implemented  a  public  register 
for  lobbyists  and  discussions  were  initiated 
on  introducing  lobbying  rules  in  Parliament. 
As  with  most  Member  States,  Estonia  has 
implemented  rules  on  government.  Moreover, 
specific  guidelines  on 
‘revolving  doors’  are 
currently  being  developed  by  the  Public  Ethical 
Council  and  are  expected  in  2025.  In  addition, 
political  groups  started  discussions  on  possible 
guidelines  on  lobbying  also  for  Parliament,  which 
could  foster  transparency  in  corporate  lobbying. 
(112) 

Justice 

The  justice  system  is  performing  efficiently. 
The  length  of  court  proceedings  in  first  instance 
civil  and  commercial  cases  has  increased  (from 
158 days  in  2022  to  196  days  in  2023).  The 
length  of  court  proceedings  in  first  instance 
administrative cases has remained stable year-on-
year  (166  days  in  2022,  167  days  in  2023).  The 
number  of  pending  cases  is  among  the  lowest  in 
the  EU.  The  quality  of  the  justice  system  is 
considered  to  be  good  overall.  Estonia  is  among 
the  best  performing  Member  States  in  terms  of 
digitalisation  of 
judicial 
justice.  As 
independence, no systemic deficiencies have been 
reported. (113) 

regards 

(110) Flash Eurobarometer 543 on businesses’ attitudes towards 

corruption in the EU (2024). 

(111) See the 2024 country-specific chapter for Estonia of the 

Rule of Law Report, p. 14. 

(112) Ibid., p. 12. 

(113) For more detailed analysis see the upcoming 2025 EU 
Justice Scoreboard and the 2024 Rule of Law Report. 

57 

 
 
SUSTAINABILITY 
ANNEX 7: CLEAN INDUSTRY AND CLIMATE MITIGATION 

faces 

capacity 

significant 

Estonia 
challenges 
regarding  its  clean  industry  transition  and 
climate  mitigation,  specifically  in  transitioning 
away  from  oil  shale  and  increasing    its  net  zero 
technology  manufacturing 
(with 
commitments made to cease electricity production 
from oil shale by 2035 and to phase out oil shale 
in  energy  production  by  2040),  as  relevant  policy 
frameworks and incentive schemes remain limited. 
The  country  relies  heavily  on  imports  for  critical 
Its 
raw  materials,  posing  a  geopolitical  risk. 
greenhouse  gas  emissions  reduction  efforts  in 
transport  lag  behind  targets.  In  the  sustainable 
industry  domain,  Estonia's  circular  economy 
transition  is  hindered  by  low  recycling  rates  and 
underinvestment,  requiring  substantial  policy  and 
financial  commitments 
resource 
productivity  and  waste  management.  This  annex 
reviews  the  areas  in  need  of  urgent  attention  in 
the  areas  of  clean  industry  transition  and  climate 
mitigation 
looking  at  different 
dimensions. 

in  Estonia, 

improve 

to 

Strategic autonomy and technology 
for the green transition 

innovative  wind 

Estonia’s  manufacturing  capacity  across  all 
net  zero  technologies  remains  modest,  but  
there is potential for innovative technologies 
(114).  Estonia  hosts 
turbine 
companies such as Eleon, and focuses on research 
and  innovation  within  the  industry.  It  plans  to 
establish a large, cutting-edge manufacturing base 
and 
for  new-generation 
offshore wind technology solutions. Estonia is also 
home to advanced solutions in battery and storage 
technologies  and  electrolysers. 
In  hydrogen, 
Estonia  has  an  active  industrial  community,  and 
Estonian companies are involved in two Important 
Projects of Common European Interest (IPCEIs) on 
the hydrogen value chain (115). 

innovation  platform 

Currently,  Estonia  has  no  policy  framework 
aiming  at  scaling  up  its  net  zero  technology 

few 

the  development  of  green 

manufacturing  capacity.  A 
relevant 
incentive schemes are in place, targeting batteries 
and  storage  technologies.  Focusing  on  small  to 
medium-sized enterprises, Estonia provides grants 
for 
technologies, 
including  net  zero  technologies,  as  part  of  its 
recovery  and  resilience  plan.  In  addition,  the 
Estonian  clean tech association, representing over 
130  clean  tech  companies,  is  working  together 
with the Ministry of Climate on a roadmap for the 
clean technology sector (116). 

One  of  the  main  challenges  to  Estonia’s 
clean  transition  is  the  continued  use  of  oil 
shale, a particularly resource-intensive fossil 
fuel.  In  terms  of  resource  productivity,  measured 
as  gross  domestic  product  (GDP)  over  domestic 
material  consumption  (DMC),  Estonia  was  among 
the worst EU performers in 2023 (117). In domestic 
extraction  used,  which  is  a  significant  component 
within  the  domestic  material  consumption,  fossil 
fuels  represent  a  large  share  for  Estonia  (almost 
30%).  Despite  a  decrease  in  2023,  the  domestic 
extraction of fossil fuels remains above the  2020 
level at 8.1 tonnes per capita (7.4 tonnes in 2020). 
(118).  The  country  is  however  making  progress  in 
reducing  the  production  and  use  of  oil  shale  (119). 
The transition away from oil shale means that jobs 
and skills needs are shifting too; increasing green 
skills 
is 
particularly  important  for  Estonia  (see  Annex  12 
on Education and Skills). 

reskilling  and  upskilling 

through 

Transforming the car industry 

Faster  transition  to  electric  vehicles  would 
advance  decarbonisation  in  Estonia.  While 
car 
Estonia  does  not  have  a  domestic 
manufacturing  industry,  it  is  among  the  five 
countries with the highest motorisation rate in the 
EU,  with  630  cars  per  thousand  inhabitants  in 
2023. In terms of car age, Estonia has one of the 
oldest  car  fleets  in  Europe,  with  32.3%  of  cars 
being  older  than  20  years  (120).  For  new  cars 
purchased  in  2023,  Estonia  was  among  the 

(116) The Estonian Cleantech Association, 2024 

(114) European Commission: Directorate-General for Energy, The 
net-zero manufacturing industry landscape across the 
Member 2025, https://data.europa.eu/doi/10.2833/2181110. 

(115) European Commission 

(117) Eurostat 

(118) Statistics Estonia 

(119) Statistics Estonia, 2024 

(120) Eurostat 

58 

 
 
 
 
 
 
 
countries with the highest share of petrol-powered 
cars  (75.5%).  Only  6.3%  of  newly  purchased 
vehicles  in  2023  in  Estonia  were  fully  electric, 
which is slightly below both Baltic peers Latvia and 
Lithuania and well below the EU average of 14.5% 
(121). 

in  an  environmentally  friendly  manner (127).  In 
addition,  Estonia  is  in  a  position  to  become  an 
important player in magnet manufacturing. A plant 
for  the  production  of  permanent  rare  earth 
magnets, used for example in the manufacture of 
electric vehicles, is expected to start operations in 
2025 (128). 

Critical raw materials 

of 

for 

one 

critical 

largest 

Europe’s 

Estonia mines oil shale and peat but relies on 
imports for critical raw materials. The country 
ranks  136th  out  of  183  countries  in  the  Mining 
Contribution  Index (122).  However,  Estonia  is  home 
to 
phosphorite 
deposits (123).  A  recent  report  by  the  Geological 
Survey  of  Estonia  showcases  north  Estonia’s 
potential 
and 
recommends further  studies  (124).  In  terms  of 
import  dependencies  for  critical  raw  materials, 
Estonia  import  concentration  is  around  the  EU 
average  of  0.22,  which  indicates  a  moderate 
degree  of  import  dependency.  The  main  critical 
raw  materials  imported  to  Estonia  from  non-EU 
countries  in  2023  were  titanium  (Russia,  Saudi-
Arabia) and rare earth elements (Russia) (125). This 
indicates a particularly high degree of geopolitical 
risk. 

raw  materials 

Aside  from  domestic  primary  production, 
recycling  and  increased  use  of  secondary 
materials  can  help  reduce  dependency  on 
imports. Estonia performs well in the circular use 
of  materials.  In  recent  years  it  has  been  among 
the top five EU performers, with a circular material 
use  rate  of  21.4%  in  2022  compared  to  the  EU 
average of 11.5%(126). 

Estonia is taking a leading role in rare earth 
metal  separation.  Two  ongoing  studies  of  the 
University  of  Tartu  supported  by 
the  Just 
Transition  Fund  focus  on  the  extraction  of  rare 
earth metals from raw materials (e.g. natural ores) 

(121) European Environment Agency 

(122) Mining Contribution Index (MCI) 6th edition 

(123) The Geological Survey of Estonia, 2023; See also Annex 8. 

(124) The Geological Survey of Estonia, 2025 

(125) JRC RMIS Country Profile Estonia 

(126) Eurostat 

Climate mitigation 

Industry decarbonisation 

intensity  of  manufacturing 

Manufacturing  production  in  Estonia  has  a 
low  greenhouse  gas  emissions  intensity,  and 
only  accounts  for  a  minor  share  of  total 
emissions.  Around  8%  of  Estonia’s 
total 
greenhouse  gas  emissions  come  from  industry, 
among  the  lowest  share  in  the  EU (129).  With 
120 g CO2eq per euro of gross value added (GVA), 
the  emissions 
in 
Estonia  only  amounts  to  44%  of  the  EU  average 
(270 g)  and  is  the  fourth  lowest  in  the  EU. 
Between  2017  and  2022,  the  emissions  intensity 
of Estonia’s industry declined by 62%, significantly 
more  than  in  the  EU  overall  where  it  declined  by 
20%. Emissions related to industry processes and 
product use account for a relatively large share of 
emissions  from  manufacturing,  51%.  In  the  EU 
overall,  this  is  at  43%,  with  the  rest  related  to 
energy use. 

of 

intensity 

The  recent  decline  of  the  greenhouse  gas 
emissions 
Estonia’s 
manufacturing  in  both  categories  is  due  to 
cleaner energy sources and energy efficiency 
improvements.  Between  2017  and  2022,  both 
the  energy-  and  non-energy-related  emissions 
intensity  of  manufacturing  declined  by  around 

(127) Invest in Estonia, 2024 

(128) Invest in Estonia, 2023 

(129) In  2023.  Manufacturing  includes  all  divisions  of  the  “C” 
section  of  the  NACE  Rev.  2  statistical  classification  of 
economic  activities.  In  the  remainder  of  this  section,  unless 
indicated  otherwise,  data  on  manufacturing  refer  to  the 
divisions  of  the  NACE  section  C  excluding  division  C19 
(manufacture  of  coke  and  refined  petroleum  products),  and 
the  year  2022.  The  source  of  all  data  in  this  section  is 
Eurostat;  data  following  the  UNFCCC  Common  Reporting 
Framework (CRF) are from the European Environment Agency 
(EEA), republished by Eurostat. 

59 

 
 
 
60%, among the largest declines in the EU (130). In 
the  same  period,  the  share  of  electricity  and 
renewables  in  final  energy  consumption  of  the 
manufacturing  sector  increased  by  9  percentage 
points,  to  61%,  the  fifth  highest  in  the  EU;  the 
in  Estonia 
energy 
declined  by  28%,  from  1.4  GWh  to  1.0  GWh  per 
euro  of  GVA.  Estonian  energy-intensive  industries 
have  been  particularly  affected  by  high  energy 
prices, and in 2024 energy costs were reported as 
an  obstacle  to  investment  by  73%  of  Estonian 
companies (131). 

intensity  of  manufacturing 

Graph A7.1: GHG emissions intensity of manufacturing 
and energy-intensive sectors, 2022 

Source: Eurostat. 

Estonia’s energy-intensive industries (132) are 
not  large  greenhouse  gas  emitters.  They 
account  for  8%  of  Estonia’s  manufacturing  GVA 
(2022).  Except  for  paper  and  paper  products 

(130) For the GHG emissions intensity of GVA related to energy use 
and  industrial  processes  and  product  use  respectively,  GHG 
emissions  are  from  inventory  data  in  line  with  the  UNFCCC 
Common  Reporting  Format  (CRF),  notably  referring  to  the 
source sectors CRF1.A.2 –  fuel combustion in manufacturing 
industries  and  construction  and  CRF2  –  industrial  processes 
and  product  use.  The  CRF1.A.2  data  broadly  correspond  to 
the NACE C and E sectors, excluding C-19. GVA data (in the 
denominator  for  both  intensities)  are  aligned  with  this 
sectoral  coverage.  Therefore,  they  are  not  fully  consistent 
with the data referred to in other part of this section. 

(131) See  the  EIB  Investment  Survey  2024  Country  Overview: 
Estonia. For a detailed analysis of energy prices, see Annex 8 
on the affordable energy transition. 

(132) Notably,  the  manufacture  of  paper  and  paper  products 
(NACE  division  C17),  of  chemicals  and  chemical  products 
(C20),  “other”  non-metallic  mineral  products  (C23;  this 
division includes manufacturing activities related to a single 
substance of mineral origin, such as glass, ceramic products, 
tiles,  and  cement  and  plaster),  and  basic  metals  (C24).  To 
date,  these  industries  are  energy-intensive  –  i.e.  consuming 
much  energy  both  on  site  and/or  in  the  form  of  purchased 
electricity  –  and  greenhouse  gas  emissions  intensive,  in 
various combinations. 

60 

sector, which emits 1 kg of greenhouse gases per 
euro  of  GVA,  Estonia’s  energy-intensive  sectors 
have  very  low  emission  intensities  of  production, 
between  0.1  and  0.5 kg CO2eq/€,  well  below  EU 
levels as a whole. 

Estonia  has  started  putting  in  place  policies 
to  support  the  decarbonisation  of  the 
It  has  adopted  policies  to  deploy 
industry. 
renewables  such  as  offshore  wind  and  measures 
to  improve  energy  efficiency  and  support  the 
hydrogen  economy  as  part  of 
long-term 
its 
development strategy ‘Estonia 2035’.  

Reduction  of  emissions  in  the  effort  sharing 
sectors  

To  attain  its  2030  target  for  the  effort 
sharing  sectors,  Estonia  needs  to  swiftly 
specify  and 
implement  further  climate 
mitigation  policies (133).  GHG  emissions  from 
Estonia’s  effort  sharing  sectors  in  2023  are 
expected to have been 2.8% below those of 2005. 
By  2030,  current  policies  are  projected  to  reduce 
them by 13.5% relative to 2005 levels; additional 
policies  currently  considered  by  Estonia  are 
projected  to  achieve  reductions  of  a  further  3.9 
percentage  points.  This  results  in  a  sizeable 
shortfall against Estonia’s effort sharing target of 
24%,  of  6.6  percentage  points (134).  Swift  and 
steady  adoption  and  implementation  of  further 
climate mitigation  measures  will  be  critical.  While 
Estonia plans to use domestic flexibilities available 
under the Effort Sharing Regulation, this would not 
be sufficient to close the gap. 

Swift  action  on  decarbonising  transport 
in  Estonia. 
appears  particularly  exigent 

(133)The national greenhouse gas emission reduction target is 
set  out  in  Regulation  (EU)  2023/857  (the  Effort  Sharing 
Regulation),  to  align  the  action  in  the  sectors  concerned 
with the objective of reaching the EU-level economy-wide 
target  of  greenhouse  gas  reductions  of  at  least  55% 
relative  to  1990  levels.  The  target  applies  jointly  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). 

(134) The emissions from effort sharing sectors for 2023 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 final updated national 
energy and climate plan. 

00.511.522.533.54C-C19C17C20C23C24KG CO2eq / €EstoniaEU-27 
   
 
 
 
Between  2005  and  2023,  greenhouse  gas 
emissions  from  road  transport  increased  by  23% 
in  Estonia,  while  they  decreased  by  5% in  the  EU 
overall.  Speeding  up  climate  mitigation  in  these 
sectors would help protect households, businesses 
and transport users in Estonia from the impact of 
the forthcoming carbon price.  

Graph A7.2: Greenhouse gas emissions in the 
effort sharing sectors, 2005 and 2023 

Source: European Environment Agency. 

Sustainable industry 

Circular economy transition 

Despite  some  positive  trends,  Estonia  still 
lags  behind  on  the  circular  transition. 
Estonia’s  circular  material  use  rate  has  been 
increasing  since  2014 (it  reached  21.4%  in  2022, 
with a negative change in 2023 to 18.1%)  and is 
still above the EU average of 11.8%. Nevertheless, 
Estonia  remains  one  of  the  worst  EU  performers 
for  material  usage  and  resource  productivity.  In 
2023,  Estonia  generated  EUR 0.63  per  kg  of 
material against the EU average of EUR 2.23 (135). 
The material footprint of 29.9 tonnes per capita in 
2023  is  the  fourth  highest  value  in  the  EU  and 
more than double the EU average of 14 tonnes per 
capita,  indicating  an  over-consumption  of  raw 
materials. 

(135) Resource productivity measures the total amount of 

materials directly used by an economy in relation to GDP. 
Improving resource productivity can help to minimise 
negative impacts on the environment and reduce 
dependency on volatile raw material markets. 

and 

overcapacity 

Estonia,  despite 
low  municipal  waste 
struggles  with 
capita, 
generation  per 
recycling  and  composting  due  to  insufficient 
systems 
in  waste 
treatment  facilities.  Although  Estonia  is  one  of 
the  Member  States  with  the  lowest  municipal 
waste  generation  per  capita,  its  33%  rate  of 
preparing  for  reuse  and  recycling  in  2022  put  it 
significantly  below  the  estimated  EU  average  of 
49%  in  the  same  year  (see  Graph  A7.3).  In 
addition,  concerns  have  been 
raised  about 
Estonia’s 
lack  of  a  unified  waste  data 
management  system  at  the  local  level  and  about 
the  quality  of  the  data  provided.  Estonia  started 
diverting  municipal  waste  from  landfilling  by 
putting 
in  operation  a  mechanical  biological 
treatment  plant.  Finally,  the  share  of  composting 
and digestion is rather low, at 5% in 2022, due to 
an  insufficient  separate  collection  system  and 
uneven  capacity  for  treating  biowaste  across 
regions. 

Graph A7.3: Municipal waste treatment 

Source: Eurostat 

There is scope for Estonia to implement additional 
policies  to  increase  circularity.  In  2023,  Estonia 
adopted  a  white  paper  outlining  the  broad 
objectives  and  framework  for  the  transition  to  a 
circular  economy.  In  the  same  year,  Estonia  also 

61 

0123456720052023MtCO2eDomestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste369383395373373010020030040050060020192020202120222023Kg per capitaMaterial recyclingComposting and digestionLandfill/disposalTotal incineration (incl. energy recovery)Waste treatment unspecifiedEU-27 total waste per capita 
        
 
        
the 

volatile  organic  compounds 
(NMVOC),  sulfur 
dioxide (SO2), ammonia (NH3) and PM2.5. According 
to 
latest  projections  submitted  under 
Article 10(2)  of  the  NEC  Directive,  Estonia  is  on 
track to meet its emission reduction commitments 
for  2030  onwards  for  NOx,  NMVOC,  SO2,  NH3  and 
PM2.5.  Estonia  submitted  its  updated  national  air 
pollution control programme to the Commission on 
30 March  2023.  To  meet 
its  environmental 
objectives  on  pollution  prevention  and  control 
(towards  zero  pollution),  Estonia  needs  to  provide 
an  additional  EUR 66  million  per  year  (0.18%  of 
GDP), mostly related to measures on clean air (138). 

published  a  circular  economy  action  plan (136) 
under the recovery and resilience plan. The action 
plan  groups  together  10  key  actions  for  the 
transition from across the policy landscape. Other 
circular  economy-related  activities  in  the  plan 
include:  support  for  the  digitalisation  of  the 
economy: reskilling of workers; and the adoption of 
resource-efficient green technologies. 

to 

insufficient.  To  meet 

Current  investment  in  the  circular  transition 
is 
its  environmental 
objectives  for  the  circular  economy  and  waste, 
increase  circular  economy 
Estonia  needs 
investments  by  an  estimated  EUR 54  million  per 
year, with an additional EUR 12 million needed for 
waste  management  action.  Combined, 
this 
amounts  to  EUR 66  million  per  year,  representing 
0.18%  of  Estonia’s  GDP (137).  To  close  the  circular 
economy 
is 
needed  for  recent  initiatives,  such  as  eco-design 
for sustainable products, packaging and packaging 
waste,  labelling  and  digital  tools,  critical  raw 
materials recycling, and measures proposed under 
the  amendment  of 
the  Waste  Framework 
Directive. A further EUR 40 million in investment is 
needed  to  unlock  Estonia’s  circular  economy 
potential. 

investment  gap,  EUR 14  million 

Zero pollution industry 

Air quality in Estonia is generally good, with 
some  exceptions.  The  latest  available  annual 
estimates (for 2022) by the European Environment 
Agency for Estonia attribute 100 deaths each year 
(or 880 years of life lost (YLL)) to fine particulate 
matter  (PM2.5);  10  deaths  each  year  (or  180  YLL) 
to nitrogen dioxide (NO2); and 30 deaths each year 
(or 1 300 YLL) to ozone. 

Estonia’s rate for pollutant releases to air is 
around  the  EU  average.  The  emissions  of 
several air pollutants have decreased significantly 
since  2005,  while  GDP  growth  has  continued. 
According  to  the  inventories  submitted  under 
Article 10(2)  of  the  National  Emission  Reduction 
Commitments (NEC) Directive in 2024, Estonia has 
met 
its  emission  reduction  commitments  for 
2020-2029  for  air  pollutants,  NOx,  non-methane 

(136) Ministry of Climate, 2023, Eesti taaste ja vastupidavuskava 
raames sätestatud ringmajanduse tegevuskava, Link. 

(137) European Commission, DG Environment, Environmental 

(138) European Commission, DG Environment, Environmental 

investment needs & gaps assessment programme, 2025 
update. Expressed in 2022 prices. 

investment needs & gaps assessment programme, 2025 
update. Expressed in 2022 prices. 

62 

 
 
 
Table A7.1:  Key clean industry and climate mitigation indicators: Estonia 

Source:  Net zero industry: European Commission: The net-zero manufacturing industry landscape across Member States: final 
report, 2025. Automotive industry transformation: Eurostat. Critical raw materials: Eurostat. Climate mitigation: See 
footnotes in the "climate mitigation" section; reduction of effort sharing emissions: EEA greenhouse gases data viewer; European 
Commission, Climate Action Progress Report, 2024. Sustainable industry: Years of life lost due to PM2.5: Eurostat and EEA, 
Harm to human health from air pollution in Europe: burden of disease status, 2024. Air pollution damage: EEA, EU large industry 
air pollution damage costs intensity, 2024. Emissions covered: As, benzene, Cd, Cr, Hg, NH3, Ni, NMVOC, NOX, Pb, dioxins, PM10, 
PAH, SOX. Water pollution intensity: EEA, EU large industry water pollution intensity, 2024. Releases into water covered from 
cadmium, lead, mercury, nickel. Other indicators: Eurostat. 

63 

Strategic autonomy and technology for the green transitionNet zero industryOperational manufacturing capacity 2023- Solar PV (c: cell, w: wafer, m: module), MW50-100 (m)- Electrolyzer, MW-- Wind (b: blade, t: turbine, n: nacelle), MW-- battery, MWh-Automotive industry transformation201720182019202020212022202320182021Motorisation rate (passenger cars per 1000 inhabitants), %550563598608620622630539561New zero-emission vehicles, electricity motor, %0.100.320.281.782.153.376.301.038.96Critical raw materials201720182019202020212022202320182021Material import dependency, %23.424.426.730.425.319.224.222.6Climate mitigationTrendIndustry decarbonisation201720182019202020212022202320172022GHG emissions intensity of manufacturing production, kg/€0.350.330.330.180.110.120.140.340.27Share of energy-related emissions in industrial GHG emissions44.752.450.549.141.248.850.844.842.5Energy-related GHG emissions intensity of manufacturing122.6122.1120.379.454.349.7-158.4132.9and construction, kg/€Share of electricity and renewables in final energy consumption52.453.447.255.157.861.163.943.344.2in manufacturing, %Energy intensity of manufacturing, GWh/€1.411.411.271.181.041.011.021.291.09Share of energy-intensive industries in manufacturing production8.47.3GHG emissions intensity of production in sector [...], kg/€- paper and paper products (NACE C-17)0.700.620.720.940.950.971.21-0.730.68- chemicals and chemical products (NACE C20)0.170.170.170.130.140.250.33-1.251.26- other non-metallic mineral products (NACE C23)3.963.603.910.670.300.450.66-2.532.24- basic metals (NACE C24)0.220.200.170.180.110.130.08-2.793.49Reduction of effort sharing emissions20182019202020212022202320182023GHG emission reductions relative to base year, % -7.6-10.6-2.8- domestic road transport18.316.89.913.218.122.71.45.2- buildings-11.5-19.1-23.2-26.7-41.9-32.021.432.92005202120222023TargetWEMWAMEffort sharing: GHG emissions, Mt; target, gap, %6.25.75.56.0-24.0-10.5-6.6Sustainable industryTrendCircular economy transition20182019202020212022202320182021Material footprint, tonnes per person30.628.728.426.927.529.914.715.0Circular material use rate, %13.8      15.3      16.4      20.0      21.4      18.1      11.611.1Resource productivity, €/kg0.6        0.7        0.8        0.9        1.0        1.0        2.12.3Zero pollution industryYears of life lost due to PM2.5, per 100,000 inhabitants191      67        49        84        96        -702571Air pollution damage cost intensity, per thousand € of GVA    28.1          27.5      Water pollution intensity, kg weighted by human factors per bn € GVA    0.2   0.9EstoniaEU-27EstoniaEU-27EstoniaEU-27 
 
   
 
ANNEX 8: AFFORDABLE ENERGY TRANSITION 

This  annex  outlines  the  progress  made  and 
the  ongoing  challenges  faced  in  enhancing 
energy  competitiveness  and  affordability, 
while advancing the transition to net zero.  It 
examines  the  measures  and  targets  proposed  in 
the  final  (draft)  updates  to  the  national  energy 
and climate plans (NECPs) for 2030. 

In 2024, Estonia has progressed towards a cleaner 
energy  system,  has  massively  developed 
its 
renewable electricity production, and has achieved 
the  synchronisation  project  with  the  European 
continental  grid.  The  most  pressing  challenges 
revolve around high energy prices, and security of 
supply 
energy 
infrastructure. 

linked  with 

security 

of 

trends, with the exception a lower taxes and levies 
component  for  non-household  consumers  (8.6% 
compared to 15% for EU) and higher than average 
gas network costs (17.8% in Estonia compared to 
7.1% 
for  non-household 
consumers.   

the  EU)  also 

in 

Graph A8.2: Monthly average day-ahead wholesale 
electricity prices and European benchmark natural gas 
prices (Dutch TTF) 

Energy prices and costs 

Graph A8.1: Retail energy price components for 
household and non-household consumers, 2024 

(i) For household consumers, consumption band is DC for 
electricity and D2 for gas. Taxes and levies are shown 
including VAT. 
(ii) For non-household consumers, consumption band is ID for 
electricity and I4 for gas. Taxes and levies are shown 
excluding VAT and recoverable charges, as these are typically 
recovered by businesses. 
Source: Eurostat 

Estonia retail energy prices in 2024 remained 
consistent with 2023 levels, still  below the EU 
average for households' electricity (-22%) and gas 
(-34%)  and  industry  electricity  prices  (-16%),  but 
above the EU average in the case of industry gas 
prices  (+7%).  The  share  of  the  energy  and  supply 
component  for  both  gas  and  electricity  prices 
decreased between 2023 and 2024, following the 
same  trend  as  the  EU  average.  Retail  prices 
components  (energy  and  supply,  network  costs, 
taxes and levies) shares in Estonia follow EU-wide 

(i) the Title Transfer Facility (TTF) is a virtual trading point for 
natural gas in the Netherlands. It serves as the primary 
benchmark for European natural gas prices. 
(ii) Baltics and CWE respectively provide average prices in the 
Baltic market (Estonia, Latvia, and Lithuania) and central-
western European market (Belgium, France, Germany, 
Luxembourg, the Netherlands, and Austria). 
Source: S&P Platts and ENTSO-E 

Electricity 

Estonia’s  wholesale  electricity  prices  were, 
at an average of 86.5 EUR/MWh in 2024 (139), 
on par with the other Baltic states but above 
the  EU  average  (81 EUR/MWh).  Prices 
in 
Estonia  declined  early  in  the  year  amid  falling 
natural  gas  costs.  They  then  surged  during  the 
spring/summer,  diverging  from  Central  Western 
European  markets. 
consumption 
decreased in Estonia compared with 2023, but the 
650 MW Estlink 2 connection, which usually brings 
cheaper electricity from Finland as well as limited 
non-fossil  flexibility,  was  out  of  service  and  this 
created a supply-demand gap in the summer. This 
gap  was  mainly  covered  by  higher  imports  from 
Latvia  (increasing  almost  tenfold 
in  summer 
2024 (140)  vs  2023)  where  not  only  hydropower 
but  also  costly  natural  gas-fired  generation  were 
ramped  up  (respectively  +45% (141)  and  +13%  in 
summer 2024 vs summer 2023), especially during 
peak  demand  hours.  Consequently  (and  to  a 

(139) Fraunhofer (ENTSO-E data). 
(140) June to August. 
(141) ENTSO-E. 

64 

 
 
 
 
 
 
 
 
in  Estonia 

greater  extent  than  in  2023),  these  conditions 
drove  concentrated  price  spikes  in  evening  hours 
(18h-21h),  when  solar  output  declined  and 
demand remained high. However, average daytime 
hourly prices throughout the year were lower than 
in  2023,  probably  due  to  the  uptake  of  solar 
output 
in 
(+28% 
neighbouring  markets (142).  Prices  in  Estonia  and 
the  Baltic  region  then  stabilised  in  the  winter, 
supported  by  stronger  wind  generation  than  in 
2023 (143)  and  Estlink 2  returning  to  operation  in 
September,  while  Central  Western  European 
markets  faced  strong  price  spikes  due  to  the 
Dunkelflaute (144). 

in  2024)  and 

Flexibility and electricity grids 

is  part  of  the  Baltic  capacity 
Estonia 
calculation  region  (CCR) (145).  It  is  connected  to 
Finland and Latvia and indirectly to Sweden via the 
Estlink interconnectors and the Baltic transmission 
network.  In  2024,  the  regional  electricity  trade 
continued  to  be  influenced  by  the  Baltic  region’s 
dependence  on imports  from  the  Nordic  countries 
(especially  Finland).  Congestion  in  the  Estlink 
interconnectors is hindering full price convergence 
with  Finland.  Similarly,  cross-border  capacity  with 
Latvia  is  sometimes  limited  and  this  affects 
market  integration  with  the  rest  of  the  Baltic 
region.  Member  States  should  ensure  that  a 
technical  cross-border 
minimum  of  70%  of 
capacity 
trading.  Estonia’s 
for 
is  available 
wholesale  electricity  market  faces  challenges  due 
to  its  small  size  and  reliance  on  oil  shale 
generation,  which  frequently  acts  as  the  main 
driver  of  prices 
renewable 
generation is low).  

(especially  when 

The  EU  Member  States’  electricity  interconnection 
target is at least 15% by 2030, but Estonia’s level 
of  electricity  interconnection  is  already  59.63% 
and  therefore  four  times  higher  than  the  EU 

(142) Fraunhofer (ENTSO-E data). 
(143) In  November-December  2024,  electricity  generation  from 
wind  power  amounted  to  0.07 TWh  in  Latvia  (+73%  vs  the 
same  period  in  2023),  0.37 TWh  in  Estonia  (+210%)  and 
0.8 TWh in Lithuania (+53%). 

(144) Yearly  electricity  data,  Ember  (generation  and  consumption 

data throughout the paragraph). 

(145) Estonia, Latvia, Lithuania, Poland, Finland and Sweden are 

part of the Baltic capacity calculation region (CCR). A CCR is a 
group of countries that calculate cross-border electricity 
trade flows together. 

the 

is  an 

target.  This 
important  basis  for  the 
synchronisation  of  the  Estonian  electricity  system 
with  the  EU  electricity  system,  which  successfully 
took place in February 2025. The investment part 
of 
synchronisation  project  has  been 
progressing  well.  It  is  crucial  to  speed  up  the 
upgrades  of  Estlink 1  and  Estlink 2,  which  have 
suffered  delays.  Further  attention  should  also  be 
paid  to  advancing  the  Estonian-Latvian  offshore 
important 
Elwind  project.  Estonia  has  other 
projects  to  ensure the  efficient  functioning  of  the 
energy  market  by 
cross-border 
interconnections,  such  as  EstLink 3  between 
Estonia and Finland and the Estonia-Latvia ‘fourth 
interconnection’ (both of these could be completed 
by  2035).  Price  differentials  between  Finland  and 
Estonia  and  recent  incidents  affecting  undersea 
cables  underscore 
these 
projects.  Estonia  actively  participates  in  the  Baltic 
Energy  Market  Interconnection  Plan  (BEMIP)  High 
Level  Group  to  boost  regional  cooperation  with 
neighbouring countries. 

importance  of 

improving 

the 

streamline 

Estonia is reforming its energy infrastructure 
permitting  processes  to  increase  renewable 
development.  Legislation  was  amended  in  2024 
to 
and 
planning, 
environmental  impact  assessment  processes  for 
wind energy projects, and to establish wind priority 
development areas (1 000 MW total capacity). This 
is  part  of  Estonia’s  recovery  and  resilience  plan 
(RRP).  

permitting 

No  comprehensive  data  are  available  on 
renewable  energy  sources  (RES)  curtailment 
in 2024. ACER (basing its calculations on ENTSO-E 
data) observed 129 instances of negative prices in 
Estonia in 2023.  

energy 

through 

Estonia  is  actively  expanding  its  energy 
flexibility 
storage 
deployment,  demand  response  solutions  and 
market  integration.  Eesti  Energia  developped 
large-scale  storage  system,  a 
Estonia’s  first 
26.5MW  BESS,  with 
in 
development.  Some  renewable  energy  developers 
have announced plans to construct battery energy 
(as  stand-alone 
in  Estonia 
storage  systems 
systems  or  coupled  with  additional  generation 
capacity). These are expected to be operational in 
2025. 

larger  projects  also 

 Estonia  has 
implemented  a  smart  metering 
system that gives 99% of consumers access to a 
smart  meter. Dynamic  price  contracts  are  offered 

65 

 
 
did 

to  household  consumers,  facilitated  by 
the 
availability  of  smart  meters.  The  Estonian 
government 
direct 
not 
compensation measures for household energy bills 
in  2024  (as  it  had  in  previous  years).  The  focus 
instead  shifted  towards  long-term  strategies  to 
enhance energy security and stabilise prices. 

implement 

Regarding  energy  communities,  the  concepts  of 
energy  communities  (ECs)  and  renewable  energy 
communities  (RECs)  are  defined  in  legislation, 
which  also  contains  some  rights  and  obligations. 
According to the draft NECP, Estonia is planning to 
promote individual and collective self-consumption 
of  renewable  energy  and  RECs  by  issuing  a 
handbook  for  RECs.  The  draft  NECP  does  not  set 
quantitative  targets  for  self-consumption  or  for 
ECs.  The  framework  would  generally  benefit  from 
further improvements.  

ratio 

price 

Electricity  accounted  for  20.1%  of  Estonia’s 
final  energy  consumption  (FEC)  in  2023 
(slightly below the EU average of 22.9%) and 
this  share  has  slightly  increased  in  the  last 
decade (146),  partly  due  to  an  unfavourable 
electricity-to-gas 
that 
disincentivizes  electrification  and  cost-
effective  decarbonization.  Electricity  accounts 
for  19.9%  and  45.5%  of  households’  and 
industry’s  FEC  respectively.  The  transport  sector’s 
FEC  is  negligible  at  0.6%.  Further  progress  in 
electrification across sectors is required in order to 
cost-effectively  decarbonise  the  economy  and 
bring 
renewable 
In  2024’s  second 
generation 
retail 
low 
semester,  Estonia  had 
electricity  prices,  but  its  household  electricity-to-
gas  price  ratio  reached  2.8.  For  this  consumer 
segment,  while  price  differentials  discourage 
electrification,  taxes  and  levies  for  electricity  and 
gas  are  similar,  leaving  little  room  for  fiscal 
adjustment. For energy-intensive industries on the 
other  hand,  the  electricity-to-gas  price  ratio  was 
below the EU average but still affected by a fiscal 
burden  skewed  towards  electricity.  Taxes  and 
levies made up 8,5% of electricity costs and 5,1% 

the  benefits  of  affordable 

to  consumers. 

relatively 

(146) The  CAGR  (compound  annual  growth  rate)  was  -0.3% 
between  2013  and  2023.  The  minimum/maximum  shares 
were  20.1%  and  24.3%  respectively.  Source:  Final  energy 
balances, Eurostat. 

66 

for gas, increasing the price ratio from 2.4 to 2.5. 
(147) 

Renewables and long-term contracts 

Graph A8.3: Estonia's installed renewable capacity 
(left) and electricity generation mix (right) 

“Other” includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Ember 

In  2024,  renewable  energy  sources  (RES) 
accounted  for  57%  (vs  47%  in  the  EU  as  a 
whole),  an  increase  on  50%  in  2023 (148). 
Renewable installed  capacity in Estonia surged by 
52%  in  2024,  from  1  456  MW  in  2023  to  2  226 
the following year. Estonia’s total wind capacity in 
Estonia  was  594 MW  (+70%)  in  2024  (all  of  this 
was onshore). As regards the acceleration of solar 
deployment, total installed capacity was 1326 MW 
in  2024  (+63%).  Estonia’s  share  of  renewable 
electricity  is  projected  to  reach  100%  in  2030. 
Wind  power  will  become  the  main  source  of 
renewable  electricity  (with  a  73%  share  and 
6.84 GW  of  installed  capacity),  followed  by  solar 
PV  (with  a  11%  share  and  1 GW  of  installed 
capacity). 

Estonia’s  framework  is  now  moderately-to-
strongly  aligned  with  the  Commission’s 
Recommendation  on  Permitting(149). 
The 

(147) Analysis based on Eurostat data for the second semester of 
2024. For household consumers, consumption band is DC for 
electricity and D2 for gas, which refer to medium-sized 
consumers and provide an insight into affordability. For non-
household consumers, consumption band is ID for electricity 
and I4 for gas, referring to large-sized consumers, providing 
an insight into international competitiveness (price used for 
the calculation excludes VAT and other recoverable 
taxes/levies/fees as non-household consumers are usually 
able to recover VAT and some other taxes). 

(148) Yearly electricity data, Ember. 
(149) Commission Recommendation (EU) 2024/1343 

 
 
 
 
regard, 

including 

this 
that  enables 

Estonian authorities have taken several  important 
introducing 
in 
steps 
legislation 
favourable  permit-
granting  procedures  and  streamlining  offshore 
permit-granting procedures. Estonia has developed 
a  comprehensive  procedural  manual  for  project 
developers  and  municipalities.  A  single  contact 
point  mediates  exchanges  between  project 
developers  and  relevant  authorities.  A  single 
unified  application  process  for  marine  activities 
has  been  introduced.  The  digitalisation  of  all 
permit  procedures  has  improved  efficiency  and 
regulations  are 
transparency.  Environmental 
characterised  by 
clearly  defined  deadlines, 
including  maximum  duration  times  for  the  entire 
permitting  process.  More  could  be  done  (for 
instance, by allowing sandboxing) because lack of 
implementation  may  be  delaying  development  of 
more innovative research projects. Estonia’s RRP is 
set to fund a project to strengthen the expertise of 
local  authorities  in  the  area  of  renewable  energy 
by  hiring  specialists,  but  the  results  of  this 
measure remain to be seen.  

Estonia  has  made  a  commitment  to  have 
400 MW  installed  onshore  wind  capacity  by 
2026  as  part  of  the Wind  Pledges  under  the 
European  Wind  Power  Action.  According  to  the 
draft  NECP,  Estonia  will  develop  1.3 GW  of 
onshore wind and 1 GW of offshore wind by 2030. 
These  goals  are  consistent  with  Estonia’s  non-
binding agreement (as defined by the non-binding 
goals  in  the  2023  EU  Sea  Basins  agreements). 
However,  no  new  schedule  on  the  expected 
allocation of support for renewables has yet been 
released  on  the  Union  Renewables  Development 
Platform.  The  Commission  Recommendation(150) 
that was issued following the adoption of the draft 
plan  underlines  the  importance  of  developing 
the 
comprehensive 
deployment  of  renewable  energy  (particularly 
wind)  in  order  to  increase  visibility  for  the  EU’s 
manufacturing  industry  and  grid  operators  in  line 
with the European Wind Power Package. 

long-term  planning 

for 

In  the  draft  NECP,  Estonia  refers  to  the  use  of 
tenders  to  shift  nearly  half  of  the  central 
government’s electricity consumption to renewable 
energy  by  means  of  power  purchase  agreements 
(PPAs).  

(150) Commission recommendation (EU) 2024/606 

Energy efficiency 

Estonia  continues 
to  make  significant 
progress  towards  the  2030  EU  targets  for 
energy  efficiency.  Primary  energy  consumption 
(PEC)  decreased  by  12.9%  to  4.11  Mtoe  in  2023. 
Final energy consumption (FEC) decreased by 5.9% 
to 2.61 Mtoe. Compared with 2022, FEC decreased 
in all main sectors: by 5.9% in industrial, by 2.9% 
in  residential,  by  1.0% in  transport  and  by  20.7% 
in services. This progress is above the EU average 
and  highlights  Estonia’s  commitment  to  energy 
efficiency.  The  recast  Energy  Efficiency  Directive 
requires Estonia to reach a PEC of 3.14 Mtoe and 
a FEC of 2.53 Mtoe by 2030. 

cooling  assessment. 

 Estonia  has  not  notified  its  comprehensive 
heating  and 
This 
assessment  should  identify  the  potential  for  the 
application  of  high-efficiency  cogeneration  and 
efficient  district  heating  and  cooling,  as  required 
by  Article  25(1)  of  the  recast  Energy  Efficiency 
Directive. No  estimate  is available  on  when  it  will 
be done. 

it 

Estonia  needs  to  step  up  its  efforts  in  the 
is  to  make  a 
if 
residential  sector 
meaningful contribution to the 2030 building 
decarbonisation  milestone  set  in  its  latest 
(LTRS). 
long-term 
Residential  FEC  decreased  between  2022  and 
2023 but, from a medium-term perspective, it has 
been  stagnating  or  even  slightly  increasing  since 
2018 (when climate corrections are applied). 

renovation 

strategy 

Heating  and  cooling  represented  more  than 
85%  of  Estonia’s  FEC  in  2022.  Approximately 
20 000 heat pumps were sold in 2023 (a decrease 
of  8%  on  2022).  Financial  subsidies  are  available 
for up to 70% of the cost of replacing an old boiler 
with  a  heat  pump  or  other  environmentally 
friendly alternatives. Estonia’s relatively high share 
of  renewables  in  heating  and  cooling  (66.67%  in 
2023)  is  mainly  related  to  biomass  use.  Heat 
pumps cover slightly more than 10% of this share. 

Estonia  continues  to  rely  mostly  on  grant-
based funding schemes for energy efficiency 
and the use of financial instruments remains 
limited.  No  new  schemes  were  created  for  the 
financing of energy efficiency in 2024, but several 
previously  implemented  schemes  remain  in  place 
(e.g.  the  Green  Fund  and  the  Apartment  Building 

67 

 
 
Reconstruction  grant).  As  regards  EU  funds, 
Estonia’s  RRP,  which  was  updated  in  2023  to 
address  REPowerEU  objectives,  continued  to  drive 
progress  in  2024  (particularly  through  increased 
investment in residential and service buildings). 

Security of supply and diversification 

Estonia  already  banned 
imports  and 
purchases  of  Russian  natural  gas  in  2022. 
Estonia  reduced  its  natural  gas  demand  by  28% 
between August 2022 and July 2024, but this was 
well below the EU’s 15% target. Estonia accesses 
natural gas via Lithuania’s ‘Independence’ floating 
storage  regasification  unit  (FSRU)  in  Klaipeda, 
Finland’s  Inkoo  FSRU  via  the  Balticconnector  and 
Latvia’s Inčukalns underground storage facility. 

Estonia’s  energy  mix  saw  a  notable  shift 
towards  renewables  from  27.7%  in  2022  to 
34.6%  in  2023.  Domestically  sourced  oil  shale 
remained  the  main  source,  though  its  share  did 
decrease  slightly  from  60.5%  to  58.2%.  Natural 
gas  usage  remained  relatively  stable,  rising 
marginally from 6.0% to 6.3%. 

The  Estonian  governing  coalition  took  a 
decision  in  principle  in  2024  to  initiate  a 
special  plan  for  the  potential  location  of  a 
future  nuclear  power  plant.  Estonia  does  not 
currently have nuclear capacity. 

 Fossil fuel subsidies 

In  2023,  environmentally  harmful(151)  fossil  fuel 
subsidies  without  a  planned  phase-out  before 
2030 represented 0.11%(152) of Estonia’s GDP(153), 
below  the  EU  weighted  average  of  0.49%.  Tax 

(151) Direct fossil fuel subsidies that incentivise maintaining or 
increasing in the availability of fossil fuels and/or use of 
fossil fuels. 

(152) Numerator is based on volumes disclosed by the Estonian 
authorities via the 2025 NECPR reporting. For all Member 
States, it includes public R&D expenditures for fossil fuels as 
reported by the IEA (Energy Technology RD&D Budgets) and 
excludes, for methodological consistency, excise tax 
exemption on kerosene consumed in intra-EU27 air traffic. 

for 

measures  accounted 
full  volume. 
Additionally,  Estonia’s  2023  Effective  Carbon 
Rate(154)  averaged  EUR  96.85  per  tonne  of  CO₂, 
above the EU weighted mean of EUR 84.80(155). 

the 

(154) The Effective Carbon Rate is the sum of carbon taxes, ETS 
permit prices and fuel excise taxes, representing the 
aggregate effective carbon rate paid on emissions. 

(153) 2023 Gross Domestic Product at market prices, Eurostat. 

(155) OECD (2024), Pricing Greenhouse Gas Emissions 2024 

68 

 
 
 
Table A8.1:  Key Energy Indicators 

Source: Eurostat, ENTSO-E, S&P Platts 

69 

20212022202320242021202220232024Household consumer - Electricity retail price (EUR/KWh)0.1631          0.2353              0.2249              0.2257          0.2314              0.2649          0.2877          0.2879          Energy & supply [%]46.8%56.1%50.1%48.6%36.6%54.3%55.6%47.8%Network costs28.9%22.0%27.6%28.2%26.7%25.3%24.8%27.2%Taxes and levies including VAT24.2%21.9%22.4%23.3%36.7%20.3%19.6%25.0%VAT16.7%16.7%16.7%18.0%14.5%13.4%13.8%14.6%Household consumer - Gas retail price0.0592          0.1098              0.0945              0.0738          0.0684              0.0948          0.1121          0.1128          Energy & supply63.0%72.9%69.1%58.3%43.7%61.0%64.5%53.9%Network costs13.9%7.0%10.3%18.0%22.5%17.3%17.1%18.3%Taxes and levies including VAT23.1%20.1%20.6%23.7%33.8%21.7%18.4%27.8%VAT16.7%16.7%16.6%18.0%15.5%11.6%10.2%13.6%Non-household consumer - Electricity retail price0.1058          0.1906              0.1494              0.1361          0.1242              0.1895          0.1971          0.1661          Energy & supply56.3%67.7%59.6%56.8%43.0%66.5%63.0%55.8%Network costs17.3%10.3%16.6%18.1%15.8%10.7%11.9%15.5%Taxes and levies excluding VAT11.6%6.5%8.6%8.6%30.4%9.9%11.2%15.4%Non-household consumer - Gas retail price0.0409          0.1098              0.0745              0.0533          0.0328              0.0722          0.0672          0.0517          Energy & supply63.7%76.0%71.7%59.8%66.2%77.3%77.3%68.7%Network costs13.6%5.1%10.3%17.8%7.7%3.8%5.3%7.1%Taxes and levies excluding VAT7.1%2.6%1.6%5.3%12.5%6.1%7.3%11.6%Wholesale electrity price (EUR/MWh)86.5192.091.087.0111.0233.299.184.7Dutch TTF (EUR/MWh)n/an/an/an/a46.9123.140.534.420172018201920202021202220232024Gross Electricity Production (GWh)13,160          12,364              7,616                6,078             7,204                8,937             5,745             -Combustible Fuels12,397       11,682           6,836             4,959         6,095            7,650         4,317         -Nuclear-              -                 -                 -              -                 -              -              -Hydro26               15                  19                  30               23                  23               24               -Wind723             636                687                844             733                668             683             -Solar14               31                  74                  245             354                596             721             -Geothermal-              -                 -                 -              -                 -              -              -Other Sources-              -                 -                 -              -                 -              -              Gross Electricity Production [%]Combustible Fuels94.2%94.5%89.8%81.6%84.6%85.6%75.1%-Nuclear0.0%0.0%0.0%0.0%0.0%0.0%0.0%-Hydro0.2%0.1%0.2%0.5%0.3%0.3%0.4%-Wind5.5%5.1%9.0%13.9%10.2%7.5%11.9%-Solar0.1%0.2%1.0%4.0%4.9%6.7%12.5%-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)-2,734-1,8972,1573,6442,6291,0113,304-As a % of electricity available for final consumption -35.3%-22.9%26.1%42.4%32.5%13.8%47.2%-Electricity Interconnection [%]63.2%69.0%67.6%67.6%83.4%85.8%69.4%62.8%Share of renewable energy consumption - by sector [%]Electricity17.6%19.7%22.0%28.3%29.2%29.1%31.8%-Heating and cooling52.2%53.7%52.2%58.8%61.3%65.4%66.7%-Transport0.4%3.3%6.2%12.2%11.2%8.5%9.1%-Overall29.5%30.0%31.7%30.1%37.3%38.5%41.0%-20202021202220232020202120222023Import Dependency [%] 10.5%1.4%6.2%3.5%57.5%55.5%62.5%58.3%of Solid fossil fuels 391.8%95.2%95.8%268.7%35.8%37.2%45.9%40.8%of Oil and petroleum products 130.0%54.9%108.6%81.2%96.8%91.7%97.8%94.5%of Natural Gas 100.0%100.0%100.0%100.0%83.6%83.6%97.6%90.0%Dependency from Russian Fossil Fuels [%]of Natural Gas 46.2%11.5%0.0%0.0%41.0%40.9%20.7%9.3%of Crude Oil0.0%0.0%0.0%0.0%25.7%25.2%18.4%3.0%of Hard Coal100.0%83.0%66.7%0.0%49.1%47.4%21.5%1.0%2017201820192020202120222023Gas Consumption (in bcm)0.5                 0.5                     0.5                     0.4                 0.5                    0.4                 0.3                 Gas Consumption year-on-year change [%]-5.0%2.9%-8.2%-8.2%14.1%-25.3%-14.2%Gas Imports - by type (in bcm)0.5                 0.5                     0.5                     0.4                 0.5                    0.4                 0.3                 Gas imports - pipeline0.5                 0.5                     0.5                     0.4                 0.5                    0.4                 0.3                 Gas imports - LNG0.00.00.00.00.00.10.0Gas Imports - by main source supplier [%]Latvia0.0%0.0%0.0%50.3%82.8%84.2%48.7%Finland1.2%0.0%0.0%0.0%0.0%0.0%51.3%Russia98.4%99.8%99.0%46.2%11.5%0.0%0.0%EstoniaEU 
 
   
 
ANNEX 9: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT 

and 

coverage 

Estonia  faces  major  challenges  in  climate 
adaptation  such  as  the  wide  gap  in  climate 
insurance 
increased 
vulnerability  to  extreme  weather  events.  It 
has  made  some  progress  in  implementing  policy 
measures  on  climate  adaptation,  but  Estonia  has 
one of the three regions identified  as hotspots of 
climate  risks  most  affected  by  climate  change: 
low-lying  coastal  regions.  Estonia  is  vulnerable  to 
impacts  of  climate  change  such  as  rises  in 
temperature,  rainfall  and  sea  level  and  extreme 
weather  phenomena  accompanied  by  coastal  and 
inland  floods,  wildfires  and  new  pathogens.  The 
state of nature and ecosystems is also a cause for 
concern  in  Estonia,  reducing  the  country’s  climate 
resilience. 

Climate adaptation and resilience 

increased  precipitation. 

Estonia  is  vulnerable  to  the  impacts  of 
climate  change.  The  impacts  for  Estonia  include 
level, 
in  temperature,  rainfall  and  sea 
rises 
extreme weather phenomena such as coastal and 
inland  floods,  wildfires  and  new  pathogens. 
Coastal regions and inland water bodies are at risk 
of more frequent flooding due to rising sea levels 
and 
In  the  past,  an 
unexpected  emergence  of  Vibrio  infections  in  the 
Baltic  Sea  coincided  with  warming  sea  surface 
temperature  patterns.  Heatwaves  are  expected  to 
become  more  frequent  and  intense,  posing  a 
public  health threat,  and  droughts  will  increase in 
frequency  and  severity,  affecting  agriculture  and 
water  resources.  Storms  are  a  hazard  to  the 
electricity  grid  especially  in  rural  areas.  Estonia’s 
RRP  includes  an  investment  to  strengthen  the 
electricity grid and protect it against storms at the 
same time.  

The  climate  risks  pose  significant  threats  to 
Estonia’s economy and society. Between 1980-
2023, Estonia suffered economic losses estimated 
at  EUR 332  million  due  to  weather-  and  climate-
related  extreme  events.  The  overall  insurance 
coverage over this period only covered 15% of the 
economic losses (156). Estonia also recorded one of 
the highest number of deaths per 100 000 citizens 

due  to  extreme  heat  in  northern  Europe(157).  The 
trend  increases  over  time,  posing  a  risk  to  public 
health, especially for vulnerable populations. 

its 

has 

Estonia  has  implemented  in  the  last  years 
several  national  policy  measures  related  to 
adaptation  and  preparedness.  In  2017, 
it 
adopted a national adaptation strategy and a plan 
on  climate  change  adaptation  (NAP).  Since  then, 
Estonia 
adaptation 
strengthened 
governance structures. In 2023, the establishment 
of  a  Climate  Ministry  gave  further  emphasis  to 
climate  change  mitigation  and  adaptation  issues. 
However,  Estonia  has 
for 
conducting systemic risk assessments, which may 
hinder progress. Estonia is also preparing a climate 
law  expected  to  take  effect  in  2025,  to  improve 
climate  change  adaptation.  The  law  sets  national 
climate  change  adaptation  goals,  mainstreams 
climate  adaptation  in sectoral  development  plans, 
and requires regular assessments of climate risks 
and  action  plans  prepared  at  both  national  and 
local levels. This aligns with the European Climate 
Law recommendations (158). 

limited  capacity 

local  authorities 

Many 
in  Estonia  are 
developing  local  energy  and  climate  plans. 
Approximately  41.7%  of  the  population  live  in 
areas  covered  by  the  Covenant  of  Mayors  for 
Climate  and  Energy.  Five  of  the  main  local 
authorities  participate 
in  the  EU  mission  on 
adaptation  to  climate  change  to  enhance  their 
work on climate adaptation. 

Water resilience 

Despite  Estonia  having  sufficient  water 
resources,  measures  are  needed  to  tackle 
deteriorating  chemical  water  quality,  boost 
resilience and narrow the annual investment 
gap.  The  Water  Exploitation  Index  Plus  (WEI+) 
reached  2.2  in  2022,  having  stabilised  after 
peaking  at  8.5  in  2018,  with  no  indication  of 
serious  overuse  of  water  resources.  Nevertheless, 
there  has  been  a  deterioration  in  the  ecological 
status  of  surface  water  bodies,  and  a  steep 
reduction  in  the  share  of  surface  water  bodies  in 
good chemical status. The assessment of the third 

(156) EEA, 2024, Economic losses from weather- and climate-

related extremes in Europe, Link. 

(157 ) ibid. 

(158) C(2023) 9602. 

70 

 
 
 
 
 
 
river  basin  management  plan  shows  that  the 
ecological status/potential of surface water bodies 
has  deteriorated  since  the  second  plan,  with  53% 
reported as having good ecological status/potential 
against  the  EU  average  of  37%.  The  most 
significant  pressure  identified  is  diffuse  pollution. 
More  precisely,  the  problem  is  nutrient  pollution 
affecting  93%  of  water  bodies.  The  situation 
regarding  chemical  status has not improved since 
the  second  plan,  with  only  9.7%  of  surface  water 
bodies  classified  as  having  good  chemical  status 
(EU  average  31%).  The  status  of  83%  of  surface 
water  bodies  remains  unknown,  even  though  the 
Water Framework Directive entered into force over 
20 years ago.  

None  of  the  16  coastal  waters  reach  good 
ecological  nor  good  chemical  status.  Failure  to 
achieve good chemical status is mainly due to two 
specific  substances:  mercury  and  polybrominated 
diphenyl  ethers.  Both  pose  significant  threats  to 
humans  and  to  the  aquatic  environment,  and  are 
in  the  group  of  ubiquitous,  persistent,  bio-
accumulative  and 
substances.  Water 
toxic 
abstraction  is  one  of  the  main  forms  of  pressure 
on groundwater bodies in Estonia. According to the 
third  plan,  26%  of  groundwater  bodies  are 
reported as having poor chemical status. Failure is 
mostly  due  to  mining  of  oil  shale,  industry  and 
agriculture. Other reasons are deteriorating quality 
in  drinking  water  protected  areas  and  saline  or 
other  intrusion,  which  might  be  linked  to  excess 
abstraction of groundwater bodies adjacent to the 
coast. 

rivers. 

Untreated  urban  waste  water  in  Estonia 
significantly impacts water quality, affecting 
nearly  all  coastal  waters  and  half  of  the 
country’s 
The  Urban  Wastewater 
Treatment  Directive  (UWWTD)  aims  to  protect 
human  health  and  the  environment  from  the 
effects  of  untreated  urban  waste  water.  An 
infringement  proceeding  was  opened  against 
Estonia  in  February  2024  for  failure  to  meet  the 
Directive’s 
requirements  on  discharges  of 
industrial  waste  water  into  urban  wastewater 
treatment 
basin 
The 
management  plan  reports  that  water  quality  is 
affected  by  urban  wastewater  discharges. 
In 
particular, discharges undermine the water quality 
in  94%  of  coastal  waters  and  50%  of  Estonia’s 
rivers. 

plants. 

third 

river 

Water investments in Estonia are estimated to be 
around EUR 73 million per year (in 2022 prices) in 
the  2021-2027  period  (see  Graph  A9.2).  Of  this, 
EUR 21  million  is  for  wastewater  management, 
EUR 17  million  for  drinking  water  and  around 
EUR 34 million for the other aspects of the Water 
Framework  Directive  (water  management  and 
protection).  To  meet  the  environmental  targets 
under  the  Water  Framework  Directive  and  the 
Floods Directive, Estonia has an investment gap of 
EUR 65 million per year (0.18% of GDP), with most 
related  to  waste  water  (EUR 59  million  per  year). 
Drinking  water  measures  require  an  additional  7 
million per year. 

Biodiversity and ecosystems 

The  state  of  nature  and  ecosystems  is  a 
cause  for  concern  in  Estonia,  reducing  the 
country’s  climate  resilience.  Estonia  is  host  to 
60  habitat  types  and  96  species  covered  by  the 
Habitats Directive (159).  In  2022,  17.9%  of  land  in 
Estonia was covered by the Natura 2000 network 
(EU  coverage  18.6%).  Including  other  nationally 
designated protected areas, a total of 21% of land 
is protected. Estonia protects 18.7% of its marine 
waters,  exceeding  the  EU  average  of  12.1%.  The 
share  of  species 
reported  as  having  good 
conservation  status  in  2018  is  56.2%,  a  2.7% 
increase  on  the  53.5%  reported  in  the  previous 
reporting  period.  The  share  of  assessments  for 
species in bad or poor conservation status slightly 
increased  to  36%  (from  35%  in  the  previous 
period).  The  common  farmland  bird  index,  too, 
indicates 
species’ 
conservation  status.  It  fell  from  74.1  in  2018  to 
69  in  2020  and  below  the  EU  average  of  74.6  in 
the  same  year.  Estonia’s  2030  environmental 
development plan contains several  measures that 
aim 
in  agricultural 
ecosystems,  including  enhancing  the  biodiversity 
of  agricultural  landscapes,  with  a  particular  focus 
on pollinators and farmland birds.  

improve  biodiversity 

downward 

trend 

to 

in 

a 

Nature  degradation  creates  significant  risks 
to the economy and to competitiveness. 40% 
of  Estonia’s  gross  value  added  is  very  highly  and 
directly dependent on ecosystem services. Several 

Estonia  needs  to  invest  more  each  year  in 
water, primarily in wastewater management. 

(159) EEA, 2019, Number of habitats and species per Member 

State, Link. 

71 

 
 
sectors  such  as  agriculture,  forestry,  fisheries, 
construction, mining and metals, water utilities and 
healthcare 
(see  Graph  A9.1)  are  particularly 
dependent  on  ecosystem  services.  100%  of  the 
gross  value  added  generated  by  these  sectors  is 
In 
directly  dependent  on  ecosystem  services. 
addition, Estonia has a particularly high  degree of 
dependency  on  ecosystem  services 
its 
economy’s  downstream  value  chain,  with  50%  of 
gross  value  added  being  highly  dependent.  This 
means  that  failure  to  maintain  the  capacity  of 
ecosystems 
to  deliver  services  could  entail 
significant costs, or even stop production in these 
sectors.  Protecting  and  restoring  key  ecosystems 
would 
long-term 
competitiveness of these sectors. 

maintain 

help 

the 

in 

and 

To  meet  the  environmental  objectives  concerning 
the  protection  and  restoration  of  biodiversity  and 
horizontal 
ecosystems 
other 
measures,  Estonia  has  an 
investment  gap 
estimated  at  around  EUR 0.6  billion  per  year, 
corresponding  to  1.63%  of  its  GDP  (see  Graph 
A9.2). 

related 

Graph A9.2: Investment needs and gaps in EUR million, 
in 2022 constant prices 

Graph A9.1: Direct dependency(1) on ecosystem 
services(2) of the gross value added generated by 
economic sector in 2022 

(1) Dependency based on the sector’s own operations, 
excluding value chain operations within countries and across 
international value chains. A high dependency indicates a high 
potential exposure to nature-related shocks or deteriorating 
trends, which means that the disruption of an ecosystem  
service could cause production failure and severe financial 
loss. 
(2) Ecosystem services are the contributions of ecosystems to 
the benefits that are used in economic and other human 
activity, including provisioning services (e.g. biomass 
provisioning or water supply), regulating and maintenance 
services (e.g. soil quality regulation or pollination), and cultural 
services (e.g. recreational activities). 
Source: Hirschbuehl et al., 2025, The EU economy's 
dependency on nature, Link. 

Source: European Commission, DG Environment, 
Environmental investment needs & gaps assessment 
programme, 2025 update. 

Sustainable agriculture and land use 

Estonia’s  carbon  removals  are  in  line  with 
the  2030  target  for  land  use,  land-use 
change  and  forestry  (LULUCF).  In  2014,  net 
carbon  removals  turned  into  net  emissions  and 
have remained above zero since then. Since 2020, 
however,  LULUCF  emissions  have  fallen.  As 
recommended in the previous European Semester, 
continued  improvements  in  forest  management 
and  action to  restore  wetlands  could  help  Estonia 
continue  to  reverse  the  decline  in  net  carbon 
removals from the atmosphere. To meet its 2030 
LULUCF target, additional carbon removals of -0.4 
million  tonnes  of  CO2  equivalent  (CO2eq)  are 
needed (160).  The  latest  available projections  show 
a  surplus  compared  to  the  target  of  -0.4  million 

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

Regulation (EU) 2023/839. 

72 

0%20%40%60%80%100%AgricultureForestryFishery and acquacultureMining and metalsConstructionWater utilitiesHealthcare deliveryAviation travel and tourismFood beverages and tobaccoSupply chain and transportPublic services and othersElectricityChemical and materials industryElectronicsOil and gasReal estateHeat utilitiesAutomotiveRetail consumer goods and…Information technologyBanking and capital marketsInsurance and asset…Digital communicationsHighMediumLow - 100 200 300 400 500 600 700 800BiodiversityWaterBaselineGap 
     
     
 
tonnes of CO2eq for 2030 (161). Therefore, Estonia 
is on track to meet the 2030 target. 

Although  Estonia’s  overall  greenhouse  gas 
emissions  from  agriculture  are  relatively 
moderate,  Estonia’s  agriculture  is  still  a 
source of emissions and continues to have an 
impact  on  air,  water  and  soils.  In  2022, 
agriculture generated 1.6 million tonnes of CO2eq, 
accounting  for  around  11%  of  the  country’s  total 
emissions 
includes 
(excluding  LULUCF).  This 
856 000 tonnes of CO2eq from livestock. Pesticide 
levels have exceeded the set thresholds in 20% of 
surface  water  monitoring  stations (162).  Peat 
extraction has destroyed approximately 30 000 ha 
of  raised  bogs  in  Estonia,  with  around  20 000 ha 
still  in  use.  Drained  peatlands  are  among  the 
country’s 
largest  source  of  greenhouse  gas 
emitters. The drainage of bogs increased Estonia’s 
total emissions by 2.3-2.7 times compared to their 
natural  state.  Restoring  these  degraded  areas  is 
crucial,  both  for  biodiversity  protection  and  for 
climate change mitigation. 

to 

contribute 

standards for good agricultural and environmental 
greater 
conditions,  which 
environmental  and  climate  ambitions  and  applies 
to  almost  all  utilised  agricultural 
land.  For 
example, the plan sets a requirement for increased 
soil  cover  during  the  sensitive  winter  period  in 
order to protect soils across the whole country. For 
the  same  purpose,  over  23%  of  utilised 
agricultural  land  receives  support  for  practising 
organic  farming,  which  contributes  to  a  reduced 
use of pesticides, improved water and soil quality, 
and  carbon  sequestration.  In  order  to  maintain 
good  agri-environmental  conditions,  it  is  also 
important  to  continue  to  raise  environmental 
awareness.  Therefore,  in  many  cases,  one  of  the 
basic  conditions  for  farmers  to  receive  support  is 
to attend training on environmental topics. 

farming 

transitioning 
food  system  by 

to  a  more 
is 
Estonia 
sustainable 
fostering 
sustainable  farming  practices  and  raising 
in  particular  by 
agronomic  standards, 
encouraging 
and 
organic 
environmental training for farmers.  23.4%  of 
Estonia’s land is under organic farming. This is the 
second highest result in the EU and well above the 
EU  average  of  10.5%.  Estonia  is  contributing 
substantially to achieving the target to have 25% 
of the EU’s agricultural land under organic farming 
by  2030.  Forests  cover  around  50%  and 
agricultural land covers some 25% of the country. 
is  mainly  cultivated  with 
Agricultural 
extensive 
common 
agricultural policy (CAP) strategic plan uses around 
EUR 456  million  (68%)  of  its  total  CAP  budget  to 
support environmental and climate objectives. The 
focus  is  on  carbon  sequestration,  biodiversity  and 
increasing 
valuable  grasslands,  as  well  as 
knowledge  about  sustainable  production.  Farmers 
can receive additional payments if they commit to 
adopting  certain  agronomic  practices  that  are 
beneficial  for 
the  environment  and  climate. 
Estonia’s CAP strategic plan implements enhanced 

land 
techniques. 

Estonia’s 

(161) Climate Action Progress Report 2024, COM/2024/498. 

(162) EEA, 2024, Pesticides in rivers, lakes and groundwater in 

Europe, Link. 

73 

 
 
Table A9.1:  Key indicators tracking progress on climate adaptation, resilience and environment 

(1) The data show the average for the timespan 2006-2023 based on EFFIS - European Forest Fire Information System. 
(2) Scale: 0 (no protection gap) – 4 (very high gap). EIOPA, 2024, Dashboard on insurance protection gap for natural catastrophes. 
(3) van Daalen, K. R. et al., 2024, The 2024 Europe report of the Lancet Countdown on health and climate change: unprecedented 
warming demands unprecedented action. The Lancet Public Health. 
(4) This indicator measures total water consumption as a percentage of the renewable freshwater resources available for a given 
territory and period. Values above 20% are generally considered to be a sign of water scarcity, while values equal or greater than 
40% indicate situations of severe water scarcity. 
(5) European Commission, 2024, 7th Implementation Report from the Commission to the Council and the European Parliament on 
the implementation of the Water Framework Directive (2000/60/EC) and the Floods Directive (2007/60/EC) (Third River Basin 
Management Plans and Second Flood Risk Management Plans). 
(6) For this indicator, the EU average includes figures for the UK under the previous configuration, EU-28. 
(7) European Commission, 2023, EU Bioeconomy Monitoring System dashboards. 
(8) Nitrates can persist in groundwater for a long time and accumulate at a high level through inputs from anthropogenic sources 
(mainly agriculture). The EU drinking water standard sets a limit of 50 mg NO3/L to avoid threats to human health. 
(9) 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. 
Source: Eurostat, EEA. 

74 

Climate adaptation and preparedness:20182019202020212022202320182021Drought impact on ecosystems31.467.8409.074.7315.556.772.76[area impacted by drought as % of total]Forest-fire burnt area (1)31            31            31            31            31            31            [ha, annual average 2006-2023]Economic losses from extreme events-           -           -           -           -           4              24 142       62 981       [EUR million at constant 2022 prices]Insurance protection gap (2)----0.88         0.63         [composite score between 0 and 4]Heat-related mortality (3)96            96            96            96            96            [number of deaths per 100 000 inhabitants in 2013-2022]Sub-national climate adaptation action43            43            43            43            43            42            4144[% of population covered by the EU Covenant of Mayors for Climate & Energy]Water resilience:20182019202020212022202320182021Water Exploitation Index Plus, WEI+ (4)2.61.11.01.72.2-4.54.5[total water consumption as % of renewable freshwater resources]Water consumption498          409          357          411          483          -           [million m3]Ecological/quantitative status of water bodies (5)[% of water bodies failing to achieve good status]Surface water bodies---47%---59%Groundwater bodies---7%---93%Biodiversity and ecosystems:20182019202020212022202320182021Conservation status of habitats (6)56.7-----14.7-[% of habitats having a good conservation status]Common farmland bird index74.174.769.0---72.274.42000=100Protected areas---2121--26[% of protected land areas]Sustainable agriculture and land use:20182019202020212022202320182021Bioeconomy's added value (7)1 762       1 878       1 927       2 293       634 378     716 124     [EUR million]Landscape features----6              -[% of agricultural land covered with landscape features]Food waste--125128134-[kg per capita]Area under organic farming21.022.322.423.023.47.99-[% of total UAA]Nitrogen balance------[kg of nitrogen per ha of UAA]Nitrates in groundwater (8)4.85.05.55.2--[mgNO3/l]Net greenhouse gas removals from LULUCF (9)3 471       3 279       1 243       812          339          -           256 077-     240 984-     [Kt CO2-eq]EstoniaEU-27EstoniaEU-27EstoniaEU-27EstoniaEU-27 
 
  
 
FAIRNESS 
ANNEX 10: LABOUR MARKET 

strain  are  emerging,  with 

Despite  the  recession,  in  2024  the  Estonian 
labour  market 
resilient.  The 
remained 
employment  rate  remained  high,  above  the  2030 
national  target  for  the  third  consecutive  year  and 
ranking  among  the  highest  in  the  EU.  However, 
signs  of 
the 
unemployment 
rising  since  2022  and 
sustained labour shortages in key sectors. Russia’s 
war  of  aggression  against  Ukraine  has  negatively 
impacted  the  economy,  adding  to  structural 
challenges  such  as  persistent  regional  disparities, 
labour  market  inequalities,  skills  mismatches  and 
shortages impacting Estonia’s competitiveness and 
potential economic growth. 

rate 

in 

(20-64 

the  EU 

Employment  remained  strong  in  2024  even 
as  unemployment  increased.  After  rising  to 
historically  high  levels  in  2023,  the  employment 
and activity rates remained high in 2024 at 81.8% 
and  88.3%,  making  the  country  one  of  the  ‘best 
performers’ 
(75.8%  and  80.4% 
respectively).  This  high  employment  rate,  already 
above the national 2030 target of 81.3%, is even 
more  remarkable  against  the  background  of  the 
very  large  influx  of  Ukrainian  refugees  living  in 
Estonia  (equal  to  about  2.6%  of  the  Estonian 
population) (163).  Ukrainians  are  well  integrated 
into  the  labour  market,  with  57%  of  temporary 
protection  beneficiaries 
years  old) 
employed,  and  the  share  of  Ukrainians  among  all 
registered  unemployed  people  declining  from 
12.5%  in  November  2022  to  6.8%  in  September 
2024.  In  2024,  Estonia  had  one  of  the  highest 
employment  rates  (75.7%)  among  older  workers 
(in the age group 55-64), significantly higher than 
the  EU  average  (65.2%).  The  employment  rate  of 
older  workers  has  been  rising  steadily,  largely 
because of the gradual increase in the retirement 
age and the strong motivation to continue working 
due  to  low  pensions  relative  to  wages.  However, 
the unemployment rate has been rising from 5.6% 
at  the  onset  of  the  recession  in  2022  to  6.4%  in 
2023,  and  even  further  to  7.6%  in  2024  (EU: 
5.9%). It is expected to remain around 7% in 2025 
due  to  prolonged  expectations  of  weak  economic 
activity  and  demand.  Long-term  unemployment 
rose  considerably  in  2024,  reaching  1.8%  and 
almost equalling the EU average of 1.9%. 

(163) Statistics Estonia (data from Jan 2024). 

75 

Graph A10.1: Key labour market indicators 

Activity rate and Employment rate (% of population), total, 
ages 20-64 
Unemployment rate and long-term unemployment rate (% of 
labour force), total, ages 15-74 
Youth unemployment rate (% of labour force), total, ages 15-
24 
NEET: Not in employment, education or training (% of 
population), total, ages 15-29 
Source: Eurostat, LFS 

Regional  differences  are  considerable,  with 
higher unemployment rates in rural areas. In 
2023,  the  unemployment  rate  reached  10.1%  in 
the  north-east  of  the  country  compared  to 
unemployment  rates  between  6%  and  7.5%  in 
other  regions.  This  can  be  partly  explained  by the 
predominance  in  the  north-east  region  of  the 
industrial  sector  (particularly  the  oil  shale  sector). 
This  sector  was  most  affected  by  the  recession, 
led  to  expectations  of  a  higher 
which  also 
unemployment rise among men. Many other socio-
economic  indicators  are  considerably  worse  than 
average  in  the  border  regions  both  in  north-east 
and south-east Estonia, with significant variations 
in  GDP  per  capita  between  Põhja-Eesti  and  the 
remaining regions (see Annex 17). 

Despite  efforts  to  improve  young  people’s 
labour  market  outcomes,  challenges  persist. 
The  youth  unemployment  rate  (15-24)  increased 
in 2024 and is higher than the EU average (19.1% 
vs EU: 14.9%) and significantly above the rate for 
the 
remains 
significantly  above  pre-pandemic  levels.  Youth 

population. 

general 

also 

It 

767880828486889005101520252012201320142015201620172018201920202021202220232024%%EEActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-29 (lhs) 
 
 
 
   
 
 
employment  and  labour  force  participation  stood 
at 35.4% and 43.7% in 2024, respectively, slightly 
above the EU average. After steadily decreasing in 
the last decade, the share of young people not in 
employment, education and training (NEET) rose to 
11%  in  2024,  above  pre-COVID-19  levels  and  in 
line  with  the  EU  average.  Young  people  not  in 
education  or  training  face  more  difficulties  in 
finding  a  job  in  rural  areas,  also  due  to  lower 
educational  outcomes  and  higher  early  school 
leaving,  regional  gaps,  and  language  barriers  for 
the  Russian-speaking  population.  To  help  NEETs 
Estonian 
employment, 
transition 
government  adopted 
reinforced  Youth 
Guarantee  action  plan  in  2022.  The  action  plan 
focuses  on  increasing  youth  employment,  which 
includes  preventing  young  people  from  ending  up 
in  a  NEET  situation  and  supporting  young  people 
who do experience such a situation. As part of its 
recovery  and  resilience  plan  (RRP),  Estonia  is 
implementing  the  ‘My  First  Job’  scheme,  which 
helps get young people into employment by paying 
a  wage  subsidy  to  the  employer  and  reimbursing 
them the training costs. 

into 

the 

the 

Graph A10.2: Labour market outcomes of young people 
(15-24) 

Employment rate (% of population), total, ages 15-24; 
Youth in education and training (% of population), total, ages 
15-24 
Youth unemployment rate (% of labour force), total, ages 15-
24 
Youth unemployment-to-population ratio (% of population), 
total, ages 15-24 
NEET: Not in employment, education or training (% of 
population), total, ages 15-24 
Source: Eurostat, LFS 

less 

than 

Vulnerable  groups, 
including  adults  with 
lower-level  qualifications  and  persons  with 
disabilities,  also  face  barriers  to  labour 
market  integration.  Employment  outcomes  in 
Estonia are closely tied  to educational  attainment 
(see  Annex  12).  The  employment  rate  for  people 
lower-secondary  educational 
with 
attainment,  at  65.7%,  was  more 
than  23 
percentage  points (pps)  lower  than  for  those  who 
have  post-secondary  educational  attainment  in 
2024.  After  rising  sharply  in  2022,  the  disability 
employment  gap  narrowed  by  6 pps  in  2023  and 
stabilised in 2024, below the EU average (20.8 pps 
vs 24 pps in 2024). Estonia set the target for the 
employment  rate  of  persons  with  disabilities  at 
52% by 2030. Despite this, the risk of poverty and 
social exclusion among persons with disabilities is 
one the highest in the EU (see Annex 11). Targeted 
measures  would  help 
integrate 
underrepresented  groups  and  those  outside  the 
labour  market  as  well  as  help  them  retain  an 
adequate standard of living. 

to  better 

reduced 

inflation 

Nominal  wage  growth  was  strong  in  2024, 
rates, 
coupled  with 
allowing  for  real  wages  to  rebound.  Nominal 
wages  growth  in  Estonia  is  expected  to  slow  to 
5.8%  in  2024  after  reaching  8.2%  in  2023 (164), 
above the EU average in both years (5.9% in 2023 
and  5%  in  2024).  Real  wages  have  only  partly 
recovered from the losses in 2022 and 2023, with 
a projected increase of 2.3% in 2024 on the back 
of  decreasing  inflation,  and  they  remain  below 
2021  levels.  Unit  labour  costs  are  projected  to 
grow  by  5.7%  in  2024,  significantly  less  than  in 
2023  (15.2%).  Labour  productivity  continued  to 
decline,  with  the  country’s  productivity  per  hour 
worked  falling  to  67.9%  of  the  EU  average  in 
2023,  the 
in  over  five  years.  Gross 
disposable household income per capita remained 
under pressure in 2023, falling again to 126% of 
the 2008 value from 130.5% in 2022 (EU: 111.1% 
in  2023,  up  from  110.5%  in  2022,  2008=100), 
living  costs  and  the  eroded 
reflecting  rising 
purchasing power. Minimum wages will rise by 8% 
in  nominal  terms  and  reach  EUR 886  in  2025, 
outpacing both inflation and average wage growth, 
and  thereby  improving  the  purchasing  power  of 

lowest 

(164) European Commission, European Economic Forecast. Autumn 
2024. For nominal wages, pay per employee includes: i) 
wages and salaries payable in cash or in kind; and ii) social 
contributions payable by employers. For real gross wages, 
the deflator used is the Harmonised Index of Consumer 
Prices (HICP). 

76 

0102030405060708005101520253035200920102011201220132014201520162017201820192020202120222023%%EEUnemployment rate (lhs)Unemployment ratio (lhs)NEET (lhs)In education, training (rhs)Employment rate (rhs) 
  
 
low-income earners. However, they remain among 
the lowest in the EU. In-work poverty continues to 
be  high,  at  10.2%  in  2024  (EU:  8.2%),  potentially 
indicating  further  scope  to  improve  the  adequacy 
of minimum wages (see Annex 11). 

be 

could 
increase 

dialogue 
to 

further 
Social 
strengthened 
collective 
bargaining  coverage.  The  share  of  collective 
bargaining in Estonia is particularly low (165), while 
the  share  of  low-wage  earners  is  among  the 
highest  in  the  EU  (166).  The  involvement  of  social 
partners  in  reforms  and  policies  in  Estonia  has 
improved in recent years but remains limited. The 
2023  agreement  on 
the  minimum  wage 
framework (on top of the regular yearly minimum 
wage  negotiations)  sets  out  the  minimum  wage 
growth rate until 2027, when it should reach 50% 
of the average salary. 

The  gender  pay  gap  remains  high,  although 
the  situation  is  slowly  improving.  After  rising 
to 21.3% in 2022, the unadjusted gender pay gap 
fell  to  16.9%  in  2023.  While  it  is  still  among  the 
highest  in  the  EU  (EU:  12.7%  in  2022),  it  has 
decreased significantly in the long term, falling by 
12.9 pps since 2013. At the same time, Estonia is 
among the best performers as regards the gender 
employment gap (1.7% vs 10% in the EU in 2024). 
According  to  national  statistics (167),  the  largest 
salary differences between men and women were 
reported in the fields of wholesale and retail trade, 
motor  vehicle  and  motorcycle  repair  (25.5%), 
information  and  communication  (25.1%),  and 
financial  and  insurance  activities  (24.9%).  Under 
the  RRP,  steps  have  been  taken  to  reduce  the 
gender  pay  gap,  including  the  development  of  a 
digital  tool  prototype (168)  to  help  employers 
analyse  the  wage  gap  in  their  company  and  take 
informed wage decisions. 

(165) OECD/AIAS database on Institutional Characteristics of Trade 
Unions, Wage Setting, State Intervention and Social Pacts 
(ICTWSS); EE’s collective bargaining coverage: 19.1% in 
2021. 

(166) European Commission, Economic inequalities in the EU. 

(167) Statistics Estonia’s and Eurostat’s methodologies for 

calculating the gender wage gap differ. Eurostat’s wage gap 
does not take into account companies and institutions with 
less than 10 employees, or the fields of agriculture, forestry 
and fishing, public administration and defence. 

in 

rate 

job  vacancy 

Labour  shortages  have  decreased,  but  some 
sectors  and  occupations  face  significant 
challenges.  The 
remains 
relatively  low  (1.5%  in  Q4-2024),  below  both  its 
pre-pandemic level (1.9% in Q4-2019) and the EU 
average (2.3% in Q4-2024), continuing its decline 
since  peaking  in  Q1-2022.  However,  significant 
shortages  are  reported 
ICT,  financial  and 
insurance activities, public administration, defence, 
education  and  healthcare.  According  to  CEDEFOP-
EURES  data (169),  the  most  requested  occupations 
were  teachers,  sales  workers,  personal  service 
workers,  metal  and  machinery  workers  and 
construction  workers (170).  Labour  shortages  are 
expected  to  be  further  exacerbated  by  an  ageing 
workforce, with the share of those aged 65+ rising 
to 20.5% in 2024 (EU: 21.6%), a 4.1 pps increase 
over  the  last  decade.  The  ageing  of  teachers  and 
high 
rates  are  already  creating 
shortages in the education system (see Annex 12), 
with  healthcare  and  education  also  impacted  by 
the  difficult  working  conditions.  In  October  2024, 
the share of employers expecting labour shortages 
to  limit  their  production  was  relatively  low  in 
industry  (8.9%),  construction  (8.5%),  and  services 
(6.1%) (171),  compared  to  both  the  EU  averages 
and  pre-pandemic  levels.  On  the  other  hand, 
unmet  demand  for  employment  as  measured  by 
the labour market slack (172) increased to 12.8% in 
2024, slightly above the EU average (11.7%). 

retirement 

Estonia’s 

macroeconomic 

Skills  shortages  and  mismatches  persist.  In 
2024, 
skills 
mismatch (173)  slightly  increased  to  15.8%  from 
15.4%  in  2023,  but  it  remained  below  the  EU 
average  of  19.2%.  Despite  a  slight  increase  in 
2024,  the  overqualification  rate  in  Estonia  has 
been on a declining trend since 2013, with 22.2% 
of  higher  education  graduates  employed 
in 
occupations  not  requiring  such  qualifications  in 
2024  (EU:  21.5%).  On  the  opposite  side,  12%  of 
workers are underqualified according to the OECD, 
and 23% report that some of their skills are lower 
than what is required for their job (OECD average: 

(169) EURES - Countries and occupations | CEDEFOP.. 
(170) From Jan to Sept. 2024. 
(171) Commission, DG ECFIN Business and consumer surveys. 
(172) Labour  market  slack  refers  to  all  unmet  needs  for  employment,  or 
the  extent  to  which  labour  supply  exceeds  labour  demand  in  the 
short  run. It  has  four  components:  underemployed  people  working 
part-time,  unemployed  people,  people  seeking  work  but  not 
immediately available, and those available to work but not seeking. 

(168) A digital tool for analysing the gender pay gap, known as the 

‘Palgapeegel’ (‘Pay Mirror’) platform: Palgapeegel | 
Majandus- ja Kommunikatsiooniministeerium. 

(173) The macroeconomic skills mismatch indicator measures the 

dispersion of employment rates across skill groups (proxied by 
qualification levels, with ISCED 0-2 low; 3-4 medium and 5-7 high). 

77 

 
 
 
10%) (174).  Improving  the  labour  market  relevance 
of education and training can help further address 
labour  shortages  and  skills  mismatches,  by 
improving career guidance, addressing the gender 
pay  gap, 
reskilling  and  upskilling 
opportunities,  and  better  anticipating  skills  needs. 
These  efforts  would  help  Estonia  maintain  its 
employment rate in line with the national target of 
81.3%  and  make  progress  towards  achieving  the 
2030 adult learning target of 52.3%. 

increasing 

reliant  on  higher 

labour 
(175).  While 

Attracting  talent  can  help  address  Estonia’s 
workforce  shortages.  According  to the  Estonian 
Qualifications  Authority,  annual  labour  demand 
will exceed the number of new entrants in the next 
(See  Annex  12),  making  employment 
years 
force 
increasingly 
participation  and  migration 
the 
integration of foreign workers has grown, it is still 
not  always  aligned  with  evolving  labour  market 
ICT 
needs.  Exceptions  exist 
specialists, and other categories, but many sectors 
struggle  to  attract  skilled  workers  without  high-
end salaries (176). Better anticipation of skills needs 
through  expanded  use  of  the  OSKA  system  and 
accessible  pathways  for  skilled  foreign  labour  in 
sectors  facing  persistent  shortages  will  contribute 
to sustaining Estonia’s competitiveness. 

start-ups, 

for 

in 

energy-intensive 

skills  acquired  outside  formal  learning.  To  ensure 
that  basic  digital  skills  are  widespread  among  its 
population,  Estonia  is  implementing  measures  to 
‘educate the educators’ supported by the European 
Social  Fund.  The  green  transition  had  a  sizeable 
labour  market,  with 
impact  on  the  Estonian 
employment 
industries 
declining  from  2.8%  in  2020  to  1.7%  in  2024. 
Upskilling  and  reskilling  in  these  industries  is 
growing (see Annex 12), with the share of workers 
taking  part  in  education  and  training  rising  from 
8.7%  in  2015  to  19.6%  in  2023  (EU:  10.9%). 
Investments  under  the  RRP  and  Just  Transition 
Fund  include  measures  to  mitigate the  social  and 
employment  impact  of  this  transition,  including 
retraining  and  upskilling  programmes  for  workers 
in the oil shale industry and effective job transition 
measures.  The  European  Social  Fund  Plus  will 
integrate  the  development  of  green  skills  into 
labour  market,  education  and  training  measures, 
increase  the  attractiveness  and 
which  helps 
people’s  awareness  of  study  fields  related  to 
green and digital change. 

The  workforce  is  adapting  to  the  green  and 
digital  transitions,  with  a  growing  need  for 
skilled  workers  in  emerging  sectors.  Estonia 
has a large and growing pool of digital experts and 
strong digital skills across the population. In 2024, 
ICT specialists made up 7.2% of the workforce (EU: 
5%).  In  particular,  as  regards  women  working  as 
ICT specialists, Estonia is performing very well with 
27.6%,  well  above the  EU  average  of  19.5%.  The 
share of the general population with at least basic 
digital  skills  exceeds  the  EU  average  (62.6%  vs 
55.6%),  as  does  the  share  of  workers  with  these 
skills  (71%  vs  EU:  64.7%).  However,  67%  of 
Estonian  companies  struggle 
ICT 
specialists, highlighting that a skills gap still exists. 
Under  the  RRP,  Estonia  is  taking  measures  to 
strengthen the capacity of businesses to foster the 
digital  transition, through upskilling  and  retraining 
in  ICT,  as  well  as  through  a  better  recognition  of 

recruit 

to 

(174) Survey of Adults Skills 2023: Estonia | OECD. 

(175) OSKA general forecast 2022-2031 

(176) Foreign workers are exempted from the migration quota if 
their salary is at least 1.5 times the national average wage 

78 

 
 
 
ANNEX 11: SOCIAL POLICIES 

recent 

inflation 

improvements, 

Despite 
Estonia 
continues  to  face  significant  challenges 
related  to  poverty  and  social  exclusion, 
particularly  among  vulnerable  groups  and  in 
levels  have 
rural  areas.  Although 
stabilised  after  the  peaks  in  recent  years,  some 
households,  older  people  especially,  struggle  to 
meet  their  essential  needs.  Income  inequalities 
also  persist,  partially  related  to  low  minimum 
wages and the limited redistributive impact of the 
tax  and  benefits  system.  The  limited  capacity  of 
the social protection system and uneven access to 
quality long-term care services also pose risks for 
Estonia’s  sustainable  and 
inclusive  growth. 
Addressing  these  challenges  will  support  more 
inclusive growth and strengthen competitiveness. 

rate 

falling 

(AROP) 

(AROPE) 

Poverty  and  social  exclusion  risks  remain 
high, especially for some groups and in rural 
areas.  After  peaking  at  25.2%  in  2022,  when  it 
reached its highest level in nine years, the at-risk-
of-poverty  or  social  exclusion 
rate 
decreased  significantly  in  the  last  two  years, 
falling  to  24.2%  in  2023  and  to  22.2%  in  2024. 
This  improvement  was  mainly  driven  by  the  at-
risk-of-poverty 
by 
2.3 percentage  points  (pps)  to  20.2%  in  2024. 
While the AROPE and AROP rates are now back to 
2021  levels,  they  remain  higher  than  the  EU 
averages  (21%  and  16.2%  in  2024).  Persistent 
poverty  risks  are  driven  by  a  combination  of 
factors,  including  limited  economic  opportunities 
and  employment  support,  and  are  aggravated  by 
insufficient  access 
to  healthcare  and  social 
services, especially in rural areas. For older people 
and  persons  with  disabilities,  the  AROPE  rates 
(39.4%  and  39.1%)  fell  considerably  in  the  last 
two  years,  dropping  by  13.1  and  8.7 pps 
respectively, but remain among the highest in the 
EU  due  partly  to  the  relatively  low  adequacy  of 
pensions  and  the  social  protection  system  (see 
below). In 2024, 71.5% of older people living alone 
and 
households 
experienced poverty. There are significant regional 
differences  in  the  social  situation  in  Estonia  (see 
Annex  17),  with  relative  poverty  being  more  than 
twice as high in the counties of Ida-Viru (35%) and 
Lääne-Viru  (29.2%)  than  in  Harju  (15.5%)  and 
Rapla 
(14.1%).  Many  other  socio-economic 
indicators are considerably  worse than average in 
the  north-east  and  south-east  border  regions. 
Further  targeted  support  aimed  at  strengthening 
social  cohesion  and  resilience  in  these  regions 
could 
these 
vulnerabilities  will  help  Estonia  move  towards  its 

single-person 

considered. 

Addressing 

50.2% 

be 

of 

national  2030  target  of  reducing  the  number  of 
people  at  risk  of  poverty  or  social  exclusion  by 
39 000 compared to 2019, as so far this number 
has declined by only 9 000. 

Graph A11.1: At-risk-of-poverty or social exclusion rate, 
age groups 

AROPE: At-risk-of-poverty or social exclusion rate (% of total 
population). 
Source: Eurostat, EU-SILC [ilc_peps01n] 

The risk of poverty or social exclusion among 
children  is  relatively  low,  but  disparities 
persist. After an increase in 2023, the AROPE rate 
for  children  fell  by  1.8 pps  to  16.5%  in  2024, 
remaining  below  the  EU  average  of  24.8%  in 
2023.  The  poverty  or  social  exclusion  risk  for 
children is highly dependent on the education level 
of their parents, spanning from 10.1% for parents 
with  higher  education  to  45.6%  for  children  of 
parents  with  a  low  level  of  education.  Single-
parent  households  face  a  higher  poverty  risk 
(35.3%).  To  mitigate  the  impact  of  poverty  on 
children,  Estonia 
the 
is  also 
European  Child  Guarantee  (ECG)  as  part  of  its 
2022 action plan. While considerable progress has 
been  made  in  the  provision  of  the  key  social 
services  covered  under  the  ECG,  more  work  is 
needed  to  target  the  most  vulnerable  groups  and 
to  achieve  the  national  2030  target  of  reducing 
the number of children in poverty by 13 000. 

implementing 

79 

01020304050602015201620172018201920202021202220232024% of populationEEChildren (<18y)Working age (18-64)Elderly (65+) 
 
   
 
 
Graph A11.2: In-work-poverty rate, groups 

In-work-poverty rate (% of employed). Employed who have an 
equivalised disposable income below 60% of the national 
equivalised median income. 
Source: Eurostat, EU-SILC 

Despite  recent  efforts,  Estonia  continues  to 
face  high  in-work  poverty  risks.  In  2024,  in-
work  poverty  in  Estonia  remained  above  the  EU 
average  (10.3%  vs  8.2%),  with  a  high  AROP  rate 
among  part-timers  (27%  vs  14.3%  for  the  EU  in 
2023), the self-employed (29.6% vs 20.7% for the 
EU)  and  quasi-jobless  households  (75.9%  vs 
61.2%  for  the  EU).  Household  income  declined 
further in 2023 (see Annex 10) and, while inflation 
eased considerably in 2024, prices have increased 
around  40%  over  the  last  three  years (177).  As  a 
result,  7.7%  of  the  population,  or  approximately 
104 700  people,  experienced  material  and  social 
deprivation  in  2024.  Estonia  has  raised  minimum 
wages  in  recent  years  to  reduce  in-work  poverty, 
but they remained among the lowest in the EU in 
2024  at  EUR 820  per  month,  barely  above  the 
AROP threshold (EUR 807 per month). In 2025, the 
minimum  wage  will  increase  by  8%  in  nominal 
terms,  outpacing  both  projected  inflation  and 
average  wage  growth 
(see  Annex  10).  The 
minimum  wage  framework,  drawn  up  with  social 
partners  in  2023,  sets  the  growth  rate  trajectory 
until 2027, when the minimum wage should reach 
50% of the average salary. 

impact  of  social 
poverty 

The  social  protection  system  still  has 
adequacy  and  coverage  gaps.  Estonia’s  social 
protection  benefits  expenditure  is  one  of  the 
lowest in the EU (15.4% vs 26.8% of GDP in 2023) 
and 
in  the  Baltics.  The  current  geo-political 
situation and increased public spending on defence 
calls  for  efficient  and  well-targeted  funding  that 
will  slowly but steadily continue to improve  social 
transfers 
protection.  The 
(excluding  pensions)  on 
reduction 
increased from  27.7% in 2023 to 31.5% in 2024, 
below  the  EU  average  of  34.4%,  pointing  to 
further  scope  for  increasing  both  the  efficiency 
and  effectiveness  of  social  benefits.  The  low 
coverage  and  restrictive  eligibility  criteria  of 
unemployment  benefits,  especially  for  people  in 
non-standard  forms  of  work  and  the  self-
employed,  contribute  to  higher  poverty  risks.  The 
self-employed  are  not  covered  by  unemployment 
insurance  and  can  only  access 
the  non-
contributory  unemployment  allowance  (under  the 
same  conditions  as  employees).  There  are  also 
gaps in sickness benefits, where the self-employed 
only  have  access  to  voluntary  coverage.  With  the 
self-employed  and  part-time  workers  accounting 
for  a  growing  share  of  total  employment  –  rising 
from  9%  to  12%  and  from  11.7%  to  15.7% 
respectively  in  the  last  decade (178)  –  it  is  crucial 
that  Estonia  proceeds  as  planned  with  reforming 
its  unemployment  insurance  system  by  2026  and 
proposing 
in  2025  to  extend  the 
coverage of the unemployment insurance benefits 
system  to  people  in  non-standard  forms  of  work. 
The  subsistence  benefit 
(Estonia’s  minimum 
income  scheme)  is  relatively  low  (41.4%  of  the 
poverty  threshold  vs  55.6%  for  the  EU;  41.4%  of 
the income of a low-wage earner vs 46.1% for the 
EU) (179). 

legislation 

Inequalities  are  relatively  high,  exacerbated 
by  economic  and  structural  factors  that 
impact lower-income groups. Income inequality, 
as  measured  by  the  income  quintile  share  ratio, 
fell in 2024 , when the income of the richest 20% 
of the population was around 5 times that of the 
poorest  20%.  Wealth  inequalities  in  Estonia  are 
among  the  highest  in  the  euro  area,  with  the 
richest 10% holding 59% of net wealth (euro area 
average: 53.4%). The income share of the bottom 
40% is below  the  EU average, but it rose back to 

(177) Statistics Estonia. This indicates the increase in the cost of a 
basket of consumer goods; it does not, however, reflect all of 
the increase in the cost of living. Namely, Estonia’s consumer 
price index does not include an interest rate component. 

(178) Estonian Central Bank, ‘Job Market Review 2, 2024’. 

(179) SPC benchmarking exercise on minimum income - Income 

2022. 

80 

05101520253035201620172018201920202021202220232024% of employedEETotalTemporaryPart-timeSelf-employed 
   
 
 
in  reducing 

2020  levels  in  2024.  Estonia  has  one  of  the 
smallest  middle  classes  in  the  EU,  with  55%  of 
households  in  the  medium-income  bracket (180).  It 
has  one  of  the  largest  low-income  classes  in  the 
EU,  with  33%  of  households  in  this  category. 
Inequalities are mainly driven by the low adequacy 
of  the  social  safety  net  and  the  weak  income 
redistribution  system.  The  impact  of  taxes  (see 
income 
Annex  1)  and  transfers 
inequality  (measured  by  the  S80/S20  ratio)  is 
weak  (40%  vs  48%  for  the  EU) (181).  Other 
significant  factors  include  the  high  percentage  of 
in-market 
low-wage  earners, 
income 
low  coverage  of 
collective  bargaining  (21%).  Several  tax  reforms 
(see Annex 12) in 2025 are not expected to reduce 
Estonia  2035 
income 
development  strategy,  adopted  in  2021,  sets 
modest strategic goals for reducing inequality and 
poverty,  but  acknowledges  the  importance  of 
regional,  gender  and  age-based 
addressing 
inequalities in the job market. 

inequality,  and  the 

leading  to  high 

inequality (182). 

The 

Pension  adequacy  remains  a  challenge,  with 
low  replacement  rates  and  demographic 
pressures.  Pensions  increased  sharply  in  recent 
years,  growing  by  10.6% 
in  2024  due  to 
indexation and rising social tax revenues. However, 
they remain among the lowest in the EU relative to 
work  incomes  and  a  main  driver  of  old-age 
poverty,  with  an  aggregate  replacement  ratio  of 
50%  in  2024  (vs  61%  in  the  EU)  and  a  relative 
median  income  ratio  of  61%  for  those  aged  over 
65 in 2024 (EU: 90% in 2024) (183). The adequacy 
of  minimum  pensions (EUR 372  as  of  April  2024) 
remains an issue. The 2021 pension reform, which 
introduced the option to opt out from the statutory 
funded pension scheme, risks further undermining 
pension  adequacy  and 
long-term 
poverty  risk  for  retirees (184).  By  the  end  of  2022, 

increasing 

(180) Eurofound (2024): Developments in income inequality and 
the middle class in the EU | European Foundation for the 
Improvement of Living and Working Conditions, p. 63. 

(181) Source: European Commission calculations based on 

Eurostat. 

(182) Euromod analysis (2024). 

(183) The  aggregate  replacement  ratio  is  defined  as  the  ratio  of 
the  median  individual  gross  pension  of  people  aged  65-74 
to the median individual gross earnings of people aged 50-
59.,  while  the  relative  median  income  ratio  compares  the 
median  equivalised  disposable  income  of  individuals  aged 
65 and over to that of all individuals aged below 65. 

(184) Ministry of Finance and Ministry of Social Affairs: Estonian 
Pension System Sustainability Analysis (2022): Eesti 

214 000  people  had  opted  out  of  the  scheme, 
taking  out  around  30%  of  the  total  funding 
(EUR 1.8  billion) (185).  Recent  adjustments,  an 
income  tax  exemption  up  to  EUR 776 (186)  and 
allowances  for  pensioners  living  alone  can  help 
reduce  old-age  poverty.  Demographic  trends  are 
likely  to  put  financial  pressure  on  the  pension 
system,  which  is  increasingly  relying  on  longer 
working  lives  to  maintain  its  adequacy  and  fiscal 
sustainability. The share of the population aged 65 
and over is projected to rise from 20.4% in 2022 
to  27.1%  in  2050,  with  the  old-age  dependency 
ratio increasing from 32.3% to 46.2%. 

to 

care 

related 

regional 

long-term 

Estonia  continues  to  face  challenges  with 
long-term  care  and  healthcare  provision,  as 
quality  and  availability  vary  significantly 
across  municipalities.  Despite  falling  sharply  in 
2024, self-reported unmet needs for medical care 
remain among the highest in the EU, at 8.5% (EU: 
2.5%) (see Annex 14). It remains roughly twice as 
high  for  persons  with  disabilities  compared  to 
income 
others,  mostly 
inequalities.  Estonia’s 
(LTC) 
services are severely underfunded, with one of the 
lowest public expenditure levels in the EU (0.4% of 
GDP vs 1.7% in 2022). The lack of quality services 
is  exacerbated  by  staff  shortages.  In  2019,  only 
10.3%  of  people  aged  65  and  over  used  home 
care services (EU: 28.6%), and in 2022 only 2.9% 
of those aged over 65 received public home care, 
compared  to  4.3%  in  24-hour  residential  care.  In 
2023,  home  services  recipients  were  significantly 
less  than  those  utilising  residential  care (187), 
pointing  to  an  insufficient  supply  of  home  care 
services. Supply has increased in the last 10 years, 
but  significant  regional  differences  remain  due to 
reliance  on  municipal  funding.  Access  to  social 
services  varies  significantly  depending  on  the 
municipality,  driven  by  inequalities  in  supply  and 
pricing.  While  quality  assurance  measures  exist, 
such  as  recommended  guidelines  for  service 
providers  and  municipal  supervisors,  enforcement 
of  these  measures  is  weak.  The  insufficient 
availability of care services often shifts caregiving 
responsibilities  to  relatives,  particularly  women, 
limiting their job market participation and reducing 

pensionisüsteemi jätkusuutlikkuse 
analüüs_sotsiaalministeerium.pdf. 

(185) 2024 Ageing Report Estonia - Country Fiche 

(186) As of January 2025. 

(187) According to the Ministry of Social Affairs. 

81 

 
 
 
 
2023. In Q3-2024, house prices were still growing 
at  6.4%  year-on-year.  They  are  estimated  to  be 
overvalued  by  around  10%  as  at  end-2024. 
Mortgage  rates  increased  from  2.7%  in  2022  to 
5.5%  in  2023,  moderating  mortgage  issuance 
slightly. Building permits decreased significantly in 
2022  and  2023,  returning  to  the  lower  level  of 
2015,  implying  that  housing  supply  will  drop  and 
house  prices  will  continue  to  increase.  However, 
the number of permits started increasing again in 
2024. 

housing 

affordability 

has 
Overall 
deteriorated  over  the  past  decade.  House 
prices have increased more rapidly than household 
income in the last ten years and the house price-
to-income  ratio  has  grown  by  around  10%  since 
2015.  House  price  levels  compared  to  incomes 
remain  one  of  the  highest  in  the  EU.  Taking  into 
account  the  cost  of  mortgage  funding,  the 
borrowing  capacity  of  households  worsened  over 
the  past  decade  as  well  since  an  average 
household now needs a higher share of its annual 
income  for  mortgage  payments.  While  the  rental 
market  is  very  small,  the  ratio  of  new  rents  to 
incomes decreased over the last decade. 

Despite  recent  increases,  Estonia’s  housing 
cost  overburden  is  still  relatively  low.  In 
2024, 8.6% of the population faced housing costs 
above  40%  of  their  total  disposable  household 
income (EU: 8.2%), up 3.7 pps from 2022. Among 
those  at  risk  of  poverty,  the  housing  cost 
overburden  rate  rose  by  10.7 pps to  reach  29.6% 
(vs 31.1% for the EU), driven by limited access to 
affordable housing. As a result, the percentage of 
households  living  in  overcrowded  accommodation 
rose  to  18.4%  in  2024,  5.7 pps  higher  than  in 
2020.  The  latest  partial  homelessness  count  took 
place  in  2021  when  just  over  1 000  people  were 
reported as homeless. Home ownership in Estonia 
remains much higher than the EU average (80.7% 
vs 69.2% for the EU in 2023), with a smaller share 
of the population renting (19.3% vs 30.2% for the 
EU). 

Estonia’s  competitiveness.  With  demand 
for 
healthcare  and  LTC  growing  due  to  demographic 
changes,  ensuring  sufficient  funding  for  both  is 
warranted. 

Estonia  has  made  progress  in  addressing 
healthcare and LTC challenges, supported by 
EU  funds.  Initiatives  include  community-based 
service  places  (including  for  the  elderly)  and 
integrated  centres  for  social  and  welfare  services 
supported by the European Regional Development 
Fund.  Several  reforms  included  in  the  Estonian 
recovery and resilience plan were adopted to help 
improve  LTC  access,  such  as  legislation  defining 
long-term  care  and  requiring  local  authorities  to 
prioritise  home-based  care  with  quality  services. 
An  action  plan  was  also  introduced  to  integrate 
social  and  healthcare  services.  The  European 
Social  Fund  Plus  (ESF+)  is  financing  accessible, 
high-quality  social  services  to  support  carers  and 
persons  with  disabilities  in  accessing  the  job 
market and society. A major step in LTC provision 
was  the  care  reform  which  entered  into  force  in 
July  2023. 
financial 
resources  to  local  governments  to  help  them 
organise LTC, reducing out-of-pocket payments for 
general  care  services.  Challenges  remain 
in 
ensuring  the  adequate  financing,  quality  and 
availability  of  care  services  in  all  municipalities. 
Better  coordination  between  social  security, 
healthcare  systems  and municipalities,  along  with 
prioritisation  of  home  and  community-based  care 
and  assistive  technologies,  could  improve  the 
quality of these services. 

It  provided  additional 

transport  poverty 

remain 
Energy  and 
relatively low. In 2024, 3.6% of households were 
unable to keep their homes adequately warm and 
5.7% faced arrears on utility bills, both below the 
EU  averages (9.2%.  and  6.9%).  Estonia  addresses 
energy  poverty  mainly  through  social  welfare 
measures and financial assistance for low-income 
households,  aiming  to  improve  building  energy 
efficiency  and  provide  support  for  energy  bills. 
Other structural measures will be supported by the 
Social  Climate  Fund  in  the  coming  years.  As 
regards transport poverty, the share of people who 
could not afford a car stood at 7.2% in 2024 (EU: 
5.6%), with vulnerable income groups experiencing 
fewer difficulties than their EU counterparts. 

House prices  have  been  trending  upwards  at 
a fast pace, almost doubling since 2015. After 
increasing by 15.1% and 22.2% in 2021 and 2022 
respectively,  the  growth  rate  slowed  by  5.9%  in 

82 

 
 
ANNEX 12: EDUCATION AND SKILLS 

in  science, 

system  with 

the  education 

Estonia provides  its young  people  with  high-
quality  basic  education,  but  skills  shortages 
and  mismatches  risk  limiting  the  country’s 
competitiveness.  However, 
inequalities  have 
been  widening  slightly  over  the  past  decade,  and 
teacher  shortages  pose  a  risk  to  the  quality  of 
education,  especially 
technology, 
engineering and maths (STEM) fields. Estonia does 
not  fully  capitalise  on  its  high-performing  basic 
education  system  as  the  share  of  young  people 
leaving 
lower 
secondary education or less is still relatively  high. 
To  tackle  early  leaving  from  education,  skills 
shortages  and  mismatches,  the  country  extended 
obligatory 
is 
restructuring 
secondary 
education.  In  many  sectors  of  the  economy,  skills 
shortages  and  mismatches  hamper  productivity 
and 
the  backdrop  of  a 
shrinking  workforce  and  low  resource  and  labour 
productivity,  the  education  and  training  system  is 
under  pressure  to  ensure  a  sufficient  supply  of 
highly  skilled  graduates  in  fields  relevant  to  the 
labour  market,  especially  in  upper  secondary 
vocational and higher education. 

learning  until  age  18  and 

innovation.  Against 

vocational 

upper 

last  decade.  The  2022  OECD  Programme  for 
International Student Assessment (PISA) confirmed 
that  the  country  has  the  smallest  share  of  low-
achieving  pupils  in  the  EU  (only  15%  of  pupils 
have a low performance in mathematics, 13.8% in 
reading  and  10.1%  in  science).  However,  the 
performance  gap  between  advantaged  and 
disadvantaged pupils has slightly widened (4.5 pps 
in  mathematics,  4.7 pps  in  reading  and  5.1 pps in 
science),  but  the  increase  was  below  the  EU 
average 
7.4 pps, 
respectively).  This  widening  socio-economic  gap 
risks  exacerbating  educational  inequalities.  These 
inequalities have negative implications later in life, 
limiting  the  participation  of  disadvantaged  young 
people  in  higher education  and  of  adults  who  are 
less  qualified  in  lifelong  learning.  In  turn,  this 
impacts  these  vulnerable  young  people’s  labour 
market prospects and career opportunities. 

(7.4 pps, 

8.2 pps 

and 

Graph A12.1: Teacher shortages (2015-2022) 

A recent reform of early childhood education 
and care (ECEC) aims to improve quality and 
participation.  Participation  in  ECEC  of  children 
aged  three  to  the  start  of  compulsory  education 
(seven years)  stood at 91.2% in 2023, somewhat 
below the EU average of 94.6% and the EU target 
of 96% by 2030. The rate was 37.8% for children 
under  the  age  of  three,  close  to  the  national 
Barcelona target of 40.5% and in line with the EU 
average  (37.5%).  While  municipalities  are  legally 
required  to  provide  a  place  in  childcare  to  every 
child  from  18  months  onwards,  some  struggle  to 
do so due to a shortage of places. A new ECEC law, 
which  will  take  effect  in  September  2025,  is 
expected  to  help  alleviate  these  shortages  and 
further  improve  quality  by  integrating  childcare 
services  and  preschool  education  into  a  single 
system  and  standardising  requirements  (e.g.  on 
staff qualifications). Integrated ECEC systems, like 
the one to be fully established through the reform, 
are in line with EU policy recommendations (188). 

is  one  of  the  EU’s  top 
While  Estonia 
performers 
in  basic  skills,  educational 
inequalities  have  slightly  increased  over  the 

(188) Council Recommendation of 22 May 2019 on High-Quality 

Early Childhood Education and Care Systems. 

(1) % of students in schools where principals report that a 
lack of teaching staff hinders instruction 
Source: OECD (2023), PISA 2022 results (Volume II) 

Persistent  teacher  shortages  pose  a  risk  to 
the quality of education. The 2022 PISA survey 
shows  a  significant  increase  in  the  number  of 
pupils  who  study  in  schools  where  school  leaders 
perceive the shortage of teachers (73% vs 44% in 
2018)  or  of  qualified  teachers  (51%  vs  33%  in 
2018)  as  an  obstacle  to  teaching  (see  Graph 
A10.1).  Shortages  remain  particularly  severe  in 
for  support 
science  and  mathematics  and 
specialists.  The  shortages  of  fully  qualified 

83 

01020304050607080201520182022%EstoniaEU 
 
 
  
 
 
(iii) 

teachers (191);  and 

teachers (189)  are  exacerbated  by:  (i)  an  ageing 
teacher  population (190);  (ii)  high  dropout  rates  of 
entry-level 
the  new 
requirements for Estonian language proficiency to 
manage the transition to Estonian as language of 
instruction  in  all  public  schools.  A  recent  audit 
warned  that  the  share  of  qualified  teachers  is 
moving  away  from  the  2026  target  of  90% (192). 
The  reasons  for  teacher  shortages  relate  to:  (i) 
high  workloads,  flat  career  structures  and  below-
average  pay  for  tertiary-educated  workers;  (ii)  a 
lack of recognition for the teaching profession; (iii) 
insufficient  preparation  for  the  job,  especially  for 
novice  teachers;  and  (iv)  varying  levels  of  school 
management  quality.  As  Estonia’s  workforce  is 
shrinking,  competition  from  other  sectors  further 
in 
exacerbates 
subjects linked to STEM (193). 

teacher  attrition,  particularly 

in 

but 

(partly  due 

recent  years 

Policies  to  attract  and  retain  more  teachers 
target initial education, career structure, pay 
and  working 
funding 
conditions, 
constraints may be a challenge. As admissions 
to  initial  teacher  education  programmes  have 
to 
increased 
scholarships), teacher retention is a key issue. This 
starts  with  graduates 
teacher 
education  who  do  not  work  as 
teachers, 
constituting  a  teacher  reserve  that  could  reduce 
the shortage of qualified teachers (194). The 2022-
2026  teacher  action  plan  sets  out  measures  to 
make the teaching profession more attractive (195). 
The  Education  Ministry  plans  to  extend  the  plan 
beyond  2026.  There  are,  however,  no  publicly 
available  progress  reports  on  the  action  plan. 
Teacher  pay  still  lags  behind  the  pay  of  similarly 
educated workers (196)). After pay rises of 23.9% in 

initial 

from 

(189) The share of fully qualified teachers (teaching certificate and 
master’s degree) decreased from 87% to 81% between 
2017 and 2022. 

(190) educ_uoe_perp01: in 2022, 37.1% of teachers were over 55, 

well above the EU average of 24.8%. 

(191) In 2022, 55% of teacher training graduates had worked as a 

teacher for five consecutive years after graduation. 

(192) National Audit Office, 2024, Õpetajate vastavus 

kvalifikatsiooninõuetele ja ainepädevus. 

(193) Leijen et.al. (2024) The shortage of teachers in Estonia, 

European Journal of Teacher Education. 

(194) Arenguseire Keskus (2024). Õpetajate reserv Eestis 

(195) Estonian Ministry of Education and Research. (2021). 

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

2023  and  6.6%  in  2024,  no  funding  for  further 
increases is included in the 2025 state budget and 
in the government-approved fiscal strategy for the 
four  years (197)).  The  government  has 
next 
developed  a 
four-stage  career  model  with 
its 
increases  per 
potential  salary 
implementation  depends  on  the  availability  of 
state funding. 

level,  but 

Graph A12.2: Employment rate by educational 
attainment (annual) 

Employment rates of people aged 20-64 (% of population) 
Source: Eurostat, LFS [lfsa_ergaed] 

Early  school  leaving  and  dropping  out  from 
higher  education  result  in  an  insufficient 
supply of skilled graduates. More than 1 in 10 
young  people  leave  the  education  and  training 
system with very low or no qualifications (11% in 
2024), and boys are more likely to do so than girls 
(13.3%  vs  8.6%).  While  this  is  close  to  the  EU 
average  (9.3%),  the  early  leaving  rate  has  not 
significantly  decreased  in  the  last  decade.  Early 
school 
lower 
employment rates (see Graph A12.2) and higher at 
(AROPE) 
-risk-of-poverty-and-social-exclusion 
rates (Estonia has one of the highest AROPE rates 
in  the  EU,  see  Annex  10).  In  2024,  42.7%  of 
Estonians  aged  25-34  held  a  university  degree 
(EU:  44.2%),  but  the  dropout  rate  from  higher 
education  is  relatively  high,  as  is  the  gender  gap 
(21.6 pps  vs  an  EU  11.2  pps  difference  in  favour 
of  women  in  2024).  While  women  tend  to  have 

significantly 

leavers 

have 

(197) Ministry of Finance (2024): 2025 state budget 2025. aasta 

(196) OECD (2024) Education at a Glance, Figure D3.1. 

riigieelarve seletuskiri_final.pdf. 

84 

3040506070809010020072008200920102011201220132014201520162017201820192020202120222023% population 20-64EEHigh skilledMedium skilledLow skilled 
 
  
 
higher educational attainment than men, they are 
often  hired  for  less  prominent  positions,  limiting 
the full use of their skills. Estonia’s gender pay gap 
remains  high  despite 
the  country’s  strong 
performance  in  the  gender  employment  gap  (see 
Annex 10). Early school leaving remains higher for 
persons  with  disabilities  (24.9%  vs  8.9%  for 
people  with  no  disability  in  2024),  indicating  the 
need for stronger inclusion efforts.  

school 

leaving, 

reduce  early 

To 
the 
government raised the compulsory education 
age to 18 in 2024 (previously 16 years). The 
reform  will  require  ninth  grade pupils  in  the 
2025/2026  academic  year  to  stay  in  formal  or 
non-formal  education  until  18,  unless 
they 
complete their education earlier. It aims to ensure 
that  less  than  5%  of  pupils  leave  education  and 
training  early  and  that  all  young  people  acquire 
upper  secondary  education  or  vocational  skills.  Its 
effectiveness  will  depend  on  implementation  and 
adequate funding. 

vocational 

education  with 

An  ambitious  reform  aims  to  boost  the 
attractiveness  of  vocational  education.  In 
2023,  43.4%  of  pupils  in medium-level  education 
attended  vocational  education  and  training  (VET) 
programmes  (EU:  52.4%) (198).  VET  graduates’ 
exposure  to  work-based  learning  fell  to  79.8%  in 
2025 (EU: 65.3%). The new reform aims to better 
integrate 
other 
educational  levels  by  bridging  formal  and  non-
formal  learning  and  strengthening  links  between 
general,  vocational  and  applied  higher  education. 
The  reform:  (i)  promotes  work-based  learning;  (ii) 
in  new  curricula  focused  on  general 
brings 
competencies;  (iii)  proposes  vocational  secondary 
education as a viable alternative to general upper 
secondary education; and (iv)  puts in place career 
counselling  and  flexible  study  arrangements  to 
retain students and reduce dropout rates. The first 
pilots of the new curricula will be implemented in 
2025/2026,  with  all  VET  curricula  updated  by 
2027.  Employment  rates  of  VET  graduates  have 
fluctuated  –  dropping  from  77%  before  the 
COVID-19  pandemic  to  72%  in  2020  and  2021, 
then  rising  to  84.7%  in  2023.  This  highlights  the 
need  for  the  VET  system  to  better  respond  to 

(198) European Commission, Education and Training Monitor 2024. 

85 

labour market demands and improve the flexibility 
of VET provision (199). 

Estonia  performs  well  in  adult  skills  and 
digital  literacy,  but  skills  shortages  and 
mismatches remain. Estonian adult skills exceed 
the  OECD  average,  although  older  adults  are 
significantly  less  proficient  in  all  areas (200).  In 
2023,  62.6%  of  the  population  had  at  least  a 
basic  level  of  digital  skills  (vs  55.6%  in  the  EU). 
However, skills shortages and mismatches remain, 
with over 18 000 additional workers needed every 
year according to OSKA projections (201) – with half 
of  these  requiring  higher  education  and  a  third 
requiring  vocational  skills.  According  to  the  OECD, 
23% of workers report that they have lower skills 
than  required  for  their  job  (OECD:  10%).  On 
qualifications,  almost  40%  of  workers  are 
overqualified  or  underqualified (202).  Mismatches 
can  also  be  a  driver  of  unemployment  when 
unemployed  persons  are  inefficiently  matched 
with  job  vacancies.  Depending  on  the  region  and 
industry, the contribution of mismatch to the level 
of  unemployment 
is  roughly  5-8%,  a  study 
found (203).  In  2022,  41.8%  of  adults  participated 
in education and training over the last 12 months, 
exceeding  the  EU  average  of  39.5%.  Participation 
is higher among young people (49.5% for 25-34-
year-olds  vs  31.2%  for  55-64-year-olds)  and 
considerably  lower  for  adults  with  lower  levels  of 
education  at  18.9%,  in  line  with  the  EU  average. 
Estonia  aims  to  further  strengthen  adult  learning, 
targeting an annual participation rate of 52.3% by 
2030  to  support  upskilling  and  labour  market 
adaptability.  In  addition,  a  project  funded  by  the 
running 
EU’s  Technical  Support 
between  2024  and  2026,  aims  to  help  Estonia 
improve its skills forecasting and governance. 

Instrument, 

flexible 

is  making  educational  pathways 
Estonia 
more 
reach  under-
to  better 
represented  groups.  The  rise  in  varied  and 
flexible  learning  and  career  pathways  gives  new 

(199) Cedefop & ReferNet (2023) VET developments in line with 

national and European priorities. 

(200) OECD (2024), Survey of Adult Skills 2023: Estonia. 

(201) The Estonian Qualification Authority (OSKA): OSKA 

üldprognoos 2022-2031 | OSKA uuringud. 

(202) OECD (2024), OECD Economic Surveys: Estonia 2024. 

(203) Ferraro, S., & Kommer, P. (2023). Is there a labour market 

mismatch in Estonia? Measuring regional, occupational and 
industrial labour market mismatch. Baltic Journal of 
Economics, 23(2), 200–228.  

 
 
 
‘micro-qualifications’ 

opportunities  to  different  societal  groups  to 
participate in learning. Efforts focus on recognising 
skills  acquired  in  different  contexts  and  boosting 
transparency  for  learners,  employers  and  other 
specialists  through  a  digital  skills  profile  tool. 
in 
Micro-credentials,  or 
Estonia,  are  a  flexible  tool  for  adult  learners  to 
gain  partial  or  full  qualifications.  To  regulate  this 
emerging field and extend the micro-qualifications 
system to vocational  education  and  adult  training 
institutions,  amendments  to  the  Adult  Education 
Act were adopted in July 2024 and will enter into 
force in 2025. These lay down micro-qualifications 
and  set  out  principles  for  providing  them  and  a 
quality  assurance  mechanism.  Nevertheless,  it  is 
challenging to ensure that these new opportunities 
cater  to  the  varied  learning  needs  of  different 
groups (e.g. low-skilled adults, older adults, people 
with little learning experience).  

EU  funds  support  large  scale  programmes 
that  aim  to  shape  the  development  of  adult 
learning opportunities. The ongoing professional 
qualifications system reform (204), financed by the 
European Social Fund (ESF), improves the system’s 
flexibility  and  responsiveness  to  market  changes. 
If  implemented  effectively,  it  can  improve  adult 
education  and  career  and  training  planning.  In 
2023,  EUR 70  million  was  allocated  under  the 
European Social Fund Plus (ESF+) to open up adult 
learning opportunities, including by supporting the 
development of professional and general skills. 

the 

reskilling 

As  part  of  the  broader  need  for  upskilling 
and 
current  workforce, 
developing green skills is particularly critical 
for  Estonia’s  green  transition.  The  country  is 
facing  economic  restructuring  to  decrease  its 
dependence  on  oil  shale.  40%  of  the  biggest 
employers  registered  in  the  Ida-Viru  County  (in 
North-East  Estonia)  are  oil  shale  companies.  The 
shift  from  oil  shale  for  energy  production 
threatens  around  16 000  jobs,  posing  broader 
economic  risks  in  the  region.  In  2024,  Estonia 
reported labour shortages in occupations requiring 
specific  skills  related  to  the  green  transition, 
including  plumbers  and  pipe  fitters,  electricians, 
and  industrial  and  production  engineers (205).  31% 
of  small  and  medium-sized  enterprises  recognise 

the growing importance of green skills (EU:  42%). 
is  expanding  upskilling  and  reskilling 
Estonia 
efforts 
industries.  Among 
in  energy-intensive 
those, investments under the Just Transition Fund 
aim to mitigate the social and employment impact 
of  the  transition,  including  through  reskilling  and 
upskilling programmes for workers in Ida-Viru’s oil 
shale  industry  and  job  transition  measures.  In 
addition, Estonia supports the green skills relevant 
to VET and adult education under its recovery and 
resilience plan. 

(16-24),  basic  digital 

Estonia  has  a  high  share  of  tertiary  ICT 
graduates but faces a shortage of specialists 
in  STEM  fields  due  to  rising  demand.  Among 
young  people 
skills 
proficiency is among the highest in the EU (86.8% 
vs 69.6% on average). The share of STEM tertiary 
graduates  is  slightly  higher  than  the  EU  average 
(27.5% vs 26.6% in the EU in 2022), and the share 
of  ICT  graduates  is  one  of  the  highest  (9.6%  vs 
4.5%  in  the  EU).  Among  pupils  in  medium-level 
VET,  49.2%  were  enrolled  in  STEM  fields  in  2022 
(36.2% 
is 
insufficient  to  meet  the  growing  demand  as  the 
green  and  digital  transitions  require  more  STEM 
specialists than are currently projected to graduate 
(206).  Computer  programming  will  have  by  far  the 
highest  number  of  job  openings  in  the  next  10 
years (see Annex 3), and the lack of computer and 
software  skills  is  the  main  gap  identified  among 
under-skilled Estonian workers (207).  

in  the  EU).  However,  the  supply 

The  country  promotes  teaching  and  learning 
STEM  subjects  at  all  types  and  levels  of 
to  upper 
education.  From  primary  school 
secondary  education,  VET,  adult  education  and 
non-formal  learning,  programmes  and  initiatives 
aim  to  raise  interest  in  STEM,  update  learning 
content  and  improve  teaching  quality.  Student 
enrolment  has  increased  in  ICT  but  declined  in 
technology  and  engineering.  This  has  resulted  in 
setting up ICT and engineering academies, funded 
partly  by  EU  cohesion  policy  (208).  Closing  the 
supply  gap  for  STEM  professionals  will  largely 
depend on these measures. 

(204) ESF project ‘Reform of Estonian professional qualifications 

(206) OSKA. (2020a). Eesti tööturg täna ja homme 2019-2027 

(Estonia’s labour market today and tomorrow 2019-2027). 

system’ - OSKA. 

(207) OECD (2024): Survey of Adult Skills 2023: Estonia 

(205) European Labour Authority, EURES Report on labour 

(208) Education and Youth Board; IT Akadeemia programm, 

shortages and surpluses 2024, 2025. 

Inseneriakadeemia. 

86 

 
 
 
ANNEX 13: SOCIAL SCOREBOARD 

Table A13.1: Social Scoreboard for Estonia 

(1) Update of 5 May 2025. 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 2025 for details on the 
methodology (https://employment-social-affairs.ec.europa.eu/joint-employment-report-2025-0). 
Source: Eurostat 

87 

41,811,062,611,01,75,0381,87,61,8126,022,216,531,520,88,636,88,5Critical situationTo watchWeak but improvingGood but to monitorOn averageSocial Scoreboard for EstoniaEqual 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, 2024)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, 2024)Gender employment gap(percentage points, population aged 20-64, 2024)Income quintile ratio (S80/S20, 2024)Dynamic labour markets and fair working conditionsEmployment rate(% of the population aged 20-64, 2024)Unemployment rate(% of the active population aged 15-74, 2024)Long term unemployment(% of the active population aged 15-74, 2024)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2023)Social protection and inclusionAt risk of poverty or social exclusion (AROPE) rate (% of the total population, 2024)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2024)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2024)Disability employment gap (percentage points, population aged 20-64, 2024)Housing cost overburden (% of the total population, 2024)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2024)Self-reported unmet need for medical care (% of the population aged 16+, 2024)Better than averageBest performers 
 
 
 
  
 
 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

fairness,  while 

Estonia’s  health  system  faces  challenges 
that need to be addressed if the country is to 
improve  the  health  of  its  population  and 
social 
the 
boosting 
its  economy.  These 
competitiveness  of 
challenges  include:  (i)  limited  access  to  care  and 
low  life  expectancy,  the  latter  linked  to  high 
treatable  mortality;  (ii)  suboptimal  funding  and 
(iii) 
cost-effectiveness  of  the  health  system; 
shortages  of  healthcare  workers;  and  (iv)  an 
uneven  geographical  distribution  of  healthcare 
resources.  

Life expectancy at birth in Estonia rebounded 
to its pre-COVID-19 level but remains among 
the  lowest  in  the  EU.  There  are  striking  gender 
gaps in health outcomes. While women can expect 
to  live  nine  years  longer than  men,  they  can  only 
expect to live about 2.6 years longer than men in 
good  health.  Treatable  mortality  remains  among 
in  the  EU  (126.2  per  100 000 
the  highest 
population  in  2022  vs  an  EU  average  of  89.7), 
suggesting  that  the  health  system  is  not  as 
it  should  be.  Diseases  of  the 
effective  as 
circulatory  system  (‘cardiovascular  diseases’)  and 
cancer  remain  the  leading  causes  of  death,  with 
EU 
mortality 
higher 
rates 
joint 
average.  Estonia  participates 
actions  funded  by  EU4Health,  which  address 
treatable  mortality,  particularly  caused  by  cancer.  
Estonia’s  suicide  rate  is  one  of  the  highest  in  the 
EU.  In  2025,  Estonia  launched  its  first  Suicide 
Prevention  Action  Plan  for  2025–2028,  aiming  to 
comprehensively reduce the number of suicides. In 
2022, a mental health action plan for 2023–2026 
was  adopted.  It  focuses  on  improving  mental 
health  services,  promoting  mental  well-being,  and 
reducing  stigma  associated  with  mental  health 
issues. 

than 
the 
in  several 

Graph A14.1: Life expectancy at birth, years 

Source: Eurostat (demo_mlexpec) 

88 

Graph A14.2: Treatable mortality 

Age-standardised death rate (mortality that could be 
avoided through optimal quality healthcare) 
Source: Eurostat (hlth_cd_apr) 

Health expenditure in Estonia is low, as is the 
share  of  health  costs  supported  by  public 
funds.  In  2022,  health  spending  per  inhabitant 
(adjusted for differences in purchasing power) was 
one of the lowest in the EU and only 75% of it was 
publicly  funded  (see  Annex  1).    The  country 
therefore  has  a  high 
level  of  out-of-pocket 
payments for healthcare (23.2% in 2022 vs an EU 
(209)).  Accordingly,  Estonia 
average  of  14.3% 
received  a  country-specific  recommendation  in 
2024  to  ‘improve  access  to  and  financing  of 
healthcare  and  long-term  care’  (see  Annex  16). 
Out-of-pocket  payments  went  predominantly 
towards  outpatient  medical  goods,  followed  by 
dental  care, 
long-term  care  and  outpatient 
specialist  care.  Estonia  is  gradually  increasing 
dental care benefits and reducing co-payments for 
medical  goods.  Starting  in  2025,  the  Medicines 
and  Medical  Devices  Reimbursement  Act  will 
reduce  co-payments 
for  medicines,  medical 
devices, and inpatient nursing care, with additional 
compensation  measures  taking  effect  in  May 
2025. 
In  2023,  spending  on  public  health 
increased,  primarily  driven  by  rising  wages  of 
is 
healthcare  professionals.  The  government 
currently  conducting  an  analysis  of  Estonia’s 
healthcare 
financing  and  exploring  potential 
solutions. Several options to make the financing of 
healthcare  more  sustainable  have  been  proposed 
by experts, but a final decision has not been taken 
yet.   Historically, investment levels have been low, 
with  a  marked  increase  in  recent  years.  In  2022, 
investment in health capital  formation as a share 
of total health expenditure was higher than the EU 
average  (210).  Through  its  recovery  and  resilience 

(209) OECD/European Commission (2024), Health at a Glance: 

Europe 2024 - State of Health in the EU Cycle, pp.186-187. 
(210) see Health at a Glance Europe 2018, 2020, 2022 and 2024. 

79.078.977.278.179.181.380.480.180.681.420192020202120222023EstoniaEU133.5129.4123.9135.6126.291.389.291.793.389.720182019202020212022per 100 000 populationEstoniaEU 
 
        
 
   
 
 
 
Table A14.1: Key health indicators 

*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 based on 2022 (or latest 2021) data except for Luxembourg (2017). Doctors’ density data refer to practising 
doctors in all countries except Greece, Portugal (licensed to practise) and Slovakia (professionally active). Density of nurses: data 
refer to practising nurses (EU recognised qualification) in most countries except France and Slovakia (professionally active) and 
Greece (hospital only). **‘Available hospital beds’ covers somatic care, not psychiatric care. ***The EU median is used for patents. 
Source: Eurostat database; European Patent Office; ****European Centre for Disease Prevention and Control (ECDC) for 2023. 

plan  (RRP),  Estonia  is  investing  EUR 72 million  to 
is 
address  health-related 
This 
complemented  by  EUR 1.4 million  under 
the 
cohesion policy funds for 2021-2027 (211). 

challenges. 

Spending  on  disease  prevention  is  close  to 
the  EU  average,  yet  preventable  mortality 
remains  high.  In  2022,  spending  on  prevention 
accounted  for  5.7%  of  Estonia’s  total  health 
expenditure, close to the EU average of 5.5%. The 
rate of preventable mortality is among the highest 
in  the  EU, 
linked  to  a  high  prevalence  of 
behavioural  risk  factors.  These  include  tobacco 
smoking/vaping, dietary risks, alcohol consumption 
and  low  levels  of  physical  activity.  Estonia  has 
introduced  several  policies  to  address  these 
challenges,  including  its  national  health  plan  for 
2020-2030.  It  aims  at  increasing  life  expectancy 
by  promoting  healthy  choices  and  addressing  risk 
factors.    The  “Estonia  2035"  strategy  focuses  on 
innovation,  a  sustainable  economy,  and  an 
inclusive  society. 
to 
Estonia’s  Tobacco  Act  banned  displays  of  tobacco 
products, flavoured e-cigarette liquids and remote 
tobacco sales.  

In  2019,  amendments 

Access  to  healthcare  is  limited,  as  Estonia’s 
health system is under resourced. In 2024, the 
proportion  of  the  Estonian  population  reporting 
unmet  needs  for  medical  care  remained  among 
the  highest  in  the  EU  (8.5%  vs  an  EU  average  of 
2.5%) (see Annex 11).  Long waiting times are the 
main  reason  for  these  unmet  needs,  with  lower 
income  groups  affected  the  most.  Access  to 

in  Vijandi);  (ii) 

healthcare  is  particularly  low  in  rural  areas  (see 
Annex  17).  A  range  of  measures  under  the  RRP 
and  the  cohesion  policy  aim  to  improve  the 
accessibility  of  the  health  system.  The  Estonian 
RRP  envisages  investments  to:  (i)  improve  health 
infrastructure  (construction  of  a  county  hospital 
and  health  centre 
implement 
organisational  reforms;  (iii)  strengthen  primary 
healthcare;  and  (iv)  support  the  health  workforce. 
A  Hospital  Network  Development  Roadmap  has 
been  prepared,  with  a  view  to  enhancing  the 
Estonian healthcare system. Furthermore, with the 
help  of 
the  cohesion  policy  funds,  Estonia 
improves healthcare by setting up multidisciplinary 
healthcare  centres  and  offering  complex  services 
via  multiprofessional  teams  and 
in 
integrated  care.  Estonia  also  participates  in  the 
Joint  Action  CIRCE-JA(212)  funded  by  EU4Health 
aimed  at  transferring  good  practices  in  primary 
care between EU countries. 

investing 

limit 

staff 

Shortages  of  health 
the 
availability  of  care.  Estonia  faces  persistent 
shortages in its health workforce. In 2022, Estonia 
had fewer doctors (3.5 per 1 000 population) and 
nurses  (6.7  per  1  000  population)  than  the  EU 
average (4.2 and 7.6 respectively). The number of 
in  Estonia  plateaued 
new  medical  graduates 
between  2010  and  2022  and 
remained 
significantly  below  the  EU  average.  A  high 
proportion of doctors and nurses are aged 55 and 
over, 
long-term 
accessibility  of  health  services.  There  is  an  acute 
shortage  of  family  doctors  and  medical  staff, 
particularly outside the major cities of Tallinn and 

raising  concerns  about 

the 

(211) The EU cohesion policy data reflect the status as of 

13 May 2024. 

(212) https://circeja.nfz.gov.pl/ 

89 

20192020202120222023EU average* (latest year) Cancer mortality per 100 000 population279.5265.0265.8246.7n.a.234.7 (2022)Mortality due to circulatory diseases per 100 000 population 570.3 560.2 599.4 575.0n.a.336.4 (2022)Current expenditure on health, purchasing power standards, per capita1 7391 9012 0582 014n.a.3 684.6 (2022)Public share of health expenditure, % of current health expenditure 74.5 77.1 76.1 74.8 76.181.3 (2022)Spending on prevention, % of current health expenditure 3.64.98.85.7n.a.5.5 (2022)Available hospital beds per 100 000 population** 402 397 389 374n.a.444 (2022)Doctors per 1 000 population*3.53.53.43.5n.a.4.2 (2022)*Nurses per 1 000 population* 6.2 6.4 6.5 6.6n.a.7.6 (2022)*Mortality at working age (20-64 years), % of total mortality18.619.017.617.818.314.3 (2023)Number of patents (pharma / biotech / medical technology)1440429 (2023)***Total consumption of antibacterials for systemic use,                    daily defined dose per 1 000 inhabitants****11.810.510.112.412.720.0 (2023) 
 
 
 
        
 
to 

expanding  e-consultation 
remote 
include 
specialists.  Estonia  also 
consultations  with 
participates in joint actions and direct grants under 
EU4Health aimed at improving the interoperability 
of health data and facilitating the implementation 
of the European Health Data Space. 

Tartu. Working conditions are a major deterrent to 
entering  the  profession,  particularly  low  pay.  The 
government  has  taken  steps  to  address  these 
challenges,  including  by  increasing  the  minimum 
hourly  wages  of  doctors  and  nurses  as  of 
1 April 2023.  The  Hospital  Network  Development 
Roadmap includes measures to train the workforce 
on teamwork, task shifting between specialists and 
using  digital  solutions.  The  government  has  also 
approved  a  Strategic  Framework  for  addressing 
health workforce shortages as part of the Estonian 
RRP.  The  RRP  also  includes  measures  to  improve 
the reimbursement system for doctors, nurses and 
pharmacists  as  well  as  to  incentivise  health  staff 
to  work  in  remote  areas.  It is  also  addressing  the 
low  graduation  levels  of  nurses  by  increasing 
admissions  to  nursing  training  by  5%.  Estonia 
participates in the Joint Action HEROES (213) funded 
by  EU4Health,  aimed  at  sharing  expertise  among 
EU countries on health workforce planning. 

innovation  and 

The  Estonian  health  system’s  potential  to 
drive 
industrial 
foster 
development 
in  the  EU  medical  sector 
remains largely untapped. Estonia is among the 
EU  countries  with  the  lowest  levels  of  public 
spending  on  health  research  and  development. 
This  is  reflected  in  the  low  number  of  European 
patents granted: 4 in 2023 in the combined areas 
of  pharmaceuticals,  biotechnologies  and  medical 
devices (vs an EU median of 29 (214)). Clinical trial 
activity  in  Estonia  is  also  limited  (215)  (see  Annex 
4). 

Estonia aims to scale up the digitalisation of 
its  health  system,  with  support  from  EU 
programmes.  The  shares  of  people  accessing 
their  personal  health  records  online  and  using 
online health services (excluding phone) instead of 
in-person  consultations  are  well  above  the  EU 
average,  despite  a  slight  drop  between  2022  and 
2024.  However, 
for 
improvement.  Measures  to  boost  the  digital 
transformation of Estonia’s health sector set out in 
its  RRP 
the  governance 
framework  for  e-health  and  coordinating  the 
development  of  e-health  services.  Legislative 
amendments  are  also  planned  to  improve  access 
to  specialised  care  in  primary  care  settings  by 

include  updating 

room 

there 

still 

is 

(213) JA HEROES | Health workforce planning project 

(https://healthworkforce.eu/the-project/). 

(214) European Patent Office, Data to download | epo.org. 
(215) EMA (2024), Monitoring the European clinical trials 

environment, p. 9. 

90 

 
 
 
 
HORIZONTAL 
ANNEX 15: SUSTAINABLE DEVELOPMENT GOALS 

h
e
a
l
t
h

social 

fairness 

This  Annex  assesses  Estonia’s  progress  on 
the  Sustainable  Development  Goals  (SDGs) 
along  the  dimensions  of  competitiveness, 
and 
sustainability, 
macroeconomic stability. 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 
inequalities  and  tackle  climate 
poverty,  fight 
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 
the EU. 

Estonia  is  performing  well  and  improving  on 
one  SDG  on 
(Quality 
education, SDG 4) but the country still needs 
to  catch  up  with  the  EU  average  on  SDG 9 
infrastructure). 
(Industry, 

innovation  and 

competitiveness 

Furthermore,  Estonia  is  falling  behind  and 
needs  to  catch  up  with  the  EU  average  on 
SDG  8  (Decent  work  and  economic  growth). 
The  country  is  performing  well  and  improving  on 
adult  learning  (SDG 4;  participation  in  learning  in 
the  past  four  weeks  is  up  from  19.6%  of  the 
active population aged 25-64 in 2019 to 23.3% in 
2024; EU average of 13.3%). While gross domestic 
expenditure on R&D (SDG 9) increased from 1.4% 
of  GDP  in  2018  to  1.8%  in  2023,  it  is  still  below 
the  EU  average  of  2.2%.  The  share  of  buses  and 
trains  in  passenger  transport  (SGD  9)  fell  from 
19.8%  of  inland  passenger-km  in  2017  to  14.4% 
in  2022,  to  below  the  EU  average  of  16.6%.  The 
share  of  households  with  high-speed  internet 
connection  (SDG  9)  increased  from  57.4%  of 
households  in  2019  to  76.9%  in  2023  (the  EU 
average:  78.8%).  The  Estonian  recovery  and 
resilience  plan  (RRP)  includes  significant  reforms 
and  investments  to  boost  innovation  and  digital 
transition  in  businesses.  However,  there  is  still 
the 
room 

in  addressing 

improvement 

for 

Graph A15.1: 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 
five 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 28 April 2025. Data refer mainly to the period 2018-2023 or 2019-2024. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

91 

 
 
 
 
 
 
 
remaining challenges. 

related 

the  SDGs 

While Estonia performs well and is improving 
on  several  of 
to 
sustainability  (SDGs 2,  6,  7  and  15),  the 
country  needs  to  catch  up  with  the  EU 
average  on  SDGs  9,  12,  13  and  14. 
Furthermore,  Estonia  performs  well  but  is 
moving  away  from  SDG  11  (Sustainable 
cities and communities). The area under organic 
farming (SDG 2) increased from 20.0% of utilised 
agricultural  area  in  2017  to  23.4%  in  2022  (the 
EU average: 10.5). The country is also 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  30.0%  in 
2018  to  41.0%  in  2023  (EU  average  24.6%). 
footprint 
However,  while  Estonia’s  material 
(SDG 12)  decreased 
tonnes  per 
inhabitant in 2018 to 29.9 in 2023, it is still above 
the  EU  average  of  14.2 tonnes  per  inhabitant. 
Similarly,  while 
the  country’s  air  emissions 
intensity  of  fine  particulate  matter  from  industry 
(SDG  9)  has  fallen  from  0.37  grams  per  euro  in 
2017  to  0.14  in  2022,  it  is  still  above  the  EU 
average  of  0.06  grams  per  euro.  On  the  other 
hand,  population  living  in  households  suffering 
from  noise  (SDG  11)  increased  from  8.6%  of 
population in 2018 to 9.6% in 2023 (EU average: 
18.2%). 

from  30.6 

Estonia is moving away from and still needs 
to catch up on three SDG indicators (1, 3 and 
8) related to social fairness. But the country 
is  improving  on  SDG 5  (Gender  equality)  and   
performs well and is also improving on three 
other  fairness-related  SDG  indicators  (4, 
7and 10). Estonia is moving away from the SDGs 
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 23.6% 
of  the  population  in  2018  to  24.2%  in  2023;  EU 
average:  21.3%).  While  there  is  an  improvement 
on the self-reported unmet needs for medical care 
(SDG  3),  falling  from  16.4%  of  the  population 
aged 16 or over in 2018 to 12.9% in 2023, this is 
still  above  the  EU  average  of  2.4%.  The  in-work 
at-risk-of-poverty  rate  (SDG  8)  increased  from 
9.3% of the population aged 18 or over in 2018 to 
10.3%  in  2023  (EU  average:  8.3%).  Furthermore, 
Estonia  still  needs  to  catch  up  on  some  gender 
equality  indicators  (SDG 5).  The  average  gross 
hourly earnings of women went from being 21.8% 

92 

lower  than  men  in  2018  to  16.9%  lower  in  2023 
but  this  is  still  above  the  EU  average  of  12.0%. 
However,  compared  to  2019,  tertiary  educational 
attainment  (SDG 4)  increased  from  40.6%  of  the 
population  aged  25  to  34  to  42.7%  in  2024  (EU 
average:  44.2%).  Similarly,  EU/non-EU  citizenship 
gap  for  employment  rate  (SDG  10)  decreased 
from  6.8  pp  difference  (%  of  population  aged  20 
to  64)  in  2018  to  6.6  pp  difference  in  2024  (EU 
includes 
average:  12.5).  The  Estonian  RRP 
measures 
in  primary 
healthcare and long-term care. 

to  address  challenges 

Estonia  is  moving  away  from  SDGs  and  still 
needs  to  catch  up  on  one  SDG  indicator 
related  to  macroeconomic  stability  (SDG  8). 
But  the  preforms  well  and  is  improving  on 
SDG 17 (Partnerships for the goals). Real GDP 
per  capita  (SDG  8)  has  declined  (contracted  from 
EUR 21 650 in 2019 to EUR 21 020 in 2024) and 
remains below the EU average of EUR 33 530.(216) 
The general government gross debt (SDG 17) grew 
from  9.0%  of  the  GDP  in  2019  to  23.6%  of  the 
GDP in 2024, but it remains below the EU average 
total 
of  81.0%.  The  general  government 
expenditure  on  law  courts  (SDG  16)  has  also 
increased  from  EUR 58.2  per  capita  in  2018  to 
EUR 81.3  in  2023  but  remains  below  the  EU 
average of EUR 121.7. 

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

(216) Adjusted for inflation  using a chain-linked methodology and 

with 2020 serving as the reference point. 

 
 
ANNEX 16: CSR PROGRESS AND EU FUNDS IMPLEMENTATION 

financial 

2014-2020  multiannual 
framework, 
which  financed  projects  until  2023  and  has  had 
significant benefits for the economy and  Estonian 
society.  Project  selection  under  the  2021-2027 
cohesion  policy  programme  is  advanced,  while 
implementation  of  selected  projects  has  also 
gained  momentum, 
substantial 
investment.  

enabling 

The  Estonian  RRP  contains  28  investments 
and  17  reforms  to  stimulate  sustainable 
growth,  enhance  social  fairness  and  support 
the  green  and  digital  transitions  of  the 
economy. Implementation is well  on its way with 
66%  of  the  funds  disbursed.  At  present,  Estonia 
has fulfilled 49% of the milestones and targets in 
(221).  Efforts  are  needed  to  ensure 
its  RRP 
completion  of  all  RRP  measures  by  31 August 
2026.  Public  investment  is  hampered  by  the 
difficulties  of  investing  in  outlying  and  Eastern 
border  regions  where  skills  may  be  lacking,  and 
the  limited  availability  of  private  finance  makes 
public investment all the more important. 

the 

Estonia  also  receives  funding  from  several 
other  EU  instruments,  including  those  listed  in 
table  A16.1.  Most  notably, 
common 
agricultural  policy  (CAP)  provides  Estonia  with  an 
EU  contribution  of  EUR 1.4  billion  under  the  CAP 
strategic  plan  for  2023-2027  (222).  Furthermore, 
operations  amounting  to  EUR  101.3  million  (223) 
have  been  signed  under  the  InvestEU  instrument 
backed  by  the  EU  guarantee,  improving  access  to 
financing for riskier operations in Estonia. 

recommendations 

Estonia faces structural challenges in a wide 
range  of  policy  areas,  as  identified  in  the 
country-specific 
(CSRs) 
addressed  to  the  country  as  part  of  the 
European  Semester.  They  refer,  among  other 
things,  to  the  accessibility  and  affordability  of 
healthcare  and 
long-term  care,  research  and 
innovation,  access  to  finance  for  SMEs,  labour 
efficiency, 
skills, 
productivity 
investment  into  renewable  energy  and  storage, 
transport, 
bio-based 
increasing  social  protection 
including  broader 
coverage of unemployment benefits. 

sustainable 

innovation, 

energy 

and 

The Commission has assessed the 2019-2024 
CSRs  considering  the  policy  action  taken  by 
Estonia  to  date  and  the  commitments  in  its 
recovery  and  resilience  plan  (RRP).  At  this 
stage,  Estonia  has  made  at  least  ‘some  progress’ 
on 91% of the CSRs (217) , and ‘limited progress’ on 
9% (Table A16.2). 

to 

by 

competitiveness, 

EU funding instruments provide considerable 
supporting 
Estonia 
resources 
investments  and  structural  reforms  to 
increase 
environmental 
sustainability  and  social  fairness,  while 
helping  to  address  challenges  identified  in 
the  CSRs.  In  addition  to  the  EUR 953  million 
funding  from  the  Recovery  and  Resilience  Facility 
(RRF) in 2021-2026, EU cohesion policy funds (218) 
are providing EUR 3.4 billion to Estonia (amounting 
to  EUR 5.2  billion  with  national  co-financing)  for 
2021-2027 (219) to boost regional competitiveness 
and  growth.  Support  from  these  instruments 
combined  represents  around  11.3%  of  2024  GDP 
(220).  The  contribution  of  these  instruments  to 
different  policy  objectives  is  outlined  in  Graphs 
A16.1  and  A16.2.  This  substantial  support  comes 
on  top  of  financing provided  to  Estonia under  the 

(217) 11% of the 2019-2024 CSRs have been fully implemented, 
15% substantially implemented, and some progress has 
been made on 65%. 

(218) In 2021-2027, cohesion policy funds include the European 
Regional Development Fund, the Cohesion Fund, the 
European Social Fund Plus and the Just Transition Fund. The 
information on cohesion policy included in this annex is 
based on the adopted programme with the cut-off date of 5 
May 2025. 

(219) European territorial cooperation (ETC) programmes are 

excluded from the figure. 

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

(221) As of mid-May 2025, Estonia has submitted 3 payment 

requests.  

(222) An overview of Estonia’s formally approved strategy to 

implement the EU’s common agricultural policy nationally 
can be found at: https://agriculture.ec.europa.eu/cap-my-
country/cap-strategic-plans/estonia_en  

applicable. GDP figures are based on Eurostat data for 2024. 

(223) Data reflect the situation on 31.12.2024. 

93 

 
 
 
 
 
 
Graph A16.1: Distribution of RRF funding in Estonia by 
policy field 

forecasted  skills  demand  on  the  labour  market. 
Adults with low education or skill level are able to 
continue  their  studies  in  non-stationary  formal 
education.  It  is  estimated  that  nearly  62  000 
adults  will  participate  in  non-formal 
learning 
supporting upskilling and reskilling. 

are 

contributing 

in  Estonia,  for 

to 
Other 
funds 
instance 
competitiveness 
through  open  calls.  The  Connecting  Europe 
Facility  has  financed  strategic  investments  in  rail 
transport such as the Rail Baltica, the development 
of  alternative  fuel  infrastructure  in  the  air  and 
maritime  sectors,  the  integration  of  the  energy 
market  including  the  synchronisation  of  the  Baltic 
States  with  the  EU’s  electricity  system  and  in  5G 
connectivity  along  transport  corridors,  along  Via 
Baltica.  Horizon  Europe  has  supported  research 
and  innovation,  from  scientific  breakthroughs  to 
scaling  up  innovations,  with  Climate,  Energy  and 
Mobility  as  top  priorities  in  Estonia.  The  Technical 
Support  Instrument  (TSI)  in  Estonia  is  focused  on 
the development of a national strategy for critical 
entities  and  enhancing  capabilities  for  managing 
crisis  and  on  promoting  the  uptake  of  strategic 
public procurement. 

to 

the 

Estonia’s  RRP  also  contains  ambitious 
business 
improve 
measures 
environment  and  competitiveness.  As  part  of 
the  measures  covered  by  payment  requests 
submitted  over  the  past  year,  Estonia  supported 
the digitalisation of companies, focusing on small 
and  medium-sized  enterprises  as  well  as  training 
programmes  to  reinforce  the  digital  skills  of  ICT 
experts  and  managers.  In  addition,  Estonia  took 
steps  to  improve  the  competitiveness  of  Estonian 
  Estonia 
in  the  foreign  markets. 
companies 
adopted  a  new 
that  streamlines 
legislation 
planning,  permitting  and  environmental  impact 
assessment processes for wind energy projects. To 
help  Estonia  implement  its  RRP,  in  2024  the  TSI 
assisted  with  measures  to  strengthen  the  skills 
governance system. 

EU  funds  are  playing  a  significant  role  in 
promoting  environmental  sustainability  and 
green transition in Estonia during the current 
seven-year  EU  budget  (multiannual  financial 
framework).  The 
in 
JTF 
supporting: (i) efforts to phase out oil shale in the 
energy  sector,  essential  for  reducing  greenhouse 
gas  emissions  in  Estonia;  and  (ii)  the  creation  of 
job  opportunities  in  the  mining  region  of  Ida-
Virumaa.  Cohesion  policy  funds  also  make  a 

instrumental 

is 

(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 circle 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. 
Source: European Commission. 

Graph A16.2: Distribution of cohesion policy funding 
across policy objectives in Estonia 

Source: European Commission 

Cohesion  policy  funds  aim  to  increase  the 
productivity and competitiveness of Estonian 
firms and improve the business environment. 
For  example,  the  European  Regional  Development 
Fund (ERDF) and the Just Transition Fund (JTF) will 
provide  support  to  over  12 000  businesses, 
focusing  on  boosting  innovation  and  ERDF  will 
enable  nearly  800  businesses  to  invest  in  new 
skills  relevant  for  smart  specialisation,  industrial 
transition  and  entrepreneurship.  ESF+  allocates 
EUR  132  million  to  better  match  vocational  and 
higher education with labour market needs, with a 
focus on labour market gaps and including digital 
skills.  Alongside  furthering  digital  skills,  ESF+ 
actions  focus  on  key  competencies,  future  skills, 
science, technology, engineering and mathematics. 
Interventions  also  include  EUR 82.2  million  in 
support  of  high-quality 
flexible  non-formal 
upskilling and reskilling that takes into account the 

94 

Green transitionDigital transformationSmart, sustainable andinclusive growthSocial & territorial cohesionHealth & resilienceNext generationSmarter EuropeGreener EuropeConnected EuropeSocial EuropeEurope closer to citizensJTF specific objective 
       
 
     
to 

substantial  contribution 
improving  energy 
efficiency,  improving  separate  waste  collection 
and  promoting  clean  transport.  For  example,  the 
funds are supporting the electrification of 450 km 
of  TEN-T  railway  track  and  solutions  for  clean 
urban  transport.  The  CAP  strategic  plan  allocates 
40%  of  its  rural  development  budget  (EUR 174 
million)  to  environmental  and  climate  objectives, 
and  28%  of  its  direct  payments budget (EUR 279 
million) to eco-schemes. This support is focused on 
carbon  sequestration,  biodiversity  and  valuable 
grasslands,  and 
increasing  knowledge  about 
sustainable production. 

policies.  Reforms  aiming  at  reducing  the  gender 
pay  gap  include  the  roll  out  of  a  digital  tool 
supporting  employers  to  implement  the  principle 
of  equal  pay.    Furthermore,  reforms  in the  health 
sector  are  bearing  fruit:  a  new  reimbursement 
system  has  been  established  for  nurses  to 
incentivise them to work in remote areas covering 
advanced  practice  nurses,  in  primary  health  care 
and  hospitals.  This  is  complemented  by  a  further 
increase  of  the  admissions  to  nursing  training.  To 
help  Estonia  implement  its  RRP,  in  2024  the  TSI 
assisted  with  measures  to  improve  the  primary 
health system. 

Estonia’s  RRP, 
including  the  REPowerEU 
chapter, has a comprehensive set of reforms 
and  investments  for  the  green  transition.  A 
Green  technologies  Development  Programme  has 
been set up by Estonia to support the development 
and  uptake  of  green  technologies  by  businesses. 
Works  have  been  progressing  towards  expanding 
the  electricity  network  and  increasing  its  capacity 
by  160  megawatts.  Moreover,  Estonia  has  been 
supporting  the  increase  in  production  capacity  of 
biomethane  thus  accelerating  the  integration  of 
renewable energy in the system. 

Promoting  fairness,  social  cohesion  and 
improving  access  to  basic  services  are 
among  the  key  priorities  of  EU  funding  in 
Estonia.  For  instance,  the  ERDF  supports  the 
integration  of  healthcare  and  social  services 
through  the  setting-up  of  integrated  service  and 
wellbeing  centres.  In  addition,  ESF+  supports  the 
development  of  a  comprehensive  long-term  care 
system  that  prevents,  reduces  and  helps  address 
care  needs,  promotes  independent  living  and 
livelihoods,  and  supports  carers.  Over  EUR 43 
million  are  dedicated  to  measures  that  improve 
access to long-term care. It is estimated that 70% 
of  participating  care  givers  will  benefit  from  a 
reduced  care  burden.  ESF+  also  supports  active 
inclusion  with  a  view 
to  promoting  equal 
non-discrimination  and  active 
opportunities, 
participation,  and 
in 
improving  employability, 
particular 
for  disadvantaged  groups.  Over 
EUR 33.5 million will be spent on addressing child 
poverty.  Interventions  for  children  and  young 
people  focus  on 
improving  access  services, 
supporting  integrated  active  inclusion  measures 
and  preventing  risk-taking  behaviour  through  the 
involvement of local communities and civil society. 

Estonia’s  RRP  contains  several  reforms  and 
investments  related  to  fairness  and  social 

95 

 
Table A16.1: Selected EU funds with adopted allocations - summary data (million EUR) 

(1) The cut-off date for data on disbursements under the RRF is 31 May 2025. 
(2) Cohesion policy 2014-2020 allocations include REACT-EU appropriations committed in 2021-2022. 
(3) These amounts relate only to disbursements made from 2021 onwards and do not include payments made to the Member 
State before 2021.  Hence the figures do not comprise the totality of payments corresponding to the 2014-2020 allocation. The 
cut-off date for data on disbursements under EMFAF and EMFF is 29 April 2025.  The cut-off date for data on disbursements 
under cohesion policy funds, AMIF, BMVI and ISF is 5 May 2025. 
(4) AMIF - Asylum, Migration and Integration Fund; BMVI- Border Management and Visa Instrument; ISF - Internal Security Fund. 
(5) Expenditure outside the CAP strategic plan is not included. 
(6) The cut-off date for data on EARDF disbursements is 5 May 2025. The information on EAGF disbursements is based on the 
Member State declarations until March 2025.  Disbursements for the Direct Payments (EAGF) started in 2024. 
Source: European Commission 

96 

Instrument/policyDisbursed since 2021   (1)             RRF grants (including the RepowerEU allocation)627.1RRF loans0 Instrument/policyAllocation 2014-2020 (2)Allocation 2021-2027 Disbursed since 2021 (3)    (covering total payments to the Member State on commitments originating from both 2014-2020 and 2021-2027 programming periods) Cohesion policy (total)3 702.13 369.32 107.7European Regional Development Fund (ERDF)2 051.21 701.61 095.8Cohesion Fund (CF)1 061.5 779.7 587.2European Social Fund (ESF, ESF+) 589.3 534.2 282.1Just Transition Fund (JTF) 353.9 142.6European Maritime, Fisheries and Aquaculture Fund (EMFAF) and the European Maritime and Fisheries Fund (EMFF) 101.0 97.450.7Migration, border management and internal security - AMIF, BMVI and ISF (4) 68.7 91.434.0The common agricultural policy under the CAP strategic plan (5)Disbursements under the CAP Strategic Plan (6)Total under the CAP strategic plan434.1European Agricultural Guarantee Fund (EAGF)391.3European Fund for Agricultural Development (EAFRD)42.8Allocation 2023-20271 448.71 008.6 440.1Allocation 2021-2026 953.20FisheriesMigration and home affairs 
 
 
      
 
Table A16.2:  

(Continued on the next page) 

97 

EstoniaAssessment in May 2025Relevant SDGs2019 CSR 1Substantial 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 anymoreSDG 8, 16Ensureeffectivesupervisionandtheenforcementoftheanti-moneylaunderingframework.Substantial progressSDG 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 progressSDG 4Improve the adequacy of the social safety net and access to affordable and integrated social services. Some progressSDG 1, 2, 10Take measures to reduce the gender pay gap, including by improving wage transparency.Some progressSDG 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 progressSDG 7, 9, 10, 11, 132020 CSR 1Some progressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment. Not relevant anymoreSDG 8, 16Improvetheaccessibilityandresilienceofthehealthsystem,includingbyaddressingtheshortagesofhealthworkers,strengtheningprimarycareandensuring the supply of critical medical products. Some progressSDG 32020 CSR2Some progressStrengthentheadequacyofthesocialsafetynet,includingbybroadeningthecoverage of unemployment benefits.Some progressSDG 1, 2, 102020 CSR 3Some progressFront-load mature public investment projects Some progressSDG 8, 16and promote private investment to foster the economic recovery. Substantial progressSDG 8, 9Focus investment on the green and digital transition, in particular on digitalisation of companies, Some progressSDG 9research and innovation,Some progressSDG 9clean and efficient production and use of energy,Some progressSDG 7, 9, 13resource efficiency, and Limited progressSDG 6, 7, 12, 15sustainable transport, contributing to a progressive decarbonisation of the economy. Limited progressSDG 11Support the innovation capacity of small and medium-sized enterprises,Substantial progressSDG 8, 9and ensure sufficient access to finance.Some progressSDG 8, 92020 CSR 4Substantial progressStep up the efforts to ensure effective supervision and enforcement of the anti-money laundering framework. Substantial progressSDG 8, 16 
 
 
 
  
 
Table (continued) 

(Continued on the next page) 

98 

2021 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 anymoreSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-term fiscal positions and ensuring fiscal sustainability in the medium term. Not relevant anymoreSDG 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 anymoreSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainability of health and social protection systems for all.Not relevant anymoreSDG 8, 162022 CSR 1Not relevant anymoreIn2023,ensurethatthegrowthofnationallyfinancedprimarycurrentexpenditureisinlinewithanoverallneutralpolicystance,takingintoaccountcontinuedtemporaryandtargetedsupporttohouseholdsandfirmsmostvulnerabletoenergypricehikesandtopeoplefleeingUkraine.Standreadytoadjustcurrentspending to the evolving situation.Not relevant anymoreSDG 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.Not relevant anymoreSDG 8, 16Fortheperiodbeyond2023,pursueafiscalpolicyaimedatachievingprudentmedium-term fiscal positions.Not relevant anymoreSDG 8, 162022 CSR 2Proceedwiththeimplementationofitsrecoveryandresilienceplan,inlinewiththemilestonesandtargetsincludedintheCouncilImplementingDecisionof29October 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 progressSDG 1, 2, 10Improvetheaffordabilityandqualityoflong-termcare,inparticularbyensuringitssustainable funding and integrating health and social services.Some progressSDG 32022 CSR 4Some progressReduce overall reliance on fossil fuels and diversify imports of fossil fuelsSome progressSDG 7, 9, 13by accelerating the deployment of renewables, including through further streamlining of permitting proceduresSome progressSDG 7, 8, 9, 13ensuring sufficient capacity of interconnectionSubstantial progressSDG 7, 9, 13and strengthening the domestic electricity grid.Some progressSDG 7, 9, 13Increase energy efficiency, including of buildings, to reduce energy consumption.Some progressSDG 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.Some progressSDG 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) 

(Continued on the next page) 

99 

2023 CSR 1Substantial progressWinddowntheemergencyenergysupportmeasuresinforce,usingtherelatedsavingstoreducethegovernmentdeficit,assoonaspossiblein2023and2024.Shouldrenewedenergypriceincreasesnecessitateneworcontinuedsupportmeasures,ensurethatsuchsupportmeasuresaretargetedatprotectingvulnerablehouseholdsandfirms,arefiscallyaffordableandpreserveincentivesfor energy savings.Full implementationSDG 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 implementationSDG 8,16PreservenationallyfinancedpublicinvestmentandensuretheeffectiveabsorptionofgrantsundertheFacilityandofotherUnionfunds,inparticulartofosterthegreen and digital transitions.Substantial progressSDG 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.Full implementationSDG 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 progressSDG 1,2,10Improve access to and the affordability of healthcare andLimited progressSDG 3long-term care, in particular by ensuring their sustainable funding.Some progressSDG 32023 CSR 4Some progressReduce overall reliance on fossil fuels,Some progressSDG 7,9,13acceleratethedeploymentofrenewableenergysources,includingbystrengthening the domestic electricity grid capacity.Some progressSDG 7,9,13Ensure sufficient capacity of electricity interconnections to increase the security of supply and continue the synchronisation with the Union electricity grid.Substantial progressSDG 7,9,13Strengthenenergyefficiencythroughnewfinancingandsupportmeasurestomeetthe targets of the long-term renovation strategy.Some progressSDG 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.Some progressSDG 8, 10, 11, 12Stepuppolicyeffortsaimedattheprovisionandacquisitionofskillsandcompetences needed for the green transition.Some progressSDG 42024 CSR 1Some progressSubmit the medium-term fiscal-structural plan in a timely manner.Full implementationSDG 8, 16 In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure in 2025 to a rate consistent with, inter alia, reducing the general government deficit below the 3% of GDP Treaty reference value and keeping the general government debt at a prudent level over the medium term. Full implementationSDG 8, 16Broaden the tax base and Some progressSDG 8, 10, 12improve access to and financing of healthcare and Limited progressSDG 3long-term care.Some progressSDG 3RRP 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. 
 
 
  
 
Table (continued) 

Source: European Commission 

100 

2024 CSR 2Continue with the swift and effective implementation of the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026. Accelerate the implementation of the cohesion policy programme. In the context of the mid-term review, continue focusing on the agreed priorities, taking action to better address the needs in the long-term care sector, while considering the opportunities provided by the Strategic Technologies for Europe Platform initiative to improve competitiveness.2024 CSR 3Some progressStrengthensocialprotection,interaliatoaddressold-agepovertyandbyextendingthecoverageofunemploymentbenefits,inparticulartothosewithshortwork spells and in non-standard forms of work.Some progressSDG 1, 2, 102024 CSR 4Some progressReduce the share of oil shale in the energy mix and raise resource productivity through bio-based innovation.Some progressSDG 6, 12, 15 Improve labour productivity and skills supply through reskilling and upskilling, and by better attracting and retaining talent.Some progressSDG 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. Progress with the cohesion policy is monitored in the context of the Cohesion Policy of the European Union. 
 
  
 
ANNEX 17: COMPETITIVE REGIONS 

While  Estonia  scores  well  on  quality  of 
government  and  ease  of  doing  business,  it 
remains  important  for  the  country  to  boost 
productivity  and  entrepreneurship  outside 
the  main  economic  centres  to  address 
disparities in regional development. 

Estonia’s  regional  outlook  continues  to  be 
significant  disparities 
characterised  by 
between  its  capital  region  –  Põhja-Eesti  – 
and  the  rest of  the  country.  In  2023,  GDP  per 
head  (purchasing  power  standard  (PPS)  in  Põhja-
Eesti  stood  at  105%  of  the  EU  average.  In  the 
remaining  four  NUTS  3  regions,  GDP  per  head 
ranged from 51% in Kesk-Eesti to 63% in Lõuna-
Eesti (Map A17.1).     

Map A17.1:  GDP per head (in purchasing power 
standard PPS), NUTS 3, 2023 

Source: Eurostat 

Competitiveness 

100). A deeper analysis of the index’s components 
reveals that Estonia outperformed the EU average 
in  the  basic  pillar,  which  includes  factors  such  as 
transport infrastructure and population health, and 
in  the  advanced  pillar,  related  to  innovation 
lagged 
outputs  and 
behind  the  EU  average  in  the  efficiency  pillar, 
which  evaluates  factors  linked  to  labour  market 
efficiency and human capital. 

inputs.  However,  Estonia 

have 

larger 

scaling  up, 

the  country. 

regions  also 

Innovation  activity 

Entrepreneurial  activity  and  innovation  are 
highly concentrated in two counties, although 
competitive 
other 
advantages. 71% of companies are registered in 
Harju  (Põhja-Eesti)  and  Tartu  (in  Lõuna-Eesti) 
counties and they produce 68% of Estonian goods 
and  84%  of  services  exports.  While  the  relative 
ease  of  doing  business 
in  Estonia  provides 
favourable  conditions,  particularly  for  starting  a 
business  (224),  and  there  are  cases  of  businesses 
tech-based 
successfully 
companies  are  generally  concentrated  in  Tallinn 
and  the  second  biggest  city  of  Tartu  in  the  south 
of 
is  also 
concentrated in these two cities, clustering around 
major  universities.  These  cities  host  various 
innovation  ecosystems  and  clusters  in  areas  such 
(dual-use 
as  health  and  medicine,  defence 
technologies),  ICT,  logistics  and  aviation.  These 
cities  hold  the  biggest  potential  for  creating  and 
scaling  up  tech-based  companies.  The  county  of 
Ida-Viru  (Kirde-Eesti)  is  transitioning  out  of  an 
economy  relying  largely  on  oil  shale  mining  and 
energy  production.  The  existing  industrial  base 
provides  opportunities 
for  developing  new 
industries.  However,  this  transition  also  presents 
economic  and  labour  market  challenges  (see 
Annex 11). The existence of a university branch in 
the  city  of  Kohtla-Järve  that  is  already  geared 
in  terms  of 
towards  a 
education  and  applied  research  can  help  ensure 
that skills development matches future needs. The 
higher GDP and gross value added in Põhja-Eesti is 
largely  based  on  service-sector  exports.  The 
economies  of  Lääne-Eesti,  Kesk-Eesti  and  Lõuna-
Eesti  (except  Tartu  County)  are  largely  based  on 
forestry,  agriculture,  wood  and  food  processing, 
which have less added value 

just  transition  both 

In  2022,  Estonia’s  score  in  the  EU  Regional 
Competitiveness 
Index  exceeded  the  EU 
average with a score of 106.5 (EU average = 

(224) World Bank ease of doing business ranking. 

101 

 
 
 
 
 
 
 
 
Table A17.1: Selection of indicators at regional (NUTS 3) 
level in Estonia 

Source: Eurostat and JRC 

The  significant  disparities  in  GDP  per  capita 
across Estonia’s NUTS 3 regions are linked to 
substantial  gaps  in  labour  productivity.  In 
2022,  productivity  measured  as  GDP  per  hour 
worked  in  purchasing  power  standard  was  below 
the  EU  average  (100)  in  all  Estonian  regions.  It 
ranged  from  52%  of  the  EU  average  in  Lääne-
Eesti to 71% in Kirde-Eesti and 80% in the capital 
region,  Põhja-Eesti.  Labour  productivity  in  every 
Estonian  region  was  also  below  the  average  for 
the EU’s transition regions, which stood at 93% of 
the EU average. Increasing productivity across the 
board,  especially  outside  the  better-performing 
capital  area,  remains  one  of  Estonia's  key 
challenges for the coming years.  

low 

low  clarity 

Additional  bottlenecks  that  hinder  Estonia’s 
competitiveness 
resource 
are 
productivity,  knowledge  gaps  in  technology-
in 
intensive  business  and 
(225). 
government  priorities  and  policies 
Strengthening  long-term  strategic  planning  by 
adapting  to  changing  economic  reality,  with  fully 
integrating 
transition, 
the  green  and  digital 
increasing  resource  efficiency,  and  with  stronger 
focus on strategic new sectors like defence, could 
help bring the economy back to growth. 

While  Estonia  ranks  well  as  regards  the 
quality  of  government,  the  capacity  of 
municipalities  can  vary,  and  local  planning 
processes  can  take  time.  The  quality  of 
government  in  Estonia,  as  measured  by  the 

(225) Eesti majanduse olukord ja väljavaated: konkurentsivõime 

eksperdikogu raport Riigikogule, June 2024 

Index 

(226) 
European  Quality  of  Government 
exceeds  the  EU  average  but  trust  in  regional  and 
local  authorities  has  decreased,  which  could  be 
due  to  regional  disparities  and  underfunding  (see 
Annex  6).  Even  though  the  administrative  reform 
of  2017  reduced  the  number  of  municipalities 
from  213  to  79,  many  of  them  remain  relatively 
small. Local planning processes can act as barriers 
to  investments,  where  they  are  lengthy.  Estonia 
has  launched  changes  to  planning  legislation  to 
speed up and streamline planning processes. Quick 
legislation  could  boost 
adoption  of  relevant 
new 
development 
economic 
investment, especially at local level.   

attract 

and 

financial 

sustainability. 

In  some  areas  such  as  water  management, 
fragmented  public  service  provision  raises 
issues  of 
The 
fragmentation  of  the  water  management  sector 
(227)  and  the  limited  size  of  the  many  service 
providers hinder the industry’s financial capacity to 
operate,  maintain  and  renew  existing  assets. 
Estonia  currently  lacks  a  sustainable  funding 
strategy 
long-term  operation  and 
that  provides 
maintenance  of 
drinking water and wastewater treatment services 
but work on this has started (228). The road map for 
water  sector  services  reform  is  expected  to  be 
completed by June 2025. 

infrastructure 

the 

for 

Significant socio-economic disparities persist 
between  urban  and  rural  areas.  The  weaker 
performance of rural areas is further exacerbated 
by low levels or lack of human capital and access 
to  services.  The  share  of 
the  working-age 
population with a tertiary education is at its lowest 
in  rural  regions,  underperforming  urban  areas  by 
approximately 15 percentage points. In addition, in 
comparison  to  rural  areas,  as  well  as  towns  and 
suburbs,  urban  areas  have  lower  rates  of  young 
people  not  in  employment,  education,  or  training, 
as  well  as  those  who  have  prematurely  left 
education or training (Table A17.2) (see also Annex 
10). 

(226) European Quality of Government Index 2024 | University of 

Gothenburg 

(227) 135 water companies were operating in Estonia at the start of 
2024, of which 90 were water companies designated by 
municipalities and approx. 45 were various non-profit 
organizations that meet the characteristics of a water company. 
Source: Inception report on the implementation of the action 
plan towards sustainable water services, 2023.  

(228) OECD Study ‘Towards Sustainable Water Services in Estonia’, 2022. 

102 

GDP per head (PPS)Real GDP per head growthProductivity - GDP per person employed (PPS)Real productivity growth (per person employed)Productivity - GDP per hour worked (PPS)Real productivity growth (per hour worked)Index EU-27 = 100Average annual % changeIndex EU-27 = 100Average annual % changeIndex EU-27 = 100Average annual % change20232014-202320232014-202320222013-2022European Union (27 MS)1001.61000.61000.9Estonia801.8780.8701.8Põhja-Eesti1050.8900.1800.9Lääne-Eesti521.9591.4521.8Kesk-Eesti512.8632.1583.7Kirde-Eesti562.4691.8714.9Lõuna-Eesti633.4651.8602.7 
 
   
 
 
 
due  to  influx  of  refugees  from  Ukraine,  there  are 
significant  regional  disparities.  The  population  in 
the  capital  region  grew  substantially  by  12%, 
whereas Kirde-Eesti experienced a sharp decline of 
12%. 
In  contrast,  population  declines  in  the 
remaining NUTS 3 regions were relatively modest, 
at less than 2% (229). 

Housing  cost  overburden  used  to  be  highest 
in  urbanised  areas  of  the  country  (230). 
However,  due  to  increases  in  2023  and  2024, 
approximately 10% of the population in towns and 
suburbs  and  around  8%  in  cities  and  rural  areas 
live in households burdened by housing costs. 

The relatively low population density in rural 
areas  translates  into  more  challenges  in 
physical access to basic services, which may 
be exacerbated by the trend of depopulation. 
Access to healthcare infrastructure in Estonia is at 
its  lowest  in  rural  areas,  where  only  13%  of  the 
population  lives  within  a  10-minute  drive  of  a 
hospital  (231).  This  is  well  below  the  average  for 
rural areas in transition regions in the EU (34.6%) 
and below the average for rural areas in the EU's 
less  developed  regions  (15.8%).  While  travel  time 
is not is not the main reason for the relatively high 
unmet  needs  for  healthcare  in  Estonia  (see  also 
Annex  14),  it  is  a  more  significant  factor  than  in 
most  other  Member  States.      Similarly,  access  to 
primary  school  facilities  is  significantly  lower  in 
rural  areas,  with  only  21%  of  rural  residents 
having  access  to  a  primary  school  within  a  15-
minute  walk  compared  to  an  average  of  63%  in 
urbanised  areas (232).  More  remote  municipalities 
have  started  to  close  and  downsize  smaller 
schools,  partly  as  depopulation  reduces  demand 
and therefore the viability of schools. 

Table A17.2: Socio-demographic indicators by degree of 
urbanisation, 2024 

Source: Eurostat 

Graph A17.1: GDP per capita in 2010-2022 in capital 
region (Harjumaa) and counties at EUs external border 
(% of Estonian average) 

Source: Statistics Estonia 

However, 

The  change  in  the  GDP  per  capita  in  2010-
2022 in counties on the EUs external border 
shows  convergence  towards  the  national 
average. 
of 
developments on the impact of the Russian war of 
aggression  in  Ukraine  on  border  regions  is  still 
warranted. In some border counties such as Põlva 
and  Võru,  GDP  per  capita  remains  well  below  the 
national  average  and  the  convergence  has  been 
relatively slow (Graph A17.1). 

close  monitoring 

Social fairness 

its  Baltic  neighbours,  Estonia 

is 
Like 
experiencing  depopulation 
in  non-capital 
regions.  While  the  country’s  overall  population 
grew  by  4.3%  between  2014  and  2023,  mainly 

(229) Average annual change per 1 000 residents. 

(230) The housing cost overburden rate is the percentage of the 

population living in households where the total housing costs (‘net’ 
of housing allowances) represent more than 40% of disposable 
income (‘net’ of housing allowances). 

(231) This figure is not based on the official definition of degree of 

urbanisation. 

(232) This figure is not based on the official definition of degree of 

urbanisation. 

103 

CitiesTowns and suburbsRural areasPopulation with high educational attainment (% of population aged 25-64)49.336.934.4Early leavers from education and training (% of population aged 18-24)9.711.814.2NEET: Neither in employment nor in education or training  (% of population 15-34)20.924.722.6At-risk-of-poverty or social exclusion (% of total population)9.310.112.5Housing cost overburden (% of total population)8.410.37.904080120160HarjumaakondIda-VirumaakondPõlvamaakondTartumaakondVõrumaakond2010201520182022 
 
     
 
 
       
 
Sustainability 

within  10 km  is  58.  In  all  remaining  NUTS 3 
regions this number is below 10. 

The  county  of  Ida-Viru  faces  the  additional 
challenges  of  phasing  out  production  of 
energy  from  oil  shale  and  dealing  with  the 
consequences of the transition as well as the 
in  Ukraine. 
Russian  war  of  aggression 
Nevertheless,  the  use  of  oil  shale  in  energy 
production  is  decreasing  again  after  the  world 
energy  crises. 
In  2023,  Estonia’s  average 
greenhouse  gas  (GHG)  emissions  per  capita  of 
10.5 tonnes of CO2 equivalent were well above the 
EU  average  of  7.1  tonnes  and  7.7  tonnes  in 
transition regions. The energy production using oil 
shale,  which  contributed  substantially  to  the 
country's GHG emissions (233), is fully concentrated 
in  the  county  of  Ida-Viru  on  the  eastern  border. 
The  Just  Transition  Fund investments  are  starting 
to mitigate the impact of the energy transition and 
will create up to 1 000 jobs. They are also helping 
reduce CO2 emissions. 

Untapped  potential  in  solar  and  wind  power 
in  the  Estonia's  NUTS 3  regions  is  relatively 
high.  In  2023,  the  share  of  renewable  energy  in 
the  country's  gross  final  energy  consumption  was 
38.5%, and there is potential for a more extensive 
uptake of renewable energy sources. In addition to 
coastal areas, which already exploit wind energy to 
an  extent,  there  is  untapped  potential  in  inland 
NUTS 3  regions  (234).  Exploiting  the  potential  and 
increasing  the  supply  of  renewable  energy  could 
benefit not only Estonia, but economic cohesion in 
the EU. 

Access to alternative fuel infrastructure (235)  
is  relatively  limited  in  Estonia.  In  2022,  the 
average number of electric vehicle charging points 
within a 10 km drive from people’s homes was 30, 
which  is  below  the  average  for  EU  transition 
regions (89) and far from the EU average (287). In 
for  charging  electric 
addition, 
vehicles  is  concentrated  in  the  capital  region  of 
Põhja-Eesti  where  the  number  of  charging  points 

infrastructure 

(233) JRC regional emissions data (EDGAR database) 

(234) JRC data: 9th Report on economic, social and territorial cohesion, 

Map 4.5.  

(235) Indicators of access to alternative fuel infrastructure are based on 

calculations by DG REGIO and the JRC, using data from the 
European Alternative Fuels Observatory (EAFO), Eurostat, TomTom 
and Eco-Movement. 

104