COMMISSION STAFF WORKING DOCUMENT 2026 Country Report - Estonia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Estonia
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Estonia, budget policy, defence expenditure, economic policy, economic recovery, economic reform, employment policy, energy policy, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.6.2026  SWD(2026) 206 final  COMMISSION STAFF WORKING DOCUMENT 2026 Country Report - Estonia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION  on the economic, social, employment, structural and budgetary policies of Estonia {COM(2026) 206 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC DEVELOPMENTS AND KEY POLICY 
CHALLENGES 

The modest recovery driven by 
domestic demand and inventories 
faces geopolitical headwinds 

coupled 

demand 

increased, 

High  geopolitical  uncertainty  and  weak 
with 
external 
persistently  high 
inflation  weigh  on 
Estonia’s  growth.  After  a  few  years  of 
the  Estonian 
contraction  and  stagnation, 
economy grew by a modest 0.6% in 2025. The 
tense  geopolitical  situation  over  the  past  few 
years has led to the private sector postponing 
in 
investment.  Public  spending 
particular for defence, although most of it was 
imported, thereby not stimulating the domestic 
economy.  In  parallel,  the  weak  economies  of 
(Sweden, 
Estonia's  main  trading  partners 
Finland  and  Germany)  weighed  on 
the 
country’s  exports. 
In  2025,  growth  was 
therefore  driven  by  domestic  demand,  i.e.  a 
combination of public spending, some rebound 
in investment and accumulation of inventories. 
Net  exports 
contributed  negatively  but 
negligibly  to  growth.  Inflation  in  Estonia  has 
been high in recent years and was still at 4.8% 
in  2025,  roughly  half  of  which  can  be 
attributed to higher and new taxes (1). Inflation 
was  set  to  slow  in  2026  as  some  tax  effects 
end, but rising energy prices caused by the war 
in  the  Middle  East  might  jeopardise  this 
process. 

in  nominal 
Domestically,  a  fast  rise 
wages,  a  higher  debt  burden  and 
downbeat  sentiment  slowed  real  growth. 
The  large  wage  increases  that  followed  the 
energy-related 
after 
inflationary 
Russia's  invasion  of  Ukraine  eroded  Estonia's 
competitiveness.  Credit  growth  slowed,  with 

shock 

(1)  Bank of Estonia estimates. 

therefore  dedicated  a 

higher  ECB  policy  rates  directly  affecting 
interest  rates,  most  of  which  are  variable. 
Households 
larger 
proportion  of  income  to  debt  servicing,  which 
reduced  private  consumption  over  the  last 
years.  Only  in  the  second  half  of  2025  did 
lower  interest  rates  start  lightening  the  debt 
burden  and  reviving  credit  expansion.  Amid 
high uncertainty, consumer sentiment remains 
downbeat, weighing on retail spending. 

Graph 1.1: Real GDP growth and contributions 

Source: AMECO 

the  Estonian  economy 

is 
In  2026, 
projected to  grow by 1.6% in  real  terms. 
The  economy  has  been  gaining  momentum 
in  the  Middle  East, 
before  the  outbreak 
supported  by  fiscal  reforms  that  raised  real 
incomes,  and  more  favourable 
disposable 
financing  conditions,  which  were  set 
to 
encourage  investment.  Since  the  outbreak  of 
the conflict, prospects for private consumption 
have  become  more  muted,  while  geopolitical 
concerns  are  weighing  on  private  investment 
is  now 
and  exports.  Meanwhile, 
expected to be higher due to the energy price 
shock  and  its  potential  spillovers,  averaging 
4.4% in 2026. 

inflation 

.  

2 

-12-10-8-6-4-2024681018192021222324252627Net exportsInvestmentPriv. consumptionGov. consumptionInventoriesReal GDP (y-o-y%)forecastpps.  
 
 
   
Box 1: 

UN Sustainable Development Goals (SDGs) 

Estonia performs above the EU average and is further improving on most SDGs related 
to sustainability (SDGs 2, 6, 7, 11 and 15) but needs to catch up with the EU average on 
others (SDGs 9, 12, 13 and 14). 

The country’s performance on SDG-related competitiveness is mixed. On the one hand, 
the quality of education (SDG 4) is above the EU average and improving, as illustrated 
by  an  increase  in  adult  participation  in  learning.  On  the  other  hand,  decent  work  and 
economic growth (SDG  8) is  below  the  EU  average, and  Estonia  is moving  away  from 
the  goals,  as  illustrated  by  the  stagnant  real  GDP  per  capita.  Industry  and  innovation 
(SDG  9)  is  below  the  EU  average,  but  improving,  as  exemplified  by  trends  in  gross 
domestic expenditure on R&D. 

Out of the 17 SDGs, 8 remain below the EU average. Besides SDGs 8 and 9 discussed 
above, these relate to health (SDG 3), gender equality (SDG 5), responsible consumption 
and  production  (SDG  12),  climate  action  (SDG  13),  life  below  water  (SDG  14)  and 
personal security (SDG 16) (see Annex 15.) 

Graph 1.2: HICP breakdown 2022-2026 

Source: Eurostat 

There has been a healthy 
adjustment in the labour market 
but structural issues persist 

The  labour  market  is  adjusting  to  the 
cycle  but 
economic  growth 
faces 
structural 
such  as  ageing 
issues 
population,  skills  shortages  and  high  youth 
unemployment.  The  unemployment  rate  rose 
to  8.6%  at  the  beginning  of  2025,  following 
the protracted economic weakness, but fell to 
6.4% towards the end of 2025 on the back of 
lower  labour  participation  and  the  nascent 
recovery. The shift was accompanied by slower 
in 
wage  growth 

(6%  year-on-year)  than 

3 

the 

reversed  by 

the  positive  drop 

previous  years,  and  a  smaller  pool  of 
vacancies.  Despite 
in 
unemployment,  several  structural  issues  exist. 
The  ageing  population  is  causing  the  labour 
force  to  shrink;  a  trend  that  has  been  only 
temporarily 
inflow  of 
Ukrainians. This is offset to a certain extent by 
the  historically  very  high  participation  rate, 
also  among  women  (although  the  gender 
wage  gap  is  one  of  the  largest  in  the  EU). 
Shortages  of  certain  professions  persist, 
STEM 
especially 
Regional 
professionals 
differences, 
Ida-Viru,  are 
pronounced, with some areas facing language 
barriers  and  structurally  high  unemployment. 
Youth  unemployment  is  on  the  rise  (above 
20%), as is the proportion of young people not 
in employment or in education or training (see 
Annex 11). 

and 
in  particular 

teachers. 
in 

healthcare 

and 

of 

Public finances face growing 
pressures from defence and social 
spending 

In 2025, Estonia received country-specific 
recommendations  to  broaden  the  tax 
base and ensure sustainable financing for 
defence, 
spending 
healthcare and long-term care. From 2024 
to  2027,  the  excise  duty  rates  on  alcohol, 

including 

needs 

-50510152025302223242526y-o-y % change, pps.ServicesProcessed foodNEIGUnprocessed foodEnergyHICP 
   
 
(2). 

increases 

increases 

tobacco  and  energy  goods  will  be  subject  to 
additional  yearly 
In  2025, 
personal  and  corporate  income  tax  (PIT  and 
CIT)  increases  (both  from  20%  to  22%) 
entered  into  force.  In  2026,  expected  PIT  and 
CIT  rate 
(both  to  24%)  were 
cancelled.  Still,  the  tax  rate  for  advance 
income  tax  paid  by  credit  institutions  was 
raised  from  14%  to  18%.  In  2025,  a  new 
motor  vehicle  tax  was  introduced.  In  July 
2025,  the  VAT  rate  was  increased  from  22% 
to  24%  and  there  were  increases  in  the 
reduced VAT rates for accommodation services 
(from  9%  to  13%)  and  for  press  publications 
(from  5%  to  9%).  Since  2025  an  upward 
correction  of  the  land  tax  is  taking  place. 
Despite  these  efforts,  Estonia's  tax  base 
remains  narrow  and  continues  to  be  heavily 
reliant on labour and consumption taxes. New 
revenue-increasing  or  expenditure-reducing 
measures  will  be  needed  to  ensure  the 
sustainable  financing  of  priority  spending 
needs, mainly defence and social policies. 

The general government deficit increased 
to  2.0%  of  GDP  in  2025  and  is  set  to 
continue  widening. 
In  2025,  the  deficit 
remained low thanks to: (i) increases in the PIT 
and CIT rates to 22%; (ii) a rise in the VAT rate 
to  24%, (iii)  a  new  motor vehicle  tax;  and  (iv) 
improved  tax  collection  amid  the  economic 
recovery.  However,  the  deficit  is  forecast  to 
increase to 4.5% of GDP (3) in 2026. Revenue 
is  set  to  be  impacted  by  the  transition  to  a 
universal  tax  system  that  also  raises  the 
income  threshold  to  EUR 700  monthly.  This 
measure will lead to significant revenue losses 
incentives  by 
even 
removing  the  current  hump 
in  effective 
marginal  tax  rates  (see  Annexes  2  and  3). 
Expenditure  is  set  to  increase  mainly  due  to 
defence  spending.  Public  debt  was  24.1%  of 
GDP  in  2025  and  is  set  to  rise  to  26.9%  in 
2026  on  the  back  of  planned  higher  public 
spending, particularly on defence. 

improves  work 

if 

it 

(2)  To  help  counteract  the  high  energy  prices  stemming 
from  the  conflict  in  the  Middle  East,  the  government 
decided  to  postpone  to  2027  the  increases  in  energy 
(fuel  and  electricity)  excise  duty  rates  foreseen  for 
2026. 

(3)  Commission 2026 Spring Forecast. 

4 

to 

Estonia 

committed 

Estonia  appears  to  be  on  track  to  meet 
its  commitments  under  its  medium-term 
plan.  Under  its  2025-2029  medium-term 
plan, 
limiting 
expenditure growth, aiming to keep the deficit 
well  below  3%  of  GDP  by  2029  and  public 
debt below the threshold of 60% of GDP (see 
Annex  2). The  above  commitment  could  be 
jeopardised by lower than projected economic 
growth resulting in  lower  fiscal  revenues  and 
backtracking  on  certain  revenue-increasing 
decisions. 
side, 
increasing spending  pressures,  such  as  the 
planned 
spending, 
surpassing 5% of GDP already by 2026, could 
also jeopardise the commitment. 

in  defence 

expenditure 

increase 

the 

On 

and 

contributions 

Budget pressures continue to build on the 
expenditure  side.  Under  Estonia’s  State 
Budgetary  Strategy  (4),  welfare  expenditure 
(including  social  and  other  subsidies,  funded 
social 
unemployment 
insurance  premiums)  is  expected  to  increase 
by  around  EUR 1  billion  between  2025  and 
2029,  followed  by  health  expenditure  and 
security  and  defence  expenditure,  which  are 
expected  to  increase  by  almost  EUR 480 
million  and  560  million  respectively.  To 
counterbalance  this  trend,  certain  areas  of 
expenditure, such as family benefits, are being 
targeted.  As  of  2026,  the  maximum  rate  for 
parental benefits has been reduced from three 
times to two times the average wage, with no 
provision for progressivity. 

Defence  spending,  with  support  from  EU 
funds,  is  on  the  rise  due  to  heightened 
security needs. To enable Estonia to increase 
public  spending  on  defence,  the  Council  has 
activated the country's national escape clause 
(5).  Defence  spending  increased  from  2%  of 
GDP in 2021 to 4.2% in 2025 and is expected 
to reach 5.0% of GDP in 2026. By composition, 
the  proportion  of  defence  investment  in  total 

(4)  State Budget Strategy | Ministry of Finance. 

(5)  The  activation  of  the  national  escape  clause  provides 
Member  States  with  budgetary  flexibility  to  increase 
defence  expenditure,  without  an  immediate  need  to 
finance such an increase with spending cuts or revenue-
raising  measures.  The  flexibility  gives  Member  States 
the  necessary  time  to  accommodate  higher  defence 
expenditure within national budgets. 

 
 
 
increase 

spending  will 

in  2026-2030. 

from 
defence 
approximately 32% to around 50% in 2026. In 
terms  of  EU  funding,  in  February  2026,  the 
Council agreed to make available to Estonia a 
loan  amounting  to  a  maximum  of  EUR 2.3 
billion (5.9% of GDP) under the Security Action 
for  Europe  instrument  (6)  to  finance  defence 
projects 
In  2026,  Estonia 
introduced two new specific objectives focused 
on  improving  security  and  defence  in  its 
cohesion programme. Both objectives prioritise 
the  dual-use  nature  of  new  defence 
capabilities  and  together  amount  to  almost 
EUR 386  million.  Additionally, the  Border 
Management  and  Visa  Policy  Instrument  (7), 
with 
of EUR 170 
million, supports  Member  States  bordering 
Russia  and  Belarus  in  upgrading  surveillance 
counter-
systems, telecommunications and 
drone 
these 
capabilities.  Complementing 
efforts,  the  EU  space  and  secure  connectivity 
programmes  provide  secure  and  resilient 
space-based 
operate 
to 
services  able 
effectively in diverse environments. 

budget 

overall 

an 

taxes far  exceeds 

New  sources  of  revenue  are  needed  to 
increased  expenditure.  Estonia’s 
cover 
relies  predominantly 
revenue  composition 
on labour and consumption taxes, which made 
up  90%  of  total  tax  revenue  in  2024  (see 
Annex  3). In  particular,  the  contribution  of 
the  EU 
consumption 
average. Such  reliance  is  expected  only  to 
increase  with  the  raising  of  the  standard  VAT 
rate in 2025, for a second consecutive year, to 
24%. Environmental  taxes  (at  2.6%  of  GDP) 
already  exceed  the  EU  average  as  well.  As  it 
stands  now,  property  taxation  plays  a  very 
minor  role  in  public  revenues.  Even  though 
Estonia  is  currently  undertaking  new  land 
valuations, a tax on residential buildings could 
improve  long-term  fiscal  sustainability  and 
broaden 
to 
guarantee  progressivity,  special  provisions  for 
low-income households could be envisaged. 

tax  mix.  Furthermore, 

the 

Performing  consistent  public  spending 
reviews and policy evaluations could also 

(6)  Implementing Decision - EU - 2026/407 - EN - EUR-Lex. 

(7)  Communication  on  the  EU’s  eastern  regions  bordering 

Russia, Belarus and Ukraine. 

5 

improve  fiscal  sustainability.  Expenditure 
reviews have been carried out since 2017 but 
not in a consistent and comprehensive manner 
(see  Annex  2).  Estonia  recently  completed  a 
training  project,  under  the  umbrella  of  the 
Commission’s  Technical  Support  Instrument, 
with  the  aim  of  better  integrating  regular 
spending  reviews  and  policy  evaluations  into 
framework. 
the  medium-term  budgetary 
Estonia  could  benefit  from  using  this  know-
how to help alleviate budgetary pressures and 
redirect  the  savings  obtained  to  priority  areas 
such as defence and social policies. 

Addressing regional disparities to 
support competitiveness, growth 
and resilience 

and 

linked 

growth. 

challenges 

demographic 

to 
decline 

Persistent  territorial  disparities  hamper 
convergence 
Estonia’s 
convergence with the EU average is still driven 
largely  by  the  two  major  cities  of  Tallinn  and 
Tartu  (see  Annex  18).  The  capital  region 
(Northern Estonia, including Tallinn) stands out 
as  the  only  region  with  income  levels  above 
the EU average, while the other regions remain 
substantially  below  it.  This  reflects  the strong 
concentration  of  economic  activity,  high-value 
services and skilled labour around Tallinn. The 
regions  (excluding  the  capital  region)  face 
sparse 
structural 
population, 
and 
connectivity  constraints.  These  challenges 
interact  with 
as 
institutional 
municipalities  operate  with  relatively  limited 
fiscal capacity, which constrains their ability to 
local  economy  and  provide 
support 
services to the local population. As the country 
transitions  away  from  fossil  fuels,  Ida-Viru 
county  is  also  undergoing  a  major  industrial 
and economic transformation as the oil shale-
based  industry  is  phased  out  and  its  mainly 
Russian-speaking  population  faces  obstacles 
to  education  and  labour  mobility  due  to 
language  barriers.  While  Kagu-Eesti  includes 
the second-largest city Tartu, it also comprises 
large  parts  that  are  among  Estonia’s  most 
peripheral  areas.  Like  other  remote  and  rural 
parts  of  Estonia, 
face  challenges 
regarding  (digital)  connectivity  and  access  to 

factors, 

they 

the 

 
 
Efforts are being made to address 
economic security challenges 
related to energy 

in 

Estonia  faces  several  challenges  related 
to  economic  security,  mostly 
in  the 
energy sector. As one of the most resource-
intensive  economies 
the  EU,  Estonia 
depends  heavily  on  fossil  fuel  imports  for  its 
energy needs, while phasing out  the domestic 
production  of  oil  shale  at  the  same  time. 
Russia’s 
invasion  of  Ukraine,  which  was 
followed  by  sanctions,  has  led  to  significant 
increases  and  competitive 
energy  price 
pressures 
industries. 
in  energy-intensive 
Estonia  also  faces  significant  risks  to  the 
physical  security  of  critical  grid infrastructure, 
having experienced hybrid attacks on undersea 
cables by the Russian shadow fleet in the past. 
Efforts  to  increase  energy  security  include 
ceasing  Russian  gas 
imports,  expanding 
from  alternative  suppliers,  and 
imports 
strengthening the grid infrastructure resilience 
and  interconnections.  The  recent  war  in  the 
Middle  East  nevertheless  exposes  Estonia’s 
imports.  Further 
vulnerability 
investments  in  renewables,  energy  storage 
and  energy  efficiency  are  needed  to  boost 
energy security. 

to  energy 

basic  public  services,  undermining  the  ability 
of  residents  to  stay  outside  the  major  cities. 
Finally,  investment  and  innovation  activities 
also  remain  strongly  concentrated  in  Tallinn 
and  Tartu,  while  linkages  between  foreign 
investors  and  local  SMEs  are  uneven  across 
regions,  not  least  due  to  impeded  access  to 
finance  (see  Section  2).  Estonia  could  benefit 
from  stronger  place-based  policy  coordination 
that  could  support  economic  diversification 
and  strengthen  the  resilience  of  regions 
(including those along the eastern border) that 
adjustment. 
are 
Strengthening inter-municipal cooperation and 
regional  planning  capacity  would  help  to 
ensure  the  sustainable  provision  of  public 
services. 

structural 

facing 

the  EU, 

hindering 

Estonia,  as  a  country  on  the  eastern 
faces 
external  border  of 
its 
challenges 
additional 
prospects 
for  economic  and  social 
development  (8).  Russia’s  war  of  aggression 
against Ukraine not only exacerbates some of 
the  existing  structural  challenges,  but  also 
increases  security  pressures,  disrupts  cross-
border  economic  activities  and  decreases 
investment  attractiveness,  thereby  making  it 
even  more  difficult  to  access  finance  in  the 
country.  Security  concerns  for  people  and 
critical  infrastructure  require  investments  in 
civil  protection,  preparedness  and  military 
mobility. This is recognised by Estonia and has 
led  to  a  significant 
in  defence 
spending. While these investments could have 
the  double  benefit  of  addressing  security 
concerns  and  providing  opportunities  for  the 
regions’  economies,  they  will  also  put  further 
pressure on the financing of public services. 

increase 

(8)  The  Commission’s  2026 Communication  on  the  EU’s 
eastern 
regions  bordering  Russia,  Belarus  and 
Ukraine defines eastern border regions as NUTS 2-level 
areas  that  are  geographically  proximate  to  Russia, 
Belarus  or  Ukraine.  Estonia  is  classified  as  an  eastern 
border region. 

6 

 
 
Box 2: 

Key achievements of the recovery and resilience plan 

Estonia's recovery and resilience plan has a total budget of EUR 953 million (corresponding to 3.0 % 
of  2023  GDP)  to  support  reforms  and  investments  contributing  to  the  green  and  digital  transitions, 
strengthen  economic  resilience  and  address  the  long-standing  structural  challenges  identified  in  the 
European Semester. 

As  of  5  May  2026,  EUR 763  million  (around  80%  of  the  total  allocation)  have  been  disbursed  to 
Estonia  following  the  satisfactory  fulfilment  of  86  milestones  and  targets.  Implementation  has 
progressed steadily, with a growing number of reforms and investments already fulfilled and delivering 
tangible results on the ground. 

Highlights and impact of the plan 

•  Accelerated  renewable  energy  deployment.  Streamlined  permitting  procedures  for  renewable 
energy generation and storage facilities and an investment is to increase the installed capacity for 
the production of sustainable biomethane by at least 4 000 000 cubic metres by 2026 (expected). 

•  Energy  efficiency  in  buildings.  At  least  80  multi-apartment  buildings  and  at  least  900  small 

residential buildings have been renovated. 

•  Strengthening  access  to  healthcare.  The  new  general  hospital  and  health  centre  in  Viljandi 
provides access to healthcare and social services in an integrated way. Furthermore, doctors, nurses 
and pharmacists are incentivised to work in remote areas to improve access to healthcare across 
the country. 

•  Supporting youth employment. The 'My First Job' scheme enables young people with no or little 

work experience to gain work experience and improve their skills so they can find a job. 

•  Developing new green technologies. The Green Fund provides EUR 90 million to be invested in 
venture capital for the development of new green technologies in different sectors such as energy, 
agriculture and the food industry. 

• 

Increased internet access in rural areas. This will be achieved by expanding very high-capacity 
broadband networks, which offer a connection of at least 100 Mbps, to over 8 000  dwellings and 
other sites (expected). 

future, 

opportunities 

transport  and 

investment 
In 

also:  (i)  advanced  regulatory  simplification 
efforts;  (ii)  expanded  digitalisation  support  in 
traditional  sectors  such  as  manufacturing, 
construction  and 
logistics 
through  RRF  measures,  cohesion  policy  funds 
and the Just Transition Fund; and (iii) updated 
the  investment  account  system  in  2025  to 
broaden 
for 
households. 
sustaining 
competitiveness  will  require:  (i)  a  coordinated 
approach  to  strengthen  investment  in  skills 
across the workforce; (ii) faster diffusion of AI 
and  advanced  digital 
(iii) 
private-sector 
stronger 
innovation  combined  with  improved  access  to 
finance  for  SMEs,  particularly  outside  major 
urban  centres;  and  (iv)  a  predictable,  efficient 
business environment. Resource productivity in 
Estonia is dragged down by resource-intensive 
industries and considerable use of oil shale in 

technologies; 

incentives 

for 

Broader productivity gains still 
need to be unlocked 

Estonia  faces  the  challenge  of  achieving 
stronger 
labour  and  resource  productivity 
beyond  maintaining  its  position  as  a  digital 
front  runner.  While  Estonia  has  a  digitally-
savvy public service and buoyant ICT sector, it 
lacks  private  investments  in  research  and 
innovation (R&I) and new technologies are not 
used  in  the  economy.  Significant  steps  have 
been  taken  to  close  this  gap,  including  the 
strengthening  of  the  applied  R&I  framework 
through  the  establishment  of  a  national 
applied research centre and the launch of the 
TemTA  programme  to  support  use-oriented 
R&D in smart specialisation areas. Estonia has 

7 

 
 
technologies  and 

sector.  To  boost 

resource 
the  energy 
productivity, Estonia needs to shift away from 
oil  shale,  further  develop  resource-efficient 
green 
improve 
circularity.  Without  stronger  diffusion  of 
innovation  and  new  technologies  and  broader 
mobilisation  of  private  investment,  Estonia 
may  find  it  difficult  to  achieve  broad-based 
productivity gains (see Section2). 

further 

There is still scope to strengthen 
the social protection of vulnerable 
groups, and access to and the 
affordability of healthcare and 
long-term care 

(i) 

the 

While  the  overall  poverty  rate  has 
decreased,  poverty  risks  remain  high  for 
persons with disabilities, older people and 
single-parent  households.  The  main  drivers 
low  spending  on  social 
remain: 
protection;  (ii)  the  limited  effectiveness  of 
social transfers; (iii) the adequacy of pensions 
();  (iv)  high  housing  costs;  and  (v)  uneven 
access  to  and  affordability  of  healthcare  and 
long-term  care.  High  out-of-pocket  payments, 
long  waiting  times  and  workforce  shortages 
coupled with regional disparities are persistent 
challenges  to  accessing  care  services.  Estonia 
has  taken  steps  to  address  these  challenges, 
but  the  lack  of  adequate  funding  remains  a 
key  obstacle  to  eliminating  poverty  and 
addressing  the  key  challenges  related  to  the 
affordability  of  and  access  to  healthcare  and 
long-term  care.  As  for  pensions,  around  a 
take 
quarter  of  working-age  Estonians 
advantage  of  the  tax  break  on  contributions 
and  participate  in  the  third  (supplementary) 
pillar  pension  scheme,  which  will  help  to 
address  the  issue  of  pension  adequacy  for 
participants 
However, 
the 
contributions  remain  relatively  low  and  are 
often irregular (Annex 6). 

future. 

in 

this, including high demand, rising construction 
costs,  lack  of  construction  workers  and  low 
productivity in the sector. The increase in rents 
was lower but still substantial. Because of the 
very limited social housing stock, this led to a 
rising  cost  overburden,  particularly  for  low-
income  households  and  single  parents,  with 
single  parents  at  risk  of  poverty  devoting  one 
of  the  highest  proportions  of  disposable 
household income to rent in the EU (Annex 16). 
While  affordability  challenges  are  most 
pronounced  in  urban  areas,  housing  issues  in 
the  rest  of  the  country  relate  more  to  quality 
and  availability  (Annex  18).  To  address  this 
issue,  Estonia is  currently designing  a general 
housing  policy  for  2025–2035  to  cover  a 
to  housing 
series  of  aspects 
affordability. 

relevant 

Energy efficiency in the Estonian housing 
stock  is  very  low.  As  a  result,  Estonians 
spend  a  very  high  proportion  of 
their 
disposable incomes on heating (see Section 3). 
This affects the whole population significantly 
but  hits  vulnerable  groups  particularly  hard, 
highlighting the need to accelerate the energy 
efficiency  renovation  of  old  buildings  and 
residential buildings, in particular. 

funding 

instruments 

competitiveness, 

EU 
provide 
considerable  resources  to  Estonia.  They 
support investments and structural reforms to 
environmental 
increase 
sustainability,  skills,  social 
fairness  and 
security,  while  helping  to  address  challenges 
identified in the CSRs. Key instruments include 
the  Recovery  and  Resilience  Facility  (see  Box 
2)  and  Cohesion  policy  funds  (see  Box  3).  In 
addition, the Common Agricultural Policy (CAP) 
provides  Estonia  with  an  EU  contribution  of 
EUR 1.4 billion under the CAP strategic plan for 
2023-2027(9). A further EUR 168.7 million are 
available  under  the  Asylum,  Migration  and 
Integration  Fund  (AMIF),  together  with  the 
Border  Management  and  Visa 
Instrument 
(BMVI)  and  the  Internal  Security  Fund  (ISF). 
support 
Other 

programmes 

also 

EU 

Since 
the  mid-2010s,  Estonia  has 
experienced one of the  longest and most 
pronounced  increases  in  nominal  house 
prices and in the price-to-income ratio in 
Europe.  Several  factors  have  contributed  to 

(9)  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  

8 

 
 
instance 
in  Estonia, 
competitiveness 
through  open  calls  under  Horizon  Europe  and 
the Connecting Europe Facility.  

for 

Box 3: 

Contribution of cohesion policy funds 

EU  cohesion  policy  funding  is  supporting  Estonia’s  efforts  to  boost  competitiveness, 
environmental  sustainability,  skills  and  social  fairness.  In  the  2021-2027  programming 
period cohesion policy funds (10) are providing EUR 3.4 billion (amounting to EUR 4.1 billion with 
national  co-financing),  or  9%  of  2024  GDP  to  Estonia.  This  makes  cohesion  policy  one  of  the 
main sources of public investment in the country. The value of selected projects corresponded to 
110% of the total allocation as of March 2026, with additional calls for projects in the pipeline. 

• 

Innovation, business environment and productivity. Over EUR 1.1 billion are allocated 
to  R&I,  SMEs'  competitiveness  and  to  the  regions  most  affected  by  the  transition  away 
from  carbon-intensive  activities.  Around  14  000  firms  have  already  had  their  projects 
approved. 

•  Decarbonisation,  energy  affordability  and  sustainability.  Around  EUR  690  million 
are dedicated to the green transition, supporting renewable energy deployment and energy 
efficiency improvements in buildings and district heating systems. Investments also support 
drinking water supply and wastewater treatment, improving environmental performance and 
service quality, while reducing greenhouse gas emissions and energy consumption. 

•  Skills,  quality  jobs  and  social  fairness.  The  total  European  Social  Fund  Plus  (ESF+) 
allocation amounts to EUR 491 million. The Fund's main activities cover active labour market 
measures  (EUR  47  million),  work  ability  reform  (EUR  31.3  million),  and  investments  in 
education and skills (EUR 227.5 million). In addition, digital skills, youth measures, long-term 
care  reform  and  integration  are  also  supported.  Around  EUR  157  million  are  dedicated  to 
fostering  social  inclusion,  with  EUR  24.9  million  allocated  to  addressing  child  poverty  and 
EUR 16.2 million to supporting the most deprived. 

The  mid-term  review  (11)  strengthened  the  contribution  of  cohesion  policy  funds  to  emerging 
strategic priorities in Estonia, reallocating around EUR 396 million (including EUR 42.7 million 
from  the  ESF+).  A  significant  proportion  of  the  reallocations  supports  security  and  resilience, 
including military mobility and civil preparedness. 

(10)  ERDF, ESF+, CF and JTF. 

It 

(11)  The mid-term review is carried out halfway through the 
is  a  formal 
2021-2027  programming  period. 
assessment  process  required  under  Article  18  of  the 
Common Provisions Regulation that aims to assess the 
implementation  of  programmes  and,  where  necessary, 
propose  adjustments  to  improve  their  performance, 
ensure  their  relevance  in  light  of  new  and  emerging 
needs and keep them aligned with other EU policies. 

9 

 
 
 
INNOVATION, BUSINESS ENVIRONMENT AND 
PRODUCTIVITY 

to: 

(CSRs) 

In 2025, Estonia received country-specific 
recommendations 
(i) 
raise resource  productivity;  (ii)  invest  in 
skills;  (iii)  focus  investment  on  research 
and  innovation;  and  (iv)  improve  access 
to  finance.  Several  measures  have  been 
implemented  to  prioritise  funding  for  applied 
research,  but  the  private  sector's  leverage  of 
public  investment  in  research  and  innovation 
(R&I)  remains 
limited.  Similarly,  extensive 
reforms  are  under  way  to  strengthen  the 
supply  of  specialist  skills  .  Several  funding 
programmes  are  available  for 
improving 
resource  productivity  and  transitioning  to 
green  technologies,  but  the  industry  uptake 
remains limited (Annex 1). 

Translating  policy  efforts  into  stronger 
innovation  performance  and  productivity 
growth  remains  difficult,  particularly  for 
small  and  medium-sized  enterprises 
(SMEs).  Patenting  activity  has  declined  and 
collaboration  between  science  and  business 
remains  uneven.  While  start-ups  benefit  from 
a  developed  venture  capital  market,  SMEs  in 
general  continue 
in 
accessing finance to invest, innovate and scale 
up,  and  companies  still  report  the  need  for 
skilled workers. Low resource productivity also 
indicates scope to improve the efficient use of 
transition 
the 
materials  and  accelerate 
towards a more circular economy. 

to  face  constraints 

Low labour and resource 
productivity hamper 
competitiveness and convergence 

Low  productivity  growth  reflected  both 
weak 
low 
labour  productivity  and 
resource  productivity,  as  highlighted  in 
the  2025 CSR.  Productivity  growth  has  been 
labour 
subdued  amid  weak 

investment, 

10 

hoarding  and  uneven  technology  diffusion 
across  firms  (see  Section  1),  with  persistent 
productivity  gaps  across  firms  and  regions 
(see  Annex  18).  Despite  strong  digital  public 
infrastructure and generally good connectivity, 
these strengths have yet to translate fully into 
business  digitalisation  and  productivity  gains. 
In  particular,  relatively  high  fixed  broadband 
prices,  especially  for  higher  speeds,  together 
with  gaps  in  very  high  capacity  network 
deployment  (see  Annex  5),  may  constrain 
firms’  ability 
to  adopt  advanced  digital 
solutions  and  innovate.  The  uneven  uptake  of 
digital  technologies  across  firms  continues  to 
weigh on productivity performance, pointing to 
the  scope  for  diffusing  digital  tools  and 
the 
capabilities  more  effectively  across 
economy. 

capacity 

The  supply  of  specialist  skills  remains  a 
challenge,  as  highlighted  in  a  2025  CSR. 
While  the  shortage  of  labour  has  somewhat 
eased, the lack of skilled workers still poses a 
challenge  for  80%  of  businesses,  and  the 
of  highly skilled  workers holds 
shortage 
back Estonia’s 
(see 
innovation 
Annexes  4,  5  and  11).  Despite  major  ongoing 
initiatives (see Section 4), there is still a critical 
gap in science, technology, engineering, maths, 
computers  and  software.  Current  challenges 
are  likely  to  intensify  as  the  diffusion  of  AI 
requires  a  broader  and  more  advanced  skills 
base than the current education system seems 
to  supply.  Without  an  effective  skills  policy 
with  strong  outreach,  Estonia  risks  getting 
limiting  firms’ 
stuck  in  a  low-skills  trap, 
capacity  to  move  into  higher  value-added 
activities and widening regional disparities. 

is  still  among 

the  worst 
Estonia 
performers in the EU in terms of resource 
productivity  and  needs  green  skills,  as 
flagged  in  the  2025  CSR.  Estonia  ranks 
24th  among  the  EU-27  Member  States  for 
resource  productivity  (see  Annexes  5  and  8). 
The economy is highly energy-intensive due to 

 
 
the  still  quite  considerable  use  of  oil  shale  in 
the  energy  sector  (see  Section  3),  and  for 
transport and heating. Resource productivity is 
also  dragged  down  by  resource-intensive 
industries, especially as the construction, wood 
and  metalworking 
industries  are  heavy 
consumers  of  energy  and  raw  materials.  The 
development  of  new  green  and  energy-
efficient  technologies  by  innovative  start-ups 
continues 
to  be  supported  by  national 
programmes,  cohesion  policy  funds  and  the 
Recovery  and  Resilience  Facility-financed 
Green  Fund  and  measures  to  improve  the 
supply  of  green  skills.  Estonia  has  adopted  a 
circular  economy  roadmap  and  introduced 
several  circular  economy  support  measures, 
including  a  resource-efficiency  measure  for 
manufacturing that is of particular importance 
to  improving  resource  productivity.  However, 
despite 
the 
available 
implementation by industry is lagging. Beyond 
the  shift  away  from  oil  shale,  further 
development of green technologies is hindered 
by  regulatory  and  demand  uncertainty,  with 
permitting  procedures  also  having  room  for 
improvement  (see  Annex  5).  Other  significant 
measures could include support for energy and 
in  major  sectors,  as 
resource  efficiency 
outlined  in  the  2023  circular  economy  action 
plan, and further improvements in circularity. 

funding, 

the 

Improving access to finance, 
leveraging public funding and 
improving the regulatory 
framework to support investment 

Access  to  finance  remains  a  constraint 
for  businesses,  hampering 
innovative 
investment,  as  highlighted  in  the  2025 
CSR. The availability of finance is increasingly 
an  investment  obstacle  to  companies  (12)  and 
the  proportion  of  companies  constrained  by  a 
lack  of  finance  also  continues  to  be  higher 
than  the  EU  average,  demonstrating  the  need 
for improved financial instruments and market 
access  (see  Annexes  5  and  6).  While  venture 
capital  markets  in  the  Baltics  have  developed 

and  Estonia’s  per  capita  venture  capital 
investments  are  among  the  highest  in  the 
OECD  (13),  the  size  of  institutional  investors, 
including pension funds, is small. Thus, overall, 
Estonian firms rely only marginally on funding 
from  capital  markets,  with  three  quarters  of 
investment  funded  internally  (see  Graph  2.1); 
a much larger proportion than the EU average.  

Graph 2.1: Composition of non-financial 
corporation (NFC) funding in % of GDP 

(1) The sum of NFC liabilities reflects only the total of 
the NFC liabilities considered. Reference period 2024. 
Source: Eurostat, FISMA E2 calculations 

Outside the ICT sector, the financing gaps 
persist  and  are  increasingly  structural 
and  regional.  Lending  to  SMEs  and  firms  in 
regions  outside  main  urban  centres 
is 
constrained  by  perceived  higher  risk  and 
limited  collateral  (see  Annexes  5  and  18). 
Targeted initiatives, such as the EUR 17 million 
regional  grant  scheme  for  SMEs  in  Ida-Viru 
attracted  more  applications  than  the  budget 
permitted,  demonstrating  strong  demand  (14). 
Proposed  state  loan  guarantees  for  energy 
projects 
represent  another  step  forward. 
Strengthening  risk-sharing  instruments  that 
blend  grants  with  guarantees  and  equity-type 
instruments, could crowd in private investment 
more  effectively  than  isolated  schemes.  This 
positive  effect  could  be  increased  further  by 
target 
better 
innovation. 
investment,  SME  support  and 
Especially  outside  urban 
centres,  more 
effective  leveraging  of  national,  private  and 

integrating 

policies 

that 

(13)  OECD (2026). Economic survey: Estonia (forthcoming). 

(14)  Ida-Viru  väike- 

ja  keskmise  suurusega  ettevõtjate 

(12)  EIB Investment Survey 2025: Estonia overview. 

investeeringute toetus - EIS. 

11 

050100150200250EEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
 
   
 
systems  technology,  mobile  medical  facilities 
and specialised training programmes (15). As of 
late  2025,  the  Estonian  defence  industry 
comprises  over  180  companies  (16),  with  the 
startup ecosystem growing from a dozen to at 
least 100 players in just three years. However, 
the  sector  faces  challenges  such  as  a  small 
domestic  market,  a  shortage  of  highly 
qualified  specialists,  and  grant  and  other 
procedures that are not adapted to the rapidly 
evolving  pace  of  technology  and  innovation. 
For  example,  developments  in  the  battlefield 
might result in a need to alter product design 
or 
requirements,  but  grant  and  other 
procedures  tailored  to  civilian  activities  could, 
at  times,  be  too  slow  or  rigid 
in  such 
situations. 

institutional  financing  to  improve  access  to 
finance  at  regional  level  would  also  require  a 
coherent  regional  development  strategy  that 
takes  into  account  the  cross-cutting  regional 
needs (Annex 18). 

A growing need to boost private 
investment in innovation and R&D, 
also in the defence sector 

Underinvestment  in  applied  research  and 
development 
technological 
impedes 
advancement,  as  flagged  in  the  2025 
CSR. Estonia has significantly strengthened its 
applied  R&I  framework  (see  Annex  4),  and 
public  R&I  expenditure  (0.78%  of  GDP  in 
2024)  exceeds  the  EU  average.  Yet  the 
translation of public R&I into scalable business 
innovation  remains  uneven,  and  private  R&D 
intensity 
(1.21%)  remains  below  the  EU 
average. Moreover, patent activity has declined 
recently,  suggesting  limited  commercialisation 
and diffusion. New applied research capacities 
and  thematic  funding  instruments  have  been 
performance-based 
rolled 
components  in  research  funding  increasingly 
reward  collaboration  and  commercialisation. 
Ensuring  that  public  R&I  spending  crowds  in 
private  investment  and  leads  to  marketable 
products  and  productivity  gains  is  therefore 
essential. This could be addressed by stronger 
science–industry 
better 
alignment  of  funding  with  market  demand, 
and 
for 
financing 
innovative  SMEs,  especially  in  areas  with 
limited access to finance. 

collaboration, 

conditions 

improved 

out, 

and 

Estonia’s  defence  sector  is  undergoing 
rapid transformation, evolving from niche 
services  into  a  high-tech  innovation  hub. 
Russia’s  war  of  aggression  against  Ukraine 
has  acted  both  as  a  significant  driver  of 
innovation  and  as  a  real-world  evaluation 
environment for Estonia’s military tech sector. 
Currently, over 10 Estonian firms are supplying 
a  diverse  array  of  hardware  and  services  to 
Ukraine, 
vehicles, 
including  autonomous 
surveillance  sensors,  anti-unmanned  aircraft 

(15)  https://defence.ee/news/the-estonian-defence-and-

aerospace-industry-association-is-growing.  

(16)  ibid. 

12 

 
 
 
 
 
DECARBONISATION, ENERGY AFFORDABILITY AND 
SUSTAINABILITY 

invest 

(iii) 
(iv) 

In 2025, Estonia received country-specific 
recommendations (CSRs) to: (i) reduce the 
overall  reliance  on  fossil  fuels  and  the 
proportion of oil shale in the energy mix; 
in  renewable  energy  and 
(ii) 
promote  energy  storage;  (ii) 
increase 
improve  energy 
energy  security; 
the 
and 
efficiency; 
availability  of  sustainable  transport. 
Several  measures  have  been  implemented  to 
increase  the  proportion  of  renewables  in  the 
energy  mix  and  promote  energy  storage,  but 
further  investments  are  needed  to  improve 
energy  security.  Progress  has  been  limited  in 
improving energy efficiency and the emissions 
from  transport  remain  high,  indicating  the 
need  for  further  steps  to  implement  the  CSR 
(see Annex 1). 

increase 

Promoting renewable energy and 
energy storage to reduce the 
reliance on oil shale 

In 2025, Estonia received a CSR to invest 
in  renewable  energy  and  promote  energy 
storage.  Estonia’s  energy  mix  saw  a  notable 
shift  towards  renewables,  between  2023  and 
to  40%.  Domestically 
2024,  from  35% 
sourced oil shale remains an important part of 
the  mix  but  it  share  of  the  energy  mix  has 
decreased  importantly,  from  30%  in  2023  to 
25% in 2024. Oil and petroleum products still 
represents  27%  of  the  mix  as  it  did  in  2023, 
and the share of natural gas increased slightly 
from  6%  to  7%    Estonia  had  one  of  the 
in  net 
highest  proportions  of  renewables 
electricity  generated  in  the  EU  (67.9%)  in 
2025,an  increase  of  5.3  percentage  points 
compared  to  the  previous  year  (62.7%  in 
2024)., with wind power being the main source 
of renewable electricity (see Annex 9). 

13 

and 

the 

recovery 

planning, 

resilience 
permitting 

The  implementation  of  key  reforms  to 
improve 
infrastructure 
energy 
permitting  process  has  enabled  progress 
to  be  made  in  the  uptake  of  renewables. 
In  2024,  legislative  amendments  under  the 
plan 
Estonian 
streamlined 
and 
environmental  assessments  for  wind  projects, 
and  led  to  designating  priority  development 
areas  with  a  total  capacity  of  1 000 MW.  In 
addition,  Estonia  has  aligned  its  permitting 
procedures  with  the  European  Commission’s 
Recommendation on Permitting, by introducing 
a  single  contact  point  for  developers,  early 
public  consultations  and  full  digitalisation  of 
for 
processes.  Clear 
permit 
environmental  assessments  and 
overall 
permitting  timelines  have  also  been  set  to 
improve 
transparency. 
Advancing  the  Estonia-Latvia  offshore  Elwind 
project, which has a planned capacity of 700-
1000 MW, remains a priority. 

efficiency 

deadlines 

and 

energy 

through 

long-term 

While  Estonia  is  expanding  its  energy 
flexibility 
storage 
solutions,  demand  response  mechanisms, 
and  market 
integration,  price  hikes 
remain  a  challenge.  In  its  2035  energy 
sector  development  plan    Estonia  aims  to 
remove  market  and  regulatory  barriers  to  the 
development  of  electricity  storage,  while 
financial  guarantee 
preparing 
mechanisms.  As  of  2024,  734 MW  of  battery 
storage  infrastructure  was  in  the  process  of 
being  connected  to  the  grid  (see  Annex  9). 
for  additional 
is  scope 
However, 
measures 
in 
investment 
promote 
renewables and support flexibility technologies 
such  as  battery  storage  systems.  Such 
measures  will  also  ensure  grid  stability, 
renewable  energy  integration  and  tackle  price 
hikes,  to  which  Estonia  remains  vulnerable. 
Severe  price  hikes  take  place  during  peak-
demand  hours  and  in  winter  when  the  high 
supply-demand gap  is covered by ramping up 

there 
to 

 
 
oil-shale  fired  power  plants  for  short  periods. 
As a result, price spreads in Estonia averaged 
EUR 159/MWh in 2025, significantly above the 
EU average of EUR 121/MWh (Annex 9). 

In 2025, Estonia received a CSR to reduce 
overall  reliance  on  fossil  fuels  and  the 
proportion of oil shale in the energy mix. 
Shifting  away  from  fossil  fuels  could  also 
improve  resource  productivity  (see  Section  2). 
Under  the  recovery  and  resilience  plan,  the 
government  adopted  the  national  energy 
development  plan  in  December  2025,  which 
sets a clear deadline for the phasing out of oil 
shale in electricity generation by 2035 (with a 
strategic  reserve  exception).  However,  the 
impact  is  expected  to  start  materialising  only 
as  of  2026,  with  oil  shale  remaining  a 
significant  part  of  the  energy  mix  today.  Oil 
shale-based energy production is concentrated 
in the eastern border regions (Kirde-Eesti), and 
its phasing out adds to the region’s structural 
challenges.  The  just  transition  plan  supports 
economic diversification and reskilling in these 
areas. 

for 

renewable 

Rural  and  coastal  areas  in  Estonia  offer 
energy 
potential 
generation  as  the  country  transitions 
away  from  oil  shale-based  production. 
Electricity  network  reliability  challenges  are 
particularly relevant in rural and coastal areas. 
The  potential  of  solar  and  wind  power, 
together  with 
the  grids, 
particularly  in  rural,  coastal  and  sparsely 
populated  areas,  could  therefore  also  support 
regional development, in addition to increasing 
energy security. 

strengthening 

Strengthening energy security 
through interconnections and grid 
infrastructure resilience 

Estonia is well interconnected but further 
investments  are  needed  to  improve  the 
resilience  of  the  grid  infrastructure.  In 
2025,  Estonia  received  a  CSR  to  increase 
energy  security,  for  example  by  ensuring  the 
sufficient 
electricity 
interconnections.  Estonia  has  achieved  an 

capacity 

of 

14 

of 

The 

high 

level 

synchronisation 

investment  phase  of 

electricity  interconnection  level  of  89.04%, 
significantly  surpassing  the  EU  target  of  15% 
(see  Annex  9). 
of 
This 
in  the 
interconnection  was  a  key  factor 
Estonia’s 
successful 
electricity system with the EU grid in February 
2025. 
the 
synchronisation  project  is  progressing  well, 
although  upgrades  to  Estlink  1  and  Estlink  2 
have  faced  delays.  In  January  2026,  EU 
funding  was  secured  for  a  project  on  the 
synchronisation 
protection 
critical 
of 
jointly 
infrastructure,  which  will 
implemented  by  the  transmission  system 
operators  of  Lithuania,  Estonia,  Latvia  and 
Poland.  Recent  attacks  on  grid  infrastructure 
and  undersea  cables  underline  the  need  to 
improve 
grid 
resilience 
infrastructure  and  to  ensure  the  efficient 
functioning of the energy market. 

the 

the 

be 

of 

Estonia 

Estonia  remains  vulnerable  to  hybrid 
threats,  highlighting  the  importance  of 
is 
connections. 
cross-border 
pursuing  major  cross-border  interconnection 
projects,  such  as  EstLink  3  (Estonia-Finland) 
and the Estonia-Latvia 'fourth interconnection', 
which  are  both  expected  to  be  completed  by 
2035.  Price  differences  between  Finland  and 
Estonia,  along  with 
incidents  affecting 
undersea  cables,  highlight  the  importance  of 
Estonia  also  actively 
these 
participates 
in  the  Baltic  energy  market 
interconnection  plan  to  strengthen  regional 
energy cooperation. 

initiatives. 

Progress in energy efficiency 
slowing down 

the 

Estonia has made no significant progress 
In  2025,  Estonia 
in  energy  efficiency. 
received a CSR on improving energy efficiency 
by taking new financing and support measures 
to  meet 
long-term 
targets  of 
renovation strategy. Between 2019 and 2024, 
Estonia's  final  energy  consumption  in  the 
residential sector remained largely unchanged. 
Although  buildings  are  responsible  for  46.1% 
of  energy  use  in  the  country,  Estonia  has  not 
set  an  energy  savings  objective  in  its  long-
term  renovation  strategy.  Households  have 

the 

 
Facility 

made  little  progress  in  reducing  their  energy 
use  through  energy  efficiency  improvements 
insulation  or  heating  upgrades. 
such  as 
Recovery  and  Resilience 
(RRF) 
investments  in  energy  efficiency  are  yet  to 
produce  an  impact.  The  cost  of  renovating 
apartment  buildings  and  private  houses  is 
estimated  at  EUR 15  billion (see  Annex  16). 
Estonia  continues  to  rely  mostly  on  grant-
based  funding  schemes  for  energy  efficiency 
and  the  use  of  financial  instruments  remains 
limited.  Increasing  the  availability  of  financial 
instruments  (e.g.  loan  guarantees  for  remote 
areas)  could  advance  decarbonisation  and 
make  housing  more  affordable  through  lower 
heating  costs  in  renovated  dwellings  (see 
Section 1). In addition to preparing a clear path 
toward  a  decarbonised  and  energy-efficient 
building stock, better national-level planning in 
housing  renovation  could  also  help  to  tackle 
the  need  for  climate  adaptation  and  increase 
overall crisis resilience. 

charging 

is  also  the  oldest 

in  Europe 
infrastructure 

(17). 
fleet 
Meanwhile, 
is 
expanding,  with  almost  2 000  publicly 
accessible charging points in 2025. The motor 
vehicle  tax  introduced  in  2025  provides  for 
lower tax on fully electric vehicles, however its 
overall  impact  on  car  fleet  renewal  remains 
still to be seen.  

lack  of 

Further  efforts  are  needed  to  implement 
the  objectives  of 
the  2021-2035 
transport and mobility development plan, 
including  on  increasing  the  use  of  public 
transport and improving road safety. There is a 
general 
integrated  solutions  and 
further  development  is  needed  to  improve 
for 
multimodal  connection  and  services 
passengers  (see  Annex  18).  Moreover,  to 
improve  decarbonisation  and  connectivity,  it 
will  be  important  to  ensure  sufficient  funding 
to complete Rail Baltica and further encourage 
sustainable  transport,  multi-modality  and  the 
integration of public transport. 

Decarbonisation of transport and 
the finalisation of Rail Baltica 

Strengthening climate resilience 

policy 

including 

Emissions  from  the  transport  sector 
remain  high.  Road  transport  remains 
dominant  and  the  use  of  private  cars  is 
increasing.  The  2025  CSR  highlighted 
challenges concerning the availability  and use 
of  sustainable  and  less  polluting  transport. 
Estonia  has  made  some  progress  with 
investments,  notably  through  the  RRF  and 
cohesion 
rail 
funds, 
electrification,  a  new  tramline  in  Tallinn,  Rail 
Baltica  viaducts  and  the  construction  of  the 
Ülemiste terminal. The RRF also contributed to 
a  new  strategic  approach  to  mobility  through 
the  adoption  of  a  new  transport  and  mobility 
development  plan  and  the  implementation  of 
a  common  transport  system  for  the  Tallinn 
capital  region.  However,  emissions  remain 
high,  as  48%  of  Estonia’s  effort-sharing 
emissions  came  from  road  transport  in  2024, 
up  27%  from  2005  levels.  The  proportion  of 
electric vehicles in the total fleet remains low. 
Not only has Estonia seen the number of cars 
increase  significantly  over  the  last  decade  to 
over  635  cars  per  1 000  inhabitants  in  2024 
(which  is  above  the  EU  average),  but  its  car 

resilience 

adaptation, 

Investment  needs 

Climate 
and 
preparedness  could  be  strengthened 
through more investments and a systemic 
to  climate-proofing  across 
approach 
sectors. 
for  climate 
adaptation measures in Estonia are estimated 
to  amount  to  EUR 650 million  per  year  up  to 
2050 (1.3% of GDP), with the most beneficial 
investments  being  in  ecosystems  restoration 
(around  48%  of  the  total),  followed  by 
infrastructure  retrofitting  and  reinforcement 
(18).  As  for 
(around  40%  of  the  total) 
ecosystems 
the 
deployment  of  nature-based  solutions  would 
contribute  both  to  land  use,  land-use  change 
(LULUCF)  objectives  and  to 
and  forestry 

scaling  up 

restoration, 

(17)  Eurostat 

https://ec.europa.eu/eurostat/databrowser/view/road_eq
s_carhab__custom_9275964/default/table?lang=en. 

(18)  European Commission, 2026, Assessment of adaptation 
investment  needs  https://op.europa.eu/en/publication-
detail/-/publication/d2039eac-f742-11f0-b9bc-
01aa75ed71a1/language-en%20(Table%208).  

15 

 
 
resilience.  Net  carbon 
increased  climate 
removals  turned  into  net  emissions  in  2014 
and  have  remained  above  zero  since  then. 
Restoring  wetlands  and 
improving  forest 
management  will  help  to  increase  climate 
resilience and reverse the decline in net carbon 
removals 
the  atmosphere.  Further 
investments  in  healthy  forests  and  soils  as 
natural  carbon  stores  will  also  help  to 
contribute to a competitive bioeconomy. 

from 

of 

the 

low 

Challenges 
in  strengthening  climate 
adaptation  remain  due  to:  (i)  the  high 
transport 
vulnerability 
infrastructure;  (ii)  the 
insurance 
coverage  of  climate-related  risks;  and 
(iii)  gaps  in  the  adaptation  governance 
framework.  The  high  vulnerability  of  the 
transport  infrastructure  is  reflected  in  the 
transport  vulnerability  index  of  the  TEN-T 
network,  where  Estonia  ranks  among  the 
highest  in  the  EU.  Insurance  coverage  of 
climate-related  losses  remains  limited,  with 
coverage of only 15% of the economic losses 
caused  by  weather-  and  climate-related 
extreme  events  in  Estonia  between  1980  and 
2024  (EU-27:  19%).  While  Estonia  has  had  a 
national  climate  change  adaptation  strategy 
and  action  plan  in  place  since  2017  and  is 
seeking  to  further  strengthen  its  governance 
framework,  progress  has  been  constrained  by 
delays in adopting key legislation. In particular, 
the adoption of the Climate-Resilient Economy 
Act,  which  is  expected  to  provide  the  legal 
basis for further sectoral integration, has been 
delayed.  At the same time, a national  climate 
change 
under 
development.  The  systematic  application  of 
climate-proofing  across  sectors  and  key 
strengthen 
infrastructure  would 
preparedness and resilience. 

adaptation 

roadmap 

further 

is 

16 

 
SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS 

(iv) 

strengthen 

In 2025, Estonia received country-specific 
recommendations  (CSRs)  to:  (i)  improve 
the  skills  supply;  (ii)  reduce  early  school 
leaving;  (iii)  better  attract  and  retain 
talent;  and 
social 
protection,  also  through  improving  the 
benefit  system  and  ensuring  sustainable 
financing  for  healthcare  and  long-term 
been 
care. 
implemented to address these challenges, but 
there is still a high rate of early school leaving, 
and further efforts are needed to improve the 
skills-related policy outreach. There is scope to 
further  strengthen  social  protection 
for 
vulnerable  groups  and  improve  access  to  and 
the  affordability  of  healthcare  and  long-term 
care.  

Several  measures 

have 

in 

challenge.  Evaluating 

Despite Estonia's progress with reforming 
its  education  and  training  and  social 
protection  systems,  the  country  still 
faces  major  challenges. Extending  skills 
policies  and  training  opportunities  to  those 
them 
who  do  not  yet fully benefit  from 
remains  a 
recent 
reforms and  measures will  be 
education 
important 
to 
to  assess their effectiveness 
inform  future  policy  adjustments.  Regional 
differences 
training 
education 
opportunities  and  attainment  levels  remain 
significant  and  young  people  face  barriers  to 
getting into work or training. Vulnerable groups 
such  as  older people,  persons  with  disabilities 
and  single-parent  households  are  still  at  a 
relatively  high  risk  of  poverty  in  Estonia. In 
particular,  challenges  remain  regarding  the 
adequacy  and  coverage  of  social  protection 
and  the  affordability  of  and  access  to 
healthcare  and 
care,  which 
could become more acute if no effective policy 
action is taken. 

long-term 

and 

Expanding the supply of skills is 
essential to meet future labour 
market needs 

Improving the labour market relevance of 
education  is  essential  for  productivity 
growth,  as  highlighted  in  the  2025  CSR. 
As  discussed 
in  Section  2,  demand  for 
specialist  skills  remains  high,  especially  in 
some  sectors  such  as  ICT,  healthcare  and 
education, while emerging green and technical 
fields  face  shortages  of  engineers  and 
technical  specialists.  Although  ICT  enrolment 
at  tertiary  level  has  grown,  enrolment  in 
engineering remains low and drop-out rates in 
the first year of undergraduate studies and at 
PhD  level  are  high.  To  improve  the  supply  of 
specialists  in  science,  technology,  engineering 
and maths (STEM), Estonia is preparing a new 
STEAM  (19)  strategy  covering  all  education 
levels 
(see  Annex  13).  The  green  skills 
programme  strengthens  the  supply  of  green 
skills (20). The increasing adoption of AI in the 
economy is reflected in education policy. 

to 

improve 

The  ongoing  vocational  education  and 
training  (VET)  reform  is  set  to  improve 
the skills supply. In 2025, Estonia introduced 
applied  VET  programmes 
in  high-demand 
fields  like  ICT,  engineering,  construction  and 
healthcare 
the  employment 
prospects of VET graduates. To be  successful, 
the  reform  would  require  strong  employer 
to  be 
engagement,  and  VET 
adequately  prepared  and  funded  to  accept 
students  with 
learning  difficulties.  The 
professional  qualification  reform  planned  to 
improve 
take  effect 
responsiveness  to  labour  market  needs  by 

in  2026  could  also 

schools 

(19)  Science, technology, engineering, arts and maths. 

(20)  Roheoskused  -  uue  aja  oskused 

|  Haridus- 

ja 

Noorteamet. 

17 

 
 
 
better  integrating  the  qualifications  and  skills 
systems with the OSKA forecasting framework.  

To  address  skills  shortages,  Estonia  has 
to  attract  highly 
taken  measures 
qualified  professionals  from  abroad,  in 
line  with  the  2025  CSR.  In  particular,  in 
2025,  it  introduced  the  EU  Blue  Card  scheme 
and  targeted  visa  pathways,  such  as  the 
Startup  Visa  and  Digital  Nomad  Visa.  Further 
measures  to  simplify  the  recruitment  and 
retention of foreign talent are planned through 
amendments  to  the  Aliens  Act  and  the 
integration of the 'Work in Estonia' and 'Study 
in  Estonia'  initiatives  under  the  upcoming 
2026–2029 talent strategy. 

school 

continues 

Early 
to 
leaving 
constrain  educational  attainment,  as 
flagged in the 2025 CSR. One in ten young 
people lacks an upper-secondary qualification, 
limiting the pool of skilled workers. Estonia has 
taken  significant  steps  to  address  this  by 
extending  compulsory  education  to  age  18 
from  2025  and  launching  a  comprehensive 
reform  of  vocational  education.  At  the  same 
time, schools face increasingly diverse student 
needs,  including  a  rising  number  of  pupils 
requiring  additional  learning  support,  while 
teacher  training  and  support  services  have 
struggled  to  keep  pace  (see  Annex  13). 
Strengthening specialised training for teachers 
and  expanding  access  to  specialised  support 
services  would  help  improve  pupils’  outcomes 
and 
increase  upper-secondary  completion 
rates. 

Growing  difficulties  in  maintaining  the 
teaching  workforce  pose  a  risk  to  the 
quality of education. The country’s teaching 
workforce  is  one  of  the  oldest  in  the  EU. 
Around  half  of  newly  trained  teachers  do  not 
remain  in  the  profession  for  more  than  five 
years.  This  results  in  an  increasing  proportion 
of teachers who are not fully qualified (26% in 
2025)  being  hired  to  compensate  for  the 
shortages,  undermining  the  effectiveness  of 
education  spending.  Teacher  shortages  are 
particularly  severe 
in 
Estonian  as  a  second  language  and  in  rural 
schools (see Annex 13). Initiatives like the new 
teacher  career  model,  Teachers’  Academy 
micro-credentials  and  creating  more places in 

in  STEM  subjects, 

teacher  education  are  promising 
initial 
measures.  However,  without  further  policy 
efforts  and  suitable  funding,  shortages  risk 
increasing  further. 
Implementing  incentives 
targeting STEM teachers, as well as extending 
the  teacher  action  plan  beyond  2026  and 
focusing on retention would provide additional 
support. 

Youth  unemployment  and  the  rising 
proportion  of  young  people  neither  in 
employment,  nor in education or training 
highlight  persistent  challenges  faced  by 
young people leaving school and entering 
the labour market. It is increasingly difficult 
for young people entering the labour market to 
find  a  job,  with  youth  unemployment  above 
the EU average of 15%. At the same time, the 
proportion  of  young  people  neither 
in 
employment,  nor  in  education  or  training 
rose  to  11.2%  in  2025,  matching  the  EU 
average and signalling growing risks of labour 
market  detachment  among  young  people. 
Young  people  with  limited  qualifications  or 
work  experience  are  particularly  exposed  to 
unemployment  or  precarious  jobs  (see  Annex 
11).  Limited  job  opportunities,  particularly  in 
rural areas, and gaps in the effectiveness and 
coverage  of  support  to  help  young  people 
transition from  school to work also contribute 
to these trends. Estonia has introduced several 
reforms  to  address  these  issues,  including 
initiatives 
the  Recovery  and 
Resilience  Facility.  Strengthening  integrated 
education-to-work 
scaling  up 
preventive and outreach measures, and further 
developing  initiatives  that  help  to  get  young 
people  into  work  or  training  at  an  early  stage 
employment 
could  help 
prospects. 

funded  by 

pathways, 

improve 

their 

regions  and 

Targeted  adult 
learning  could  help 
address  skills  disparities  across  age 
groups, 
socio-economic 
backgrounds.  While  overall  adult  skills  in 
Estonia  remain  above  the  OECD  average, 
proficiency  declines  markedly  with  age,  with 
the  strongest  results  among  younger  adults 
and  the  weakest  among  those  approaching 
retirement  age.  Disparities  in  adults'  skills 
persist  by  region  (e.g.  Ida-Virumaa  scores 
significantly  lower  in  literacy  and  numeracy) 
and by socio-economic background (see Annex 

18 

 
targeted  upskilling  and 
13).  Expanding 
reskilling  programmes  for 
low-skilled  and 
older  adults,  particularly  in  regions  that  are 
lagging  behind,  could  narrow  these  gaps.  The 
basic level of digital skills slightly exceeds the 
EU  average,  but  a  high  proportion  of 
employees  still  report  inadequate  computer 
and  software  skills  (Estonia  12%  vs  OECD 
4%),  while  demand  for  AI  and  ICT  skills  is 
expected  to  grow  further.  Providing  stronger 
digital and AI skills and improving rural access 
to  online  learning  infrastructure  could  also 
levels.  Future  adult 
improve  adults’  skill 
education  and  retraining  offers  should  better 
target the areas identified by OSKA studies as 
most needed. 

market 

Increasing  social  dialogue  could  improve 
labour 
outcomes. Collective 
bargaining  coverage  and  trade  union  density 
remain among the lowest in the EU (see Annex 
11). Not only are the in-work poverty rate and 
the proportion of low-wage earners among the 
highest  in  the  EU,  but  the  gender  pay  gap  is 
also  high.  The  involvement  of  social  partners 
in  labour  market  reforms,  wage  setting  and 
policymaking  remains  limited,  partly  due  to 
institutional  capacity.  Resuming  the 
weak 
tripartite  dialogue,  implementing  the  2025 
action  plan  on 
collective 
bargaining  and 
increasing  social  partner 
involvement could help improve labour market 
outcomes. 

strengthening 

Strengthening social protection 
remains a challenge  

Low social expenditure and gaps in social 
protection 
coverage  put  vulnerable 
groups  at  high  risk  of  poverty. In  2025, 
Estonia received a CSR to reduce poverty risks 
by  strengthening  social  protection  for  older 
people, single-person households, persons with 
disabilities  and  the  unemployed.  Estonia  has 
taken  steps  to  address  these  challenges. 
Planned 
the  unemployment 
to 
insurance  system  aim  to  improve  coverage, 
also  for  workers  with  limited  employment 
histories  and  persons  with  disabilities. 
Preliminary  analysis  suggests  that  most  self-
employed  workers  are  covered  through  a 

reforms 

19 

support 

benefits 

relatively 

Persons  with 

job,  although  some  gaps 

in 
secondary 
effective  coverage  still  exist.  The  minimum 
income 
low 
remains 
compared  with  commonly  used  adequacy 
benchmarks,  while  overall  social  benefit 
expenditure  remains  below  the  EU  average, 
limiting  the  poverty-reducing  impact  of  social 
transfers (see Annex 12). In-work poverty also 
remains  relatively  high  despite  some  gradual 
improvement. 
disabilities, 
including those in employment, are at a much 
higher  risk  of  poverty  than  the  general 
low 
population,  partly  reflecting  relatively 
disability 
limited 
effectiveness of social transfers. Single-parent 
households  are  also  particularly  exposed  to 
poverty  and  housing  cost  pressures.  Housing 
affordability further exacerbates poverty risks, 
especially among tenants, while  the supply of 
social housing remains very limited, pointing to 
structural gaps (see Annex 16). Reforms to the 
minimum  income  system  aim  to  improve  the 
adequacy  and  efficiency  of  subsistence 
benefits,  but  as  these  reforms  remain  at  an 
early  stage,  their  impact  has  yet  to  be  seen. 
Strengthening 
and 
broadening  access  to  social  protection  could 
improve  the  system’s  capacity  to  reduce 
poverty risks among vulnerable groups. 

adequacy 

benefit 

and 

the 

the 

CSR. 

pension 

reforms, 

Although 

adequacy 

low pension 

it remains below 

Low pension adequacy contributes to high 
risks  of  poverty  among  older  people  in 
the  context  of  population  ageing.  Despite 
recent 
in 
Estonia remains a challenge, with poverty risks 
the 
among  older  people remaining among 
highest  in  the  EU, as  also  highlighted  in  the 
2025 
aggregate 
replacement  ratio  has  improved  in  recent 
the  EU  average, 
years, 
reflecting relatively 
levels  (see 
Annex  12). Risks  are  particularly  high  for 
women and older people living alone, with the 
latter  recording  the  highest  risk  of  poverty  or 
social  exclusion  in  the  EU. This  is  linked  to 
household 
longer 
life 
composition patterns and 
survivor 
pension coverage. These factors result in many 
older  women 
living  alone with relatively 
low incomes.  Estonia  has  taken  measures  to 
support  pension  adequacy,  notably  through 
regular  pension  indexation,  linking  retirement 
age  to  life  expectancy,  and  initiatives  to 
increased 
strengthen  pension 

literacy  and 

expectancy, 

limited 

 
pillar). 

(second 

flexibility  in  contribution  to  funded  pension 
However, 
schemes 
complementary 
pension 
savings remain largely 
voluntary. 
Strengthening complementary pension savings 
and improving participation in the second and 
third     pension  pillars  could  therefore  help 
support future pension adequacy while limiting 
long-term  pressures  on  the  public  pension 
system. 

Regional socio-economic 
disparities are compounded by 
unequal access to social services 

Structural  factors,  such  as  reliance  on 
the  oil  shale  industry  in  the  Ida-Viru 
region,  limited  economic  diversification 
and lower disposable incomes continue to 
weigh  on  remote  regions’  socio-economic 
(see  Annex  11).  Labour 
performance 
market  outcomes  differ  markedly  across 
regions, 
higher 
unemployment  in  rural  areas.  In  North  -East  
reached 
Estonia, 
12.7%  in  2025, compared  with  6.2%–7.4%  in 
other  regions,  contributing  to  higher  poverty 
risks. 

the  unemployment 

significantly 

with 

rate 

Access  to  social  services  also  varies 
across  municipalities.  Smaller  and  rural 
municipalities  often  face  administrative  and 
financial capacity constraints, affecting service 
availability  and  quality.  Differences  in  local 
provision  and  pricing  contribute  to  uneven 
access,  while  the  out-of-packet  payment  by 
users    do  not  systematically  take  individual 
economic circumstances into account. The Ida-
Viru region benefits from EU support, including 
through  the  Just  Transition  Fund,  but  further 
labour 
efforts  are  needed  to  strengthen 
market  opportunities, 
to 
services and support economic diversification. 

improve  access 

20 

There is scope to improve access 
to and the affordability of 
healthcare and long-term care 

Estonia  has  made  some  progress 
in 
implementing  the  2025  CSR  to  improve 
access  to  and  the  affordability  of 
healthcare and long-term care. Estonia has 
undertaken  reforms  and investments  with  the 
support of the Recovery and Resilience Facility 
and  the  European  Social  Fund  Plus  to:  (i) 
address  healthcare  workforce  shortages;  (ii) 
strengthen  primary  care  and  the  hospital 
network;  and  (iii)  promote  the  integration  of 
healthcare  and  social  services (Annexes  12 
faces 
and  15).  However,  Estonia 
and 
challenges regarding access 
the 
to 
long-term 
affordability  of  healthcare  and 
care, particularly  in  regions  outside  the  main 
vulnerable 
urban 
groups. The 
to 
integrate  social  and  healthcare  services 
and the  undertaking  of  a  broader  review  of 
healthcare  financing  to  improve  long-term 
sustainability are steps in the right direction. 

and 
government’s 

proposal 

centres 

among 

still 

expenditure 

long-term 
Access  to  healthcare  and 
by 
care remains constrained 
limited funding. Public 
on 
healthcare  and  long-term  care  is  well  below 
the  EU  average,  leading  to  significant  unmet 
needs  and  high  out-of-pocket  payments  that 
disproportionately affect lower-income groups. 
Significant  inequalities  in  life  expectancy  and 
healthy  life  years  that  are closely  linked to 
education, income and  place  of 
residence 
persist  in  Estonia  (see  Annex  12).  The  current 
social health insurance model is not financially 
sustainable in the long term, as expenditure is 
projected to grow faster than revenues due to 
rising demand and 
the  ageing  population, 
labour market changes. 

Access  to  care  is  further  hindered  by 
shortages, 
workforce 
persistent 
rural 
particularly 
in 
areas, exacerbated by 
ageing 
workforce.  Strengthening  financial  and  non-
healthcare 
financial 
professionals  to  work  in  regions  outside  main 
improved 
urban 

incentives 

including 

areas, 

for 

an 

 
support 

and 
housing 
reimbursement, 
professional  development  opportunities,  could 
help address shortages. While the care reform 
implemented  since  2023  has  reduced  out-of-
pocket  costs  for  residential  care,  it  has  also 
increased  demand  for  nursing  home  places 
and  exacerbated  staff  shortages,  while  not 
sufficiently  strengthening  home-based  care 
(see Annexes 12 and 15). It remains crucial to 
continue  implementing  reforms  to:  (i)  better 
integrate  healthcare  and  social  services;  (ii) 
prioritise  prevention;  (iii)  ensure  sustainable 
funding; (iv) address workforce shortages; and 
(v) reduce regional disparities in access to and 
the affordability of care. 

21 

 
KEY FINDINGS 

In  the  areas  covered  by  existing  country-
specific  recommendations,  Estonia  would 
benefit from: 

• 

• 

• 

increasing  tax  revenue  from  sources 
that  are  less  detrimental  to  growth, 
increasing  spending  efficiency,  and 
directing  spending  to  priority  areas,  such 
as healthcare, social  policies and defence, 
while guaranteeing fiscal sustainability; 

to 

access 

improving 
financing, 
particularly for small businesses and firms 
outside  main  urban  areas,  by  expanding 
targeted  grants  and  guarantees,  and 
integrated 
moving 
support 
innovation 
framework; 

towards  a  more 
business 

and 

•  boosting 

innovation 

R&D 
investment  by  addressing  obstacles  to 
the  commercialisation  of  research  and  by 
better leveraging public investment in R&I; 

and 

•  boosting  the  competitiveness  and 
resilience  of  Estonia’s  regions, 
in 
particular,  those  at  the  eastern  border, 
also  by  supporting  the  transition  to  new 
resource-efficient technologies; 

• 

reducing  overall  reliance  on  fossil 
fuels and the proportion of oil shale in the 
energy  mix  by  promoting 
renewable 
energy and energy storage; 

•  accelerating 

improving 

the  energy-efficiency 
the  crisis 
renovation  and 
in 
resilience  of  old  buildings  and, 
particular, 
by 
residential 
introducing  new  financing  and  support 
measures, including financial instruments; 

buildings, 

• 

increasing  energy  and  economic 
security,  also  by 
the 
resilience  of  the  grid  infrastructure  and 
cross-border interconnections; 

investing 

in 

further  decarbonising  transport  and 
improving  connectivity  by  completing 
Rail 
encouraging 
sustainable  transport,  multi-modality  and 
integrating public transport; 

Baltica, 

further 

•  promoting 

human 

capital 
development  by  strengthening  STEM 
levels,  expanding 
education  across  all 
upskilling  and  reskilling  for  adult  learners, 
and  improving  artificial  intelligence  skills 
across the workforce; 

• 

leaving  by 
reducing  early  school 
addressing 
and 
providing  support  to  students  with  special 
needs; 

shortages 

teacher 

•  strengthening  social  protection  to 
reduce  poverty  among  older  people, 
persons with disabilities and single-parent 
households,    including  by  increasing  the 
adequacy  and  efficiency  of  the  benefit 
system,  targeting  vulnerable  groups,  and 
increasing the affordability of housing and 
the availability of social housing; 

• 

to 

and 

access 

the 
improving 
affordability  of  healthcare  and  long-
term  care  to  reduce  unmet  needs  and 
out-of-pocket  payments  by  reforming  the 
funding of healthcare and long-term care, 
tackling  workforce  shortages  to  address 
geographical  disparities  and 
investing, 
among  other  things,  in  integrated  care 
models and prevention. 

In other areas, Estonia would benefit from: 

reducing  youth  unemployment  by 
strengthening  active  labour  market  policy 
outreach 
in 
employment,  education  or  training  and 
improving the transition from education to 
work, while improving social dialogue. 

young  people  not 

to 

• 

22 

 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

A1.  CSR implementation 

Fiscal 

A2.  Fiscal developments and debt sustainability 

A3.  Taxation 

Productivity 

A4. 

Innovation to business 

A6.  Savings, investment and access to finance 

A7.  Effective institutional framework 

Sustainability 

A8. 

Industry decarbonisation, circularity and climate mitigation 

A9.  Affordable energy transition 

A10.  Climate adaptation, preparedness and environment 

Fairness 

A11.  Labour market 

A12.  Social policies 

A13.  Education and skills 

A14.  Social scoreboard 

A15.  Health and health systems 

A16.  Housing 

Horizontal 

A17.  Sustainable development goals 

A18.  Competitive regions 

A19.  Transport 

LIST OF TABLES 

A1.1. 
A2.1. 
A2.2. 
A2.3. 
A3.1. 
A4.1. 
A5.1. 

CSR implementation and Commission assessment 
Supplementary pension schemes - scope for expansion 
Projected change in ageing-related expenditure in 2025-2040 and 2025-2070 
Fiscal governance database indicators and public accounting maturity 
Taxation Indicators 
Key Innovation Indicators 
Single Market and Industry 

25 

27 

31 

31 

35 

39 

39 

53 

59 

64 

64 

69 

75 

81 

81 

85 

90 

95 

96 

100 

105 

105 

107 

114 

27 
33 
33 
34 
36 
44 
52 

 
 
 
53 
58 
60 
61 
68 
80 
95 
97 
108 
110 
112 

31 
32 
35 
37 
39 
54 
55 
55 
59 
60 
65 
70 
71 
72 
81 
82 
85 
94 
96 
98 
101 
101 
102 
105 
107 
116 

107 
109 
115 
116 

Savings and Investments Union summary diagnostic 
Financial sector indicators 
Estonia. Selected indicators on better regulation practices for primary legislation 
Digital Decade key performance indicators: availability of digital public services 
Key clean industry and climate mitigation indicators: Estonia 

A6.1. 
A6.2. 
A7.1. 
A7.2. 
A8.1. 
A10.1.  Key Adaptation Indicators 
A14.1.  Social Scoreboard for Estonia 
A15.1.  Key health indicators 
A18.1.  Main development trends, challenges and the concentration of resources 
A18.2.  Key regional indicators (at NUTS 3 level) in Estonia 
A18.3.  Main socio-demographic indicators by degree of urbanisation in Estonia, 2024 

LIST OF GRAPHS 

Greenhouse gas emissions in the effort sharing sectors, 2005, 2023, and 2024 
Electricity and gas prices for household and non-household consumers, first half of 2025 
Low-carbon electricity generation vs. electricity wholesale prices, 2025 
Estonia’s installed renewable capacity vs electricity generation mix 

Public investment composition 
Primary spending evolution and composition 
Tax revenue by economic function in 2024, Estonia (outer ring) and EU-27 (inner ring) 
Tax wedge for single and second earners as a % of total labour costs, 2025 
R&D intensity (GERD, GOVERD, BERD as % of GDP) 
Composition of non-financial corporations' funding 
Capital markets and financial intermediaries 
Composition of households' financial assets 
Trust in the justice system, regional / local authorities and in government 

A2.1. 
A2.2. 
A3.1. 
A3.2. 
A4.1. 
A6.1. 
A6.2. 
A6.3. 
A7.1. 
A7.2.  Most time-consuming aspects of service delivery 
A8.1. 
A9.1. 
A9.2. 
A9.3. 
A11.1.  Key labour market indicators 
A11.2.  Labour market outcomes of young people (15-24) 
A12.1.  At-risk-of-poverty or social exclusion rate by age group 
A13.1.  Development of STEM enrolments in Estonia, 2015-2023 
A15.1.  Treatable mortality 
A15.2.  Out-of-pocket payments: share in healthcare spending and categories, 2023 
A16.1.  Housing affordability selected indicators 
A16.2.  House prices, rents and price-to-income evolution in EE and EU27 since 2005 
A16.3.  House supply indicators in EE since 2005 
A17.1.  Progress towards the SDGs in Estonia 
A18.1.  Labour productivity growth (2014 - 2024) and labour productivity (2024) per hour worked; NUTS 3 level 
A19.1.  Estonia's road fatalities per million, 2024 

LIST OF MAPS 

A18.1.  GDP per head compared with the EU average (NUTS2). 
A18.2.  Population growth, 2015-2024 (average annual change) 
A19.1.  TEN-T Cross-Border & National Priority Sections in Estonia. 
A19.2.  Estonia's road safety map 

26 

 
 
 
 
 
 
ANNEX 1: CSR IMPLEMENTATION  

Table A1.1:   CSR implementation and Commission assessment 

(Continued on the next page) 

27 

Estonia faces challenges in a wide range of policy areas, as identified in the country-specific recommendations (CSRs). Estonia was recommended, among other things, to boost defence spending, expand the tax base, prioritise research funding and access to finance for SMEs, to encourage investment into venture capital, improve energy efficiency, invest in renewables and energy storage, strengthen energy security and promote bio-based innovation, expand sustainable transport, enhance productivity and skills including green transition skills, and to reduce poverty by strengthening social protection whilst ensuring fiscal sustainability.  The Commission has assessed the degree of implementation of the 2025 CSRs considering the policy action taken by Estonia to date*. To do so, the Commission has taken into account the information provided by Estonia in its Annual Progress Report as well as other information sources. This annex provides summary information on the policy actions taken or planned by Estonia for each CSR. More detailed information on these actions is included in the relevant chapters and other annexes of the report. *CSR 2 is not assessed in CeSaR. RRP 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. Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessm. of progress  1.1 Reinforce overall defence and security spending and readiness while ensuring debt sustainability in line with the European Council conclusions of 6 March 2025.  Total general government defence expenditure in 2026 is projected at 5.0% of GDP, corresponding to an increase of 0.9 ppt. compared to 2024.  Total general government defence expenditure in 2027 is projected at 5.4% of GDP, corresponding to an increase of 1.2 ppt. compared to 2024.  Substantial progress 1.2. In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure in 2025 and 2026 to a rate consistent with putting the general government debt on a plausibly downward trajectory over the medium term and maintaining the general government deficit below the 3% of GDP Treaty reference value, while making use of the allowance under the national escape clause for higher defence expenditure. Cumulated deviation in 2025 amounted to -1.4% of GDP.  Cumulated deviation in 2026 projected at 1.5% of GDP but it is fully explained by the NEC flexibility (1.5pps of GDP).  Full implementation 1.3. Broaden the tax base by tapping into taxes that are less detrimental to growth. From 2024 to 2027, the excise duties on alcohol, tobacco and energy goods will have additional yearly increases. In January 2025 personal and corporate income tax increases (both from 20% to 22%) entered into force and certain personal income tax benefits (housing loan interest, spouse's additional basic allowance, additional basic allowance for children) were abolished. Also, the advance income tax rate for credit institutions was increased from 14% to 18%. In 2026, expected PIT and CIT rate increases, both to 24%, were abrogated. Still, the advanced income tax rate for credit institutions was raised from 14% to 18%. In January 2025 a new motor vehicle tax was introduced. In July 2025 the VAT rate was increased from 22% to 24% and the reduced VAT rates of accommodation services (9% to 13%) and press publications (5% to 9%) were increased. In 2025 an upward correction of the land tax is taking place.  Some progress  
 
 
 
     
 
Table (continued) 

(Continued on the next page) 

28 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessm. of progress  1.4. Ensure sustainable financing for spending needs including healthcare and long-term care to improve accessibility and affordability. The RRP reform regarding the Hospital Network Development Plan was adopted in 2025 and Strategic Framework on health workforce shortages is being implemented. Law passed in 2025 to boost the Health Insurance Fund reimbursements for essential primary care services and dental treatments and adding protections, higher benefits for vulnerable adults. Estonia took preparatory steps to present a legislative proposal to improve the integration of health and social services in mid-2026 aimed at more efficient use of resources and better access to care. Estonia is also planning to review health care financing to ensure its sustainability.   Some Progress 3.1. Focus investment on research and innovation by prioritising funding for applied research.   Support to business R&I has increased with direct public support around 0.15% of GDP, above the EU average. New instruments include the national applied research centre (established 2023; operational in 2025), the EUR 102 million TemTA programme (2024–2029) supporting applied research with commercialisation requirements, performance-based funding incentives for science–business collaboration, and Structural Funds-backed measures to strengthen IP management and technology transfer.  Estonia is piloting tax-based and voucher support for innovation. Since 2024, there is a grant covering up to 50% of the income tax paid on R&D employees’ salaries, while innovation vouchers provide small grants for SMEs to purchase services supporting innovative activities. Some Progress 3.2. Improve access to finance, especially for small and medium-sized enterprises and companies in remote regions, to facilitate innovative investment, for example investment in the green and digital transitions, including by promoting institutional investor participation in the venture capital and equity market. The three Baltic states have integrated their capital market infrastructure. The investment account regime (expanded in 2025) has promoted retail participation in capital markets. Support from national and supranational institutions have fostered private equity and venture capital. Region-specific call (EUR 13 million) in 2025. Targeted guarantee scheme for energy sector (EUR 100 million) was launched. In 2025, Enterprise Estonia signed a landmark agreement with the EIF (EUR 109 million) in financing to support Estonian businesses with more favourable loans and guarantees.  Some Progress 4.1. Improve energy efficiency by taking new financing and support measures to meet the targets of the long-term renovation strategy. RRF and Cohesion Policy support the energy efficiency investments, especially the renovation of apartment buildings and dwellings, through grants, loans, guarantees and other support instruments.   RRF investments in energy efficient renovation account for EUR 76 million and should be completed by mid-2026.  Limited Progress  4.2. Reduce overall reliance on fossil fuels and the share of oil shale in the energy mix by investing in renewable energy and by promoting energy storage. Increase energy security, for example by ensuring the sufficient capacity of electricity interconnection. The Government has adopted the National Energy Development Plan 2035 in December 2025 (a measure in RRP). Estonia has successfully connected to the EU electricity system in February 2025, and its level of electricity interconnections is four times higher than the EU target of 15% by 2030.  Phase-out of direct burning of oil shale for electricity production by 2035 with an exception for out-of-market oil shale for potential strategic reserve needs in case of deviation from the reliability standard.  Phase-out of the use of shale oil in domestic heat production by 2040. Some Progress 4.3. Raise resource productivity through bio-based innovation Estonia has a circular bioeconomy roadmap which is being implemented and has national, cohesion policy and RRF funding allocated for bioeconomy topics and green technologies. Estonia also introduced several circular economy  Some Progress   
 
 
     
 
Table (continued) 

(Continued on the next page) 

29 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessm. of progress  support measures where calls were opened in late 2024 and 2025, including a resource efficiency measure for manufacturing industry which has particular importance to improve resource productivity, and which will be continued. 4.4. Take further action to increase the availability and use of sustainable and less polluting transport, including by electrification of the rail network, renewal of the stock of road vehicles, and integration of public transport systems. RRF contributed to decarbonisation and sustainability of the Estonian transport sector. A new strategic approach to mobility was facilitated through adoption new Transport and Mobility Development Plan and implementing a common transport system for the Tallinn capital region.  RRF also contributed to connecting Rail Baltic to sea connections with the Nordic countries via the construction of the Tallinn Old Port tram line. In addition, RRF and cohesion policy invested in Rail Baltica: Ülemiste Terminal and viaducts.  Estonia adopted a Motor Vehicle Tax in 2025 with lower taxation on electric and other less polluting vehicles.  Continued rail electrification (Tallinn-Tartu in 2026,  Tallinn-Narva in 2027) and infrastructural improvements from cohesion policy funds and RRF. Cohesion funds are planned to support more sustainable and connected mobility in Estonia through tram and multimodal transport investments, rail electrification and upgrades, better integrated public transport, and safer walking and cycling links to services,  Cohesion policy funds, through to mid-term review allocation, are planned to support dual-use transport infrastructure for military mobility and civil preparedness, including upgrades to the Tallinn–Pärnu–Ikla (Via Baltica) and Tallinn–Tartu TEN-T corridors and further investment in Rail Baltica. Some Progress  5.1.Improve labour productivity and skills supply through action on reskilling and upskilling.  Estonia has significantly strengthened its skills policy framework through expanded upskilling and reskilling, reinforced skills forecasting and governance, major VET reform, micro-credentials, and digital skills infrastructure. Recent measures to address skills shortages include initiatives in career services, special measures for those working in the oil shale sectors, and programs to develop skills through obtaining qualifications or employer training grants. The activation criteria for the unemployed was updated and ALMP measures revised in 2025-2026, including to improve career services. All major reforms are ongoing Some Progress 5.2. Step up policy measures aimed at the provision and acquisition of skills and competences needed for the green transition. RRP measures on supporting the green skills are still under way and planned to be completed by August 2026. The Green Technologies Development Programme was set-up and is being implemented.  Some Progress 5.3. Improve labour productivity and skills supply} by reducing early school leaving, by improving the job market relevance of the education and training system, in particular by meeting the growing demand for STEM specialists, and by better attracting and retaining talent.   Estonia amended the Aliens Act in 2025, tightening employer oversight and adjusting conditions for labour migration. In education, compulsory schooling was extended in 2024 to age 18, with 2025 measures introducing a preparatory year to prevent early school leaving. Comprehensive VET reforms are underway to improve labour market relevance, a shift to competence-based qualifications by 2026, and consolidation of the VET network into regional centres. The new Aliens Act is expected to enter into force as of 2027.  Policy discussions focus on possible exemptions from the immigration quota for skilled workers and sectors facing labour shortages    Some Progress  
 
 
     
 
Table (continued) 

Source:  Estonia’s reporting and Commission assessment 

30 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps/ credibly announced measures By 30 April 2026 Assessm. of progress  5.4. Reduce the risk of poverty by strengthening social protection for older people, single-person households and people with disabilities by increasing the adequacy and efficiency of the benefit system, and for the unemployed, inter alia by extending the coverage of unemployment benefits, in particular to those in non-standard forms of work, while maintaining fiscal sustainability. In 2025, contributions to the second pension pillar were increased from the usual 2% to 4% or 6% of gross salary. Reform was adopted so that the retirement age will be linked to life expectancy (for 2027 this has been set at 65 years and one month). Due to indexation in 2025, pensions have been increased. The tax-free income threshold for old-age pensioners was increased.  From June 2025, disability benefits increased.  Reform of unemployment allowance and unemployment insurance and extension of unemployment insurance coverage to new forms of work was adopted in 2025 and entered into force on 1 January 2026. Estonia plans reforms in 2026: including replacing its unemployment insurance system with a single scheme and improving social protection, especially for workers with disabilities; increasing flexibility in second-pillar contributions, and shorter waiting periods to rejoin the mandatory second pillar is being under preparation to enhance pension adequacy and participation; reviewing its minimum income methodology, Some Progress   
 
   
 
FISCAL 
ANNEX 2: FISCAL DEVELOPMENTS AND DEBT SUSTAINABILITY 

recommendations 

This  annex  discusses  selected  topics  in  public 
in  fiscal-structural 
finance  and  developments 
country-specific 
(CSRs) 
addressed  to  Estonia  in  July  2025.  These  CSRs 
include a call to strengthen defence spending and 
readiness  while  implementing  a  fiscal  strategy  in 
the  Council  Recommendation  of 
line  with 
received  a 
21 January 2025.  Estonia  also 
recommendation 
the 
to 
in  2025 
accessibility  and  affordability  of  healthcare  and 
long-term 
care  while  safeguarding  against 
inflationary pressures. 

improve 

On 21 January 2025, the Council  of the European 
Union  adopted  the  Recommendation  endorsing 
Estonia’s  medium-term  fiscal-structural  plan  (21). 
The  plan  includes  a  fiscal  adjustment  over  four 
years.  On  8 July 2025,  the  Council  also  activated 
the  national  scape  clause  for  Estonia  in  order  to 
facilitate the transition to higher levels of defence 
spending (22)(23). 

Developments in the government 
balance, debt and public expenditure 
(24) 

At  the  end  of  2025, Estonia’s government 
deficit  was  equivalent  to 2.0%  of  GDP  and 
the  government  debt-to-GDP  ratio stood 
at 24.1%. Based on the Commission Spring 2026 
Forecast, Estonia’s government deficit is projected 
to widen  to  4.5%  of GDP  in  2026 and  to  4.8%  of 
GDP in 2027, driven by developments on both the 
revenue  and  expenditure  sides. On  the  revenue 
side,  the  main  reason  behind  the  forecast  for 
lower  revenue  is  Estonia’s  planned  transition  to  a 
universal  tax  system  and  the  increase  in  the  tax-

(21)  OJ C, C/2025/655, ELI: EUR-Lex - 32025H00655 – EN – 

EUR-Lex. 

(22)  OJ C, C/2025/3964, ELI: EUR-Lex - 32025H03964 – EN – 

EUR-Lex. 

(23)  Compliance  by  Estonia  with  the  maximum  growth  rates  of 
net expenditure recommended by the Council is assessed in 
[COM(2026)200]. 

(24)  Figures  underpinning  fiscal  surveillance  (net  expenditure 
growth)  are  provided 
in  the  Fiscal  Statistical  Tables 
SWD(2026)200  providing  background  data  relevant  for  the 
assessment of the budgetary policies of the Member States. 

free income threshold to EUR 700 per month. This 
measure raises concerns about significant revenue 
losses even though it improves work incentives by 
removing  the  previous  hump  that  existed  in 
effective  marginal  tax  rates.  Given  rising  public 
spending  needs,  Estonia  should  consider  a  more 
revenue-neutral  design  of  changes  to  its  tax 
the  expenditure  side,  defence 
system.  On 
spending,  rising  from  3.8%  of  GDP  in  2025  to 
5.1%  in  2026,  will  also  contribute  to  a  higher 
deficit. 

in 

to 

growth 

Rising defence expenditure and EU funds are 
contributing 
public 
investment over  the  medium  term.  Following 
the  Commission  2026  Spring  Forecast,  public 
investment  is  expected  to  reach  7.9%  of  GDP  in 
2026, up from 5.8% in 2021. It is set to decrease 
somewhat  in  2027  due  to  a  relatively  smaller 
contribution  by  defence  investment  (See  Graph 
A2.1).  

Graph A2.1: Public investment composition 

Source: AMECO 

Spending  on  defence  is  forecast  to  increase 
in the coming years, but policy areas such as 
healthcare  and  social  protection  remain 
underfinanced. Estonia received a CSR in 2025 to 
ensure  the  sustainable  financing  of  spending 
needs,  including  defence,  healthcare  and  long-
term  care. The  current  budget  and  the  medium-
term  budgetary  plan  commit  Estonia  to  higher 
spending  on defence,  but 
they fall  short  of 
providing  sufficient  funding  to  address  structural 

31 

 
 
 
 
  
 
 
 
in  healthcare  and 

spending  needs 
social 
protection. Total  government  expenditure  on 
defence was equivalent to 3.7% GDP in 2024 and 
is forecast by the Commission to be equivalent to 
4.2%  GDP  in  2025  and  5%  in  2026. In  2023, 
government  spending  on  healthcare  and  social 
protection stood at  only  6.4% and  13.5% of GDP, 
respectively  –  0.6  pps  and  5.7  pps  below  the  EU 
average.  

Graph A2.2: Primary spending evolution and 
composition 

which  is  above  –  or  at  –  10%  of  total  spending). 
Since 2019, public expenditure on interest on debt 
and  defence  has  increased  sharply,  with  the 
increase  in  defence  spending  reflecting  recent 
security developments (See Graph A2.2). Spending 
on  health  and  R&D  has  risen  more  modestly  in 
that  time.  By  contrast,  spending  on  transport  and 
education  expenditure  has  declined.    This  trend 
deserves  attention,  as  these  categories  (transport 
and  education)  are  generally  considered  growth-
friendly spending categories.  

Estonia has relatively low tax revenues as a 
share  of  GDP,  mostly  relying  on  labour  and 
consumption  taxes,  while  recurrent  property 
taxes are underused. In 2024 Estonia’s total tax 
revenues  as  a  percentage  of  GDP  (including 
compulsory  social  contributions)  amounted  to 
34.3%  compared  with  an  EU  average  of  39.5%. 
Total  tax  revenues  are  projected  to  increase  to 
36.2% of GDP in 2025 and fall back to 34.6% of 
GDP  in  2026  according  to  the  Autumn  2025 
Forecast  (26).  The tax  mix  in  Estonia  relies  heavily 
on  labour  and  consumption  taxation.  Meanwhile, 
less 
recurrent  property 
detrimental to growth, is underused (see Annex 3).  

taxation,  considered 

The costs of ageing 

Notes: Based on economic literature, the categories 
considered to have a greater growth impact include education, 
R&D, health, transport and communication (See Barbiero and 
Cournede (2013), Gemmel et al. (2016), Lupu et al. (2018), 
Cepparulo and Mourre (2020) and OECD (2025)).  
Source: Eurostat 

The  type  of  expenditure  that  has  a  greater 
impact  on  GDP  had  remained  broadly  stable 
over three decades but has slightly increased 
since 2019. This may be related to the impact of 
the  Recovery  and  Resilience  Facility  (RRF),  which 
possibly  facilitated  a  more  quality-based  fiscal 
strategy.  Between  2022  and  2026,  Estonia’s 
recovery  and  resilience  plan  is  forecast  to  have 
allocated an average of 0.15% of GDP annually to 
public  investment.  Zooming  in  on  the  composition 
of spending, in 2024 social protection accounts for 
the  largest  share  of  total  expenditure  (around 
30%),  followed  by  health,  education,  economic 
affairs(25)  and  general  public  services  (each  of 

(25)  This  refers  to  the  set of  government  activities,  policies,  and 
expenditures aimed at regulating, supporting, and developing 

Total  ageing-related  spending  in  Estonia  is 
projected  to  remain  broadly  stable.  Total 
ageing-related  spending,  in  both  the  medium  and 
long  term,  is  set  to  hold  steady  at  a  level  well 
below  the  EU  average  (see  Table  A2.2).  Limited 
increases in spending on healthcare and long-term 
care are expected to be more than offset by a fall 
in spending on pensions and education.  

Spending  on  public  pensions  as  a  share  of 
GDP  is  projected  to  fall,  especially  in  the 
longer  term.  Between  now  and  2070,  public 

economic  activity  across  major  sectors,  including  general 
economic  and 
labour  policies,  agriculture  and  natural 
resources, energy, industry, construction, and other economic 
functions  not  elsewhere  classified.  Although  transport  and 
communication,  as  well  as  research  and  development 
activities, are normally considered part of this function, they 
are treated separately in the graph presented. 

(26)  Data retrieved from the AMECO database (https://economy-

finance.ec.europa.eu/economic-research-and-
databases/economic-databases/ameco-database_en)  

32 

5101520253035404550200720082009201020112012201320142015201620172018201920202021202220232024Primary expenditureSpending with higher impact on GDP (rhs)-1.50-1.00-0.500.000.501.001.502.002.503.003.50SocialprotectionEducationOther economicCultureTransportPublicorderGeneralservicesEnvironmentHousingCommunicationR&DHealthInterestspendingDefence 
   
 
 
 
Table A2.1:  Supplementary pension schemes - scope for expansion 

Source: European Commission. 

pension  outlays  are  set  to  fall  by  about  1 pp.  of 
GDP,  to  around  7%  of  GDP,  which  would  be 
substantially lower than the projected EU average 
of around 12%. 

Supplementary  pension  schemes  can  make 
the  pension  system  more  resilient  by 
diversifying  retirement  income  sources.  In 
Estonia,  the  uptake  of  these  supplementary 
schemes  remains  modest.  At  the  end  of  2024, 
private  pension  assets  amounted  to  around  20% 
of GDP while participation covered around 67% of 
the working-age population(27). This coincides with 
decreasing  medium-term  public  pension  spending 
pressures  and  a  projected  decrease 
in  the 
replacement  rate  by  3.4 pps  between  2025  and 
2040 (Tables A2.2 and A2.3) (28).  

Estonia’s  expenditure  on  public  healthcare 
and  long-term  care  remains  below  the  EU 
average  and  is  set  to  remain  mostly  stable 
over  the  forecast  horizon.  Public  healthcare 
expenditure  is  projected  to  be  5.1%  of  GDP  in 
2025  (below  the  EU  average  of  6.6%)  and  is 
expected to increase by 0.3 pps between 2025 and 
2040 and by a further 0.3 pps between 2040 and 
2070.  Public  expenditure  on  long-term  care  is 
projected  to  be  0.5%  of  GDP  in  2025  (below  the 
EU  average  of  1.7%)  and  is  expected  to  increase 
by 0.2 pps of GDP between 2025 and 2040 and by 
a further 0.4 pps of GDP between 2025 and 2070. 

National fiscal framework 

small 

independent 

The  Fiscal  Council  of  Estonia  (FCE)  is  a 
relatively 
fiscal 
institution  with  a  secretariat  of  only  three 
people  and  a  narrow  mandate.  It  focuses  on 
endorsing 
the  government’s  macroeconomic 
forecast  and  assessing  compliance  with  the 
budget balance rule. It is also involved in assessing 
the  government’s  budgetary  plans  but  does  not 
provide  an  endorsement  of  these.  The  FCE  is 
strongly  connected  to  the  Estonian  central  bank, 
from which it receives its budget. All  members of 
the  FCE’s  secretariat  are  central  bank  employees. 
Its  policy  dialogue  with  both  the  government  and 
the  national  parliament  and  its  communication 
activities are not fully developed, and it has never 
been 
independent  external 
evaluation. 

to  an 

subject 

is 
Estonia’s  spending  review  framework 
relatively well established, but could be used 
in  a  more  regular  and  comprehensive 
manner.  Since  2017  several  technical  support 
instrument  projects  were  directed  at  increasing 
Estonia’s know-how to: (i) improve the integration 
of spending reviews into the budget cycle; and (ii) 
strengthen the link between spending reviews and 
performance  management,  helped  by  the  high 
digitalisation of the administration. Estonia’s latest 
spending  reviews  covered  culture  and  museum 

Table A2.2:  Projected change in ageing-related expenditure in 2025-2040 and 2025-2070 

(27)Source:  OECD  Pension  Market  in  Focus  2025.  The  highest 
participation rate in at least one supplementary pension plan 
is reported.   

(28)  The  (gross)  replacement  rate  refers,  depending  on  data 
availability,  to  both  public  and  private  pensions.  It  is  based 
on projections from the 2024 Ageing Report.  

Source: 2024 Ageing Report (EC/EPC). 

33 

EE17.4-0.30.30.2-0.4##17.1EEEU24.30.50.30.4-0.30.925.2EUEE17.4-1.10.50.6-0.5##16.9EEEU24.30.20.60.8-0.31.325.6EUageing-related expenditure change in 2025-2040 (pps GDP) due to:ageing-related expenditure pensionshealthcarelong-term careeducationtotalageing-related expenditure change in 2025-2070 (pps GDP) due to:ageing-related expenditure pensionshealthcarelong-term careeducationtotalAssets in 2024 (% GDP)Participation in 2024 (% working-age population)EE18.0-3.466.7EEEU32.4-2.855.9EUGross replacement rate at retirement: (pps change 2025-2040)  
 
 
 
 
   
 
 
   
 
funding  in  2022  and  a  permit  procedure  and 
supervision  enhancement  plan  by  the  Ministry  of 
Social Affairs in 2025. The spending review tool is 
expected  to  help  make  public  spending  more 
efficient by redirecting any savings resulting from 
priorities. 
to 
spending 
Nevertheless,  this  link  between  savings  made  by 
spending  reviews  and 
increased  spending  on 
budget priorities should be made clearer. 

spending 

reviews 

Table A2.3:  Fiscal governance database indicators and public accounting maturity 

(1) "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. 
The score for public accounting reflects the degree of maturity in relation to the International Public Sector Accounting Standards 
(IPSAS). Countries with an accounting maturity of 70% or more in relation to IPSAS are deemed to apply accrual accounting. For 
more information, see the report on public accounting in the EU (COM(2025)746 and accompanying Staff Working Document 
SWD(2025)396)." 
Source: Fiscal Governance Database, European Commission 

34 

2024EstoniaEU AverageCountry Fiscal Rule Strength Index (C-FRSI)13.6514.81Medium-Term Budgetary Framework Index (MTBFI)0.720.722025 Public accounting maturity of general government91%65% 
 
  
 
ANNEX 3: TAXATION 

This  annex  provides  an 
indicator-based 
overview  of  Estonia’s  tax  system.  It  includes 
information on the: (i) tax mix; (ii) competitiveness 
and  fairness  aspects  of  the  tax  system;  and 
(iii) tax  collection  and  compliance.  In  the  area  of 
country-specific 
2025 
the 
taxation, 
recommendations 
highlighted 
challenges  in  broadening  the  tax  base  by  tapping 
into taxes that are less detrimental to growth. 

Estonia 

for 

The  tax burden in  Estonia remains  relatively 
low as a percentage of its economy, although 
it  has  risen  recently.  In  2024,  tax  revenues  in 
Estonia  (including  social  security  contributions) 
reached  35.2%  of  GDP  (see  Table  A3.1)  (29).  This 
represents  a  marked  increase  compared  to  the 
previous  year  (33.7%),  partly  due  to  new  tax 
measures.  The  difference  with  the  EU  average 
decreased  to  4.2 percentage  points  (pps),  down 
from  5.3 pps  in  2023.  Estonia  relies  heavily  on 
labour  and  consumption  taxes,  which  made  up 
about  51.5%  and  38.5%  of  total  tax  revenue 
respectively in 2024.  

is 
The  reliance  on  consumption  taxes 
particularly  high  and  far  exceeds  the  EU 
average  (26.8%).  Recent  tax  reforms  have 
further  tilted  the  tax  mix  towards  consumption. 
The  standard  VAT  rate  was  raised  from  20%  to 
22% as of January 2024. Reduced VAT rates were 
also increased for certain goods and services. The 
standard  VAT  rate  was  increased  once  more  to 
24%  from  1  July  2025.  The  latest  2 pp.  increase 
was  originally  planned  as  temporary  but  is  now 
expected  to  be  permanent.  In  contrast,  revenue 
from capital remains low (10.0%) compared to the 
EU average (21.8%).  

Estonia  still  raises  very  little  revenue  from 
property  taxes  despite  their  growth-friendly 
potential.  Property  tax  revenue  amounts  to  only 
0.3%  of  GDP,  significantly  below  the  EU  average 
(1.8%), reflecting Estonia’s approach of taxing land 
rather  than  property.  Recent  analysis  has  pointed 
to  the  potential  merits  of  moving  beyond  land 
taxation  alone  by  exploring  a  phased-in  tax  on 
unoccupied  residential  property  to  discourage 
vacancy and ease housing-market pressures (30). 

Environmental  tax  revenue,  by  contrast,  is 
higher  than  the  EU  average  (2.6%  versus 
2.1%  of  GDP).  This  is  largely  due  to  relatively 
high  fuel  excise  duties  though  certain  excise  tax 
reductions  and  exemptions  remain  in  place.  In 
2025, Estonia introduced a new motor vehicle tax 
to  encourage  cleaner  transport,  complementing 
other  existing  pollution  and  resource  taxes  (i.e. 
NOx emissions, waste landfilling, water discharges, 
plastics).  

Graph A3.1: Tax revenue by economic function in 
2024, Estonia (outer ring) and EU-27 (inner ring) 

Source: Taxation Trends Data, DG TAXUD 

increased 

Despite  recent  reforms,  Estonia’s  corporate 
income  tax  (CIT)  system  is  expected  to 
remain  competitive,  while  contributing  more 
to  public  revenues.  Estonia 
the 
statutory tax rate on distributed profits from 20% 
to  22%  in  2025.  In  addition,  it  abolished  the 
previously  available  reduced  CIT  rate  of  14%, 
which had applied to regular dividends. These rate 
increases will generate additional revenue but may 
somewhat diminish Estonia’s tax attractiveness for 
time,  Estonia’s 
businesses.  At 
the 
investment-friendly  approach  of  not 
taxing 
corporate  profits  as  they  are  earned,  but  only 
when profits are distributed or deemed distributed, 
remains  in  place.  This  preserves  incentives  for 
companies  to  reinvest  profits,  while  raising  the 
cost  of  payouts.  Furthermore,  Estonia’s  effective 
CIT  rate  remains  significantly  below  the  EU 
average (15.7% versus 19.1% in 2024), indicating 
a relatively low tax burden faced by companies. In 
international  comparisons,  Estonia  continues  to 
score  very  highly  on  tax  system  competitiveness, 
ranking first globally in 2024, according to the Tax 
Complexity Index (31). 

same 

(29)  Preliminary  Eurostat  data  point  to  a  tax-to-GDP  ratio  of 

36.4% in 2025 

(30)  See In-Depth Review 2025 Estonia 

(31)  See Tax Complexity Index 2024 

35 

51.526.821.651.538.510.0Taxes on labourTaxes on consumptionTaxes on capital 
 
 
        
 
 
 
Table A3.1:  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 2024. EU-27 refers to the median value. For more data on tax revenues as well as the methodology 
applied, see the Data on Taxation Trends webpage. 
Source: European Commission, OECD, ISORA. 

Estonia’s  personal 
income  taxation  (PIT) 
continues  to  prioritise  simplicity  and  work 
incentives.  Built  around  a  flat  rate,  which  was 
increased from 20% to 22% in 2025, Estonia’s PIT 
system  remains  simple  and  transparent.  Recent 
reforms  have  further  streamlined  the  system  by 
replacing  the  progressive  basic  exemption  with  a 
uniform tax-free allowance of EUR 8 400 per year 
for  all  taxpayers.  While  this  will  remove  an 
undesired hump in marginal tax rates, it may lead 
to  significant 
tax 
wedge (33)  at  the  average  wage  (at  42.6%  in 

losses (32).  The 

revenue 

(32)  See International Monetary Fund. European Dept. "Republic 
of Estonia: 2025 Article IV Consultation-Press Release; and 
Staff Report" 

employer 

contributions, 

(33)  The  tax  wedge  is  an  indicator  of  the  tax  burden  on  labour 
that  can  be  assessed  at  various  levels  of  earnings.  It  is 
calculated  as  the  sum  of  personal  income  tax,  employee 
social-security 
social-security 
contributions and other mandatory contributions, net of cash 
family benefits where relevant, expressed as a percentage of 
total  labour  costs  (composed  of  the  gross  wage  plus 
employer  social-security  contributions).  In  other  words,  the 
tax  wedge  measures  the  gap  between  the  total  cost  of 
employing  a  worker  and  that  worker’s  net  earnings,  as  a 
share  of  total  labour  costs.  Tax  wedge  data  in  the  2026 
country  reports  are  calculated  by  the  Joint  Research  Centre 
of  the  European  Commission  and  based  on  the  EUROMOD 
model,  while in  the  past  country reports  were  based on  the 
OECD 
the  underlying 
methodology  is  very  similar,  differences  in  the  assumptions 
can lead to different results between both models.  

tax  and  benefit  model.  While 

relevant 

2025) was slightly above the EU average of 40% 
(see Table A3.1). In contrast, at low earnings levels 
that  are  considered  especially 
for 
employment  (in  particular  at  50%  of  the  average 
wage), the Estonian tax wedge (32.8%) was close 
to  the  EU  average  (31.6%).  The  tax  wedge  for 
second earners earning 67% of the average wage 
was at 37.4% and remains equal to that of single 
earners and slightly below the EU average (38.5%; 
see Graph A3.2).  

in 

the  overall 
recent  years 
However, 
redistributive  effect  of  Estonia’s  tax  and 
benefits  system  has  increased.  The  reduction 
in  income  inequality  caused  by  the  tax  and 
benefits  system,  as  measured  by 
the  Gini 
coefficient (34), was 7.7 points in 2024, showing an 
increased  trend  in  recent  years  and  now  close  to 
the EU average of 7.8 points (Table A3.1). 

(34)  The  Gini  coefficient  measures  the  extent  to  which  the 
distribution  of  income  within  a  country  deviates  from  a 
perfectly  equal  distribution.  A  coefficient  of  0  expresses 
perfect equality where everyone has the same income, while 
a coefficient of 100 expresses full inequality where only one 
person has all the income. 

36 

2019202220232024202520192022202320242025Tax structureTotal taxes (including compulsory actual social contributions) (% of GDP)33.032.933.735.236.439.939.739.039.4Taxes on labour (% of GDP)16.517.117.718.120.620.119.920.3of which, social security contributions (SSC, % of GDP)11.411.412.012.213.012.712.713.0Taxes on consumption (% of GDP)13.913.213.113.611.210.910.510.6of which, value added taxes (VAT, % of GDP)8.79.19.19.67.17.47.17.1Taxes on capital (% of GDP)2.62.72.93.58.18.78.58.5Personal income taxes (PIT, % of GDP)5.46.36.26.59.69.49.39.6Corporate income taxes (CIT, % of GDP)1.81.61.92.42.63.23.23.1Total property taxes (% of GDP)0.30.30.30.32.22.11.91.8Recurrent taxes on immovable property (% of GDP)0.20.20.20.11.21.00.90.9Environmental taxes (% of GDP)3.42.52.62.62.62.12.12.1Effective carbon rate in EUR per tonne of CO2 equivalentsnana73.4nanana84.8naTax wedge at 50% of average wage (single person) (*)32.232.931.231.832.832.431.631.531.531.6Tax wedge at 100% of average wage (single person) (*)38.839.840.441.142.640.139.739.939.940.0Corporate income tax - effective average tax rates (1) (*)15.715.715.717.120.019.219.019.3Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5.36.77.27.77.88.07.97.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)6.14.94.9na31.832.630.7naVAT gap (% of VAT total tax liability, VTTL) (**)5.95.210.310.010.57.38.2naProgressivity & fairnessTax administration & complianceBy tax baseSome tax typesEU-27Estonia 
 
 
 
        
 
Graph A3.2: Tax wedge for single and second 
earners as a % of total labour costs, 2025 

in  the  economy,  which  traditionally  pose  higher 
compliance risks. 

and 

enforcement 

In 2023, the VAT compliance gap (measuring 
VAT 
compliance 
effectiveness)  was  estimated  at  10.3%  of 
the  VAT  total  tax  liability  (EUR 398 million). 
In  comparison,  the  EU  average  VAT  compliance 
gap was 9.5% in 2023, and Estonia had the ninth-
largest  VAT  compliance  gap  among  EU  Member 
States. This represents an increase over time, with 
an exceptional fall to 2.2% in 2021, followed by a 
rebound  in  2022  and  a  further  increase  in  2023. 
Despite  some  reforms,  VAT  losses due to missing 
trader  intra-community  fraud  were  estimated  at 
approximately EUR 155 million in 2023. Improving 
awareness  and  integration  of  data  could enhance 
tax  gap  assessments  and  compliance  practices 
across all tax categories. 

The  level  of  outstanding  tax  arrears  for 
Estonia  was  stable  from  2020  to  2023,  at 
5% in 2023, and the country was among the 
best  EU  performers  in  2023.  The  amount  of 
arrears  that  the  Estonian  tax  administration 
considers collectible was consistent between 2021 
and  2023,  at  around  88%,  reflecting  strong 
performance in the EU. 

a 

(i) 

in 

Estonia's 
is  highly 
tax  administration 
digitised, ensuring efficiency in tax collection 
reducing 
but  still  faces  challenges 
compliance  costs.  Estonia  is  a  leader  in  digital 
tax  administration,  with  98%  of  tax  returns  filed 
electronically, significantly reducing administrative 
burdens  and  costs.  It  is  one  of  only  seven  EU 
launched  and 
countries  which  has  both 
implemented: 
digital 
transformation; (ii) a strategy to identify the skills 
required  for  a  successful  digital  transformation; 
and  (iii)  a  strategy  for  building  a  digital  culture 
within 
tax 
administration  pre-fills  personal-income-tax  files, 
but not corporate-income-tax and value-added-tax 
returns.  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).  

tax  administration.  Estonia’s 

strategy 

the 

for 

Note: The second earner tax wedge shows a household’s tax 
wedge resulting from the wage that a second earner taking 
up a job at 67% of the average wage receives. It does not 
show the total tax wedge of the household. The household is 
assumed to have a first earner at 100% of the average wage 
and no children. For the methodology of the tax wedge for 
second earners, see OECD (2024), Taxing Wages 2024. 
Source: European Commission. 

Estonia  reports  tax  expenditures  annually 
alongside  the  budget,  but  lacks  a  dedicated 
framework  to  systematically  evaluate  tax 
expenditures.  Over  30%  of  tax  expenditure 
schemes  are  not  assessed  for  cost-effectiveness 
or unintended consequences (35), limiting evidence-
based prioritisation. Foregone revenues due to PIT-
related tax expenditures have a modest budgetary 
impact,  amounting  to  around  4%  of  total  PIT 
revenues  in  2022.  Most  tax  expenditures  are 
related  to  employment  and  households,  with  a 
limited  impact  on  reducing  income  inequality. 
Reduced  VAT  rates  have  also  had  limited  effects 
limited  pass-through 
to 
on 
effects, suggesting that reduced VAT rates are not 
optimally achieving policy objectives (36). 

regressivity  due 

Estonia performs well on tax compliance, but 
the  monitoring  of  tax  gaps  still  has  some 
scope for  improvement.  It  lacks  comprehensive 
practices for monitoring tax gaps. Currently, it does 
not  estimate  compliance  gaps  for  corporate 
income  tax  (CIT)  extensively,  despite  having  a  CIT 
compliance gap estimate of around 5% (based on 
Commission  estimates).  The  VAT  compliance  gap 
in  Estonia  is  impacted  by  several  socio-economic 
factors,  including  the  increasing  share  of  services 

(35)  See the Mind the Gap Report. 

(36)  Gini coefficient: less than 0.001% (upcoming DG ECFIN/JRC 

Publication on VAT reduced rates). 

Estonia continues to prioritize advanced data 
analysis  to  tackle  fraudulent  activities  and 
to enhance efficiency in tax collection. Recent 
these 
reforms  have 

focused  on  expanding 

37 

32.837.442.642.637.42025303540455050100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - EESingle earner - EU averageSecond earner -  EESecond earner -  EU average 
       
 
frameworks, aligning with commitments under the 
Recovery  and  Resilience  Facility,  and  enhancing 
technological 
tax 
infrastructure  for 
administration  outcomes.  The  cost  of  collecting 
taxes  expressed  as  a  percentage  of  total  net  tax 
revue  remained  stable  and  below  0.5%  between 
2018 and 2022. 

improved 

38 

 
PRODUCTIVITY 
ANNEX 4: INNOVATION TO BUSINESS  

  Estonia’s  R&D 

Innovation  Scoreboard 

Estonia’s  innovation  system  is  performing 
above the EU average, but the quality of the 
public  science  base  does  not  yet  fully 
translate into technological performance and 
business  innovation.  According  to  the  2025 
(37),  Estonia 
European 
continues  to  belong  to  the  ‘strong  innovators’.  In 
2025,  Estonia’s  performance  in  the  Summary 
Innovation  Index  reached  104.8%  of  the  EU 
average,  while  the  figure  was  still  below  EU 
average  in  2022  (98.6%).  Its  performance  is, 
however,  below  the  average  of  strong  innovators 
in the EU (104.8% vs 114.1% of the EU average in 
intensity (38)  steadily 
2025). 
increased  over  the  2018-2O24  period:  R&D 
intensity was 1.99% in 2024, compared to 1.38% 
in  2018,  with  the  main  growth  coming  from 
business R&D while public R&D intensity remained 
stable.  For  Estonia,  the  2025  country-specific 
recommendations  (CSRs)  highlighted  the  need  to 
focus investment on research and innovation (R&I) 
by prioritising funding for applied research and to 
improve  access  to  finance  to  facilitate  innovative 
investment.  The  dynamic R&D  base  and  the  good 
framework conditions for tech startups support the 
innovativeness  of  Estonia’s  economy.  Digital 
transformation  among  small  and  medium-sized 
enterprises  has  been  steadily  advancing.  Notably, 
Estonia’s adoption of AI has almost doubled within 
a  year.  However,  technological  developments  as 
captured  by  patent  data  have  declined  in  recent 
years,  cooperation  between  public  research  and 
businesses remains suboptimal  and there are still 
in 
gaps 
particular in relation to access to finance for SMEs. 

innovation  support  system, 

the 

in 

Excellent science 

Estonia  has  a  good  quality  public  research 
base,  with  stable  funding.  The  quality  of 
research  outputs,  as  measured  by  the  proportion 
of scientific publications within the top 10% most-

(37)  2025 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). 

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

percentage of GDP. 

cited  publications  worldwide,  increased  over  the 
last  decade  (from  7.13%  in  2012  to  9.84%  in 
2022)  and  is  now  slightly  above  the  EU  average 
(9.44%).  Public  expenditure  on  R&D  as  a 
percentage  of  GDP  (0.78%  in  2024)  is  also  just 
above the EU average (0.72%), without any major 
change  over  the  last  years,  as  under  the  national 
target  of  1%  (39)  for  public  funding  of  R&D,  the 
priority  has  been  public  support  to  business  R&D. 
The  public  research  system  is  well  connected  to 
the  international  research  networks,  as  witnessed 
by  the  proportion  of  international  co-publications 
among total publications, which has been growing 
steadily over the last decade (69.4% in 2024). 

Graph A4.1: R&D intensity (GERD, GOVERD, BERD 
as % of GDP) 

Source: Eurostat, 2025 

Estonia faces difficulties in ensuring that the 
next generation of scientists is large enough. 
The  number  of  PhD  students  has  decreased  over 
the  last  decade  from  2  983  in  2013  to  2  283  in 
2023  while  the  number  of  foreign  PhD  students 
has risen from 241 to 792 during the same period 
(40).  The  national  objective  of  at  least  300  new 
PhD graduates per year has not been reached yet. 
To  achieve  it,  a  doctoral  studies  reform  was 
initiated in 2022, and the government has decided 
to  raise  the  number  of  new  PhD  positions  from 
300  to  350  in  2026  with  the  aim  to  reach  a 
further 500 by 2035. At the same time, it is also 
important  to  ensure  that  PhD  graduates  are 
coming  from  fields  matching  the  existing  and 
future  needs  of  the  economy  and  society  (see 
Annex 13). 

(39)  Estonian research, development, innovation and 

entrepreneurship strategy 2021-2035. 

(40)  Eesti Teadus 2025, Eesti_Teadus_2025.pdf 

39 

3.003.003.003.003.001.731.751.771.831.990.950.980.991.061.190.750.750.760.760.780.000.501.001.502.002.503.0020202021202220232024National targetTotal R&D intensity (GERD)Private R&D intensity (BERD)Public R&D intensity (GOVERD+HERD) 
 
 
 
           
 
 
 
its  five  priorities  and 

R&I funding of data and computer science is 
lagging  behind,  despite  the  increasing  pace 
of  developments  in  digital  and  AI  tools. 
Estonia  has  established  itself  as  a  hub  for  data 
ICT.  The  new  national  Applied 
science  and 
Research Centre has health data solutions  as one 
of 
is  hosting  a  new 
competence centre for chips, established in 2025. 
The European Digital Innovation Hub in Estonia, AI 
and  Robotics  Estonia  (AIRE),  has  successfully 
completed  its  first  period  and  is  continuing  to 
support SMEs and technology transfer in the field 
of  AI  over  2026-2029  period.  However,  computer 
science  and  ICT  continue  to  receive  just  a  small 
percentage  of  funding  allocated  by  the  Estonian 
Research  Agency  (41).  Further  investments  in  AI 
research  and  applications  in  the  fields  where 
Estonia  has  developed  scientific  excellence  could 
allow  it  to  exploit  many  underused  and  untapped 
opportunities.  For  instance,  Estonia  could  further 
capitalise on its extensive work on health data and 
genome research. 

Estonia reformed its R&I system governance 
in  2025,  clarifying roles  and responsibilities. 
A significant reform of the R&I system governance 
was  completed  in  2025  with  the  adoption  of  the 
new  Organisation  of  Research  and  Development 
and  Innovation  Act  replacing  the  1997  act  and 
bringing  the  research  and  innovation  organisation 
under  one  umbrella  while  clarifying  the  roles  and 
responsibilities  of  various  R&I  actors  and  funders 
(42). 

Business innovation 

Business  R&D  activities  have  significantly 
increased  in  recent  years,  but  technological 
performance  as  measured  by  patents 
applications  has  declined.  Many  Estonian 
investments, 
businesses  have 
particularly by hiring researchers. This is reflected 
in  the  researchers  employed  by  business  per 
thousand of the active population which increased 

increased  R&D 

(41)  The share of public R&D funding allocated to computer 

sciences and informatics was 5,4% in 2023, 4,5% in 2024, 
and 5,8% in 2025 according to data from Estonian Research 
Information System 

(42)  Teadus- ja arendustegevuse ning innovatsiooni korralduse 

seadus, Riigi Teataja I, 12.07.2025 

from  2.50  in  2018  to  5.40  in  2024,  almost 
reaching  the  EU  average  of  5.90.  Since  2019, 
business  R&D 
intensity  exceeds  public  R&D 
intensity  and  has  continued  to  grow  steadily  in 
recent  years:  business  enterprise  expenditure  on 
R&D reached 1.19% of GDP in 2024, compared to 
0.58% in 2018. Despite this remarkable growth, it 
remains  below  the  EU  average  of  1.49%  and 
below  the  targeted  2%  level.  On  technology 
developments  captured  by  patent  data,  Estonia’s 
patent  applications  per  billion  euro  of  GDP  filed 
under the Patent Cooperation Treaty have steadily 
declined  from  1.52  in  2017  to  0.72  in  2022  and 
remain significantly below the EU average (2.81). 

While  the  level  of  direct  public  support  to 
business  R&D  strongly  increased  in  recent 
years, gaps remain in the innovation support 
system  beyond  grant  schemes.  Support  to 
business  R&I  has  been  substantially  strengthened 
in  recent  years.  Direct  public  support  to  business 
R&D  increased  from  0.06%  of  GDP  in  2017  to 
0.15%  in  2023,  well  above  the  EU  average. 
However,  there  are  still  gaps  in  the  innovation 
support  system,  in  particular  in  relation  to  access 
to finance. As indicated in the 2025 CSRs, Estonia 
needs to improve access to finance, especially for 
small  and  medium-sized  enterprises,  to  facilitate 
innovative investment. While startups benefit from 
a  well-developed  venture  capital  market  (see 
‘Entrepreneurial  dynamism’  below),  there  is  still 
significant  market  failure  in  financing  innovation 
(43).  Estonia  is  planning  to  address  this  deficiency 
by  increasing  the  volume of  financial  instruments 
offered  by  the  Estonian  Business  and  Innovation 
Agency  and  by  introducing  an  innovation  loan  in 
2026. While Estonian corporate income tax system 
has  no  special  provisions  to  favour  investment  in 
R&D.  In  2024.  dedicated  support  for  hiring  R&D 
personnel  by  compensating  part  of  the  personal 
income  tax  was  introduced  and  is  continuing  in 
2026. 

Cooperation  between  public  research  and 
businesses  remains  limited,  but  the  Applied 
Research  Centre  is  expected  to  improve  the 
situation.  In  2023,  R&D  activities  commissioned 
by  businesses  to  universities  and  public  research 
organisations  represented  5.61%  of  public  R&D. 
This  has  remained  almost  stagnant  since  2018 

(43)  Innovatsioonimahukate investeeringute rahastamise 

turutõrke uuring koos kaitsetööstuse valdkonna analüüsiga, 
Saaresalu, 2025 

40 

 
 
 
to  build 

investment 

(5.81%)  and  is  still  below  the  EU  average  of 
7.51%.  In  2023,  Estonia  launched  the  national 
Applied  Research  Centre  (44)  and  all  five  focus 
areas started to become operational during 2025. 
When  it  becomes  fully  functional  it  will  benefit  a 
its 
wide  range  of  businesses  and  reaching 
objective to receive at least one third of its income 
from contract research. This will require significant 
public 
capacities,  as 
highlighted  in  the  2025  CSR  which  called  for 
prioritising  funding  for  applied  research.  While  no 
new  additional  measures  were  taken  to  speed  up 
the development of the Applied Research Centre, a 
EUR  30  million  programme  to  support  the 
institutional  knowledge 
transfer  capacity  of 
research and higher education institutions (Astra+) 
(45)  was  implemented  in  2025.  In  addition,  the 
second  call  under  the  TemTA  (Thematic  R&D 
programmes),  established  in  2024  to  strengthen 
applied  and  use-oriented 
in  smart 
specialisation  priority  areas  and  fund  public-
private  applied  research  projects,  is  planned  for 
2026  (46).  The  programme  has  a  total  budget  of 
around EUR 102 million for 2024–2029(47). 

research 

to 

in 

invest 

Investments  in  green  technologies  are  not 
fully  translating 
innovation  outputs. 
According  to the  European  Innovation  Scoreboard, 
Estonia  ranks  24th  among  EU  Member  States  for 
resource  productivity  and  23rd  for  production-
based CO2 productivity, indicating a need to invest 
in  the  development  and  adaptation  of  green 
technologies.  The  Applied  Research  Programme 
continues 
innovative  startups 
in 
developing  and  adapting  new  green  and  energy-
efficient  technologies,  and  through  the  SmartCap 
Green  Fund.  In  2025,  the  Green  Fund  decided  to 
broaden 
leverage 
private investment and make investments in other 
venture  capital  and private  equity  funds  investing 
in  green  technologies.  However,  despite  several 
notable  R&D  projects  funded  by  Horizon  Europe 
and national programmes in the field of hydrogen 
and bio-based industry, the implementation of the 
solutions by industry has been lagging. 

investment  portfolio  to 

its 

(44)  Estonian Applied Research Centre, 

https://metrosert.ee/en/services/applied-research-center/  

(45)  https://rtk.ee/Teadusuuringute-moju-suurendamine-ning-

teadusasutuste-ja-korgkoolide-institutsionaalse-
teadmussiirde-suutlikkuse-toetamine  

(46)  Teadmussiirde programm 2026-2029. 

Estonia  has  made  steady  progress  in  digital 
transformation  among  small  and  medium-
sized  enterprises,  but  areas  like  AI  adoption 
need  further  attention  to  align  with  its  EU 
Digital  Decade  targets  (48).  Estonia  has  made 
positive  strides  in  digitalisation,  with  72.12%  of 
SMEs  achieving  a  basic  level  of  digital  intensity, 
(EU  average  71.39%).  Estonia  also  outperforms 
the  EU  average  in  cloud  adoption,  with  a  rate  of 
56.23%  against  the  EU  46.69%,  and  in  data 
analytics,  with  55.99%  to  the  EU's  39.85%. 
Estonia has demonstrated remarkable growth in AI 
adoption,  rising  from  13.89%  in  2024  to  23.40% 
in 2025. The digital innovation hub AIRE alongside 
with  the  Technopol  AI  development  programme 
provide 
for  business  digitalisation. 
Additionally, the AI startup incubator has launched 
30  businesses,  with  another  19  new  AI-based 
products entering the market. 

support 

Entrepreneurial dynamism 

Estonian startups achieved a record turnover 
in  2024:  however,  the  growth  rate  of  the 
sector  has  slowed  compared  to  previous 
years.  Estonian  startups  recorded  a  turnover  of 
in  2024(49),  representing  an 
EUR  3,9  billion 
increase  of  almost  15%  from  2023  (EUR  3,4 
billion) outperforming the economy amid economic 
pressures.  Despite  the  strong  increase,  annual 
growth  has  slowed  over  the  last  years  (73%  in 
2021,  46%  in  2022,  19%  in  2023).  Deep-tech 
startups continued to gain momentum, accounting 
for  63%  of  total  investments  in  the  Estonian 
startup  sector  in  2024  and  generating  EUR  325 
million  in  turnover  (+19.3%  year-over-year).  They 
employed  2  439  people,  representing  17%  of  all 
startup’s employees (50). 

(VC)  market 

Venture  capital 
intensity 
decreased in 2024 but remains the highest in 
the  EU.  VC  investments  picked  up  from  2018  to 
2023 
(from  O.06%  of  GDP  to  0.33%)  but 
decreased  to  0.24%  of  GDP  in  2024.  This  is  still 
four  times  higher  than  EU  average  (0.06%)  (51). 

(48)  Estonia 2025 Digital Decade country report 

(49)  Estonia’s Startup Sector in 2024: Growth, Challenges, and 

Key Insights, Startup Estonia, 2025 

(47)  https://etag.ee/en/funding/programmes/temta-thematic-rd-

(50)  idem 

programmes/  

(51)  see also Annex 6.  

41 

 
 
 
Estonia  has  a  well-established  tech  ecosystem 
that has attracted investments of over 1% of GDP 
in  the  last  decade  (52).  The  Estonian  government 
recently  launched  a  EUR 100  million  DefenceTech 
fund,  which  will  further increase  the development 
of  new  defence-oriented  deep-tech  companies.  In 
addition,  Enterprise  Estonia  signed  an  agreement 
with  the  European  Investment  Fund  in  2025 
unlocking  EUR  109  million  in  financing  to  support 
Estonian  businesses  with  more  favourable  loans 
and  guarantees.  The  startup  sector’s  ability  to 
attract 
scale 
innovations  will  be  crucial  in  maintaining  its 
competitive edge. 

funding  and 

secure 

talent, 

Estonia’s innovation strategy emphasises the 
development  of  regulatory  experimentation 
frameworks.  Estonia  is  planning  to  introduce  a 
national  experimentation  framework  that  allows 
startups  to  test  unregulated  or  non-compliant 
solutions  under  controlled  conditions,  effectively 
shortening  the  path  from  concept  to  deployable 
product.  The  government  has  prepared  draft 
legislation 
the  national  experimentation 
framework  which  is  expected  to  be  adopted  in 
2026.  This  complements  the  existing  regulatory 
sandbox 
initiatives  supported  by  Accelerate 
Estonia and major cities (e.g. Test in Tallinn, Test in 
Tartu). 

for 

In 

The  innovation  procurement  framework  has 
been  improving  but  significant  effort  is  still 
needed. 
the  benchmarking  of  national 
innovation  procurement  policy  frameworks  across 
Europe, Estonia ranks second with a total score of 
52.43%  compared  to  the  EU  average  of  33.05% 
(53). Most national horizontal policies, including the 
public procurement, R&I and ICT policies, advocate 
for  wider  use  of  innovation  procurement.  A  good 
expenditure  measurement  system  for  innovation 
procurement  has  been  put  in  place.  Innovation 
procurement  target  levels  of  2%  in  volume  and 
5% in value were set for the year 2025. However, 
the  policy  framework  for  innovation  procurement 
still  requires  significant  reinforcement  measures 
such  as  developing  a  national  action  plan  and 
incentives  for  procurers,  recognising  the  strategic 
in  all 
importance  of 
sectoral  policies  and  strengthening  capacity 

innovation  procurement 

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

tech’. 

(53)  ESTONIA. COUNTRY PROFILE – Benchmarking of national 
policy frameworks for innovation procurement, 2024 

42 

building  measures  further  spreading  innovation 
procurement practices. 

The  shortage  of  highly  skilled  workers  holds 
up  Estonia’s  innovation  capacity.  While  the 
number  of  new  graduates  in  the  field  of  ICT  per 
thousand  population  aged  25-34  is  above  the  EU 
average,  there  has  been  a  downward  trend  over 
the last years (4.61 in 2023 vs 4.90 in 2022 and 
5.50  in  2021).  The  declining  number  of  new 
graduates  in  science  and  engineering  is  also  a 
matter of concern, as it has constantly fallen since 
2013  (from  13.11  to  8.98  per  thousand  of  those 
aged  25-34  in  2023,  significantly  behind  the  EU 
average  of  16.82).  These  declines  may  hinder 
Estonia’s  innovation  performance  in  the  long  run. 
Foreign talent plays a vital role in Estonia’s startup 
sector,  with  31%  of  employees  holding  foreign 
citizenship (54). The high proportion of global talent 
plays  a  major  part  in  the  startup  ecosystem’s 
dependence  on  international  expertise  and  the 
necessity  of  policies  that  facilitate  worldwide 
hiring and talent retention. 

Entrepreneurship education in Estonia is fully 
embedded  in  its  education  system  through 
teacher  competence  frameworks,  curricula 
and  guidance  to  school  leaders.  Teacher 
competence frameworks applicable to all teachers 
specifically  refer  to  entrepreneurship,  making  it 
one  of  the  few  European  countries  to  do  so  (55). 
The professional qualification standard for general 
education  teachers  includes  entrepreneurship  as 
one  of  the  defined  competences.  The  national 
curriculum  specifies  eight  general  competences, 
including  entrepreneurship,  which  are  intended  to 
be incorporated across all subjects, extracurricular 
activities and out-of-school initiatives. 

Estonia also offers designated subjects relating to 
entrepreneurship  within  the  primary  and  general 
secondary  education  curriculum.  Additionally, 
entrepreneurship  education  is  integrated  through 
learning 
practice-oriented  and  project-based 
components,  especially 
in  upper  secondary 
education,  with  projects  such  as  the  Junior 
Achievement (JA) programme (56). Estonia provides 

(54)  Estonia’s Startup Sector in 2024: Growth, Challenges, and 

Key Insights, Startup Estonia, 2025 

(55)  Eurydice Report, Entrepreneurship education at school in 

Europe, 
https://eurydice.eacea.ec.europa.eu/publications/entrepreneur
ship-education-school-europe-2025 

(56)  JA Europe, https://jaeurope.org/ 

 
 
 
from 

implement 

schools  with  guidance  for  promoting  a  whole-
school  approach  to  entrepreneurship  education, 
assisted  by  material 
the  Edu&Tegu 
entrepreneurship and career education programme 
(57),  including  cooperation  between  schools  and 
businesses.  School  leaders  receive  advice  on  how 
to 
this  whole-school  approach 
effectively.  Certificates  like  the  entrepreneurial 
school  quality  label  (58)  recognise  schools  that 
entrepreneurship 
integrate 
systematically 
education  and  foster  partnerships  with 
local 
communities  and  businesses.  Estonian  higher 
to 
education 
integrate entrepreneurship courses into curricula in 
various  fields  of  study.  Even  so,  OSKA’s  2022 
study  on  generic  work-life  skills  pointed  out  that 
to 
employers  expect  better 
entrepreneurship 
from  graduates  of  higher 
education programmes (59). 

institutions  also  make  efforts 

related 

skills 

(57)  Entrepreneurship and Career Education Programme Edu ja 

Tegu, https://ettevotlusope.edu.ee/  

(58)  Kvaliteedimärgise taotlemise protsess - Ettevõtlik Kool, 

https://evkool.ee/vorgustiku-liikmele/seire/  

(59)  Leemet, A. & Ungro, A. (2022). Tööelu üldoskuste 

klassifikatsioon ja tulevikuvajadus (Classification and future 
needs of generic work life skills). Tallinn: SA Kutsekoda. 
https://uuringud.oska.kutsekoda.ee/uuringud/tooelu-
uldoskutse-klassifikatsioon-tulevikuvajadus.  

43 

 
 
Table A4.1:  Key Innovation Indicators 

(1)  EU average for the last available year or the year with the highest number of country data. * Break in series 
Source:  Eurostat, OECD, DG JRC, Science-Metrix (Scopus database), Invest Europea, European Innovation Scoreboard. 

44 

R&D intensity (gross domestic expenditure on R&D as % of GDP)1.581.441.731.771.831.99:2.243.44Public expenditure on R&D as % of GDP0.770.760.750.760.760.78:0.720.64Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 7.628.489.369.84:::9.4412.31Researchers (FTEs) employed by public sector (Gov+HEI) per thousand active population4.14.54.34.74.95.2:4.3:International co-publications as % of total number of publications45.395565.7167.6268.4169.4:57.24:Business enterprise expenditure on R&D (BERD) as % of GDP0.790.660.950.991.061.19:1.492.69Business enterprise expenditure on R&D (BERD) performed by SMEs as % of GDP0.550.310.50.510.56::0.470.30Researchers employed by business per thousand active population1.91.33.24.34.35.4:5.9:Patent applications filed under the Patent Cooperation Treaty per billion GDP (in PPS €)3.291.251.460.72:::2.812.20Employment share of high-growth enterprises measured in employment (%):::0.851.020.99:0.87:SMEs with at least a basic level of digital intensity% SMEs (EU Digital Decade target by 2030: 90%)::::55.93:72.1271.39:Data analytics adoption% enterprises (EU Digital Decade target by 2030: 75%)::::25.57:55.9939.85:Cloud adoption% enterprises (EU Digital Decade target by 2030: 75%)::::52.60:56.2346.69:Artificial intelligence adoption % enterprises (EU Digital Decade target by 2030: 75%)::::5.1913.8923.4019.95:Public-private scientific co-publications as % of total number of publications6.876.148.78.468.669.15:7.62:Public expenditure on R&D financed by business enterprises (national) as % of GDP0.020.030.050.050.04::0.060.02Total public sector support for BERD as % of GDP::0.080.100.15::0.21:R&D tax incentives: foregone revenues as % of GDP0.000.000.000.000.00::0.10:BERD financed by the public sector (national and abroad) as % of GDP ::0.080.100.15::0.11:Venture capital (market statistics) as % of GDP (calculated as a 3-year moving average)0.030.040.100.340.330.24:0.06:Seed stage funding share (% of GDP)0.010.010.020.050.050.03:0.01:Start-up stage funding share (% of GDP)0.020.010.020.160.150.12:0.03:Later stage funding share (as % of GDP)0.010.020.060.130.120.08:0.03:New graduates in science & engineering per thousand population aged 25-34:11.77*9.59.188.9810.05:16.82:Graduates in the field of computing per thousand population aged 25-34:2.69*4.194.904.615.38:3.84:202320242025EU average (1)USEstonia2010201520202022R&D investment & researchers employed in businessesInnovation outputsDigitalisation of businessesAcademia-business collaborationInnovative talent Public support for business innovationFinancing innovationScience and innovative ecosystemsHeadline indicator 
 
 
       
 
ANNEX 5: SINGLE MARKET AND INDUSTRY 

Estonia  is  prioritising  competitiveness  and 
economic  growth,  and  taking  action  on  the 
problems it is facing in its economy. SMEs are 
particularly  important  to  the  Estonian  economy, 
and  they  have  been  struggling  despite  the  slow 
recovery  of  the  economy.  This  is  linked  with 
problems  in  accessing  finance,  lack  of  skilled 
labour  and  regulatory  burdens,  coupled  with 
insufficient  use  of  digital  tools.  More  widely,  the 
is  still  very  resource-intensive  and 
economy 
resource-
measurable  progress 
productivity  remains  for  now 
limited.  Green 
technologies,  also  for  industrial  decarbonisation, 
face challenges in scaling up due to finance issues 
and regulatory and demand uncertainty. Estonia is 
also  falling  behind the  EU  average  in  connectivity 
infrastructure,  while  showing  an  impressive 5G 
coverage  in  sparsely  populated  areas.  The  2025 
country-specific 
linked  with 
Single  Market  and  Industry  called  on  Estonia  to 
improve  access  to  finance,  particularly  for  SMEs 
and  for  companies  on  remote  regions  (CSR  3 
2025),  and  to  raise  resource-productivity  through 
bio-based innovation (CSR 4 2025).  

recommendations 

terms  of 

in 

Business dynamics 

The  Estonian  economy  has  begun  to  slowly 
recover  and  the  government  has  set  raising 
competitiveness  and  economic  growth  as  its 
priority.    Industry’s  gross  value  added  makes  up 
14.7% of Estonia’s GDP (60). While industrial output 
as  well  as  value  added  (61)  decreased  in  2024  in 
both  industry  and  manufacturing,  the  decline  in 
value  added  was  less  marked  than  in  the  two 
previous years (62).  Estonia also saw two years of 
quick  growth  in  unit  labour  costs  before  the  pace 
finally  eased  in  2024,  when  also  the  real  labour 
productivity per hour worked in industry increased 
for the first time since 2021. In terms of structure 
of  the  economy,  within  manufacturing,  wood 
products and fabricated metals constitute the two 
largest  manufacturing  sub-sectors  in  terms  of 
value  added.  Wood  products  in  particular  had  a 

(60)  Eurostat: [nama_10_a10] Gross value added and income by 

main industry (NACE Rev.2 ) 

(61)  Eurostat: [nama_10_a10] Gross value added and income by 

main industry (NACE Rev.2 ) 

(62)  Eurostat: nama_10_lp_a21] Labour productivity and unit 

large  drop  in  value  added  in  2023,  following  the 
2022  energy  shock  to  energy-intensive  industries 
(EIIs)  (63).  Fabricated  metals  and  construction  are 
both important sectors to Estonia, and also sectors 
where Estonia is particularly affected by industrial 
decline  and  would  struggle  to  cope  with  the 
decline of the industry based on a recent economic 
(64).  See  also  the  Annex  on  Housing. 
brief 
Nevertheless,  Estonia  retained  its  33rd  position  in 
the  IMD  World  Competitiveness  Ranking  2025, 
following  a  significant  drop  in  position  in  2024. 
The ‘Estonia 2035’ strategy targets the 10th place 
in  this  ranking  and  the  government  is  currently 
strongly prioritising competitiveness and economic 
growth, along with defence. 

Estonia  continues  to  stay  within  the  EU 
countries  with  highest  total  investment  in 
relation to GDP. Despite a decrease of 1.5 p.p. in 
total investment as share of GDP in 2024, Estonia 
still  has  the  sixth  highest  investment  rate  among 
EU  countries  (EE  23.9%  vs  EU  21.7%).  Business 
investment  however  continued  in  2024  on  the 
decreasing trend, and was barely over EU average 
(EE 12.9% vs EU 12.6%) (65). Inward foreign direct 
investment  also  decreased  in  2024  (66).  Estonian 
firms  are  yet  signalling  a  more  growth-oriented 
approach 
the  EU 
average. In the last financial year, over half of the 
investment  was  used  on  capacity  expansion,  new 
products  or  services  and  other  areas  – 
in 
comparison  to  replacement  investment,  which  in 
the  EU  was  more  common.  In  future  investment 
priorities,  Estonian  firms  are  also  more  strongly 
focusing on growth than EU average (67)  

investment 

towards 

than 

SMEs are particularly important for Estonian 
economy  but  have  had  difficult  few  years. 
Estonian  SMEs  make  up  99.9%  of  Estonian 
enterprises,  and  81.1%  of  total  value  added, 
significantly  higher  than  the  average  in  the  EU 
(53.6%).  Particularly 
the  number  of  micro 
enterprises,  employing  0  to  9  persons,  is  high  as 
they  represent  94.9%  of  Estonian  companies  (EU 

(63)  Eurostat: [nama_10_a64] Gross value added and income by 

detailed industry (NACE Rev.2 ) 

(64)  Mapping the impact of industrial decline, European 

Commission 2025 

(65)  Eurostat: Investment share of GDP by institutional sectors 

[sdg_08_11] 

(66)  Eurostat: [tec00105] Inward FDI stocks in % of GDP 

labour costs by industry (NACE Rev.2) 

(67)  EIB Investment Survey 2025: Estonia overview 

45 

 
 
 
 
 
Integrating  micro  enterprises 

average  93.6%)  and  32.2%  of  the  value  added. 
(68). 
in  clusters 
through  a  dedicated  cluster  policy  could  improve 
their productivity and competitiveness, because of 
the  synergies  it  could  create  and  the  innovation 
spillovers  deriving  from  connections  with  other 
stakeholders,  such  as  research  institutions.  In 
2024,  SMEs  in  Estonia  grew  in  employment  but 
their real value added dropped significantly for the 
second  consecutive  year:  the  decline  of  -5.8%  in 
2023 was followed by a further drop equal to -5.4 
Only  the  information  and  communication,  an 
important  sector  for  Estonia,  grew  in  SME  real 
value  added  in  2024(69).  Gross  value  added  has 
generally  decreased  in  Estonia  since  2021,  and 
even 
information  and 
communication  sector  decreased  slightly  in  the 
overall gross value added in 2024 (70).   

the  well  performing 

reflecting 

to  27.48%, 

The  Estonian  economy  is  quite  dynamic.  The 
business churn rate is continuously well above the 
EU average (in 2023, EE 41.74% vs EU 18.97%). In 
2023,  the  business  death  rate  rose  starkly  from 
8.91% 
the  economic 
challenges  companies  are  facing.  Bankruptcies  in 
Estonia  continued  to  increase  in  2024(71).  The 
business birth rate is also trending down but is still 
above  the  EU  average  at  14.26%  (72).  A  recent 
in  the  Baltics 
paper  on  allocative  efficiency 
however suggests that new firms in general  have 
lower labour productivity than incumbent  peers in 
Estonia, indicating that there is room to support in 
particular  entry  for  businesses  with  high  growth 
potential 
intensive  start-ups). 
Similarly,  the  paper  stressed  the  importance  of 
streamlined  insolvency  procedures(73).  See  the 
annexes on Capital Markets, Financial Stability and 
Access to Finance. 

(such  as  R&D 

Now  a  strong  innovator  according  to  the 
European  Innovation  Scoreboard,  Estonia  is 
In 
looking  to 

investment. 

its  R&D 

increase 

(68)  2025 SME country fact sheet Estonia 

(69)  2025 SME country fact sheet Estonia 

(70)  Eurostat: [nama_10_a10] Gross value added and income by 

main industry (NACE Rev.2 ) 

(71)  Eurostat: [sts_rb_a] Business registration and bankruptcy 

index by NACE Rev.2 activity - annual data 

particular  direct,  and  also  R&D  expenditure  in  the 
business  sector  is  relatively  low  (74),  (75),  (76).  The 
Estonian  Recovery  and  Resilience  Plan  also  has 
measures  on  digital  state,  including  e.g.  a  digital 
gateway  for  entrepreneurs.  See  also  the  annexes 
to  Business  and  Effective 
on 
Institutional Framework).  

Innovation 

Uncertainty  about  the  future,  availability  of 
skilled  staff  and  energy  costs  remain 
Estonia’s three biggest investment obstacles. 
According  to  the  2025  EIB  Investment  Survey, 
89% of Estonian firms consider uncertainty about 
the  future  to  be  an  investment  obstacle,  higher 
than  EU  average  83%.  Similarly  slightly  higher 
than  EU  average,  80%  of Estonian  firms  consider 
the  lack  of  available  skilled  staff  an  investment 
obstacle (77), and this issue has also been recently 
highlighted in a report to Riigikogu (78), a paper by 
IMF  (79)  and  by  business  stakeholders(80).  Estonia 
has taken steps to address skills mismatches and 
the  issue  of  skilled  labour,  and  labour  shortages 
have  eased  overall  (see  the  annexes  on  Labour 
Market and Education and Skills). Lack of demand 
is  not  a  major  obstacle  to  investment  in  Estonia, 
but  it  has  still  been  limiting  industrial  production 
as  well  as  business  activity  for  services  (81).  The 
situation  is  gradually  improving  for  both  the 
Increasing 
industry  and  service  sectors 
domestic  consumption  and  export  demand  from 
key  markets  should  support  in  this.  Estonian 
boost  
government 
competitiveness  by  helping  increase  companies’ 
export capacity and reach new markets to diversify 
exports  (83).  72%  of  Estonian  exporters,  higher 

taking 

action 

(82). 

to 

is 

(74)  ec_rtd_eis-country-profile-ee.pdf 

(75)  Estonia 2025 Digital Decade Country Report | Shaping 

Europe’s digital future 

(76)  Government information. 

(77)  EIB Investment Survey 2025: Estonia overview 

(78)  Kaasik, Ülo; Männasoo, Kadri; Varblane, Urmas; Varblane, Uku 

(2025). Eesti majanduse olukord ja väljavaated 2025. 
Konkurentsivõime eksperdikogu raport Riigikogule. Tallinn: 
Riigikogu Kantselei. Majanduse konkurentsivõime tulevik - 
Arenguseire Keskus 

(79)  Hu, Bingjie and Can Ugur, 2025. Allocative Efficiency, Firm 

Dynamics, and Productivity in the Baltics; Republic of Estonia; 
IMF Selected Issues Paper No. 2025/103; June 23, 2025 

(72)  Eurostat: Business demography by size class and NACE Rev. 

(80)  Stakeholder feedback 

2 activity [bd_size__custom_19037959] 

(73)  Hu, Bingjie and Can Ugur, 2025. Allocative Efficiency, Firm 

Dynamics, and Productivity in the Baltics; Republic of Estonia; 
IMF Selected Issues Paper No. 2025/103; June 23, 2025 

(81)  ECFIN business and consumer survey data 

(82)  E.g. Estonia’s Recovery and Resilience Plan 

(83)  Government information 

46 

 
 
 
than  the  EU  average  of  62%,  reported  that  they 
have  to  comply  with  different  standards  and 
consumer protection rules in different EU Member 
States.  This  share  however  decreased  16  pp. 
compared to the previous year (84). 

Business environment 

(65% 

is  higher 

In  the  areas  of  simplification,  burden 
reduction  and  permitting/licensing,  there  is 
still  scope  for  Estonia  to  improve.  Business 
regulations  are  stated  as  an  obstacle 
to 
investment  by  53%  of  Estonian  companies  and 
labour regulations by 46% of Estonian companies, 
both  lower  than  EU  average  (69%  and  64%). 
However,  among  micro/small  companies,  this 
percentage 
for  business 
regulations),  indicating  that  there  would  be  room 
to  reduce  regulatory  burden  particularly  for  the 
smallest  companies.  In  fact,  29%  of  Estonian 
companies,  and  52%  of  micro/small  companies, 
reported  that  they  need  to  dedicate  over  10%  of 
their  personnel  to  comply  with  the  regulatory 
requirements  (85).  According  to  the  OECD  Product 
Market  Regulation 
in 
indicator, 
licensing  Estonia  could  simplify its  regulatory  and 
administrative  burden 
simplifying 
obtaining  licenses  and  permits  could  improve  the 
regulatory environment overall (87).  

in  particular 

(86)  and 

is 

Estonia 
taking  significant  steps  to 
alleviate its  regulatory  burden.  This issue  has 
been  tackled  through  the  Council  for  Economic 
Growth and Efficiency, which was first convened in 
March  2025  and  operated  until  September  2026. 
Consisting  of  Estonian  business 
leaders,  the 
council  received  has  received  over  700  proposals 
to  cut  red  tape  from  various  stakeholders. 
Government has reviewed and approved over 200 
of these proposals (88) (89). Some of the proposals 
that  have  already  been  implemented  include  a 

(84)  EIB Investment Survey 2025: Estonia overview 

(85)  EIB Investment Survey 2025: Estonia overview 

(86)  Estonia_PMR country note.pdf 

(87)  OECD Economic Outlook, Volume 2025 Issue 2 (EN) 

(88)  Majanduskasvu ja efektiivsuse nõukoda: 

kestlikkusaruandluse lihtsustamine hoiab 2 aasta jooksul 
kokku 115 miljonit eurot | Riigikantselei 

significant  easing  of  sustainability  and  reporting 
for  companies,  abandoning  the  obligation to  send 
paper 
invoices,  and  simplifying  cybersecurity 
requirements for small businesses.  In addition to 
the  Council,  ministries  and  the  government  have 
also  submitted  proposals,  some  of  which  have 
already been implemented (90).  

Estonia is positioning itself as a leader in e-
government,  with  its  digital  public  services 
continuing to outperform the EU average. The 
country  also  focuses  on  digital  sovereignty, 
resilience.  Measures 
emphasising  government 
have  also  been  put  in  place  to  ensure  that  it  can 
continue  to  be  digitally  governed  beyond  its 
geographical borders in various disaster scenarios. 
Estonia  also  scored  above  the  EU  average  for 
cross-border digital public services for citizens and 
businesses  in  2024  (91).  The  provision  of  digital 
public  services  cross-border  is  also  expected  to 
improve with the advancing implementation of the 
Single  Digital  Gateway 
the  Effective 
Institutional  Framework  Annex).  Estonia    has  also 
set a long-term vision to establish the country as a 
leading in data economy and an AI-powered  state 
by 2030 across private and public sector.(92) 

(see 

in 

in 

EU 

for 

terms  of 

However, the country is falling behind the EU 
its  connectivity 
average 
infrastructure  (VHCN,  5G),  while  showing 
impressive 5G 
sparsely 
coverage 
populated  areas.  Estonia  faces  challenges  in 
matching 
Very High 
averages 
Capacity Networks  (VHCN)  and  5G  coverage  but 
excels in 5G coverage in sparsely populated areas 
and  the  assignment  of  5G  spectrum.  As  of  2024, 
Estonia’s  VHCN  and Fiber to  the  premises  (FTTP) 
coverage  stands  at  76.27%,  below  the  EU's 
82.49% for VHCN but above the EU's 69.24% for 
FTTP.  The stagnating coverage for  VHCN (it  stood 
at 76.94% in  2023) can be attributed  to  drops  in 
DSL,  VDSL  and  VSDL  2  vectoring  caused  by 
network decommissioning.  Estonia's  competitive 
includes  significant  efforts 
telecom  market 
towards 
infrastructure,  backed  by 
initiatives like the Recovery and Resilience Facility 
support scheme. As Estonia progresses towards its 

improving 

(90)  Economic Growth Council: abandoning paper invoices and 
strict sustainability requirements is only the beginning of 
cutting red tape | Government Office 

(91)  European Commission, 2025, Digital Decade Country Report 

Estonia, Ec.europa.eu. 

(89)  Efektiivsuse ja majanduskasvu nõukoda | Riigikantselei 

(92)  The White Paper on Data and AI 2024-30 

47 

 
 
 
2030  targets for  VHCN  and  5G, 
its  policies 
continue to foster private investment and enhance 
spectrum accessibility for innovative applications. 

The  availability  of  finance 
is  a  major 
investment  obstacle  for  more  Estonian 
companies than in the previous year.  19% of 
companies  state 
it  as  a  major  obstacle  to 
investment  and  29%  as  a  minor  obstacle  to 
investment. Altogether, this represents an increase 
of 13 pp. to the previous year and is also slightly 
higher  than  EU  average  (45%).  The  share  of 
finance-constrained  companies  also  more  than 
doubled  in  2024  and  continues  in  2025  to  be 
significantly  higher 
the  EU  average. 
than 
Rejections  are  the  key  issue  causing  finance 
constraint. Access to finance is a significant issue 
in particular for SMEs, and Estonia has a 2025 CSR 
(3)  on  improving  access  to  finance,  especially  for 
SMEs and companies in remote regions. Estonia is 
taking action on this issue through offering grants, 
loan  guarantees  and  loans  to  businesses,  notably 
increasing  existing  loan  volumes  by  55  MEUR  in 
2026.  Estonia  has  also  recently introduced  a  new 
innovation  loan  to  finance  higher-risk  investment 
in  novel  technologies,  and  a  specific  support 
measure  for  large-scale  investment  (93)  (see  also 
the  annexes  on  the  Capital  Markets,  Financial 
Stability and Access to Finance). 

Late payments remain an issue in Estonia. 63 
%  of  Estonian  companies  reported  issues  due  to 
late payments in 2024 and 53% of Estonian SMEs 
experienced  late  payments  in  2025.  While  higher 
than  EU  average,  this  is  a  decrease  to  previous 
year. Their direct operational and financial impacts 
on  companies  also  seem  to  have  eased  in  2024 
(94).  

Single Market  

trade 
Recent  economic  volatility  and 
tensions underlined the importance of the EU 
Single  Market  for  growth  and  resilience. 
Estonia  continues  to  be  well  integrated  into  the 
Single  Market  and 
in 
international  trade.  72%  of  Estonian  companies 

to  actively  engage 

(93)  Government information 

(94)  EU Payment Observatory Annual Report 2025 

engage  in  international  trade  (95)  and  Estonia 
continued to be placed fifth among EU countries in 
terms  of  EU  trade  integration,  demonstrating  a 
high level of EU trade integration (measured using 
the  percentage  ratio  of  trade  volumes  to  GDP). 
This  percentage  increased  slightly  from  last  year 
(58.6% in 2025, 57% in 2024). 

results. 

to  work  on 

(which  measures 

Estonia's  compliance  with  Single  Market law 
Its  Single  Market 
shows  mixed 
transposition  deficit 
the 
percentage  of  all  directives  not  transposed  into 
national  law)  increased  in  2025  to  1.3%  and  is 
now worse than both the EU average 1.1% and the 
1% target set  up  by  the  EU  Council,  signalling  a 
need 
the timely transposition  of 
directives. The  conformity  deficit  (the  percentage 
of wrongly transposed Single Market directives) in 
Estonia  is  still  below  EU  average  at  0.8% (vs 
1.1%). The 
transposition  of 13  Single Market 
directives  was  overdue  (in  December  2025)  and 
the  average  delay  in  transposing  those  directives 
was  lower  than  EU  average.  Estonia  had  14 
pending Single Market infringement proceedings in 
December  2025,  which  was  well  below the  EU 
average 
increase 
compared to the three previous years, but Estonia 
is still one of the best performers in the number of 
infringements  this  year (6th out  of  27  Member 
States).  The same remark  applies  to the  duration 
of  infringement  proceedings (4th position)  (96). In 
2025, Estonia resolved 100% of the SOLVIT cases 
it  handled  as  lead  centre  (the  EU  average  was 
84.6%).  

represented  an 

(25).  This 

Compliance  of  products circulating  in  the 
Single  Market  (97)  is  key  to  ensuring  a  level-
playing  field  for  law-abiding  companies  and 
the safety of consumers. In Estonia, the number 
has 
of  market 
increased  compared  with  2019.  In  2025,  national 
authorities  reported  in  the  EU  system  for  market 
surveillance 
total 
of 231.4 investigations per one million inhabitants, 
which  is higher than  the  EU median  of  136.2.  The 
in 
number 

notifications remains limited 

investigations 

surveillance 

(ICSMS) 

of 

a 

(95)  EIB Investment Survey 2025: Estonia overview 

(96)  Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(97)  Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

48 

 
 
 
absolute  terms,  which  may  also  be  the  result  of 
insufficient  IT  national  interoperability  to  the 
ICSMS  system.  The  upcoming  revision  of  the 
Market Surveillance Regulation will upgrade ICSMS 
to a fully interoperable EU digital platform.  

2025  with  30%.  Estonia  continued  to  be  among 
the worst performers in direct awards in 2025 (the 
percentage  of  public  procurement  negotiated 
without  any  call  for  bids),  but  the  percentage 
slightly  decreased  from  previous  year  (from  13% 
to 11%).  

Limited  resources  of  the  Estonian  National 
Standardisation  Body  (EVS)  are  negatively 
affecting  the  functioning  of  the  Single 
Market(98),  and  the  competitiveness  of  EU 
companies.  While  National  Standardisation 
Bodies  play  a  key  role  in  the  functioning  of  the 
European  Standardisation  System,  the  Estonian 
EVS has limited resources, reporting having a staff 
of  18  people.  Consequently,  strengthening  its 
sufficient 
capacity 
in 
participation  of  experts  and  stakeholders 
European standardisation processes. It is therefore 
recommended  that  Estonia  supports  the  EVS  to 
reduce  market  fragmentation, 
the 
competitiveness  of  Estonian  companies,  and  fully 
benefiting  from  the  opportunities  of  the  Single 
Market. 

is  essential 

to  ensure 

improving 

While  barriers  persist  in  some  professions, 
regulatory 
restrictiveness  as  well  as 
restrictions  to trade  in services  (99)  continue 
to be comparatively lower than EU and OECD 
averages.  In  terms  of  services  trade,  Estonia  is 
the  fifth  most  open  country  among  the  Member 
States  surveyed 
in  terms  of 
regulated  professions,  lawyers  and  notaries  are 
subject to relatively heavy regulation as they face 
particularly 
conduct 
regulations  (101).  This  can  impact  competitiveness 
in  the  legal  sector  and  easing  rules  for  notaries 
and 
regulatory 
environment (102).  

(100).  However, 

lawyers  could 

stringent 

improve 

entry 

and 

the 

to  be  an  average 
Estonia  continues 
performer in public procurement. In single bids, 
Estonia  scored  slightly  above  the  EU  median  in 

(98)  Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(99)  Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(100) OECD, 2026, Services Trade Restrictiveness Index (STRI), 

Services trade restrictiveness index | OECD. 

(101) Estonia_PMR country note.pdf 

in 

the 

Public 

Estonia 

Procurement 

Estonia  is  advancing  on  strategic  public 
procurement.  National  statistics  show  that  in 
2024,  12.3%  of  all  procurement  was  recorded  as 
green  public procurement (GPP)  and the trend  for 
2025 seems increasing, largely due to awareness-
raising  efforts  as  well  as  national  action  in  the 
context of the 2024-2026 GPP action plan(103). To 
tackle  the  lack  of  professionalism  in  strategic 
public  procurement,  Estonia  and  OECD  have  a 
project  called  ‘Promoting  the  Uptake  of  Strategic 
Public 
through 
Professionalising 
Procurement 
Workforce’. A recent report on this pointed out that 
the  uptake  of  strategic  public  procurement  in 
Estonia  remains  somewhat  limited,  despite  wide 
recognition  of  its  strategic  value.  The  report  also 
pointed  out  the  need  for  further  clarity  on  the 
its  use, 
legal  framework  and  guidance  on 
transparency  on  compliance,  a  stand-alone  policy 
on professionalisation of workforce and capability 
building.  Importantly,  the  challenges  faced  by 
SMEs  in  the  tendering  processes  were  highlighted 
(104). Beyond this project, Estonia has taken action 
on  the  professionalisation,  e.g.  through  training 
and a novel skills matrix for buyers. Simplification 
is  a  key 
of  public  procurement  processes 
consideration for Estonia (105). 

Businesses’  views  on  corruption  risks  in 
public  procurement  are  below  the  EU 
average.  In  Estonia,  49%  of  companies  (EU 
average: 58%)  consider tailor-made specifications 
for  particular  companies  in  public  procurement 
procedures,  and  39%  (EU average:  53%)  conflicts 
of interest in the evaluation of bids, 'very' or 'fairly 
widespread' practice. Among companies that have 
experience  in  and/or  participated  in  a  public 
procurement procedure, 17% think that corruption 
has prevented them from winning a public tender 
or  a  public  procurement  contract  in  practice  (EU 
average:  25%).  31%  of  businesses  perceive  the 

(103) Government information. 

(104) OECD (2025), Strategic Public Procurement and 

Professionalisation Initiatives in Estonia: Diagnostic Report, 
OECD Public Governance Reviews, OECD Publishing, Paris. 

(102) OECD Economic Outlook, Volume 2025 Issue 2 | OECD 

(105) Government information. 

49 

 
 
 
level  of  independence  of  the  public  procurement 
review committee as ‘very’ or ‘fairly good’ when it 
is  reviewing  public  procurement  cases.      The 
National  Audit  Office  has  consistently  highlighted 
the  need  to 
in  public 
increase 
procurement 
competition  and  enhance  efficiency  in  the  use  of 
public  funds  and  a 
level  playing  field  for 
businesses. 

improve  transparency 
to  prevent  corruption, 

energy consumers, notably to attract investment in 
EIIs  and  boost  industrial  competitiveness  (108). 
Electricity  prices  for  non-household  consumers  in 
Estonia  in  2024  and  early  2025  were  also  lower 
than previous years and EU average (EE 0.1405 vs 
EU  0.1462(109)).  In  2025,  the  key  issue  for  the 
industry  seems  to  have  been  the  volatility  of  the 
energy price (see Annex on Affordable Energy).   

for 

the  need 

and barriers 

creating complexity 

issues  highlight 

cross-border  procurement 

Estonia’s  eProcurement  landscape  and  data 
quality 
for 
interoperable  systems,  common  standards, 
and  stronger  data  governance.   Estonia’s 
centralised eProcurement service allows economic 
operators  to  use  a  single  system  to  access  all 
national  public  procurement  procedures.  However, 
issues 
concerning 
remain 
to 
participation 
firms  of  other  Member 
States. This  fragmentation  underscores  the  need 
common 
for introducing interoperability 
standards. Although  the  once-only  principle 
is 
implemented  at  national  level,  the  service  needs 
updating  to  prevent  the  need  for  additional 
registering  for  this  service.  Additionally,  buyers 
across  the  EU  still  lack  digital  access  to  relevant 
evidence. Despite 
some  monitoring,  Estonian 
national  authorities  do  not  provide  a  public 
procurement  data  strategy  with  clear  objectives 
and management of public procurement processes 
Estonian system 
Therefore, 
data. 
public 
would benefit from a 
procurement 
analysis 
data 
service within  the  government to  support  data-
driven oversight of the procurement lifecycle (106). 

dedicated 

collection 

and 

and 

the 

Industry and economic security 

Energy-intensive industries have been facing 
particular  challenges.  Energy  prices  in  Estonia 
have  been  an  issue,  also  one  of  the  biggest 
(107),  and 
obstacles  to 
Estonian  government 
introduced  a 
renewable energy fee reduction for large industrial 

investment 

long-term 

recently 

(106) European Court of Auditors, Special Report 28/2023: Public 
Procurement in the EU. Less competition for contracts 
awarded for works, goods and services in the 10 years up to 
2021, 2023, Special report 28/2023: Public procurement in 
the EU. 

Beyond  energy  topics,  the  resource  intensity 
of  Estonian  industries  continues  to  be  an 
issue. In terms of resource productivity, measured 
as  gross  domestic  product  (GDP)  over  domestic 
material  consumption  (DMC),  Estonia  was  still 
among the worst EU performers in 2024. Estonia’s 
performance  also  slightly  worsened  compared  to 
2023 (index  value 2023:127.7, 2024: 124.7)  (110). 
Estonia  has  a  2025  CSR  (4)  on  raising  resource-
productivity through bio-based innovation. Estonia 
has  a  circular  bioeconomy  roadmap,  which  it  is 
implementing, and has both national and Recovery 
and  Resilience  Facility  funding  allocated  for 
bioeconomy  topics  and  green  technologies  (111). 
Estonia  also  introduced  several  circular  economy 
support measures where calls were opened in late 
2024  and  2025,  including  a  resource  efficiency 
measure  for  manufacturing  industry  which  has 
particular 
resource 
productivity and which will be continued. However, 
Estonia  reports that  the  results  will  not be  visible 
in  statistical  terms  quickly  (112).    See  more  in  the 
annexes  on  Industry  Decarbonisation,  Circularity 
and Climate Mitigation. 

importance 

improve 

to 

in 
Estonia  has  progressed  effectively 
Industry  Act 
implementing  the  Net-Zero 
(NZIA).  It  has  successfully  designated  a  Single 
Point  of  Contact,  which  is  crucial  for  streamlining 
communication 
among 
stakeholders,  as  well  as  establishing  a  dedicated 
website.  Furthermore,  Estonia  has  established  a 
national  contact  point  to  administer  applications, 
facilitating the advancement of Net-Zero Strategic 
Projects.  However,  so  far,  Estonia  has  not 

coordination 

and 

(108) Government information and Planned amendment to lower 

major consumers' electricity costs | News | ERR 

(109) kw-hour at PPS, excluding taxes and levies, all consumption 

bands 

(110) Resource productivity statistics - Statistics Explained - 

Eurostat 

(111) Government information 

(107) EIB Investment Survey 2025: Estonia overview 

(112) Government information 

50 

 
 
 
confirmed any Net-Zero Strategic Projects and has 
not  designated  any  Net-Zero  Acceleration  Valleys. 
Overall,  Estonia’s  manufacturing  capacity  across 
all  net  zero  technologies  remains  modest,  but 
there  is  potential  for  innovative  technologies  (113) 
and  there  are  some  frontrunner  companies  such 
as  Eleon 
(wind  turbines),  Stargate  Hydrogen 
(electrolysers)  and  UpCatalyst  (carbon  materials 
from  CO2).  See  more  information  on  net  zero 
technologies  in  Estonia  in  Annex  7  of  the  2025 
Country Report (114).  

prepared  the  Estonian  National  Programme  of 
Geological  Studies  on  Critical  Raw  Materials  (118) 
which  will  guide  exploration  of  critical  raw 
materials  in  Estonia.  More  generally,  Estonia’s 
material  import  dependency  in  2024  is  22.8%, 
slightly  higher  than  EU  average.  Dependency  on 
imports  of  non-metallic  minerals,  biomass  and 
fossil  energy  materials  is  relatively  low,  but 
Estonia is fully dependent on metal ores.   

Estonia  is  taking  action  to  support  the 
development  of  its  clean-tech  sector.  For 
example, 
is  being 
its  permitting  framework 
reviewed  by  the  Estonian  Ministry  of  Economy  to 
reduce uncertainties (115). The Estonian Ministry of 
Climate  and  Cleantech  Estonia  are  in  the  process 
of creating an Estonian Cleantech Roadmap 2025-
2035 (116) and the government has also introduced 
several  support  measures  to  clean  technologies 
through  Enterprise  Estonia,  Estonia’s  SmartCap 
Green 
accelerator 
the 
programmes.  Furthermore,  Estonia  has  also 
introduced  a  support  measure  for  large-scale 
investment,  with  grants  of  up  to  EUR  20  million. 
This  support  measure  is  not  only  for  net-zero 
technologies,  but  in  the  first  round  one  of  the 
three  selected  projects  was  on  green  hydrogen. 
(117) This large-scale measure is meant to address 
the  lack  of  large-scale  investment  to  scale  up 
green  technologies.  This,  together  with  regulatory 
hurdles  and  lack  of  demand,  is  hindering  these 
technologies in Estonia. 

green 

Fund 

and 

Estonia is taking a leading role in rare earth 
metal  separation  and  is  a  key  player  in 
magnet  manufacturing.  A  new  rare  earth 
magnet  manufacturing  facility,  the  largest  in 
in  Narva.  One 
Europe,  was  recently  opened 
strategic  project  under  the  Critical  Raw  Materials 
Act was also selected in Estonia, a project focusing 
on  graphite  processing  by 
the  previously 
mentioned  UpCatalyst.  Estonia  largely  relies  on 
imports  for  critical  raw  materials,  but  recently 

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

(114) 753a50ca-44e7-410a-a845-41e4c91fbf6a_en 

(115) Government information. 

(116) Estonian Cleantech Roadmap 2025-2035 in progress 

(117) Government information. 

(118) Kriitiliste_toormete_uuringuprogramm 

51 

 
 
 
 
Table A5.1:  Single Market and Industry 

Source: (1) Eurostat, (2) EIB Investment Survey, (3) EIF SME Access to Finance Index, (4) Intrum Payment Report, (5) SAFE survey, 
(6) OECD, (7) data up to 2024: Single Market and Competitiveness Scoreboard, 2025: Commission calculation based on TED data, 
accessible at the Public Procurement Data Space (PPDS) (*) the value represented here under EU average is the median, (8) Single 
Market and Competitiveness Scoreboard, (9) European Commission calculations.  

52 

POLICY AREA20212022202320242025EU-27 average78.176.173.072.773.0100.019.014.213.612.9-12.65.85.46.56.2-3.9Business environment and simplification5.69.514.714.920.034.00.470.360.230.31-0.430.410.190.370.22-0.1913.913.215.3--17.411.015.918.1--13.6from private entities in the previous or current quarter---56.753.147.1from public entities in the previous or current quarter---9.06.315.958.165.659.457.058.640.70.0420.0420.0420.0420.0420.05025313128302791111131161.20.40.90.91.310.90.91.10.80.81.110010010010010084.687101214250.15560.22250.15970.14700.14050.146249.550.145.5--32.737.338.541.042.2-25.230.526.421.922.8-22.419.921.820.520.5-12.2EstoniaINDICATOR NAMEBusiness environment and investmentProductivity and investmentLabour productivity (GDP per hour worked in PPP terms), % of EU271Business investment (share of GDP)1Public investment (share of GDP)1Impact of regulation on long-term investment, % of firms reporting business regulation as a major obstacle2SME liquidityEIF Access to Finance for SMEs index - loans3EIF Access to Finance for SMEs index - equity3Late paymentsPayment gap - corporates B2B, difference in days between offered and actual payment4Payment gap - public sector, difference in days between offered and actual payment4Share of SMEs experiencing late payments, %5Industry and economic securitySingle Market IntegrationEU trade integration, average(intra-EU imports + intra EU exports)/GDP, %1EEA Services Trade Restrictiveness index6Public procurementSingle bids, % of total contractors7*Direct awards, % of negotiated procedures7*ComplianceTransposition deficit, % of all directives not transposed8Conformity deficit, % of all directives transposed incorrectly8SOLVIT, resolution rate per country, %8Number of pending infringement proceedings8Energy-intensive industriesElectricity prices for non-household consumers1Electrification (electricity as a share of total energy consumption in industry)1Share of energy from renewable sources (renewable energy generation as a share of overall energy consumption)1Critical raw materialsMaterial import dependency, %1Circular material use rate1Operational cleantech manufacturing capacity in 20259 - Solar PV (c: cell, w: wafer, M:module), GW0.07 (m) - Electrolyzer, GW0.500 - Heat pump assembly - - Battery, GW- 
 
 
 
     
 
ANNEX 6: SAVINGS, INVESTMENT AND ACCESS TO FINANCE 

Table A6.1:  Savings and Investments Union summary diagnostic 

Source: OECD (pensions), Eurostat (households' financial wealth), FISMA CMU dashboard (VC and PE), national sources (capital 
taxation). End-2024 

rely  mainly  on 

Estonia’s  companies 
internal 
financing for investments and rely only marginally 
on  funding  through  the  capital  markets.  The 
country’s  financial  sector  is  dominated  by  a  very 
concentrated banking sector. Capital markets could 
play  a  bigger  role  in  providing  financing  to  the 
economy.  The  market  capitalisation  of  Estonia’s 
stock  market  is  one  of  the  smallest  in  the  EU. 
Despite 
joint  efforts  by  Estonia,  Latvia  and 
Lithuania to support an integrated regional capital 
market,  low  levels  of  depth  and  liquidity  prevent 
them from being upgraded from ‘frontier markets’ 
to ‘emerging markets’. This acts as a deterrent for 
institutional  investors  to  invest  in  those  markets. 
To promote retail investor participation in financial 
markets, the government introduced an investment 
account in 2011. Estonia ranks very high in terms 
of  financial  literacy.  Private-equity  and  venture-
largely 
capital  funds  aimed  at  SMEs  have 
benefited  from  the  support  of  national  and 
European 
some 
weaknesses  in  the  main  indicators  of  progress 
the  Savings  and 
with 
Investments  Union  (see  Table  A6.1)  For  Estonia, 
the  2025  CSRs  highlighted  the  need  to  improve 
access 
including  by  promoting 
institutional investors’ participation in the venture-
capital and equity markets. 

the  policy  goals  of 

institutions.  Estonia 

finance, 

shows 

to 

Business landscape and company 
funding 

The  business  landscape  in  Estonia  is  largely 
dominated by SMEs, and by micro enterprises 
in  particular.  Micro  firms  represent  94.9%  of 

53 

firms  in  the  country  (vs  93.6%  in  the  EU).  They 
employ 38.8% (vs 30.1% in the EU) of the working 
population  and  produce  32.2%  (vs  20.1%  in  the 
EU)  of  total  value  added  (119)  (See  Annex  5  for 
more  details).  This  business 
landscape  has 
concrete  implications  for  the  corporate  sector’s 
demand for funding. 

Companies  in  Estonia  fund  a  large  share  of 
their  investments  internally.  According  to  the 
2025 EIB Investment Survey (120), 75% of Estonian 
firms’  investment  needs  are  covered  by  internal 
funding,  compared  with  an  EU  average  of  66%. 
The dominant role of internal funding in financing 
companies is partly due to the Estonian corporate 
income  tax  system,  under  which  profits  are  not 
taxed until they are paid out as dividends. Another 
reason  for  the  reliance  on  internal  funding  is  the 
fact  that  Estonian  companies  are  generally  micro 
firms,  and  external  funding  is more  expensive  for 
smaller  companies  than it  is  for  large  companies. 
Overall,  the  number  of  Estonian  firms  that  report 
being finance-constrained is one of the highest in 
the EU (11.6% vs an EU average of 6.1%). 

Estonian  companies  rely  only  marginally  on 
funding  through  the  capital  markets.  At  the 
end  of  2024  (see  Graph  A6.1),    finance  through 
loans  accounted  for  26.7%  of  total  corporate 
funding in Estonia, similar to the EU average, while 
listed  shares  and  bonds  accounted  for  only  1.8% 
of funding (19.1% in the EU). The value of finance 

(119) SME Performance Review - Internal Market, Industry, 

Entrepreneurship and SMEs. 

(120) EIB Investment Survey 2025: Estonia overview. 

Main featuresRelative EU positioningAssets at 18.0% of GDP (32.3% in the EU)10-year real return of 0.0 (1.4% in the EU)The medium pension assets yield a low real return.EUR 40 636 per capita (EUR 85 090 in the EU)o/w 3.8% in listed shares and bonds (7.6% in the EU)o/w 13.9% in investment funds (11.0% in the EU)o/w 0.7% in life insurance (13.4% in the EU)o/w 0.0% in  pension claims (13.6% in the EU)A very low share of households' low financial assets is invested in listed shares and bonds, in life insurance and pensions. Savings and Investment Account available,VC at 0.246% of GDP (0.064% in the EU)PE at 0.609% of GDP (0.487% in the EU)Very high venture capital and high private equity investments.Capital gains are taxed at 22%. No tax on dividends since companies only pay when benefits are distributed. Tax on interest income of 22%. Third pillar pension contributions tax refund (calculated on 15% of annual gross income or up to 6 000 EUR)Relatively low taxes on capital without debt equity bias1-34-1011-1718-2425-27Colours indicate the country's relative ranking based on five groups, ranging from the three best to the three worst performers. The relative ranking as regards an SIU diagnostic topic derives from a consistent cross-country comparison, the starting point of which is the average of the underlying main features.TopicAsset-backed pension schemesHouseholds' financial assetsVenture capital (VC)Private equity (PE)Capital taxation 
 
 
 
 
 
 
     
 
regulation  between 

to  harmonise 
three 
countries and create pan-Baltic products. The three 
national  central  securities  depositories  (CSDs) 
were  also  merged  in  2017,  resulting  in  the 
creation of Nasdaq CSD SE, legally based in Latvia.  

the 

The  market  capitalisation  of  Estonia’s  stock 
market expressed as a percentage of national GDP 
is  one  of  the  lowest  in  the  EU.  Nasdaq  Tallinn 
belongs  to  the  Nasdaq  group,  which  in  the  EU 
operates  other  trading  venues  in  Lithuania  and 
Latvia, as well as in Sweden, Finland and Denmark. 
Nasdaq Tallinn operates the only regulated market 
in Estonia, as well as a multilateral trading facility. 
The  country’s  equity  market  is  small  in  terms  of 
both  capitalisation  and  volumes  traded.  The 
listed  stocks  was 
market  capitalisation  of 
equivalent to 10.7% of GDP in Estonia in Q3 2025, 
which is more than in Lithuania (6.2%) and Latvia 
(0.8%), but significantly lower than the EU average 
of  70%  of  GDP  (see  Table  A6.1).  Capital  markets 
in  Estonia  have  contracted  in  recent  years,  partly 
due to the country's 2021 pension reforms, which 
enabled  savers  to  withdraw  funds  from  pillar  2 
pension schemes. In addition, the start of Russia's 
war  of  aggression  against  Ukraine  has  led  to  a 
deterioration  in  investor  sentiment.  Despite  the 
sound  macro-economic 
institutional 
frameworks  of  Estonia  and  the  pan-Baltic  region, 
benefiting  from  a  single  market  classification  by 
MSCI, index providers continue to classify the three 
countries  as  ‘frontier’  markets  because  of  the 
small  size  and  low  liquidity  of  their  securities 
markets. This ‘frontier’ designation can in turn act 
as  a  deterrent  for  institutional  investors  to  invest 
in  those  markets,  which  can  also  prevent  the 
markets  from  reaching  the  scale  and  liquidity 
necessary to be upgraded. 

and 

Estonian  debt  markets  remain  undersized. 
Although  the  level  of  government  debt  sharply 
increased in 2025, it remains the lowest in the EU, 
at  23.5%  of  GDP.  This  has  resulted  in  a  very 
limited  float  of  sovereign  bonds,  which  typically 
serve  as  a  benchmark  for  pricing  debt  securities. 
The  corporate  bond  market  (see  Graph  A6.2)  is 
also very small (equivalent to only 1.8% of GDP vs 
10.7% in the EU) and activity there was very weak, 
even when low interest rates prevailed in financial 
markets over the previous decade. 

though  unlisted  shares 
in  Estonia  was  the 
equivalent  of  almost  124%  of  GDP  (55%  in  the 
EU).  

Graph A6.1: Composition of non-financial 
corporations' funding 

Source: Eurostat. End-2024.. 

Size and structure of the financial 
sector 

Banks  represent  the  largest  share  of  the 
Estonian  financial  sector,  accounting  for 
about 70% of the country’s financial assets. 
Nevertheless, 
remains 
relatively small in comparison with other euro area 
countries. In Q3 2025, Estonian banks’ total assets 
were  equivalent  to  112.3%  of  GDP,  significantly 
below the EU average of 246.1% (see Table A6.2).  

the  banking 

system 

funds 

funds, 

institutional 

investor  base  remains 
The 
small.  Total  assets  under  management  by 
pension 
corporations  and 
insurance 
investment 
(see  Graph  A6.2)  were 
equivalent  to  47%  of  GDP  in  Estonia  in  2024, 
(where  the  average  in  the  EU  is  equivalent  to 
around  188%  of  GDP).  Domestic  institutional 
investors place only a small portion of their assets 
on the domestic market. 

Authorities  from  Estonia,  Lithuania  and 
Latvia  have  made  efforts  to  develop  an 
integrated  capital  market 
in  the  Baltic 
region.  These  three  Baltic  states  have  been 
working  towards  integrating  their  capital markets’ 
infrastructure  and  signed  a  memorandum  of 
understanding in 2017 to ‘cooperate in developing 
a  deeper  and  more  efficient  regional  capital 
market’. This commitment was followed by efforts 

54 

050100150200250EEEU% of GDPLoansTrade credit and advancesBondsListed sharesUnlisted sharesOther equity 
     
Graph A6.2: Capital markets and financial 
intermediaries 

Source: ECB, OCDE, AMECO. End-2024. 

Households’ participation in capital 
markets 

Estonian  households’  financial  assets  are 
mainly held in non-listed shares, followed by 
deposits and investment funds. The saving rate 
of  Estonian  households  is  relatively  low  and,  in 
absolute  terms,  they  hold  relatively  few  financial 
assets  compared  with  their  EU  peers.  Unlisted 
shares  (i.e.  the  capital  invested  by  firms’  owners 
and  kept  within  firms  as  retained  earnings) 
represent  the  largest  share  of  household  assets 
(54% vs 10.6% in the EU). This is followed by bank 
deposits,  equivalent  to  37%  of  GDP,  which  is 
slightly below the EU average. Since the country’s 
2021 pension reform, households’ financial assets 
held  in  insurance  and  pension  funds  has  fallen 
from  the  equivalent  of  21%  of  GDP  in  2020  to 
1.3%  of  GDP  in  2024  (vs  59%  in  the  EU  on 
average  in  2024)  (Graph  A6.3).  However,  the 
percentage of households’ financial assets held in 
investment  funds  has  increased  over  the  last 
couple  of  years,  rising  to  19.6%  of  GDP  in  2024 
(this is still below the EU average of 23.5% of GDP 
in  2024).  Both  interest  income  and  capital  gains 
are taxed at 22%. 

the 

Estonian 

To  promote  retail  participation  in  capital 
markets, 
government 
introduced  an  investment  account  in  2011. 
This account allows taxpayers to invest in a variety 
of  financial  instruments,  deferring  taxes  on  their 
investment  gains  until  money  is  withdrawn  from 
the  account.  The  investment  account  regime  was 

to 

in  addition 

amended  in  2025  to  allow  for  greater  flexibility 
by:  (i)  adding  new  financial  instruments  such  as 
crowdfunding  investments  and  crypto  assets;  and 
(ii)  allowing  other  service providers  to  offer these 
investment  accounts 
credit 
institutions  (e.g.  investment  firms  and  payment 
service  providers).  This 
investment  account 
initiative helps to address the 2025 CSR on access 
to finance. Since its creation in 2025, the number 
in  Estonia  who  declared  an 
of 
investment  account  has 
increased  steadily. 
However, Estonian companies are taxed only when 
profits  are  distributed,  and  many  taxpayers  use  a 
company  to  make  their 
investments  as  this 
provides more flexibility.  

taxpayers 

Estonia ranks very high in terms of financial 
literacy.  According  to  the  2023  Eurobarometer 
survey,  39%  of  Estonians  have  a  high  level  of 
financial  knowledge,  47%  have  a  medium  level, 
and  the  remaining  14%  possess  a  low  level.  In 
contrast,  the EU average is 26% for high literacy, 
50%  for  medium,  and  24%  for  low.  The  Estonian 
authorities  have  put  in  place  a  financial  literacy 
strategy  for  2021–2030  and  from  2023  a 
separate  strategy  for  pension  awareness,  the 
Estonian pension literacy strategy for 2023-2027.  

Graph A6.3: Composition of households' financial 
assets 

Source: Eurostat. End-2024. 

The banking sector: resilience and 
financing of the economy 

remained  strong, 
Estonian  banks  have 
despite  facing  a  challenging  macroeconomic 
environment;  they  are  thus  not  constrained 
in their role of funding the economy. Estonia’s 

55 

Non-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds020406080100120140   Listed equity               Bonds                        Assets by sector% of GDP050100150200250020406080100EEEUEEEUper capita (000 EUR) (lhs)% of GDP (rhs)Currency and depositsInsurance and pension fundsInvestment fundsBondsListed sharesUnlisted sharesOther equityHH Debt (liability) 
     
   
banking  sector  has  coped  relatively  well  with 
multiple shocks in recent years, from the pandemic 
crisis  to  Russia’s  aggression  against  Ukraine  and 
the  subsequent  energy  crisis.  The  common  equity 
tier 1 (CET1) ratio (see Table A6.2) has exhibited a 
marked  downward  trajectory  in  recent  years, 
falling  from  30%  in  2017  to  19.7%  in  Q3  2025. 
However, this ratio is still above the EU average of 
16.8%.  The  return  on  equity  ratio  of  Estonian 
banks  fell  to  14.2%  in  Q3  2025,  but  also  still 
significantly  exceeds  the  EU  average  (9.6%). 
Banks’  balance  sheets  show 
improved  asset 
quality  in  recent  years,  with  an  aggregate  non-
performing loan ratio of 1.3% in Q3 2025, which is 
below  the  EU  average  of  1.9%.  However,  the 
banks’ asset quality outlook is subject to increased 
uncertainty  due  to  the  current  conflict  in  the 
Middle  East  and  its  impact  on  energy  prices  and 
economic  growth.  Funding  risk  remains  low  in 
general and liquidity ratios remain at a good level 
(121).  The  Estonian  Central  Bank  has  kept  the 
countercyclical  capital  buffer  rate  for  banks  at 
1.5%, in face of rapid growth in lending. 

Credit  growth  to  both  households  and  non-
financial  companies  accelerated  in  2025. 
After  the  interest  rate  cycle  turned  downwards  in 
2024,  Estonian  banks’  portfolio  of  loans  to  non-
financial  companies  and  households  started  to 
grow  strongly,  reaching  an  annualised  12%  and 
9.9% respectively by Q3 2025, which is well above 
the average in the EU (see Table A6.2) (see Annex 
18  for  more  on  access  to  finance  in  remote 
regions). Growth in 2024 and 2025 was driven by 
strong  take-up  of  both:  (i)  corporate  loans  in 
construction and real estate; and (ii) housing loans 
to  households.  Increased  demand  for  loans  has 
also been boosted by falling interest rates on both 
corporate and household loans (122). 

Role of non-bank financial 
intermediaries 

The  Estonian  insurance  sector  is  very  small. 
The total value of assets of the insurance sector in 
EU  countries  is  equivalent  to  53.9%  of  GDP  on 
average.  By  contrast,  the  figure  for  insurers 
registered  in  Estonia  was  only  6.6%  in  Q3  2025 

life 

(see  Table  A6.2).  The  small  size  of  the  insurance 
sector  in  the  country  can  be  explained  by  the 
underdevelopment  of 
insurance.  Non-life 
insurance  has  the  largest  share  of  the  total 
insurance  market  (87%  at  the  end  of  Q2  2025) 
(123). 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. 
About half of all insurers operating in the Estonian 
market  are  branches  of 
insurance 
companies. Several Estonian insurers also operate 
in the Latvian and Lithuanian markets.  

foreign 

sector 

private 

pension 

long-term 

The 
remains 
underdeveloped  and  has  a  limited  role  in 
investments  to  the 
providing 
economy  and  contributing  to  the  pension 
system.  The  value  of  assets  of  Estonian  pension 
funds  dropped  after  the  second  pillar  was  made 
voluntary in 2021 and citizens were free to make 
early  withdrawals.  However,  pension  fund  assets 
have started to rise again more recently, reaching 
18%  of  GDP  in  2024,  albeit  remaining  below  the 
EU  average  of  32.3%  (see  Table  A6.2).  No 
separate  occupational  pension  scheme  is  in  place 
in Estonia. Nevertheless, employers may contribute 
to  their  employees’  pillar  3  pension  schemes, 
although, in practice, this option is not widely used 
and  contributions  remain  relatively 
low  and 
irregular. Estonia benefits from a pension tracking 
system  in  line  with  the  European  Commission 
Recommendation  (124)  in  this  area.  In  addition, 
according  to  OECD  data,  private  pension  funds  in 
Estonia  invest  79%  of  their  assets  in  shares  (the 
highest percentage in the EU). Despite this, the 10-
year  real  rate  of  return in  2024  for  these  private 
pension funds was close to zero (despite the high 
real returns in 2023 and 2024) (see Table A6.2)  

investment 

Estonia has a relatively small domestic fund 
sector.  Assets  of 
funds  were 
equivalent  to  22%  of  GDP  in  2024  (see  Graph 
A6.2),  below  the  EA  average  of  130%.  However, 
they  have  increased  steadily  in  recent  years, 
especially for ‘non-public investment funds’ aimed 
investors.  These  non-public 
at  professional 

(121) Consolidated banking data | ECB Data Portal. 

(122) The Financial Stability Review 2/2025. 

(123) The Estonian financial services market. 

(124) Commission Recommendation on Pension tracking systems, 

pension dashboards and auto-enrolment. 

56 

 
 
 
investment  funds  constitute  80%  of  total  assets 
(125) in Estonia’s fund sector. 

Venture-capital ecosystem 

organisations 

supranational 

Venture  and  growth  capital  financing  has 
gained  traction  in  the  Estonian  financial 
ecosystem thanks to the combination of: (i) a 
thriving  ecosystem  for  start-ups  and  tech 
businesses; and (ii) publicly funded initiatives 
(see  Annex  4).  Over  the  past  decade,  new 
private-equity and venture-capital funds targeting 
innovative  companies  in  Estonia  have  largely 
benefited  from  the  support  of  both  national 
promotional  institutions  (e.g.  Enterprise  Estonia) 
and 
(European 
Investment Fund, Baltic Innovation Fund, European 
Bank  for  Reconstruction  and  Development).  Public 
support has 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  Estonian 
government  and  the  European  Investment  Fund) 
have  encouraged  the  growth  of  local  private-
equity/venture-capital  funds.  The  ecosystem  of 
Baltic  SMEs  with  high  growth  potential  has  also 
benefited  from  initiatives  such  as  the  Baltic 
Innovation Fund in 2012, which was extended  for 
a  further  five  years  in  July  2019.  This  public 
support  has  been  complemented  by  a  range  of 
organisations 
the 
not 
entrepreneurial  spirit  among  Estonians  but  also 
seek  to  attract  foreign  founders  and  investors, 
funds  and  other  private 
such  as  pension 
institutional investors. This has injected significant 
momentum 
the  Estonian  private-equity 
market. The country’s business-friendly  legislation 
and  tax  system  also  support  entrepreneurship. 
These initiatives help to address the 2025 CSR on 
access to finance. 

foster 

only 

that 

into 

Even though its venture-capital and private- 
equity  markets  are  very  young,  Estonia 
(when adjusted for the size of its economy) is 
one  of  the  leading  private-equity/venture-
capital ecosystems in the EU. According to the 
CMU  dashboard  (see  Table  A6.2),  Estonia  ranks 
among  the  leading  countries  in  private-equity 
three-year 
investments 

to  GDP 

relative 

(its 

average of 0.609% in 2024  compares favourably 
with an EU average of 0.487%) and leads Europe 
in  venture  capital  relative  to  GDP  (a  three-year 
average  of  0.246%  in  2024  vs  an  EU  average  of 
0.064%)  (126).  Nevertheless,  financing  gaps  (127) 
have  been  identified  at  both:  (i)  the  very  early 
stages of financing of firms, when risk is too high 
for  some  investors,  and  (ii)  the  later  financing 
stage,  when  companies  need  to  ‘scale-up’  and 
raise large amounts of capital. 

(126) Differences in VC/PE indicators across annexes reflect the 
use of distinct data sources. Annex 6 uses CMU dashboard 
data for consistency across CMU indicators, while Annex 4 
uses InvestEurope data, which are disaggregated by 
investment stage. Variations in reported figures are therefore 
due to underlying source definitions. 

(125) Eesti Pank Investment and pension funds statistics. 

(127) See EBRD Estonia diagnostic paper. 

57 

 
 
 
Table A6.2:  Financial sector indicators 

(1) Annualised data. EU data for credit growth and pension funds refer to the EA average. 
Source: ECB, Eurostat, European Insurance and Occupational Pensions Authority, DG FISMA CMU dashboard, AMECO. 

58 

20182019202020212022202320242025-Q3EUTotal assets of MFIs, % of GDP99.1101.1123.4121.4105.1108.9114.6112.3246.1Common equity Tier 1 ratio30.325.727.023.320.920.918.919.716.8Total capital adequacy ratio31.026.327.824.322.022.221.323.120.2Overall NPL ratio, % of all loans1.31.61.61.10.81.11.21.31.9NPL ratio, loans to NFCs2.22.51.91.41.21.01.21.43.5NPL ratio, loans to HHs1.31.71.60.90.61.01.01.02.1Return on equity ratio19.88.37.49.510.918.516.414.29.6Loans to NFCs, % of GDP27.725.627.426.325.425.627.027.629.3Loans to HHs, % of GDP32.932.535.032.931.631.833.234.143.6NFC credit growth rate, %4.72.73.46.811.75.89.312.02.5HH credit growth rate, %6.66.45.17.911.16.47.79.92.6Stock market capitalisation, % of GDP9.99.89.717.212.913.112.610.769.9Initial public offerings, % of GDP0.840.000.020.840.231.450.00-0.06Market funding ratio24.524.122.322.520.515.816.1-49.7Private equity, % of GDP0.3591.0411.4511.7621.3791.0570.609-0.487Venture capital, % of GDP0.0550.0760.1040.2220.3310.3380.246-0.064Financial literacy, composite index-----46.5--45.5Bonds, % of HHs' financial assets0.30.30.30.30.30.40.4-2.8Listed shares, % of HHs' financial assets1.41.62.03.42.83.23.4-4.8Investment funds, % of HHs' financial assets1.21.31.411.910.412.113.9-11.0Insurance/pension funds, % of HHs' financial assets14.315.415.41.41.11.00.9-27.8Total assets of insurers, % of GDP7.27.07.37.25.96.36.86.653.9Pension assets, bn EUR---5.24.75.87.2-5813.8Pension assets, % of GDP---16.412.915.318.0-32.310y real return average of pension assets, %------0.50.0-1.4Pension funds assets, ECB (% of GDP)-16.719.0-----23.01-34-1011-1718-2425-27Colours indicate performance ranking among the 27 EU Member States.Banking sectorNon-banking sector 
 
       
 
ANNEX 7: EFFECTIVE INSTITUTIONAL FRAMEWORK 

trust  built  on 

institutional  framework 

An  effective 
is 
essential  for  competitiveness.  This  requires 
public 
integrity,  high-quality 
legislation,  regulatory  simplification  and  efficient 
services  for  people  and  businesses.  For  Estonia, 
recommendations 
the  2025  country  specific 
emphasise  strengthening 
fiscal  sustainability, 
enhancing  competitiveness  and  innovation,  and 
ensuring the effective use of EU funding.  

Public trust 

Graph A7.1: Trust in the justice system, regional / 
local authorities and in government 

(1) EU-27 since 2019; EU-28 before 
Source: European Commission, Standard Eurobarometer 
surveys. 

Quality of lawmaking 

and 

burdens 

Estonia  has  a  good  lawmaking  framework 
but  could  improve  in  terms  of  reducing 
regulatory 
effective 
implementation  (Table  A7.1).  Estonia  applies 
preliminary  and  simplified 
impact 
assessments (RIAs) to all draft laws. Assessments 
are expected to explore the impact on competition, 
innovation,  regions  and  social  groups,  and  the 
costs  and  benefits  for  business,  people  and 
government.  This  approach 
is  backed  by 
systematic  training  for  drafters  and  a  network  of 
public officials, but full RIAs remain rare.  

regulatory 

Non-regulatory  options  are  available  for  all 
new primary laws. Compliance and enforcement 
assessments  are  conducted  only  for  certain 
proposals,  which  may  limit  the  effectiveness  of 
legislation  on  complex  or  high-impact  issues. 
Under  recent  reforms  the  government  is  required 
to review all draft laws twice before approval, and 
a new procedure for assessing the quality of RIAs 
is  being  tested.  Estonia  is  boosting  legislative 
quality  through  initiatives  such  as  the  “Principles 
for legislative policy” covering the period to 2030, 
ex  post  evaluations  must  be  carried  out 
systematically  to  strengthen  post-implementation 
scrutiny. Estonia also identified ways to strengthen 
evidence-informed  policymaking  by  means  of  the 
Technical Support Instrument (129).  

the 

low 

Public  trust  in  the  government  is  slightly 
above  the  EU  average  (Graph  A7.1).    Although 
trust  has  risen  (Estonia  0.36,  EU  0.33)  from  a 
historic 
long-term 
in  spring  2024, 
downward  trend  is  continuing.  Confidence  in  local 
government is higher, but the overall trend is also 
downward.  To  address  concerns  about  the  ability 
of local governments to handle crises, Estonia has 
worked  to  increase  transparency,  accountability 
and  civic  engagement  by  reducing  bureaucracy 
and enhancing regional governance through digital 
solutions  and  drawing  up  regional  agreements 
(128). (See Annex 18).  

ex 

remains 

inconsistent, 

channels.  Early 

Public  consultations  are  conducted  via 
involvement  of 
multiple 
stakeholders 
limiting 
opportunities  to  consider  policy  options  and  their 
impact. Consultation is required for all primary and 
post 
legislation.  Mandatory 
secondary 
evaluations  focus  on  effectiveness,  competition, 
the  administrative  burden  and  regulatory  overlap. 
These  evaluations  provide  valuable  insights,  yet 
their  publication  is  discretionary,  which  reduces 
transparency  and  public  accountability.  The 
Ministry  of  Justice  and  Digital  Affairs  (Justiits-  ja 
Digiministeerium)  and  the  Government  Office 
regulatory  quality, 
(Riigikantselei) 
stakeholder engagement, EU law transposition and 
reviews  of  subordinate  regulations.  While  this 

coordinate 

(128) OECD, 2025, Strengthening Place-Based Regional 

Development Policy in Estonia (TSI2022).  

(129) OECD, 2025, Strengthening National Evidence-Informed 
Policymaking Ecosystems: Lessons from Seven European 
Countries.  

59 

00.10.20.30.40.50.60.70.80.9AutumnSpringAutumnSpringAutumnSpringWinterSummerWinterSpringWinterSummerAutumnSpringAutumnSpringAutumnSpring202520242023202220212020201920182017Justice,  legal system EU-27Justice,  legal system EERegional or local public authorities EU-27Regional or local public authorities EEGovernment  EU-27Government  EE 
 
     
 
 
 
 
Table A7.1:  Estonia. Selected indicators on better regulation practices for primary legislation 

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

provides  structured  oversight,  there  is  limited 
evidence  on  how  effectively  these  mechanisms 
improve actual legislative outcomes. 

Public service delivery and 
digitalisation 

Graph A7.2: Most time-consuming aspects of 
service delivery 

Source: European Commission, 2026, Flash Eurobarometer 
surveys 567 and 568 on satisfaction with administrative 
services. 

Estonia  stands  out  as  a  pioneer 
in 
digitalisation  and  user-friendliness  of  public 
services.  Both  the  public  (68%)  and  businesses 
(59%) are among the most satisfied in the EU (130). 
However,  40%  of  people  would  welcome  a  single 
point of contact, 39% want more intuitive services 

and 38% need clearer guidance on procedures. ID 
delivery  time  (131)  remains  a  concern.  Although 
most  businesses  do  not  report  any  challenges  in 
interacting  with  administrative  bodies,  22%  find 
that  compliance  and  reporting 
is  still  time-
consuming (Graph A7.2). 

Estonia  offers  almost  all  public  services  for 
people  and  businesses  online  (Table  A7.2).  It 
has enabled full online access to electronic health 
records 
(See  also  Annex  Health  and  health 
systems). Digital public administration services are 
widely  valued  by  both  people 
(81%)  and 
underused. 
remain 
but 
(94%) 
businesses 
Companies  still  prefer  email  communication  with 
the  administration,  which  suggests  potential 
shortcomings in terms of usability, traceability and 
guidance.  Repeated  information  requests  affect 
58% of people — a striking figure given Estonia's 
state-of-the-art interoperability infrastructure. The 
infrastructure  exists  but  not  all  administrative 
processes have been redesigned to use it (132).  

progress 

has  made 

environmental 

in 
the 
Estonia 
including  —
digitalisation  of  permitting, 
business 
building, 
licences.  Estonia's 
platform, 
operational  and  gradually  expanding  since  2016, 
benefits  from  automated  compliance  checks  and 
cross-referencing  of  data  from  the  land,  planning 

and 
e-construction 

(131) European Commission, forthcoming, Simplification of key life 

events. 

(130) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(132) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

60 

0%10%20%30%40%50%Time forresponsesApplicationformsServiceidentificationEnsuringcomplianceand reportingTime forresponsesDocumentspreparationPeopleBusinessesEUTools for smart legislation: Share of possible impacts assessed for all primary laws when developing legislation 1Regulators are required to identify and quantify the benefits of a new primary law0Regulators are required to identify and assess the impacts of alternative non-regulatory options1Tools for effective implementation: when developing laws, regulators are required to:Assess the level of compliance0Identify and assess potential enforcement mechanisms0Specify the methodology of measuring progress in achieving the law's goals1Oversight of better regulation: There is an external  body responsible for reviewing the quality of RIAs and of ex post evacuations 1There are publicly available assessments of the effectiveness of RIA in modifying regulatory proposals 0There are reports on the level of compliance by government department with the requirements of RIA1There are indicators on the percentage of ex post evaluations that comply with guidelines0The effectiveness of ex post evaluations in improving the regulatory stock has been assessed in the last five years0 
  
 
 
 
       
 
Table A7.2:  Digital Decade key performance indicators: availability of digital public services 

(1) Digital Decade target by 2030: 100. (2) Publishing year, data was collected in the previous year 
Source: European Commission, State of the Digital Decade report 2025 

for 

the  process 

and property registers. A notification tool launched 
in  2025  simplified 
large 
involving  hundreds  of 
infrastructure  projects 
stakeholders.  Many  environmental  permits  can  be 
obtained  online 
forms, 
automatic  preliminary  controls,  helper  calculators 
and  deadline  reminders.  The  digitalisation  of 
spatial  planning  is  lagging  behind.  Under  its 
recovery  and  resilience  plan  (134),  Estonia 
is 
working  to  simplify  the  overall  process,  create 
uniform standards and automate procedures. 

(133)  with  pre-filled 

Estonia  ranks  among  Europe's  top  digital 
performers,  yet  monitoring  has  highlighted 
gaps  in  data  quality  and  deployment.  Part  of 
the problem is staff capacity: this is especially true 
at  local  level,  where  most  data  owners  are  small 
organisations  without  dedicated  data  personnel 
(135). The technical interoperability infrastructure is 
mature,  but  the  internal  workflows  and  legal 
frameworks  governing  data  responsibility 
lag 
behind  (136).  That  gap  complicates  the  path 
forward.  Estonia  is  addressing  this  through  its 
Data  and  AI  White  Paper  2024–2030,  which  sets 
out  reforms  encompassing  data  governance,  the 
transparency, 
once-only 
acknowledging  that  infrastructure  alone  is  not 
enough (137). 

principle 

and 

AI 

Estonia  has  enabled 
the  cross-border 
exchange  of  data  and  documents  between 
EU Once-Only 
authorities 

through 

the 

Technical  System  (OOTS)(138).  As  services  via 
this  system  become  accessible,  people  and 
businesses  will  no  longer have to  search  for  their 
data,  download  and  upload  documents  manually 
across  e-government  portals 
in  different  EU 
Member  States.  Estonia  has  yet  to  identify  the 
types  of  documents  and  data  they  need  to 
exchange through the system and explore ways to 
shift  from  the  submission  of  unstructured  to 
formats.  Estonia  has  one 
structured  data 
connected registry in the field of education(139). 

Civil service 

Estonia  plans  to  reduce  public-sector  staff 
numbers  as  part  of  broader  spending  and 
state-reform  measures.  The  government  will 
cut  labour,  management,  operating  and  targeted 
subsidy  costs  in  public  administration  and  state-
owned companies by 10% over three years (5% in 
2025,  3%  in  2026,  2%  in  2027)  (140).  It  will  also 
review  public  sector  tasks  to  remove  duplication 
and  bureaucracy.  The  measures  aim  to  make 
administration  more  efficient  and  reduce  the 
projected  budget  deficit  from  5.6%  of  GDP  in 
2025 to around 3% or below in subsequent years 
(141). 

Estonia  has  a  highly  skilled  civil  service  and 
continues  to  invest  in  skills  in  this  field. 
Participation  in  lifelong  learning  has  fluctuated  in 

(133) Keskkonnaamet, link  

(134) Planeerimine.ee, 2026, Planning database and proceedings 

(138) European Commission, Once-Only Technical System 

information system. 

Acceleratormeter, Ec.europa.eu. 

(135) European Commission, 2024, Government data-driven 
decision-making (DDDM) framework implementation. 

(136) 2024 Digital Public Administration Factsheet for Estonia 

(interoperable-europe.ec.europa.eu) 

(137) Estonian Ministry of Economic Affairs and Communications, 

(139) Procedure types under Annex II of the 

SDGR (2018/1724/EU) and directives 2005/36/EC, 
2006/123/EC, 2014/24/EU and 2014/25/EU. 

(140) Government of the Republic of Estonia, Estonia Coalition 

agreement 2024-2027. 

2024, Data and AI White Paper 2024–2030. 

(141) Ibid. 

61 

EU-2720232024202520259496968299999886899810083Access to electronic health records (0 to 100)Digital public services for citizens (0 to 100)Digital public services for businesses (0 to 100)Estonia 
 
 
 
   
 
recent  years,  yet  remains  well  above  the  EU 
average (Estonia 42%, EU 19% in 2025) (142). The 
public  administration  workforce  remains  younger 
than  the  EU  average,  but  is  visibly  ageing  –  the 
ratio of staff below 50 years and those above has 
declined  from  2.6  in  2023  to  1.9  in  2025(143). 
Aging  affects  especially 
local  administrations. 
Gender  representation  is  strong,  with  women 
making  up  56%  of  the  senior  civil  service,  well 
above the EU average of 48%, and this proportion 
has remained stable (144).  

The  attractiveness  of  civil  service  remains 
hindered  by  high  workloads  and  limited 
resources.  Salary  growth  for  senior  positions  is 
capped until 2028. Around 10% of Estonia’s labour 
force  hold  two  jobs  concurrently  and  2.4%  have 
three  or  more  (145),  above  the  EU  average  of 
around  4%.  Multiple  employment  is  particularly 
common in healthcare and social welfare, and the 
proportion of civil servants with more than one job 
has 
increased,  partly  due  to  inflation-related 
income pressures. 

Integrity  

The  perception  and  experience  of  corruption 
when  doing  business  is  low  among  Estonia’s 
businesses.  Only  32%  of  businesses  consider 
(EU  63%). 
to  be  widespread, 
corruption 
Nevertheless,  a  significant  74%  of  respondents 
believe  that  overly  close  links  between  business 
and politics lead to corruption, broadly in line with 
the  EU  average  of  76%  (146).  Only  9%  of 
businesses consider corruption as a problem when 

(142) European Commission, Eurostat, 2026, European Union 
Labour Force Survey, Participation rate of employees in 
education and training (last 4 weeks) by NACE Rev. 2 activity 
(2008-2026). 

(143) European Commission, Eurostat, 2026, European Union 

Labour Force Survey, Employed persons by economic activity 
(NACE Rev. 2) (2008-2026). 

(144) European Institute for Gender Equality, 2025, Gender 

Statistics Database. 

(145) Estonia Statics report, 2024, 12% töötajatest on korraga 

rohkem kui üks töökoht | Statistikaamet. 

doing business, well below the EU average of 35% 
(147).  

The  authorities  report  good  implementation 
of  the  rules  on  prevention  of  conflicts  of 
implemented 
interest.  These  rules  are  still 
through  anti-corruption  contact  points  set  up  in 
every  ministry.  The  secondary  purpose  of  this 
scheme is to familiarise the ministers themselves 
and  their  advisers  with  the  rules.  It  includes 
compulsory  e-training  and  awareness  raising 
among  ministers  and  political  advisers.  According 
to  the  authorities,  those  rules  have  helped  to 
standardise 
procedures, 
corruption-prevention 
which  had  previously  varied  between  different 
institutions. 

Several  measures  were  introduced  to  help 
combat  financial  crime,  including  corruption. 
According  to  the  authorities,  the  creation  of  a 
district  service  dedicated  to  fighting  economic 
crime,  including  corruption,  has  led  to  better 
streamlining of activities, ensuring consistency and 
easier  access  to  tools, including training.  In  2024, 
the  Ministry  of  the  Interior  published  a  report  on 
how to improve the effectiveness of investigation 
and  prosecution  of  financial  crimes,  including 
corruption.   

Justice 

first 

cases 

first-instance 

The  justice  system  is  performing  efficiently. 
The  time  taken  to  reach  a  decision  in  civil  and 
courts 
in 
commercial 
decreased from 196 days in 2023 to 185 days in 
2024.  The  estimated  time  taken  to  resolve 
administrative  cases  at 
instance  also 
decreased, from 167 days in 2023 to 137 days in 
2024.  The  quality  of  the  justice  system  is  good 
overall.  Estonia  is  leading  the  way  digitalising  its 
justice  system,  reaping  the  benefits  in  terms  of 
efficiency  and  access  to  justice  for  people  and 
businesses  alike.  Estonia  performs  very  well  in 
digital solutions to initiate and follow proceedings 
in  civil/commercial  and  administrative  cases,  and 
in  online  access  for  the  public  to  published 

(146) European Commission, 2025, Flash Eurobarometer survey 
557 on Businesses' attitudes towards corruption in the EU. 

(147) European Commission, 2025, Flash Eurobarometer survey 
557 on Businesses' attitudes towards corruption in the EU. 

62 

 
 
 
judgments  and 
for 
producing machine-readable judicial decisions (148). 

regarding  arrangements 

(148) For  a  more  detailed  analysis  of  the  performance  of  the 
justice system in Estonia, see the upcoming 2026 EU Justice 
Scoreboard and the 2025 Rule of Law Report. 

63 

 
 
SUSTAINABILITY 
ANNEX 8: INDUSTRY DECARBONISATION, CIRCULARITY AND CLIMATE MITIGATION 

is 

industry 

undergoing 

Estonia’s 
a 
transformation  to  meet  climate  targets  and 
remain competitive in a net-zero and circular 
setting,  but  Estonia  faces  challenges  to  reduce 
emissions  from  effort-sharing  sectors.  Despite 
progress,  the  electrification  of  road  transport  and 
rail — including the upcoming Tallinn-Tartu line — 
proceeds  slowly.  For  Estonia,  the  2025  country-
specific  recommendations  highlighted  challenges 
in  raising  resource  productivity  through  bio-based 
innovation  and  regarding  the  availability  and  use 
of  sustainable  and 
transport, 
including by electrifying the rail network, renewing 
the  stock  of  road  vehicles  and  integrating  public 
transport systems. 

less-polluting 

Industry decarbonisation 

Manufacturing  production  in  Estonia  has  a 
low greenhouse gas (GHG) emission intensity 
and only accounts for a small share of total 
emissions (149).  Around  5%  of  Estonia’s  total 
emissions  are  from  manufacturing,  which 
is 
among  the  lowest  in  the  EU (150).  At  189 g CO2eq 
per  euro  of  gross  value  added  (GVA)  in  2024, 
emission intensity of manufacturing in Estonia lies 
above  the  EU  average  of  200 g CO2eq.  Between 
intensity  of 
2019  and  2024, 

the  emission 

Estonia’s  manufacturing  industry  fell  by  43%, 
among the highest in the EU. The share of energy-
related  emissions  in  industrial  GHG  emissions  is 
low at 46%, compared with 58% in the EU overall 
in  2023;  it  has  fallen  by  58 %  since  2018.  The 
paper  and  paper  products  sector  is  the  largest 
industrial GHG emitter in Estonia’s manufacturing, 
with emissions that exceed the EU average for this 
sector. 

Reduction of effort sharing emissions 

Compliance  with  effort  sharing  limits  with 
domestic measures 

Estonia’s  effort  sharing  emissions  are 
projected  to  be  above  its  target  in  2030; 
previous  years’  unused  emission  allocations 
would  not  suffice  to  cover  the  gap  for 
compliance with the Effort Sharing Regulation (151). 
In  2024,  GHG  emissions  from  Estonia’s  effort 
sharing  sectors  are  expected  to  have  been  4.3% 
below  2005  levels  (152).  By  2030,  current  and 
planned  policies  and  measures  are  expected  to 
lead to a decrease by 18.1%, leaving a gap of 5.9 
percentage  points  to  the  2030  target  of  −24%. 
Estonia  could  bridge  part  of  this  gap  with  own 
unused annual emission allocations from previous 

(149) This Annex discusses the transition of Estonia's 

manufacturing industry, specifically its energy-intensive 
industries, to low-carbon and net-zero modes of production, 
which is key to preserving competitiveness on the path 
towards climate neutrality as mandated by the European 
Climate Law. A broader perspective on the current 
competitiveness challenges facing Estonia's manufacturing 
industry is provided in Annex 5. For a more detailed 
description of greenhouse gas emissions from industry, see 
European Commission (2025), 2025 Country Report - 
Estonia, Commission staff working document, SWD (2025) 
205 final, Brussels, 4.6.2025, Annex A7. Clean industry and 
climate mitigation. 

(150) In 2024. Data on the manufacturing sector exclude the NACE 
division C19 – manufacture of coke and refined petroleum 
products, for better match of the sectoral data from Eurostat 
(gross value added) with those from the UNFCCC under the 
Common Reporting Format. Also see further indicators on 
industry decarbonisation, as well as the annotation for 
further information, in table A8.1 at the end of this Annex. –  
The manufacture of coke and refined petroleum has been a 
significant source of greenhouse gas emissions in Estonia, 
with about 1 mn tons of CO2eq in 2023, accounting for more 
than 7 % of Estonia’s total greenhouse gas emissions.  

(151) The  national  GHG  emission  reduction  target  is  set  out  in 
Regulation (EU) 2018/842 (the Effort Sharing Regulation). It 
applies  jointly  to  buildings  (heating  and  cooling),  road 
transport,  agriculture,  waste  and  small  industry  (known  as 
the effort sharing sectors). The emissions from effort sharing 
sectors for 2024 are based on approximated inventory data. 
in  2027  after  a 
The  final  data  will  be  estimated 
comprehensive  review.  Projections  about  the  impact  of 
current  policies 
(‘with  existing  measures’,  WEM)  and 
additional  policies (‘with  additional  measures’,  WAM)  as  per 
Estonia’s 2025 reporting under Article 17 of Regulation (EU) 
2018/1999 (the Governance Regulation). Estonia’s additional 
measures  will  be  outlined  in  the  Climate-Resilient  Economy 
Act,  tentatively  expected  by  mid-2026.  Also  see  European 
Commission  (2025),  Climate  Action  Progress  Report  2025 – 
Technical  Information,  Commission  staff  working  document, 
Brussels,  Chapter  9  (pp. 111ff.),  and  in  particular  Tables  25 
and 26. 

(152) Based  on  final  GHG  inventories  notified  in  2026,  Estonia’s 
effort  sharing  emissions  in  2024  were  7.3  %  below  the 
levels  of  2005.  The  change  may  also  impact  the  above 
assessment of progress under the Effort Sharing Regulation, 
which  will  only  be  fully  established  after  the  publication  of 
the European Semester country report. 

64 

 
 
 
 
 
 
 
years but would also need transfers of allocations 
from  other  Member  States  to  comply  with  the 
Effort 
timely 
implementation  of  its  additional  measures  and 
identification  of  new  ones  will  remain  crucial  for 
Estonia to progress towards climate neutrality. 

Regulation. 

Sharing 

The 

Sustainable transport 

Graph A8.1: Greenhouse gas emissions in the 
effort sharing sectors, 2005, 2023, and 2024 

Source: European Environment Agency. 

Swift  action  on  decarbonising  transport 
appears  particularly  pressing  in  Estonia,  as 
road  transport  retains its dominant share in 
land transport. In 2024, 48% of Estonia’s effort 
sharing  emissions  came  from  road  transport (153), 
which  is  a  27%  increase  from  2005  levels.  For 
Estonia, 
country-specific 
2025 
recommendations  highlighted  a  number  of 
challenges  concerning  the  availability  and  use  of 
sustainable  and 
less-polluting  transport.  They 
included electrification of the rail network, renewal 
of  the  stock  of  road  vehicles  and  integration  of 
public transport systems. 

the 

Estonia 
is  making  progress  on  charging 
infrastructure  and  electrification  of  the 
railway  network,  but  the  uptake  of  electric 
vehicles  remains  slow.  In  2023,  four  fifths  of 
inland  freight  transport  in  Estonia  took  place  by 
road and one fifth by rail. For passenger transport, 
cars  accounted  for  83%,  buses  and  coaches  for 
1%  and  rail  for  2.3% (154).  Estonia  has  over  635 
cars  per  1 000  inhabitants  (2024),  a  figure  that 
has  increased  significantly  over  the  last  decade 
and is above the EU average. Estonia also has the 
oldest car fleet in Europe, with about one third of 

its  cars  being  more  than  20  years  old (155).  The 
share  of  battery  electric  vehicles  in  new  car 
registrations has remained low and even fell from 
2023  to  2024,  to  5%.  Including  plug-in  hybrid 
electric  vehicles  increases  the  share  of  electric 
vehicles to 10%, which is 11% lower than the EU 
average. The share of electric vehicles in the total 
fleet  remains  below  1% (156).  The  Motor  Vehicle 
Tax Act, in force since January 2025, provides for 
a lower tax for fully electric vehicles, but its overall 
impact  on  car  fleet  renewal  and  decarbonisation 
needs 
to  be  further  monitored,  particularly 
because  older  (non-electric)  cars  also  enjoy  lower 
rates.  Meanwhile,  the  infrastructure  needed  to 
support  the  use  of  electric  vehicles  is  improving, 
with  almost  2 000  publicly  accessible  charging 
in  2025,  representing  a  year-on-year 
points 
increase  of  88% (157).  Estonia  is  also  expected  to 
finalise  the  electrification  of  the  Tallinn-Tartu 
railway  line  by  the  end  of  2026,  while  the 
electrification  of  the  Tallinn-Narva  railway  line  is 
not  expected  before  2027.  However, 
the 
construction  of  the  Rail  Baltica  railway  system, 
connecting  Estonia  to  the  rest  of  Europe,  is 
delayed and is not expected before 2030 (see also 
Annex 19). 

Sustainable industry 

Circular economy industry 

implementation 

is 
Estonia’s  circular  economy  strategy 
ambitious,  but 
remains 
uneven,  with  slow  adoption  of  secondary 
materials.  In  2023,  Estonia  published  an  action 
plan for a circular economy under its recovery and 
resilience plan. The action plan groups together 10 
key  actions  from  various  policy  sectors.  Other 
circular-economy-related  activities  in  the  plan 
include  support  for  the  digitalisation  of  the 
economy,  the  reskilling  of  workers  and  the 
adoption  of  resource-efficient  green  technologies. 
Between 2021 and 2023, a project was carried out 
to  promote  a  circular  economy  by  developing 
circular  economy  road  maps  for  all  municipalities 

(155) 32.3%, [road_eqs_carhab] Passenger cars - per thousand 

inhabitants.  

(156) New registrations of electric cars in Europe | Indicators | 

(153) See Graph A8.1, and Table A8.1 at the end of this Annex. 

European Environment Agency (EEA). 

(154) Eurostat. 

(157) See Infrastructure | European Alternative Fuels Observatory. 

65 

01234567200520232024MtCO2eDomestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
  
 
 
in  Estonia.  As  a  result,  79  road  maps  were 
prepared.  The  road  maps  are  mostly  informative 
and their implementation is not monitored (158). 

Estonia  is  on  track  to  decouple  municipal 
waste  generation  from  economic  growth.  It 
has made slow but steady progress over the past 
decade  in  increasing  its  recycling  rate.  Although 
Estonia  is  one  of  the  Member  States  with  the 
lowest  municipal  waste  generation  per  capita, 
concerns  have  been  raised  about  the  lack  of  a 
unified  data  management  system  at  local  level 
and  the  quality  of  the  data  provided.  Estonia  has 
diverted  municipal  waste  away  from  landfill.  In 
2022, the incineration rate reached 42%, while the 
landfill rate fell to 13%, which is close to the 2035 
target (159). 

Resource  productivity  in  Estonia  is  dragged 
down  by  resource-intensive  industries.  In  2024, 
Estonia  generated  EUR 1.15  per  kg  of  material, 
compared  with  the  EU  average  of  EUR 2.99.  In 
domestic  extraction  used,  which  is  a  significant 
component  within 
domestic  material 
the 
consumption,  fossil  fuels  (including  oil  shale)  still 
represent  a  large  share  for  Estonia  (around  20%, 
at 6.9 tonnes per capita) (160). (see also Annex 5) 

Only  4.5%  of  all  procurements  and  17%  of 
the  total  procurement  costs  are  accounted 
for  by  green  public  procurement  (GPP)  (161). 
The  total  value  of  public  procurement  in  Estonia 
was  EUR 3.7 billion,  which  makes  up  14%  of 
Estonia’s GDP and 32% of the state budget (). On 
1 January  2022,  mandatory  GPP  criteria  were 
introduced  for  the  central  government  sector  for 
furniture,  cleaning  products  and  services,  copying 
and graphic paper, and computers and monitors. In 
into  force  on 
2023,  a  Regulation  entered 
in 
conditions 
and 
environmental 
procurement  documents  for  the  procurement  of 
road vehicles comprising the subject matter of the 
procurement contract. It sets out the conditions for 

criteria 

(158) Based on available assessments of Estonia’s circular 

economy policy framework, which indicate that while many 
road maps exist, they mainly serve as guidance documents 
and lack formal monitoring or enforcement mechanisms. 

procuring  environmentally  friendly  light  vehicles, 
trucks and buses. 

The  2021-2028  waste  management  plan 
envisages  the  implementation  of  measures  under 
the  circular  economy  strategy  for  products 
containing  critical  raw  materials.  It  also  sets  the 
following  aims:  (i)  increasing  qualifications  and 
skills for the effective use of resources under the 
green  transition  and  the  circular  economy;  and 
(ii) raising  awareness  of  practices  and  behaviours 
for sustainable consumption and in relation to the 
circular economy. 

The  circular  material  use  rate  (CMUR)  is  a 
measure of one aspect of circularity: the share of 
the total amount of material used in the economy 
that is  accounted  for  by  recycled  waste.  Estonia’s 
CMUR  has  been 
increasing  since  2014  and 
reached  20.5%  in  2023  and  still  remained  above 
the EU average of 12.1% (162). 

Finally, as of September 2024, Estonia had 1 874 
of  the  109 096  products  and  22  of  the  3 384 
licences registered under the EU Ecolabel scheme, 
indicating  a 
in 
particular(163)).  Moreover,  19  organisations  from 
Estonia  are  currently  registered 
in  the  Eco-
Management and Audit Scheme (EMAS), one fewer 
than in 2021. 

take-up  of 

licences 

low 

Bioeconomy industry 

a 

Estonia 

Estonia’s bioeconomy vision (164) is guided by 
the Circular Bioeconomy Road Map for 2023-
2035,  which  aims  to  increase  the  added 
value derived from local bio-resources and to 
position 
competitive, 
as 
innovation-driven  bioeconomy  within  the 
European  context (165).  While  bioeconomy  value 
added has lagged behind domestic GDP growth in 
Estonia 
it  has  nonetheless 
remained in positive territory, reflecting an upward 
is  the  bio-based 
trend.  A  notable  exception 
chemicals  and  plastics  manufacturing  sector, 
which has outpaced GDP, with value added growth 

in  recent  years, 

(162) Eurostat, circular material use rate, Link. 

(159) [env_wasmun] Municipal waste by waste management 

(163) Ecolabel facts and figures – European Commission. 

operations. 

(160) Statistics Estonia 

(161)European Commission, Environmental Implementation 

Review, Estonia country report,2025 Link.    

(164) Bioeconomy | Ministry of Regional Affairs and Agriculture. 

(165) Estonian Ministry of Rural Affairs (2023), Circular 
Bioeconomy Roadmap 2023–2035, Available at: 
https://www.agri.ee. 

66 

 
 
 
to  meet 

its  emission 

under Article 10(2) of the NECD in 2023, Estonia is 
reduction 
projected 
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.In  2023,  no 
exceedances  above  the  limit  values  set  by  the 
Ambient  Air  Quality  Directive  were  registered  in 
Estonia.  Emissions  of  key  air  pollutants  have 
decreased significantly over the last few years, but 
it  would  be  beneficial  for  Estonia  to  continue  to 
address  emissions  to  air  from  fossil  fuels  and 
other  emission  sources  by  replacing  them  with 
cleaner solutions. 

As  regards  industrial  emissions  to  water, 
Estonia  has  the  fifth  lowest  emissions  of 
heavy  metals  to  water  and  is  the  eighth 
lowest  for  emission  intensity  (below  the  EU 
average  intensity  of  0.864 kg/EUR  1  billion  GVA). 
The  main  industrial  contributors  to  emissions  to 
water  in  Estonia  are  the  energy  sector  and  the 
pulp,  paper  and  wood  sector  for  heavy  metals. 
Water  pollution  by  industry  imposes  direct  and 
indirect  costs  of  around  EUR 1 million  a  year  for 
the country (170). 

the 

resource-based 

activity  within 

averaging  7.5%  between  2018  and  2023, 
emergence  of  higher-value, 
signalling 
Estonia’s 
innovation-driven 
bioeconomy (166). 
traditionally 
Employment  trends  tell  a  similar  story:  overall 
bioeconomy  employment  has  fallen  slightly.  This 
pattern was observed across most subsectors, but 
the  bio-based  chemicals  and  plastics  subsector 
stands out again, with strong employment growth 
of  7.4%  over  the  same  period (167).  Labour 
productivity in the bioeconomy, measured as value 
added per person employed, stood at 75.0% of the 
national average and has edged slightly downward 
from 79.5% in 2018. On the innovation front, R&D 
business  expenditure  from  bioeconomy-relevant 
subsectors  has  grown  marginally  faster  than 
(18.5% 
overall  R&D  expenditure 
compared  with  an  average  of  17.4%  between 
2018 and 2023), a modest but encouraging signal 
of  rising  private  sector  interest  in  bioeconomy 
research (168). 

in  Estonia 

Zero-pollution industry 

The  air  quality  in  Estonia  is  generally  good, 
with  some  positive  development  trends  in 
recent  years.  The 
latest  available  annual 
estimates (for 2022) by the European Environment 
Agency (EEA) for Estonia attribute 90 deaths each 
year  (or  880  years  of  life  lost  (YLL))  to  fine 
particulate  matter  (PM2.5),  20  deaths  each  year 
(or  180 YLL)  to  nitrogen  dioxide  (NO2)  and  130 
deaths each year (or 1 300 YLL) to ozone (169). 

Emissions  of  several  air  pollutants  have 
in  Estonia  since 
decreased  significantly 
2005,  while  GDP  growth  has  continued  (see 
Figure 16). According to the inventories submitted 
under  Article  10(2)  of  the  National  Emission 
Reduction Commitments Directive (NECD) in 2024, 
Estonia  has  met 
reduction 
its 
commitments for 2020-2029 for the following air 
pollutants:  nitrogen  oxides  (NOx),  non-methane 
(NMVOC),  sulfur 
volatile  organic  compounds 
dioxide 
(NH3)  and  PM2.5. 
According  to  the  latest  projections  submitted 

(SO2),  ammonia 

emission 

(166) Joint Research Centre, Developments of Economic Growth 

and Employment in Bioeconomy Sectors across the EU, Link. 

(167) Ibid. 

(168) Joint Research Centre, Business expenditure in Research and 

Development (R&D) in the EU bioeconomy, Link,. 

(169) . EEA, Harm to human health from air pollution in Europe: 

burden of disease status, 2024, Link. 

(170) European Commission: Directorate-General for Environment, 
IEEP, Green taxation and other economic instruments – 
Internalising environmental costs to make the polluter pay, 
2021, Link. 

67 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A8.1:  Key clean industry and climate mitigation indicators: Estonia 

Sources and notes: Industry decarbonisation: All data are from Eurostat; data following the UNFCCC Common Reporting 
Format (CRF) are from the European Environment Agency (EEA), republished by Eurostat. (1) Sectors covered: all divisions of 
section C - Manufacturing - of the NACE Rev. 2 statistical classification of economic activities, except C19 (manufacture of coke 
and refined petroleum products). (2) GHG emissions as per UNFCCC Common Reporting Framework (CRF) categories 1.A.2 - fuel 
combustion in manufacturing in industries and construction (that broadly correspond to the broadly correspond to the NACE 
sections C - Manufacturing and E - Construction, excluding C-19),  and CRF2 - industrial processes and product use. The figures 
shows the emissions in the 1.A.2 category as a share of the sum of CRF1.A.2. and CRF2 emissions. (3) Sectors covered: CRF 1.A.2 
as described above. Gross value added (GVA) data in the denominator aligned in sectoral coverage, in 2020 prices. (4) Sectors 
covered: NACE section C excluding C19. (5) Nominator: NACE divisions C17, 20, 23, 24; denominator: NACE section C excluding 
C19 (see above). (6) GVA (denominator) in 2020 prices. Reduction of effort sharing emissions: Data source: European 
Environment Agency, greenhouse gas data viewer; European Commission, Climate Action Progress Report, 2025. For details, see 
the footnote in the "Reduction of effort sharing emissions" section. Sustainable road transport: (7) Source: Eurostat; (8) Source: 
European Alternative Fuels Observatory; (9) Source: Eurostat. For all climate mitigation indicators, the trend arrows compare the 
latest available data (year t) with the data four years earlier (t-4). Sustainable industry: Bioeconomy value added, employment 
and productivity: JRC, Developments of Economic Growth and Employment in Bioeconomy Sectors across the EU. Bioeconomy 
R&D business expenditure: JRC, Business expenditure in Research and Development (R&D) in the EU bioeconomy. Damage cost for 
industrial pollution: EEA, The costs to health and the environment from industrial air pollution in Europe, 2024. Water industrial 
pollutants releases: EEA, Industrial releases of pollutants to water and economic activity in the EU-27, 2024. Water chemical 
status: WISE, Surface water bodies: Chemical status, 2024 and WISE Groundwater bodies: chemical status, 2024. Other indicators: 
Eurostat. For circular economy indicators, the trend arrows compare the latest available data (year t) with the data two years 
earlier (t-2). 

68 

Climate mitigationTrendIndustry decarbonisation201820192020202120222023202420182023GHG emissions intensity of manufacturing production, g/€ (1)329331176114148154189330-Share of energy-related emissions in industrial GHG emissions (2)49.550.958.851.249.246.2-55.557.9Energy-related GHG emissions intensity of manufacturing and construction, g/€ (3)175.4172.9119.383.779.173.6-203.9163.0Share of electricity and renewables in final energy consumption in manufacturing, % (4)48.943.549.754.456.158.961.142.843.9Energy intensity of manufacturing, GWh/€ (4)1.401.251.161.071.091.121.791.271.05Share of energy-intensive industries in manufacturing production, % in GVA (5)12.1511.1310.4410.9410.018.829.46--GHG emissions intensity of production in sector [...], g/€ (6)- paper and paper products (NACE C17) 622          720          940                 955            1 035               953           838             722             619            - chemicals and chemical products (NACE C20) 173          175          128                 193            348                  274           248             --- other non-metallic mineral products (NACE C23) 3 604       3 906       667                 310            499                  733           790             2 495          2 352         - basic metals (NACE C24) 199          169          176                 103            118                  116           86               2 842          3 099         Reduction of effort sharing emissions201820192020202120222023202420182023GHG emission reductions relative to base year, % -7.8-7.4-9.7-4.3- domestic road transport18.216.89.813.218.118.226.5-1.4-5.6- buildings-11.5-19.1-23.2-26.7-41.9-44.1-29.3-20.3-33.520052021202220232024TargetWEMWAMEffort sharing: GHG emissions, Mt; target, gap, %6.25.75.75.65.9-24.0%-18.1%-18.1%Sustainable road transport2018201920202021202220232024202520182021New zero-emission vehicles, electricity motor, % (7)0.320.281.782.153.376.305.141.038.96Number of publicly accessible AC/DC charging points (8)--567414759410511976446956n/aShare of electrified railways, % of total (9)11.3711.8311.8319.2811.9111.9611.9655.4756.49Sustainable industryTrendEU-27Circular economy transition20182019202020212022202320242018latest dataMaterial footprint, tonnes per person31.428.627.927.125.023.324.914.813.7Circular material use rate, %13.8          15.2         16.3                19.9           21.8                  20.5           20.511.612.2Resource productivity, €/kg0.6            0.7           0.8                  0.9             1.0                    1.1             1.22.13.0Employees in circular economy3.8            3.83.7                  4.2             7.3                    7.9             -2.12.0Patents in circular economy0-           -                  1.0             12.312.0Recycling rate           28.0           30.8                  28.9             30.3                   33.4            37.9 36.4            46.4048.1Plastic recyling 38%41%41%42%44%42%-41%42%Construction and demolition waste (CDW) recovery 95-938889Bioeconomy industry 2018201920202021202220232024CAGR 2018-202320182023Value added, million EUR1 7661 8811 9232 2942 6542 192-3.7%642 438863 436Employment, total number of people employed62 73861 70060 77760 83259 47658 958--1.0%17 649 04017 085 642ProductivityValued added per worker, thousand EUR28.130.531.637.744.637.2-4.7%36.450.5Valued added per worker, % of national average79.579.783.588.892.775.0--62.270.7R&D business expenditureTotal bioeconomy (biomass producing and converting sectors)791215202018.5%15 67223 335Total R&D business expenditure155242264308361406-17.4%196 587259 525Zero pollution industry201820192020202120222023202420182021Damage cost for industrial pollution3.61.71.01.2---414.9352.7Water industrial pollutants releases 2021change (2010)2021change (2010)2021change (2010)2021change (2010)232          8%450 100          -42%24 839 400      23%18 700        -64% Water chemical statusGood72                   Good (%)0.1                    Poor57.0Poor (%)8%EUTOCPhosporusEstoniaEstoniaCd, Hg, Ni, Pbnitrogen 
 
  
 
ANNEX 9: AFFORDABLE ENERGY TRANSITION 

This  annex  outlines  the  progress  made  and 
the  ongoing  challenges  faced  in  increasing 
energy  affordability,  while  advancing  the 
transition 
the 
implementation  of  past  energy-related  country-
specific recommendations.  

to  net  zero. 

reflects 

It 

Estonia’s core challenges are to manage the 
phase-out  of  oil  shale-fuelled  electricity 
generation  (leaving  only  a  tightly  governed 
strategic  reserve  for  exceptional  situations) 
by  2035,  and  to  continue  rapidly  scaling  up 
new  generation  and  controllable  capacity  to 
help  bring  down  energy  prices  and  further 
secure  the  country’s  energy  independence. 
Other crucial challenges include fully synchronising 
the  market  with 
the  Continental  Europe 
Synchronous  Area  to  strengthen  cross-border 
trade,  and  tackling  the  major  issue  of  heat  loss 
from  the  ageing  multi-apartment  housing  stock 
which is a key driver of winter energy demand. 

Energy prices and costs 

Retail gas prices for household and industrial 
consumers  in  Estonia  have  been  increasing 
since  2024,  whereas  retail  electricity  prices 
have  remained  stable  and  below  the  EU 
average. During the first half of 2025, household 
gas  and  electricity  prices  in  Estonia  remained 
below  the  EU  average,  at  EUR 0.0856  /kWh  and 
EUR 0.2298/kWh respectively.  

for 

industrial 

Electricity  prices  for  industrial  consumers 
have  followed  a  similar  trend,  i.e.  remaining 
significantly below the EU average, while gas 
consumers  have 
prices 
remained  slightly  above  the  EU  average  and 
on  an  upward  trend  since  2024.  Imbalances 
continue  to  be  observed  in  final  energy  prices  in 
Estonia.  For  industry,  electricity  was  2.2  times 
more  expensive  than  gas  during  the  first  half  of 
2025,  and  for  non-household  consumers,  taxes 
and  levies  accounted  on  average  for  8%  of 
electricity bills but only 2% of gas bills. Excluding 
taxes  and  levies,  the  electricity-to-gas  price  ratio 
would  have  fallen  to  2.1, meaning that    Estonia’s 

fiscal measures have no balancing effect (171)  For 
household  consumers,  the  effect  of  taxes  and 
levies  on  the  electricity-to-gas  price  ratio  is  non-
existent (172). 

Graph A9.1: Electricity and gas prices for 
household and non-household consumers, first 
half of 2025 

(i) For household consumers, the consumption band is DC for 
electricity and D2 for gas. 
(ii) For non-household consumers, the consumption band is ID 
for electricity and I4 for gas. VAT and recoverable charges are 
not displayed for non-household consumers as these are 
typically recovered by businesses. This also applies to the ‘% 
of taxes and levies’, which is shown excluding VAT and 
recoverable charges for non-household consumers. 
(iii) ‘Without taxes and levies’ indicates the retail price 
excluding all taxes and levies. It always includes the 
energy/supply and network cost components, which are not 
disaggregated in Eurostat’s six-monthly price dataset. 
Source: Eurostat 

Due  to  the  growing  share  of  clean  energy  in 
Estonia’s  electricity  mix,  wholesale  electricity 
prices  in  Estonia  averaged  83  EUR/MWh  in  2025, 
below the EU average of 85 EUR/MWh. 

Fossil  fuels  accounted  for  over  32.1%  of 
Estonia’s  electricity  generation  in  2025,  the 
eighth highest share in the EU, while natural 
gas  maintained  its  structural  role  as  the 
marginal  price-setting  technology,  keeping 
costs  elevated.  Short  run  marginal  costs  of  gas 
in  the  EU  increased  from  EUR  96/MWh  to  nearly 
EUR  103/MWh  in  2025.  Nevertheless,  average 
day-ahead  electricity  prices  decreased  by  7%  in 
2025  amid  rising  natural  gas  procurement  costs. 
The  effect  of  the  latter  on  electricity  prices  was 

(171) A 'balancing effect' would occur if the fiscal system 

narrowed the electricity-to-gas price ratio, thereby supporting 
electrification. 

(172) Analysis based on S1 2025 Eurostat data. 

69 

 
 
 
 
 
 
largely offset thanks to the growing penetration of 
renewables  in  Estonia’s  energy  mix.  Although 
daytime prices have fallen in recent years owing to 
the  growing  penetration  of  solar  power,  Estonia’s 
remains  vulnerable  to  severe  price  spikes  during 
peak-demand hours. This is notably due to falling 
solar  output  in  the  evening  and  early  morning, 
combined  with  limited  non-fossil  flexibility  which 
requires  gas-fuelled  plants  to  significantly  ramp-
up  generation  to  cover  the  supply–demand  gap, 
especially  during  the  winter  months.  As  a  result, 
price spreads in Estonia averaged EUR 159/MWh in 
2025, up 3% from 2024 while significantly above 
the EU average of EUR 121/MWh. 

Graph A9.2: Low-carbon electricity generation vs. 
electricity wholesale prices, 2025 

Unavailable data for Cyprus and Malta. Wholesale price is 
given as average of day-ahead electricity prices over 2025. 
EU-27 average is calculated as consumption-weighted. EU 
low-carbon share is calculated out of total EU electricity 
generation. Low-carbon share by country is calculated out of 
total public electricity generation. Low-carbon includes 
renewables and nuclear. 
Source: Eurostat 

Flexibility and electricity grids 

from 

In  February  2025,  Estonia,  alongside  Latvia 
and  Lithuania,  disconnected 
the 
Russian-operated  IPS/UPS  electricity  system 
and  successfully  synchronised  with  the 
Continental  European  Synchronous  Area 
(CESA)  via  Poland.  The  synchronisation  with 
CESA  allows  the  three  Baltic  countries to manage 
their  electricity  systems,  ensuring  stable  and 
reliable  frequency  regulation,  thereby  increasing 
energy 
security 
throughout the region. 

independence  and 

energy 

Estonia 
is  part  of  the  Baltic  capacity 
calculation region (CCR) (173). It is connected to 
Finland and Latvia and indirectly to Sweden via the 
Estlink interconnectors and the Baltic transmission 
network. 
In  2024,  regional  electricity  trading 
continued  to  be  influenced  by  dependence  on 
imports  from  Nordic  countries, 
in  particular 
Finland.  Congestion  on  the  Estlink  interconnectors 
prevented  full  price  convergence  with  Finland. 
Moreover,  cross-border  capacity  with  Latvia  was 
limited at times, affecting market integration with 
the rest of the Baltic region. Member States must 
ensure that a minimum of 70% of technical cross-
border capacity is available for trading. The small 
size  of  Estonia’s  wholesale  electricity  market  and 
its reliance on oil shale generation, which is often 
(especially  when 
the  main  driver  of  prices 
renewable  generation  is  low),  continue  to  pose 
challenges, 
new 
stressing 
dispatchable capacities. 

need 

the 

for 

to 

related 

The EU has set a target for Member States to 
reach  an  electricity  interconnection  level  of 
at  least  15%  by  2030,  however  Estonia  has 
already  reached  89.04%  and  is  therefore 
well  above  the  EU  target.  This  served  as  an 
important basis when Estonia’s electricity grid was 
successfully  synchronised  with  the  EU  grid  in 
February  2025. 
this 
Investments 
synchronisation  project  have  been  progressing 
well,  however  it  is  crucial  for  the  upgrades  to 
Estlink 1  and  Estlink 2,  which  have  suffered 
delays, to be accelerated. Further attention should 
also  be  paid  to  advancing  ELWIND,  the  joint 
Estonian-Latvian  offshore  wind  project.  Other 
is  currently 
important  projects  which  Estonia 
cross-border 
involved 
its  energy 
interconnections  and  thus  ensure 
market  operates  efficiently 
include  EstLink 3 
between  Estonia  and  Finland  and  the  ‘fourth 
interconnection’ between Estonia and Latvia (both 
of  which  could  be  completed  by  2035).  Price 
differentials  between  Finland  and  Estonia  and 
cables 
incidents  affecting  undersea 
recent 
underscore  the  importance  of  these  projects. 
Estonia is an active participant in the Baltic Energy 
Market  Interconnection  Plan  (BEMIP)  High-Level 
Group which is aimed at boosting cooperation with 
neighbouring countries in the Baltic region.  

improve 

to 

in 

(173) 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. 

70 

 
 
 
 
Estonia  is  actively  increasing  its  energy 
flexibility  by  means  of  energy  storage, 
demand  response  solutions  and  market 
integration.  Eesti  Energia  has  developed 
Estonia’s  first  large-scale  battery  energy  storage 
system,  with  a  capacity  of  26.5MW,  which  it 
brought into operation in early  2025. Moreover, it 
is preparing other larger projects. Other renewable 
energy  operators  have  also  started  constructing 
battery  energy  storage  systems  in  Estonia  (as 
stand-alone  systems  or  coupled  with  additional 
generation capacity), some of which were brought 
into operation at the end of 2025, while others are 
expected to enter operation in 2026.  

Estonia  has  rolled  out  a  smart  metering 
system  (99%  penetration)  that  gives  all 
consumers  access  to  granular  information 
about  their  energy  usage.  Dynamic  price 
contracts  are  offered  to  household  consumers, 
facilitated  by  the  availability  of  smart  meters. 
Unlike in 2021-2023, the Estonian government did 
not  implement  direct  compensation  measures  for 
household  energy  bills  in  2025.  It  instead  shifted 
its  focus  to  long-term  strategies  to  enhance 
energy  security  and  stabilise  prices,  offering 
support 
energy-poor 
households.  Energy  poverty  primarily  affects  the 
most vulnerable groups in Estonia (see Annex 12). 

vulnerable 

and 

for 

to 

due 

partly 

decade (174), 

last 
an 
unfavourable  electricity-to-gas  price  ratio 
that  disincentivises  electrification  and  cost-
effective  decarbonisation.  Electricity  accounts 
for 20.6% and 31.3% of household and industrial 
FEC  respectively  (see  Annex  8).  In  the  transport 
sector,  the  share  of  FEC  accounted  for  by 
electricity is negligible at 0.6%. Further progress in 
electrification  across  sectors  would  help  to  cost-
effectively decarbonise the economy and bring the 
benefits  of  affordable  renewable  generation  to 
consumers. 

Renewables and long-term contracts 

In 2025, Estonia’s share of renewables in its 
net  electricity  generation  was  one  of  the 
highest in the EU (67.9%) (175) an increase of 
5.3  percentage  points  compared  to  the 
previous  year  (62.7%  in  2024). 
Installed 
capacity for renewables represented 2 684 MW in 
2025.  The  installed  capacity  for  wind  energy 
stalled to 0.7 GW in 2025 (compared to 0.69 GW 
in  2024)  whilst  installed  capacity  for  solar  grew 
(+12.2% compared to 2024), reaching 1 GW.(176) 

in 

this 

In  relation  to  energy  communities,  Estonian 
legislation  defines  the  concepts  of  energy 
communities  (ECs)  and  renewable  energy 
communities  (RECs)  and  lays  down  certain 
rights  and  obligations 
regard. 
According to the final version of Estonia’s updated 
2021-2030  national  energy  and  climate  plan, 
Estonia  is  planning  to  promote  individual  and 
collective  self-consumption  of  renewable  energy 
and  RECs  by  issuing  an  REC  handbook.  The 
national  energy  and  climate  plan  does  not  set 
quantitative  targets  for  self-consumption  or  for 
ECs.  Overall,  the  legal  framework  for  energy 
communities  would 
further 
improvements. 

benefit 

from 

In  2024,  electricity  accounted  for  19.4%  of 
Estonia’s  final  energy  consumption  (FEC) 
(slightly  below  the  EU  average  of  23.4%),  a 
share  which  has  increased  slightly  over  the 

(174) The  CAGR  (compound  annual  growth  rate)  was  -1.07% 
between  2015  and  2024.  The  minimum/maximum  shares 
were 19.4% and 24.3% respectively. (Source: Eurostat) 

(175) Eurostat (nrg_cb_pem) 

(176) International Renewable Energy Agency (IRENA) - Renewable 

Capacity Statistics 2026 

71 

 
 
Graph A9.3: Estonia’s installed renewable capacity 
vs electricity generation mix 

discussions  between  project  developers  and  the 
relevant  authorities,  and  regular  public  hearings 
are organised in a timely manner.  

legislation 

lays  down 

improved  efficiency  and 

All  permit procedures have  been digitalised  which 
transparency. 
has 
Environmental 
clear 
deadlines,  including  a  maximum  duration  for  the 
entire permitting process. Additionally, Estonia has 
taken significant steps towards promoting training 
and knowledge sharing, with a particular focus on 
wind  energy.  More  could  be  done,  e.g.  allowing 
sandboxing, since barriers to permit-granting may 
be  delaying  the  development  of  more  innovative 
research  projects.  Estonia  has  committed  to 
reaching  400 MW  of 
installed  onshore  wind 
capacity  by  2026  as  part  of  the  ‘wind  pledges’ 
under  the  European  wind  power  action  plan. 
However, in 2025 only one auction was successful 
while another failed to result in an award. Estonia 
announced  in  March  2026  onshore  wind  energy 
reverse auctions with an annual volume of 1 TWh 
and  the  option  to  increase  the  procurement  to  2 
TWh.  Production  must  start  no 
than 
December  31,  2030,  though  it  may  begin  earlier. 
The  power  purchase  agreement  (PPA)  market  in 
Estonia  has  not  yet  matured  and 
remains 
underdeveloped. In total, only four PPA deals were 
concluded between 2021-2024 and no PPAs were 
signed  in  2025.  Estonia’s  national  energy  and 
climate  plan  includes  measures  to  boost  the  PPA 
market,  such  as  allowing  the  network  operator  to 
cover  up  to  50%  of  network  losses  through 
renewable PPAs. 

later 

Energy efficiency 

In  2024,  Estonia’s  final  energy  consumption 
(FEC)  increased  to  2.93  Mtoe,  mainly  due  to 
statistical  adjustments.  The  overall  increase  in 
FEC  in  2024,  relative  to  2023,  concerned  the 
(+46.5%), 
following 
transport  (+17.5%)  and  services  (+21.2%).  While 
for  medium-term  services  FEC  has  decreased 
notable 
substantially 
increases  have  been  seen  in  industry  (7.6%)  and 
transport (15.6%).  

since  2019), 

industry 

sectors: 

(-5.3% 

three 

Electricity mix is given as net electricity generation (gross 
electricity production minus consumption of power stations’ 
auxiliary services). Electricity produced in pumped hydro 
plants is excluded from total net electricity production, as it 
was previously counted as electricity produced from another 
source. 
“Other” includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Eurostat 

Estonia’s  share  of  renewable  electricity  is  legally 
mandated  to  cover  100%  of  the  gross  final 
electricity  consumption  by  2030(177).  Wind  power 
will  become  the  primary  source  of  renewable 
electricity,  with  2.8 GW  of  onshore  wind  capacity 
expected  to  come  online  by  2030,  with  offshore 
not coming online until after 2030. Solar capacity 
is  projected  to  reach  approximately  1.5 GW  by 
2030  (178).  However,  according  to  the  Estonian 
Ministry  of  Climate,  existing  renewable  energy 
units  under  development  are  not  sufficient  to 
meet the 100% target. 

to 

boost 

processes 

Estonia is reforming its energy infrastructure 
the 
permitting 
development  of  renewables.  Estonia  amended 
its  national  legislation in  2024  and  early  2026  in 
order  to  streamline  the  planning,  permitting  and 
environmental  impact  assessment  processes  for 
wind energy projects on state-owned land, and to 
establish  the  concept  of  priority  development 
areas  for  wind  power  (1 000 MW  total  capacity). 
These efforts were part of Estonia’s recovery and 
resilience  plan.  Estonia  has  since  implemented  a 
comprehensive  audit  of  its  permitting  processes 
and  has  now  aligned  them  more  closely  with  the 
Commission’s recommendation on permit-granting 
procedures for renewable energy projects. A single 
contact  point  has  been  set  up  to  mediate 

(177) Energy Sector Organisation Act 

(178) Estonian updated NECP. 

Between  2019  and  2024,  final  energy 
consumption  in  Estonia’s  residential  sector 
remained 
little 
improvement  was  achieved  through  technical 

largely  unchanged.  Very 

72 

 
 
 
energy  savings  by  households.  Moreover,  the 
limited energy savings achieved as a result of the 
weather conditions and increased size of dwellings 
was offset by the expansion of the housing stock. 
In  addition,  Estonia  did  not  set  an  energy  savings 
objective in its long-term renovation strategy.  

in 

role 

improving 

Given  that  buildings  are  responsible  for 
46.1% of energy use in Estonia, they play an 
important 
energy 
efficiency.  Estonia  is  therefore  encouraged  to 
submit  its  draft  national  building  renovation  plan 
pursuant to the recast of the Energy Performance 
of  Buildings  Directive  to  ensure  a  clear  and 
predictable  pathway  towards  an  energy  efficient 
and  decarbonised  building  stock.  Heating  and 
cooling  account  for  82%  of  Estonia’s  residential 
final  energy 
renewables 
supplying  61%  of  total  energy  used  for  heating 
and  cooling  across  all  sectors.  Approximately 
11 000 heat pumps were sold in 2024, a decrease 
of  43%  compared  to  the  previous  year,  taking 
Estonia’s  total  stock  of  heat  pumps  nearly 
260 000.  

consumption,  with 

Estonia reported four energy labelling checks 
in  2025  and  no  ecodesign  checks.  This  is 
considered  insufficient  relative  to  the  size  of  the 
country  and  overall  levels  of  non-compliance  in 
the EU and is possibly a breach of Estonia’s legal 
obligations.  

Security of supply and diversification   

As  early  as  2022,  Estonia  banned  imports 
and  purchases  of  Russian  natural  gas. 
Demand  for  natural  gas  in  Estonia  dropped  by 
28% between August 2022 and July  2024, which 
was  well  beyond  the  EU’s  15%  target.  Estonia 
accesses  natural  gas  via  Lithuania’s  floating 
storage  regasification  unit  (FSRU)  in  Klaipeda 
(called  ‘Independence’),  Finland’s  Inkoo  FSRU  via 
the  Balticconnector  and  Latvia’s 
Inčukalns 
underground storage facility.  

Estonia’s energy mix has seen a notable shift 
towards  renewables  between  2023  and 
2024, from 35% to 40%. Domestically sourced 
oil  shale  remains  an  important  source  of  energy 
but  it  share  of  the  energy  mix  has  decreased 
importantly,  from  30%  in  2023  to  25%  in  2024. 
Oil and petroleum products still represents 27% of 

73 

the mix as it did in 2023, and the share of natural 
gas increased slightly from 6% to 7% (179). 

Estonia  is  establishing  a  national  framework  for 
nuclear energy, but requires a clearer deployment 
path  through  finalized  site  selection  and  closer 
cooperation between technology suppliers and off-
takers.  Key  technical  hurdles  remain  in  planning 
the  nuclear  fuel  cycle  and  waste  management. 
Furthermore,  Estonia  faces  financing  challenges 
due  to  its  newcomer  status  and  small  domestic 
market,  alongside  significant  workforce  gaps  that 
training 
necessitate  participation 
initiatives. Given the technology’s profile, sustained 
stakeholder  engagement  is  essential  to  maintain 
public acceptance. 

in  EU-level 

In  response to  rising  energy prices  following 
the regional crisis in the Middle East, Estonia 
has cancelled a planned rise in excise duties 
for  energy  carriers  and  is  processing  a 
proposal to reduce the renewable energy fee 
by  85%  for  high-consumption  firms.  Estonia 
contributed  approximately  0.3  million  barrels  to 
the  IEA  collective  action  to  release  400  million 
barrels of emergency oil reserves. 

(179)Source: EUROSTAT, Gross Inland Consumption.  

Note  for  readers:  Estonia's  raw  GIC  figures  show  a  negative 
value  for  oil  and  petroleum  products  (−54  ktoe  in  2024), 
which  creates  an  analytical  distortion.  This  occurs  because 
GIC  records  oil  shale  extraction  and  petroleum  product 
exports  on  separate  lines  without  linking  them.  Estonia 
processes  a  significant  share  of  its  oil  shale  into  shale  oil 
through  coal  liquefaction  plants,  which  is  then  entirely 
exported  (Source:  IEA  2023  Estonia  Energy  Policy  Review). 
The GIC methodology captures the full oil shale extraction as 
a  positive  input  and  the  resulting  petroleum  exports  as  a 
negative  outflow  on  a  separate  line,  effectively  double-
counting the same energy in opposite directions. The result is 
an  overstated  oil  shale  figure  and  a  meaningless  negative 
petroleum  value,  obscuring  over  1100  ktoe  of  genuine 
domestic petroleum consumption.  

To correct this, DG ENER subtracted the transformation output of 
Estonia's  coal  liquefaction  plants  (Eurostat  nrg_bal_s:  1167 
ktoe in 2024, 1171 ktoe in 2023) from the oil shale GIC line 
and  added  it  back  to  the  petroleum  line,  restoring  the 
genuine  domestic  petroleum  consumption  that  the  export 
outflow had masked. Corrected figures: oil shale +1025 ktoe, 
petroleum  +1113  ktoe.  Total  GIC  share  of  fossil  fuels 
remains  unchanged  at  4316  ktoe  and  59%  respectively. 
Estonia  is  the  only  EU  Member  States  where  this  distinct 
methodology  correction  was  applied  within  the  European 
Semester 2026 cycle.  

 
 
 
Fossil fuel subsidies 

In  2024,  environmentally  harmful  (180)  fossil  fuel 
subsidies  without  a  planned  phase-out  before 
2030  represented  0.11%  (181)  of  Estonia’s  GDP 
(182). Additionally,  Estonia’s 2023 Effective Carbon 
Rate  (183)  averaged  EUR  96.85  per  tonne  of  CO₂, 
above the EU weighted mean of EUR 84.80 (184). 

(180) Explicit fossil fuel subsidies (e.g. direct transfers) and implicit 
fossil fuel subsidies (i.e. tax expenditures linked to forgone 
tax revenues that have an identifiable fiscal impact for the 
central budget) that support fossil fuel energy production, 
transmission and/or consumption. 

(181) European Commission calculation based on underlying data 
from the Study on energy subsidies and other government 
interventions in the EU – 2025 edition, Enerdata. 

(182) 2024 Gross Domestic Product at market prices, Eurostat. 

(183) 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. 

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

74 

 
 
ANNEX 10: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT 

Estonia faces significant economic risks from 
climate impacts that will require substantial 
investment  to  address  and  call  for  cross-
sectoral  adaptation  measures.  Estonia  also 
faces challenges related to water productivity and 
degradation  of  surface  waterbodies  as  well  as 
issues regarding drained peatlands. It has set up a 
new  2030  environmental  development  plan  with 
general  targets  for  biodiversity  conservation  and 
nature  restoration.  Peatland  restoration  remains 
critical  for  climate  mitigation,  adaptation  and 
biodiversity protection, as drained peatlands are a 
major  source  of  greenhouse  gas  emissions  in 
Estonia. Pesticide contamination remains an issue, 
especially regarding the soil. 

Climate adaptation and preparedness  

Estonia  is  vulnerable  to  climate  change. 
Northern Europe experiences greater warming that 
is above the global average (mainly in the winter). 
The  main  impacts  in  Estonia  are  decreased  snow 
and  ice  cover,  more  frequent  winter  storms  and 
increased precipitation. Temperature, flooding and 
extreme  precipitation  trends  are  increasing,  and 
this  is  projected  to  impact  infrastructure,  health 
and ecosystems (185). Coastal regions are at risk of 
more  frequent  flooding  and  erosion  due  to  rising 
sea  levels  and  increased  precipitation.  The  heat-
related  mortality  rate  in  Estonia  between  2022-
2024 was in the lower ranges of estimates for EU 
Member  States (186).  However,  heatwaves  are 
expected  to  become  more  frequent  and  intense, 
thus  posing  a  public  health  threat.  An  increase  in 
the  frequency  of  extreme  weather  events  will 
increase the likelihood and extent of catastrophes, 
resulting  in  significant  economic  damage,  health 
deaths (187).  A 
issues 
study 
commissioned  by  DG CLIMA  estimates (188)  that 

recent 

and 

(185)EEA, 2024, European Climate Risk Assessment, Link. 

(186)Janoš,  et  al.,  2025,  Heat-related  mortality  in  Europe  during 
reduce 

2024  and  health  emergency  forecasting 
preventable deaths, Link. 

to 

(187)National  reporting  under  Article 17  of  Regulation  on  the 
Governance of the Energy Union and Climate Action, March 
2025, Link 

(188) European Commission, 2026, Assessment of adaptation 
investment needs, Table 25, Link. The study provides 
detailed estimates of adaptation investment needs at the 
level of the EU and individual Member States per type of 
measure. It relies on a common methodology that makes 
estimates comparable across the EU. Four accompanying 
methodological reports provide a detailed description of how 
the results were estimated to ensure full transparency. 

75 

Estonia  will  need  to  invest  about  EUR 650 million 
per year up to 2050 – one of the highest levels in 
the  EU  relative  to  GDP  (1.3%).  Investment  would 
be  most  beneficial  in  ecosystem  restorations 
followed  by 
(around  48%  of 
total), 
the 
reinforcement 
retrofitting  and 
infrastructure 
(around  40%)  and  health 
(around  8%). 
Investments in the resilience of agriculture plays a 
smaller role than in other Member States (189). 

is 

currently 

roadmap 

to  build  further  on 

The  national  adaptation  policy  framework  is 
being  further  developed.  Estonia  has  had  a 
national  adaptation  strategy  and  plan  on  climate 
change adaptation in place since 2017 and is now 
seeking 
its  adaptation 
governance  structures.  However,  the  adoption  of 
Estonia’s  Climate-Resilient  Economy  Act  that  is 
expected  to  provide  the  legal  basis  for  further 
sectoral 
integration  of  adaptation  has  been 
delayed.  In  parallel,  a  national  climate  change 
under 
adaptation 
development  that  should  implement  that  future 
legal  requirement.  The  roadmap’s  aim 
is  to 
strengthen preparedness and adaptive capacity at 
both the  national  and local  levels by setting clear 
adaptation  objectives  for  all  sectors  that  are 
vulnerable  to  climate  change.  It  should  ensure 
close  cooperation  with  sectoral  ministries  to 
indicators  and 
integrate  adaptation  goals, 
measures 
into  their  development  plans  and 
programmes.  This  should  support  a  more 
systematic  and  measurable  approach  to  building 
climate  resilience  across  all  relevant  sectors.  At 
the  sub-national  level,  the  share  of  Estonia’s 
population covered by the EU Covenant of Mayors 
signatories has remained relatively stable and was 
32% in 2024 (EU-27 average: 34%). The fact that 
none  of 
the  signatories  has  submitted  a 
sustainable energy and action plan or a monitoring 
report  points  to  a  lack  of  implementation (190).  As 
of  February  2025, local  energy  and  climate  plans 
existed  in  61  of  the  79  local  governments (191). 

(189) Typical investments in ecosystems include soil and peatland 
restoration, adaptive forest management, biodiversity 
protection and coastal ecosystems restorations. Typical 
investments in infrastructure include flood protection, coastal 
protection, improved energy assets and land use planning. 
Typical investments in health are linked to occupational 
health and safety and wastewater treatment facilities 
upgrading and prevention of infectious diseases. 

(190) European Commission, Link. 

(191) National reporting under Article 17 of Regulation on the 

Governance of the Energy Union and Climate Action, March 
2025, Link. 

 
 
 
 
 
Five of the main local authorities are participating 
in the EU mission on adaptation to climate change 
in  order  to  enhance  their  work  on  climate 
adaptation. 

Estonia 

has  made 

Climate  risks  have  a  direct  effect  on 
Estonia’s  economy.  Between  1980  and  2024, 
Estonia  recorded  EUR 352 million  in  economic 
losses  caused  by  weather  and  climate-related 
extreme  events.  The  insurance  coverage  over  this 
period  only  covered  15%  of  the  economic  losses 
(EU-27: 19%),  with  the  highest  protection  gap  for 
windstorms (192). 
the 
development  of  a  climate  damages  model  a 
priority  for  the  next  two  years.  This  model  would 
summarise past climate change costs and forecast 
potential  future  costs  under  different  climate 
scenarios.  It  would  also  cover  economic  losses 
from  floods,  storms,  heatwaves,  cold  spells, 
droughts,  wildfires  and  landslides,  as  well  as 
associated  human  impacts  such  as  fatalities  and 
injuries.  The  aim  is  to  support  a  more  systematic 
integration  of  climate  risks  into  macroeconomic 
strategy and long-term financial planning. 

not 

has 

Climate-proofing 
been 
systematically  applied  across  sectors  and 
key  infrastructure  so  far.  The  Estonian  Energy 
Sector Development Plan until  2035 was adopted 
in  January  2026  and  identifies  the  climate  risks 
associated  with  the  electricity  distribution  grid. 
Higher humidity and higher summer temperatures 
are  resulting  in  a  marginal  increase  in  electricity 
losses  on  overhead  lines.  More  frequent  storms 
during  winter  are  causing  more  power  outages. 
Ensuring  climate  resilience  of  the  energy  sector 
includes  climate-proofing  of  electricity  grids  and 
increasing  security  of  supply  by  diversifying 
external  connections and developing the maritime 
interconnector  towards  Latvia  and  Germany (193). 
Estonia’s  RRP  includes  investment  to  strengthen 
the  electricity  grid  and  protect  it  against  storms. 
The  transport  vulnerability  index  of  the  TEN-T 
network  in  Estonia  to  climate  change  has  been 
assessed  as  among  the  highest  in  the  EU.  This  is 
mainly  driven  by 
lower  general  adaptation 
preparedness,  a  lack  of  mainstreaming  of  the 
into  the  national  adaptation 
transport  sector 
strategy  and  limited interoperability  on  the  TEN-T 

(192)  EEA,  2024, Economic  losses  from  weather-  and  climate-
related extremes in Europe, Link. 

(193) ENMAK 2035 (Energy Sector Development Plan until 2035) 
Annex 1, 2026. 

76 

network (194).  In  the  future,  extreme  temperatures 
and  more  frequent  extreme  weather  events  are 
likely to play an important role. An estimated total 
of  almost  EUR 1 billion  will  need  to  be  invested 
until  mid-century  in  the  TEN-T  network,  mostly  in 
maritime  ports  (EUR 745 million) (195).  The  fact 
that  Estonia  plans 
invest  only  around 
to 
from  2024  until  2035 (196) 
EUR 15 million 
indicates  that  key  parts  of  the  infrastructure  are 
likely to remain exposed to climate-related risks. 

(i.e. 

expertise 

Nature-based  solutions  (NbS)  have  not  been 
deployed  at  large  scale  or  widely  across 
sectors.  The  main  challenges  for  the  roll-out  of 
NbS include policy and legal framework challenges 
(i.e.  lack  of  clear  legal  definitions  and  regulations 
for  many  NbS  types),  financial  and  resource 
limitations 
insufficient  funding  for  NbS 
projects  from  national  budgets  and  private 
investments)  and  capacity  barriers  (i.e.  limited 
planning,  design, 
in  NbS 
local 
maintenance  etc.).  NbS  provide  broad-spectrum 
risk  management.  Tapping  into  the  potential  of 
NbS  better  could  not  only  contribute  to  disaster 
management by buffering hazards such as floods 
and  droughts,  but  also  protect  the  ecosystem 
services  provided  by  biodiversity  –  and  thereby 
bolster  food  security  while  mitigating  the  risk  of 
high food prices due to crop losses and improving 
the  health  of  fish  stocks.  The  LIFE-SIP  AdaptEst 
project (197)  aims  to  increase  the  resilience  of 
terrestrial  and  aquatic  ecosystems  to  a  changing 
climate and will draw on several EU funds. NbS are 
equally relevant for urban areas, helping to make 
regions  more  resilient  to  extreme  weather  events 
in  the  future  (as  demonstrated  by  the  LIFE 
LATESTadapt  project (198)).  The  key  challenge 
moving  forward  is  to  scale  up  these  projects 
towards 
of 
implementation. 

systematic 

a  more 

level 

(194) European Commission, 2024,  Support study on the climate 
adaptation  and  cross-border  investment  needs  to  realise  the 
TEN-T  network,  Publications  Office  of  the European  Union,  Link, 
p. 70. 

(195) Ibid, p. 230. 

(196) Ibid, p. 116. 

(197) LIFE 3.0 – LIFE21-IPC-EE-LIFE-SIP-AdaptEst/101069566. 

(198) Home – LIFE LATESTadapt. 

 
 
 
 
 
Water resilience 

trend 

since  2020. 

Water  productivity  in  Estonia (199)  stood  at 
EUR 26  per  m³  of  abstracted  water  in  2023 
(below  the  EU-27  average  of  EUR 153 per 
m³).  Estonia’s  water  productivity  has  been  on  an 
increasing 
The  Water 
Exploitation  Index  Plus  (WEI+)  was  1.14  in  2022. 
The  WEI+  value  (200)  is  generally  very  low  and 
ranged  between  1.1  and  1.14  between  2016  and 
2022.  The  main  consumers  of  water  (besides 
public  water  supply)  are  energy  cooling  followed 
by  mining  and  quarrying  (201).  Between  2018  and 
2023,  water  abstraction  in  energy  cooling  more 
than  halved  but  increased  by  80%  in  mining  and 
quarrying (202). 

(mainly 

Estonia’s  three  river  basin  districts  contain 
746  surface  waterbodies 
river 
tributaries and 31 groundwater bodies). Most 
surface waterbodies are natural. Only around 7.1% 
are  heavily  modified  and  5.7%  artificial.  Heavily 
modified  water  and  artificial  waterbodies  must 
reach  good  ecological  potential  rather  than  good 
ecological  status,  so  measures  must  be  taken  to 
mitigate  the  adverse  impact  of  unsustainable 
human  development  activities  that  cause  a 
waterbody  to  be  heavily  modified/artificial,  while 
not significantly affecting these activities. The EC’s 
assessment  of  Estonia’s 
river  basins 
management  plans (RBMPs)  is  that  the  ecological 
status/potential  of  surface  waterbodies  has 
deteriorated  since  the  second  RBMPs.  Only  53% 
currently  have  good  ecological  status/potential. 
The  chemical  status  situation  has  not  improved 
since the second RBMPs, with only 9.7% of surface 
waterbodies  classified  as  having  good  chemical 
status. Only 53% of the surface waterbodies have 
good or better ecological status/potential (203). The 
most  significant  pressure  identified  is  diffuse 
pollution – more precisely, nutrient pollution, which 

third 

(199) Water productivity is a metric that is calculated by dividing 
GDP (in chain-linked volume) by total water abstraction. It 
indicates the average economic value (GDP) a Member State 
creates for each unit of water it takes from nature. 

(200) Eurostat, Water Exploitation Index, plus, Link. 

(201) EEA, 2025, Water abstraction by source and economic sector 

in Europe, Link. 

(202) EEA, 2025, Water abstraction by source and economic sector 

affects 93% of the waterbodies. Nutrient pollution 
significantly  impairs  the  quality  of  coastal  waters 
(where most of the spawning grounds of valuable 
fish species are located). Water abstraction is seen 
as  one  of  the  key  pressures  on  groundwater  in 
Estonia.  Just  1  of  Estonia’s  56 agglomerations  is 
not compliant with the Waste Treatment Directive 
(WWTD) (204). 

Nature restoration 

for  2030 

Estonia’s  new  environmental  development 
(KEVAD)  combines  all 
plan 
environmental  development  plans  and  sets 
general targets for biodiversity conservation 
and  nature  restoration.  Estonia  will  ensure  a 
network  of  protected  areas  that  is  ecologically 
well-functioning  and  effectively  protected.  It  will 
also  enhance  biodiversity  mainstreaming  in  the 
planning  process  in  order  to  preserve  biodiversity 
elsewhere  than  in  protected  landscapes  and  to 
implement  new  ways  of  incentivising  landowners 
to  recognise  and  protect  natural  values.  Estonia 
will  also  promote  the  performance  of  its  green 
the  ecological 
network,  which  will  support 
coherence of habitats and the adequacy of species 
corridors.  A  national  action  plan  for  all  forest 
habitats  will  be  prepared  under  the  financial 
instrument  for  the  environment  (LIFE)  integrated 
project (to be finalised by 2029). 

and 

restoration 

sustainable 
Peatland 
management  is  highly  important,  both  in 
combating  climate  change  and  in  preserving 
biodiversity.  Living peatlands not only sequester 
carbon  dioxide  (CO2)  but  also  provide  a  healthy 
habitat  for  valuable  species  and  remove  nitrates 
from  polluted  agricultural 
through 
denitriﬁcation. 
also  means 
loss 
loss,  more  floods  and  droughts, 
biodiversity 
degraded drinking water for local communities and 
eutrophication  of  open  waters.  It  is  particularly 
important 
(especially 
to  avoid  eutrophication 
the  Baltic  Sea,  which  has  a  97% 
around 
eutrophication  rate (205)).  Damage  is  caused  when 
peatlands  are  drained  for  agriculture  and  tree 
planting,  with  peat  being  extracted  for  fuel  or 
horticulture. Peat extraction has directly destroyed 

Peatland 

run-off 

in Europe, Link. 

(204) Internal documents, implementation of Directive 91/271/EEC 

(203) WISE, Surface water Bodies: ecological status or potential. 

(UWWTD), 2022. 

Link. Note that the deterioration can be due to more accurate 
monitoring rather than a genuine decline of parameters. 

(205)Helcom,  Eutrophication  Thematic  Assessment  2016-2021, 
Link. 

77 

 
 
 
about  30 000 ha  of  raised  bogs  in  Estonia,  of 
which around 20 000 ha are still used. 

In  Estonia,  drained  peatlands  are  one  of  the 
important  emitters  of  greenhouse  gases 
(GHG).  As  a  result  of  bog  drainage,  total  GHG 
emissions  (carbon  dioxide  (CO2),  methane  (CH4) 
and  nitrous  oxide  (N2O))  in  Estonia  are,  when 
converted  into  CO2  equivalent,  estimated  to  be 
2.3–2.7 times higher than they would have been if 
those  wetlands  were  still  in  their  natural  state. 
Restoring  the  natural  state  of  degraded  areas 
from  drainage is  therefore  important  not  only  for 
biodiversity  conservation  but  also  for  climate 
change  mitigation.  According 
its  nature 
conservation  and  development  plan  for  2012–
2020, Estonia intends to restore the water regime 
of 10 000 ha of mire habitats and of 1 000 ha of 
former peat-mining areas. Estonia has established 
an action plan for the restoration of mires (2015–
2023),  which  sets  out  a  priority  list  of  mires  in 
need of restoration.  

to 

Sustainable agriculture and land use 

Estonia  has scope  for  reinforcing  its  natural 
carbon sink. In 2014, net carbon removals turned 
into net emissions and have remained above zero 
since  then.  To  meet  its  2030  LULUCF  target, 
Estonia is required to increase carbon removals or 
reduce  emissions  by  an  additional  0.4  million 
tonnes  of  CO2  equivalent  (MtCO2eq)  compared  to 
the  average  level  of  the  2016-2018  period (206). 
The  reported  projections  show  a  surplus  over  the 
target  of  around  1.07 MtCO2eq  for  2030 (207). 
Despite  this  positive  projection  for  meeting  the 
2030 target, Estonia could further increase carbon 
removals  by  improving  forest  management  and 
restoring  wetlands,  helping  to  firmly  increase  the 
carbon  removals  in  the  coming  years  (208).  Future 
climate warming could turn peatlands from crucial 
carbon  sinks  into  emission  sources.  However, 
further  pursuing  peatland-rewetting  projects  and 
limiting  the  expansion  of  new  peat  extraction 
areas could produce a double climate dividend. In 
addition  to 
increasing  LULUCF  net  removals, 
further investments in healthy forests and soils as 

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

Regulation (EU) 2023/839, Link. 

(207)Climate action progress report 2025, Link. 

(208) This  would  also  ensure  that  over  the  whole  2026-2029 
period  Estonia  would  be  compliant  with  the  LULUCF 
trajectory. 

natural  carbon  stores  are  key  and  can  (when 
ecosystem  capacity  is  taken  into  account)  help 
build  resilient  biobased  product  value  chains  and 
enable a growing, competitive EU bioeconomy.  

Continued  improvements  to  the  monitoring 
system  of  net  removal  data  and  projections 
will  be  crucial  in  supporting  timely  and 
effective  action  in  the  LULUCF  sector.  A 
network of Baltic LULUCF experts is cooperating in 
research  projects to  improve  GHG  inventories  and 
projections.  For  example,  Estonia  intends  to  apply 
the  emission  factors  for  drained  organic  soils 
developed  under  the  LIFE  project  ‘Demonstration 
of climate change mitigation potential of nutrient-
in  the  Baltic  states  and 
rich  organic  soils 
Finland’ (209).  Estonia 
is  also  developing  a 
governance system for the sustainable use of land 
and  soil,  protection  of  biodiversity  and  climate 
change  mitigation.  This  research  programme  (210) 
aims  to  create  an  efficient  national  land  and  soil 
use monitoring and management system based on 
coherent science-based digital data, that will guide 
spatial  decisions  on  land  management.  Estonia 
aims  to  have  a  new  national  soil  map  with  more 
functionality, by end-2026. 

Estonia’s  functional  urban  area  (FUA)  has 
considerably expanded in the last few years. 
Net land taken between 2018 and 2021 accounts 
for  1 223  parts  per  million  per  year  of  Estonia’s 
total  urban  surface.  Most  land  has  been  taken 
from  pastures  (57%),  forests  (27%)  and  arable 
land  (14%).  This  ongoing  ‘land  take’  and  the 
associated  soil-sealing  results  makes  ecosystems 
less  resilient,  decreases  carbon  sequestration  and 
impairs flood protection (211). 

Pesticide  contamination  remains  an  issue. 
78% of soil samples analysed were contaminated 
above  0.05 mg kg-1 (212).  Water  contamination  is 
at  a  lower  level  but  still  exceeds  regulatory 
thresholds in 19% of rivers and 22% of lakes (213). 

(209) Updated NECP 2030, p. 84. 

(210) Maa- ja mullakasutuse teadus-arendusprojekt | 

Keskkonnaportaal 

(211) EEA, 2022, Land take and land degradation in functional 

urban areas, Link. 

(212) Vieira et al. (JRC), 2023, Pesticides residues in European 

agricultural soils – Results from LUCAS 2018 soil module, 
Publications Office of the European Union, Link. 

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

Europe, Link. 

78 

 
 
 
Pesticides  not  only  threaten  aquatic  ecosystems 
but  also  pose  long-term  risks  to  human  health 
through  contaminated  drinking  water  and  food 
chains. 

79 

 
Table A10.1:Key Adaptation Indicators 

(1)   EFFIS (European Forest Fire Information System), Link. 
(2) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters, based on 
modelling of the risk from floods, wildfires and windstorms, and on the insurance penetration rate. Scale: 0 (no protection gap) – 
4 (very high gap). EIOPA, 2025, Dashboard on insurance protection gap for natural catastrophes. 
(3) This 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 to or greater than 40% 
indicate severe water scarcity. 
(4) European Commission, 2024, Seventh 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). 
(5) Indicator refers to concentrations of nitrate (NO3) in groundwater, measured as milligrams per litre (mgNO3/L). Nitrate 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 is limited to 50 mgNO3/L to avoid threats to human health. 
(6) Net removals are expressed in negative figures and net emissions are expressed in positive figures. Reported data are from 
the 2025 greenhouse gas inventory submission. The 2030 value of net greenhouse gas removals is taken from Regulation (EU) 
2023/839 – Annex IIa. 
Sources: Eurostat, EEA and JRC. 

80 

Climate adaptation and preparedness:EU-27201920202021202220232024latest dataDrought impact on ecosystems7.8409.074.7315.55-2.76[area impacted by drought as % of total]Forest fires burned area (1)-          -          -          -          173          -           354 510     [burned area in ha. per year]Economic losses from extreme events-          -          -          -          4              -           40 452       [EUR million at constant 2022 prices]Insurance protection gap (2)---1              1              1               -[composite score between 0 and 4]Sub-national climate adaptation action33            33            34            34            33            32            34               [% of population covered by the EU Covenant of Mayors for Climate & Energy]Water resilience:EU-27201920202021202220232024latest dataWater Exploitation Index Plus, WEI+ (3)1.09         0.99         1.71         2.15         1.14         -4.53            [total water consumption as % of renewable freshwater resources]Water productivity21            24            22            18            26            -151[EUR per m3]Water abstractionWater abstraction by source (% from surface water)77.19%73.87%76.53%80.28%71.96%-Water abstraction by sectorAgricultureElectricity coolingManufactu-ringPublic water supplyMining and QuarryingConstru- ction 0.65%62.29%8.67%8.15%20.24%0.01%Status of water bodies (4)[% of water bodies in a good status]Surface water bodies (ecological)-----53%38%Groundwater bodies (quantitative)-----94%93%Nature restoration:EU-27201920202021202220232024latest dataEcosystem dependency---40%--44%[% of direct dependency]Protected area20.720.820.920.921.326.4[% of terrestrial protected areas]Invasive alien species (IAS)-----1729.2[number of IAS of Union concern]Damage cost of IAS----0.081.69[EUR billion]Eutrophication 3737295[AAE of area at risk of euthrophication]Sustainable agriculture and land use:EU-272012-20182018-2021latest dataYearly net land taken by Member State438          1 223       670            [ppm of total urban surface per Member State]Land conversion in functional urban area [% of total land taken from 2018-2021]Arable land14%Complex and mixed cultivation0%Forests27%Herbaceous vegetation associations4%Open spaces with little or no vegetation0%Pastures54%Permanent crops0%Water1%Wetlands1%201920202021202220232024latest dataNitrates in groundwater (5)6.86.86.86.97.0[mgNO₃/l]Livestock density0.30.30.75(number of livestock units per hectare of utilised agricultural area)Ammonia emissions 93%93%93%93%93%-94%[% of total utilised agrictultural area]Pesticide contamination on rivers and lakes water bodiesrivers19%27%[% of monitoring sites with pesticides exceeding thresholds, 2018-2023]lakes22%18%Pesticide contamination in soil 78%57%[% of samples with a concentration over 0.5 mg/Kg⁻¹]Net greenhouse gas removals from LULUCF (6)3122.31140.8848.5198.22130.8--198 421[ktCO₂-eq] 
 
       
 
FAIRNESS 
ANNEX 11: LABOUR MARKET 

As  the  Estonian  economy  returned  to 
moderate growth in 2025, the labour market 
stabilised. Despite efforts to tackle labour market 
challenges, skills shortages and regional and social 
disparities  persist.  Weaker  labour  demand  has 
disproportionately  affected  vulnerable  groups,  in 
particular young people. Real wage growth slowed 
in  2025,  and 
labour  productivity  stagnated. 
Collective bargaining coverage remains one of the 
lowest  in  the  EU,  limiting  progress  in  improving 
wage-setting mechanisms and working conditions.  

Graph A11.1: Key labour market indicators 

Source: Eurostat, LFS [lfsi_emp_a, une_rt_a, lfsi_neet_a, 
une_ltu_a] 

In  2025, 

Although  the  employment  rate  is  still  high, 
the  number  of  people  employed  declined, 
reflecting  adverse  demographic  trends  and 
reduced  hiring 
the 
intensity. 
employment rate reached 81,7% (vs 76.1% in the 
EU), and above the 2030 national target of 81.3%. 
In 2025, the inflow of non-EU nationals decreased 
to  offset 
substantially  and  was 
declining 
and 
employment among Estonian nationals.  The share 
of  workers  in  jobs  for  less  than  three  months 
dropped from 4.8% in 2024 to 4.2% in Q3-2025, 
pointing to weaker hiring dynamics. 

labour  market 

participation 

insufficient 

decline to 7.2% in 2026 and 7.1% in 2027 despite 
the  expected  economic 
recovery.  Long-term 
unemployment  remained  broadly  unchanged  at 
1.7%  in  the  first  three  quarters  of  2025,  close  to 
the  EU  average  of  1.9%. Labour  market  slack,  a 
broader  concept  of  unused 
labour  potential, 
reached 12.9% in 2025, exceeding the EU average 
(11.7%). This increase has been mainly driven by a 
rise 
in  people  seeking  work  but  who  are 
not immediately available. 

in 

are 

exposed 

particularly 

Vulnerable  groups,  especially  young  people 
and persons with disabilities, face barriers to 
labour  market 
integration.  Labour  market 
entrants  face  significant  and  rising  difficulties  in 
securing  a  job,  as  youth  unemployment  increased 
further from 19,1% in 2024 to 20.7% in 2025 (vs 
15,2%  in  the  EU).  The  share  of  young  people 
neither  in  employment  nor  in  education  and 
training (NEETs) remained broadly stable at 11,2% 
in 2025, in line with the EU average (11%). Young 
limited  qualifications  or  work 
people  with 
to 
experience 
unemployment or precarious jobs (214). Limited job 
opportunities,  especially 
rural  areas,  and 
inadequate support for transitions from education 
to  work  also  play  a  role  in  the  increasing  NEET 
rate. With the support of the European Social Fund 
Plus  (ESF+),  Estonia  has  strengthened  its  Youth 
Guarantee  and 
targeted  support 
introduced 
services to help young people obtain qualifications 
and re-engage with training or the labour market. 
Nevertheless,  gaps  persist 
reaching  and 
supporting  the  most  marginalised  young  people. 
Outreach efforts aimed at those outside the labour 
market  could  be  strengthened  and  cooperation 
improved between businesses, local municipalities 
and  social  programmes,  youth  and  social 
institutions,  schools  and  public  employment 
services.  Ongoing measures supporting transitions 
from  education 
further 
through  work-based 
reinforced, 
learning  and  closer  cooperation  with  employers. 
After 
the  disability 
employment gap has decreased significantly from 
26,2pp  in  2022  to  16pp  in  2025  below  the  EU 
average of 24,2 pps. The labour market integration 
of  persons  with  disabilities  could  be  further 

to  work  could  be 

rising  sharply 

particularly 

in  2022, 

in 

High  overall  unemployment  continues  to 
weigh  on  the  labour  market  outlook.  The 
unemployment  rate  stabilised  at  around  7.5%  in 
2025  (vs  6%  in  the  EU).  It  is  only  projected  to 

(214) Estonian National Action Plan to Strengthening Youth 

Guarantee 2022-2027: ENG_Noortegarantii tugevdamise 
riigisisene tegevuskava perioodiks. 

81 

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) 
 
 
     
 
and 

promoted  through:  (i)  continued  investment  in 
tailored  recruitment  and  employment  pathways; 
(ii)  workplace 
employer 
adaptations 
engagement; and (iii) stronger accessibility policies 
and  reasonable  accommodation  policies.  Greater 
involvement  of  social  economy 
support  and 
organisations 
labour  market 
implementing 
in 
policies  could  also  help  improve  employment 
outcomes  for  young  people  and  persons  with 
disabilities. 

Regional  differences  are  considerable,  with 
higher  unemployment  in  rural  areas.  The 
traditionally  higher  unemployment  rate  in  North-
East  Estonia  increased  further  to  12.7%  in  2025, 
compared  with  rates  between  6.2%  and  7.4%  in 
other regions. Employment in this region is heavily 
concentrated  in  the  industrial  sector  (including  oil 
shale  companies),  which  has  been  particularly 
affected  by  the  recession,  while  most  jobs  are  to 
be  found  in  the  major  cities (215).  The  north-east 
and  south-east  regions  bordering  Russia  also 
recorded poverty rates above the national average, 
reflecting  a  lack  of  entrepreneurial  activity.  This 
has led to fewer well-paid jobs and lower incomes, 
as well as lower skills levels and limited access to 
services in rural areas (see Annex 13).  

the  EU 

(EU:  11.1%), 

The  gender  pay  gap  remains  high  although 
the  situation  is  slowly  improving.  After  rising 
to  21.1%  in  2022,  the  gender  pay  gap  fell  to 
18.8% in 2024. While it is still among the highest 
in 
it  has  decreased 
significantly  over  time.  By  contrast,  Estonia  is 
among the best performers as regards the gender 
employment  gap  (0.5pp  vs  9.6pp  in  the  EU  in 
2025). Under the Recovery  and Resilience Facility, 
steps  have  been  taken  to  reduce  the  gender  pay 
gap, 
including  the  development  of  a  digital 
prototype to help employers analyse the wage gap 
in their companies. 

(215) Statistics Estonia: Unemployment rate | Statistikaamet. 

82 

Graph A11.2: 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: Young people neither in employment nor in education and training (% of 
population), total, ages 15-24 
Source: Eurostat, LFS [edat_lfse_18, lfsi_emp_a, une_rt_a, lfsi_neet_a] 

Estonia is putting in place policy measures to 
labour  market  challenges.  Public 
address 
employment  services  and  active  labour  market 
policies  (ALMPs)  are  being  continuously  updated 
based  on 
labour  demand  monitoring,  which 
informs  upskilling  and  reskilling  initiatives  and 
career guidance services. Ongoing studies in 2025 
and  2026  covering  unemployment  prevention, 
work-ability  assessment  and  Youth  Guarantee 
schemes are expected to help further refine policy 
design and future measures. Key ALMP changes in 
2025 and 2026 include: (i) employer subsidies for 
green skills; (ii) job shadowing; (iii) a simplified pay 
subsidy  extended  to  workers  over  55;  and  (iv) 
better  integration  of  measures  to  avoid  overlaps. 
Actions  financed  by  the  ESF+  support  activation 
and  skills  development 
for  women,  Roma, 
migrants,  people  over  55  and  other  vulnerable 
groups.  The  ESF+  also  funds  support  for  social 
enterprises.  Government  measures  also  target 
youth  unemployment  and  inactivity  through  early 
individuals  and  case 
identification  of  at-risk 
management under the Youth Guarantee. 

Stagnant  productivity  growth  hampers 
competitiveness  and  real  wage  dynamics. 
Compensation  per  employee  growth  slowed  from 
7%  in  2024  to  4.4%  in  2025,  which  could  reflect 
labour market slack. Real wage growth contracted 

01020304050607080051015202530352009201020112012201320142015201620172018201920202021202220232024%%EEUnemployment rate (lhs)Unemployment ratio (lhs)NEET (lhs)In education, training (rhs)Employment rate (rhs) 
 
     
the  same 

by  -0.5%  as  inflation  edged  up,  due  to  tax  and 
administered  price  increases.  The  minimum  wage 
rose  by  8%  in  2025  (EUR  886),  supporting  low-
income  earners.  At 
labour 
productivity  increased  by  1.1%  and  nominal  unit 
labour costs grew by 3.3% in 2025. The strong link 
between  labour  productivity  and  wages  across 
economic  sectors  suggests  that  the  recovery  in 
Estonia’s more dynamic sectors could support both 
income  growth  and  competitiveness  gains  in  the 
future.  

time, 

is 

highly 

decentralised 

in-work  poverty 

Weak  social  dialogue  continues  to  hinder 
jobs  and 
progress 
in  ensuring  quality 
inclusive  wage-setting.  The 
involvement  of 
social  partners 
in  reforms  and  policymaking 
remains  limited.  Collective  bargaining  coverage 
(19.1% in 2021) is the third-lowest in the EU and 
trade  union  density  (5.6%  in  2023)  is  the  lowest, 
limiting  meaningful  social  dialogue.  Collective 
and 
bargaining 
predominantly  conducted  at  company  level,  with 
only  a  few  collective  agreements  at  sectoral  and 
national level. Cooperation between social partners 
and  public  authorities  has  not  improved  in  recent 
years. No tripartite meetings at national level were 
held  in  2025,  and  the  2023  tripartite  agreement 
on the minimum wage framework, which aimed to 
raise  the  minimum  wage  to  50%  of  the  average 
wage  by  2027,  has  been  postponed.  Against  this 
background, 
in  Estonia  has 
remained  above  the  EU  average,  at  around  10% 
since 2022, while it has declined in the EU overall 
to 8.2% in 2024. Similarly, the share of low-wage 
earners  has  been  consistently  above  the  EU 
average (21.2% in Estonia vs 14.7% in the EU for 
2022).  The  prevalence  of  low-wage  earners  is 
more  pronounced  for  women,  in  line  with  the 
relatively  high  gender  pay  gap.  Weak  institutional 
capacity  among  social  partners  further  limits 
effective  engagement 
in  policymaking.  Trade 
unions  have  also  raised  concerns  about  their 
in  shaping  policies, 
insufficient 
the 
the  proposed  amendments 
including 
Employment  Contracts  Act  to  introduce  flexible 
working  hours.  In  September  2025,  following  a 
consultation  with  the  social  partners,  an  action 
plan was adopted to promote collective bargaining. 
In  particular,  the  plan  announced  a  review  of  the 
regulation  on  collective  bargaining  agreements 
extension. EUROMOD simulations (216) suggest that 

involvement 

to 

(216) The simulation was performed by the European Commission, 
Joint Research Centre, based on the EUROMOD model, J2.0+. 

83 

increasing  the  minimum  wage  to  50%  of  the 
average  wage  would  have  a  limited  impact  on 
lower-income  deciles  and  the  at-risk-of-poverty 
rate. This is because higher taxes and lower social 
benefits would partially offset the direct effects.  

Labour  shortages  have  eased,  but  some 
sectors and occupations still face significant 
challenges,  and  skills  mismatches  persist. 
The  job  vacancy  rate  remained  stable  at  1.6%  in 
2025, below the EU average and slightly below its 
pre-pandemic  level  (1.8%  in  2019).  However,  this 
substantial  differences  across 
rate  masks 
sectors (217).  Labour  shortages  were  high  in  public 
sector  services,  electricity,  gas,  steam  and  air-
conditioning  supply,  and  financial  and  insurance 
activities.  Estonia  faces  an  annual  shortage  of 
around 1 400 highly skilled workers. In April 2025, 
the share of employers expecting labour shortages 
to  limit  their  production  was  still  significantly 
lower  than  the  EU  average (218).  ICT  specialists 
make  up  7.2%  of the population,  and  the  country 
leads in the EU with the highest amount of female 
ICT  specialists  in  employment  at  27.60%.  On  the 
skills  side,  although  the  macroeconomic  skills 
mismatch and the overqualification rate increased 
slightly  in  2024,  they  remain  relatively  stable. 
However,  12%  of  workers  are  underqualified 
according to the OECD, and 23% report that some 
of  their  skills  are  lower  than  what  is  required  for 
(OECD  average:  10%) (219).  Skills 
their 
job 
remain 
in 
shortages 
particularly acute (see Annex 13). 

the  education  system 

in 

of 

these 

declined 

from  2.8% 

The  green  transition  is  reshaping  Estonia’s 
labour  market.  Employment  in  energy-intensive 
industries 
total 
employment  in  2020  to  1.7%  in  2024.  However, 
the  share  of  workers 
industries 
participating  in  education  and  training  is  growing 
significantly, from 8.7% in 2015 to 21.3% in 2025 
(EU:  12%).  The  percentage  of  the  population  with 
at least basic digital skills continues to stagnate at 
investments  and 
62.52%  despite  ambitious 
initiatives.  Investments  under  the  Recovery  and 
Resilience Facility, the ESF+ and the Just Transition 
Fund  include  measures  to  mitigate the  social  and 
employment impact of the green transition. These 

(217) See Eurostat for sectoral differences. 

(218) Source:  European  Business  and  Consumer  Surveys,  data  up 

to Q2-2026 (i.e. they refer to ~April 2025). 

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

 
 
 
include 

measures 
retraining  and  upskilling 
programmes  for  workers  in  the  oil  shale  industry 
and support for effective job transitions.  

Estonia  is  taking steps to  attract  and  retain 
foreign talent in line with the 2025 country-
specific  recommendations  and  reduce  labour 
shortages  to  sustain  its  human  capital.  However, 
skills  shortages  are  expected  to  increase,  with 
annual  labour  demand  projected  to  exceed  new 
labour  market  entrants  in  the  coming  years.  This 
suggests  that  involving  foreign  workers  to  a 
certain  extent  is  inevitable (220).  The  country’s 
immigration  quota  was  not  fully  used  in  2024, 
which has renewed debate on reforming the quota 
system.  To  address  structural  labour  shortages,  a 
more flexible model is proposed to enter into force 
in  2027  through  amendments  to  the  Aliens  Act. 
Meanwhile,  Estonia  has  made  progress 
in 
attracting  talent  by  simplifying  procedures  for 
qualified workers and innovation-driven sectors. In 
May 2024, the country transposed the revised EU 
Blue  Card  Directive,  introducing  more  flexible 
eligibility  requirements,  shorter  contract  duration 
thresholds,  recognition  of  professional  experience 
and improved labour market mobility. Also, a pilot 
fast-track  procedure  was  launched  in  October 
2025 for top specialists as well as for start-up and 
scale-up  employees.  To  boost  competitiveness, 
Estonia 
skills 
anticipation,  particularly  through  a  broad  use  of 
the  OSKA  system,  and  accessible  pathways  for 
skilled  foreign  workers  in  sectors  affected  by 
shortages. 

could  benefit 

from  better 

(220) OSKA(2025) Välistööjõud | OSKA uuringud. 

84 

 
 
ANNEX 12: SOCIAL POLICIES 

long-term 

While  many  social  outcomes  in  Estonia  are 
relatively  good,  the  country  faces  several 
significant  social  policy  challenges.  Progress 
towards the 2030 poverty reduction target is slow, 
and  the  capacity  of  social  benefits  to  reduce 
poverty  and  inequality  is  limited.  This  highlights 
the  need  to  further  strengthen  the  adequacy  and 
efficiency  of  the  social  protection  system.  Access 
remains 
to 
insufficient amid rising demand and relatively low 
public  spending.  These  issues  are  covered  in  the 
recommendations 
2025 
those  on 
to  Estonia,  particularly 
addressed 
strengthening  social  protection  and  ensuring 
sustainable  financing  for  healthcare  and  LTC, 
where  further  policy  action  is  needed.  Addressing 
these  challenges  would  contribute  to  inclusive 
growth and competitiveness.  

(LTC)  services 

country-specific 

care 

Graph A12.1: At-risk-of-poverty or social exclusion 
rate by age group 

Source: Eurostat, EU-SILC [ilc_peps01n]. 

Despite  some 
improvement,  poverty  and 
social exclusion risks remain high in Estonia. 
In  2025,  the  at-risk-of-poverty  or  social  exclusion 
(AROPE)  rate  decreased  by  0.4  percentage  points 
(pps)  to  21.8%  (EU  average:  20,8%).  Between 
2019  and  2025,  the  number  of  people  at  risk  of 
poverty  or  social  exclusion  fell by  15  000  to  296 
000,  still  far  from  Estonia’s  2030  target  of 
reducing  the  number  by  39 000  compared  with 
2019.  

People  with  disabilities  are  particularly 
exposed  to  poverty  risks.  In  2024,  39.1%  of 

85 

people  in  this  category  were  at  risk  of  poverty  or 
social exclusion (compared with the EU average of 
28.7%).  

Among  people  with  severe  disabilities,  the 
rate  stood  at  49%.  Relatively  low  disability 
benefits  and  the  limited  effectiveness  of  social 
benefits  are  key  factors  contributing  to  the  high 
AROPE  rate  among  persons  with  disabilities. 
Disability  benefits  per  person,  adjusted  for 
purchasing  power  parity,  are  significantly  below 
the EU average (485.8 PPS in Estonia vs 725 PPS 
in  the  EU  in  2023).  The  AROPE  rate  for  the 
working-age  population  with  disabilities  is  32.5%, 
compared with 15% for people without disabilities. 
rate  among 
The 
in-work  at-risk-of-poverty 
is  also 
employed  persons  with  disabilities 
considerably  higher 
in  Estonia  than  the  EU 
average. This reflects a higher prevalence of part-
time  work  due  to  disability  and  higher  rates  of 
leaving  among  students  with 
early  school 
disabilities.  Among  older  persons  with  disabilities, 
the  AROPE  rate  is  46.4%,  compared  with  33.6% 
among  those  without  disabilities,  reflecting  the 
general  inadequacy  of  pensions.  To  tackle  these 
persistent  challenges,  Estonia  has  allocated 
EUR 161  million  under  the  European  Social  Fund 
Plus 
inclusion  measures, 
complemented  by  a  further  EUR 16.2  million 
address  material  deprivation.  A  comprehensive 
approach,  as  set  out  in  the  EU  anti-poverty 
strategy, 
the  multiple 
dimensions  of  poverty  and  achieve  the  national 
anti-poverty target. 

could  help  address 

for  social 

(ESF+) 

Despite  recent  reforms,  pension  adequacy 
remains weak, contributing to higher poverty 
risks  among  older  people.  Although  the  AROPE 
rate  among  people  aged  65  and  over  have 
decreased  from  their  2022  peak,  it  remains 
significantly  above  the  EU  average  (34.5%  vs 
19.2%  for  the  EU).  In  2025  the  rate  stood  at 
24.4% for men and 40% for women 65 and over, 
compared with 15,8% and 21,2% respectively for 
the  EU.  The  situation  is  most  severe  for  older 
people living alone: in 2024, 71.5% of people aged 
65  and  over  and  living  alone  were  at  risk  of 
poverty  or  social  exclusion.  This  was  the  highest 
rate in the EU, where the average was 30.0%. The 
aggregate 
pensions 
decreased by 1 percentage points (pps) to 49% in 
2025  but  remains  substantially  below  the  EU 
average.  Although  Estonia  has  one  of  the  lowest 
gender  pension  gaps  in  the  EU,  largely  reflecting 
flat-rate  pension  system, 
its  predominantly 

replacement 

ratio 

of 

010203040506020152016201720182019202020212022202320242025% of populationEEChildren (<18y)Working age (18-64)Older people (65+) 
 
  
 
is 

women aged 65 and over face one of the highest 
AROPE rates in the EU, which is significantly higher 
than  that  of  men.  This  is  mainly  driven  by  longer 
life expectancy, household composition and limited 
survivor  benefits  for  women.  Expenditure  on 
survivor  pensions  and  other  survivor  benefits  is 
0.05% of GDP in Estonia, compared with 1.48% of 
GDP  in  the  EU.  In  response  to  the  2025  country-
specific 
taking 
recommendations,  Estonia 
measures  to  tackle  old-age  poverty,  including 
pension  indexation,  which  increased  the  average 
pension  from  EUR 774  in  2024  to  EUR 817  in 
2025,  and  raising  the  tax-free  income  threshold 
for  pensioners  from  EUR 654  to  EUR 776.  Other 
measures  include  pension  literacy  initiatives,  the 
introduction of a pension calculator and increased 
flexibility  in  second-pillar  contributions  to  allow 
employees  to  contribute  4%  or  6%  from  2025 
onwards. 
the  government  has 
announced  plans  to  reduce  the  waiting  time  for 
rejoining the mandatory second pillar after opting 
out from 10 to 5 years.  As demographic pressures 
increase,  further  efforts  to 
are  projected  to 
strengthen 
savings, 
including through simplified employer participation 
in  second-pillar  contributions,  could 
improve 
retirement adequacy. 

complementary  pension 

In  addition, 

and 

remain 

composition 
attainment 

parental 
Household 
educational 
key 
determinants  of  child  poverty  risks.  In  2025, 
the  AROPE  rate  among  persons  living  in  single-
parent  households  reached  42%,  up  by  6.7 
percentage  points  from  2024,  while  remaining 
below  the  EU  average  of  44.3%.  In  2025,  the 
overall  AROPE  rate  among  children  in  Estonia 
increased  sharply  to  19,4%  in  2025,  approaching 
pre-pandemic  levels  but  remaining  below  the  EU 
average of 24.3%. The educational background of 
parents  remains  a  key  determinant  of  child 
poverty  risk,  ranging  from  13.1%  among  children 
of parents with higher education to 47.6% among 
those  whose  parents  have 
lower  secondary 
education  or  less.  Single-parent  households  also 
face significantly higher cost burdens, with 26.8% 
of them (compared with 14% in the EU) spending 
more than 40% of disposable income on housing. 
To  tackle  these  challenges,  Estonia  has  increased 
single-parent  benefits,  alimony  assistance  and 
child allowances and has strengthened support for 
large 
is also 
The 
support 
implementing the Child 
children  in  need,  including  by  establishing  an 
automatic  exchange  of  data  between  state  and 
local  authorities  on  persons  with  disabilities  to 

country 
Guarantee to 

families. 

enable  proactive  outreach  and  additional  support 
for  families.  Measures  also  include  strengthening 
the  family  benefits  system,  promoting  inclusive 
education  and 
increasing  funding  for  quality 
family-based  alternative  care.  In  total,  EUR 33 
million  is  dedicated  to  addressing child poverty  in 
Estonia under ESF+. 

stark 

persistent 

The  eastern  border  regions  continue  to  face 
significant  challenges  due  to  entrenched 
socio-economic  disparities.  Relative  poverty 
rates  in  eastern  border  counties  such  as  Ida-Viru 
and Jõgeva (33% and 24% in 2024, respectively) 
are  much  higher  than  those  in  better-performing 
regions  such  as  Harju  and  Rapla  (both  17%), 
highlighting 
regional 
and 
disparities.(221) These differences are compounded 
by  significant  regional  inequalities  in  access  to 
social  services,  affecting  people  with  disabilities, 
older  people,  families  with  children  and  other 
vulnerable  groups.  The  availability  and  quality  of 
social  services varies widely across municipalities, 
with  smaller  and  rural  areas  often  lacking  the 
administrative  and  financial  capacity  to  provide 
timely  support.  Long-standing 
adequate  and 
structural  weaknesses, such as reliance on  the oil 
shale  industry,  low  economic  diversification,  high 
unemployment  and 
income, 
continue  to  weigh  on  these  regions’  socio-
economic performance (see Annex 11). While Ida-
Viru  has  been  allocated  substantial  EU  support, 
including 354 million EUR from the Just Transition 
Fund,  continued  efforts  are  needed  to  support 
small  and  medium-sized  enterprises,  green 
reskilling and community initiatives and strengthen 
the  economic  resilience  and  social  outcomes  of 
Estonia’s eastern border regions. 

lower  disposable 

In-work  poverty  and  economic  inequality 
some 
relatively  high,  despite 
remain 
improvement.  In  2025,  the  in-work  poverty  rate 
fell  slightly  from  10.3%  in  2024  to  10.1%  but 
remained above the EU average (8.1% in 2024). In 
the  18-24  age  group,  in-work  poverty  is  much 
higher  (14.1%  in  2024  and  15%  in  2025;  EU: 
10.9%  in  2024),  reflecting  higher  unemployment 
among  the  young  population  and  higher  rates  of 
in 
in  employment  nor 
young  people  neither 
education  and  training.  Part-time  workers 
in 
Estonia  face  a  particularly  high  risk  of  falling 
below  the  poverty  threshold  (18.5%),  well  above 

(221) Statistics Estonia (2025): Suhteline vaesus on Eestis 

vähenenud, absoluutne vaesus suurenenud | Statistikaamet. 

86 

 
 
both  full-time  workers  in  Estonia  and  the  EU 
average  (13.5%  in  2025).  Income  inequality,  as 
measured by the S80/S20 ratio, declined to 5.03 in 
2024  but  remained  above  the  EU  average  (4.66). 
This is  largely  due to the low  redistributive effect 
of  the  tax  and  benefits  system  (post-market 
inequality). In 2024, the inequality-reducing effect 
of  taxes  and  social  benefits  (excluding  pensions) 
stood  at  40%,  compared  with  the  EU  average  of 
48.3%.  Estonia  has  taken  steps  to  address  these 
challenges  by  improving  the  adequacy  of  its 
statutory minimum wage in line with the Directive 
on adequate minimum wages. The minimum wage 
was  increased by  13.1% (standing  at  40%  of  the 
average  wage)  in  2024,  by  8%  in  2025,  and  by 
6.8% in 2026, reaching EUR 946.(222) However, the 
2023  social  partner  agreement  to  gradually 
increase  the  minimum  wage  to  50%  of  the 
average  wage  by  2027  has  been  postponed, 
slowing  progress  in  reducing  in-work  poverty  and 
inequality (see Annex 11).  

from 

Despite  ongoing  reforms,  challenges  persist 
in  the  adequacy  and  coverage  of  social 
protection.  These  challenges  are  particularly 
pronounced  among  minimum  income  recipients 
and  unemployed  and  self-employed  people 
(including  farmers),.  Although  a  relatively  high 
proportion  of  self-employed  people  receive  cash 
benefits (29% compared with an average of 12% 
in  the  EU),  this  support  is  insufficient  to  protect 
against the risk of poverty. As a result, the at-risk-
of-poverty  (AROP)  rate  among  the  self-employed 
remained  high  at  25.9%  in  2024,  compared  with 
in  the  EU.  Self-employed  people  are 
20.9% 
unemployment 
excluded 
insurance,  although  they  are  eligible  for  means-
tested social assistance benefits. While a relatively 
high  proportion  of  registered  unemployed  people 
receive  benefits,  the  AROP  rate  for  this  group 
remains  high  (50.6%  in  2024  compared  with 
48.8% in the EU). Moreover, the income of those in 
poverty  falls  significantly  below  the  poverty 
threshold, with a gap of 44.2% in 2024 (compared 
with 32.4% in the EU). Estonia’s minimum income 
benefit,  the  subsistence  benefit,  falls  short  of 
commonly  used  adequacy  benchmarks.  In  2024 
(based  on  2023  income),  the  net  income  of  a 
minimum  income  recipient  reached  only  47%  of 
the  smoothed  poverty  threshold,  compared  with 
56.3% in the EU. 

contributory 

Social  benefits  expenditure  remains  low. 
Although spending on social benefits increased by 
0.9  pps  to  17.8%  of  GDP  in  2024,  it  remains  far 
below the EU average of 27.3%. Estonia allocates 
a  larger  proportion  of  benefits  than  the  EU 
average  to  disability  benefits  (10.7%  of  total 
benefits  expenditure  compared  with  7.0%  for  the 
EU),  while  spending  a  smaller  proportion  on  old-
age  and  survivor  benefits  (43.3%  vs  47.0%  in 
2024).  Estonia  allocates  only  0.38%  of  total 
benefits 
benefits, 
highlighting a potential gap in the social protection 
system.  Despite  substantial  improvements  since 
2023,  the  impact  of  social  benefits  (excluding 
pensions) on poverty reduction remains below the 
EU average (31.5% vs 34.2%). 

expenditure 

housing 

to 

the 

with 

2025 

limited  employment  history. 

Reforms  to  the  unemployment  insurance 
system and minimum income aim to improve 
the  adequacy  and  coverage  of  the  social 
protection system. In 2026, Estonia will  replace 
its  current 
insurance 
two-tier  unemployment 
system,  consisting  of  unemployment  allowances 
and  unemployment 
insurance,  with  a  single 
scheme. The new scheme will also be accessible to 
workers  with 
In 
addition,  it  will  also  improve  social  protection,  in 
country-specific 
line 
recommendation,  as  workers  with  disabilities  will 
be  able  to  combine  work  ability  allowance  with 
unemployment  benefits.  Preliminary  analysis 
conducted  in  response  to  the  2025  country-
specific  recommendation  indicates  that  extending 
unemployment benefits to  non-standard  forms  of 
work  would  mainly  affect  a  small  uninsured 
segment of the self-employed population (6.1% of 
207 000),  as  76.5%  are  already  covered  through 
parallel  employment  and  17.4%  have  insufficient 
income  to  qualify.(223)  To  improve  the  adequacy 
and  efficiency  of  the  minimum  income  benefits, 
Estonia 
income 
methodology  (with  analysis  results  expected  in 
April  2026)  and  modernising  the  subsistence 
benefit system.  

its  minimum 

reforming 

is 

Long-term  care and  healthcare  face 
low 
investment  and  regional  inequalities.  Unmet 
medical  needs remain high  at  7,7%,  compared 
with 2.4% in the EU in 2025), with strong regional 
and  income  disparities  (see  Annex  15).  While 
unmet 
are 
care 
considerably higher than the EU average (58.9% in 

long-term 

needs 

(LTC) 

(222) Eurofound (2025): Minimum wages in 2025: Annual review. 

(223) Ministry of Economic Affairs and Communications (2025). 

87 

 
 
 
Estonia,  compared  with  46.6%  in  EU  in  2019), 
public  expenditure  on  LTC  is  considerably  lower 
(0.4%  of  GDP  compared  with  the  EU  average  of 
1.7%).  Public  support  for  person’s  share  of  the 
payment for LTC is strictly means-tested, resulting 
in  high  out-of-pocket  costs  for  all  population 
groups  except  the  most  vulnerable.  Public  social 
protection for home and residential care recipients 
is limited across all levels of care needs, resulting 
in  financial  burdens  that  are  well  above  the  EU 
average.(224)  Public  social  protection  does  not 
significantly  reduce  poverty  risks  associated  with 
LTC,  as  support  for  home  care  is  almost  non-
existent  for  individuals  with  a  median income(225) 
Combined  with  the  high  costs  of  LTC,  this  results 
in  out-of-pocket  expenses  for  older people  with  a 
median income that are among the highest in the 
EU.(226)  As  a  result,  the  risk  of  being  pushed  into 
poverty by home care needs is among the highest 
in the EU, regardless of the level of need.(227) The 
poverty  risks  for  older  people  in  need  of  LTC  are 
substantially  above  the  EU  average,  reaching 
nearly  100%  for  those  with  moderate  or  severe 
needs(228).  The  LTC  sector  also  faces  staff 
shortages,  driven  in  part  by  the  absence  of 
collective  bargaining  and  much 
lower  pay 
compared  with  other  sectors  (65.3%  vs  an  EU 
average of 82.4%) (229). Despite quality guidelines, 
access  to  social  services  varies  considerably 
between  municipalities  due  to  unequal  provision 
and  different  pricing  of 
services  offered 
locally.(230)  User  co-payments  for  social  services 
individual  economic 
to 
are  not  adjusted 
circumstances.  Waiting  lists  for  specialised  care 
services  nearly  doubled  between  2018  and 
2024(231).  During  the  same  period,  funding  levels 
failed  to  keep  pace  with  actual  costs,  with 
regulated  service  prices  covering  on  average  only 

(224) OECD (2026): Adequacy of social protection for long-term 

care Estonia (Tallinn). 

(225) OECD (2025). 

(226) OECD (2025. 

(227) Ibid. 

(228) OECD (2026): Adequacy of social protection for long-term 

care – Estonia. 

(229) DG EMPL calculations from the 2022 Structure of Earnings 

Survey. 

(230) National Audit Office (2025). 

(231) National Audit Office (2025) : Riigikontroll: Valitsus ja 
Riigikogu on olnud aastaid teadlik psüühikahäiretega 
inimeste abivajadusest, kuid vajadus aina kasvab ja abi 
viibib üha rohkem. 

slightly  over  60%  of  real  expenses.  This  has 
reduced  service  availability(232)  and  lengthened 
waiting times.  

is 

places, 

further 

improve 

exacerbating 

implementing 

residential  care  and 

Estonia 
long-term  care 
reforms  while  strengthening  the  integration 
of health and social services. The care reform 
entered  into  force  on  1 July 2023  and  aims  to 
individuals 
alleviate  the  financial  burden  on 
requiring 
the 
accessibility  of  home  care.  While  the  reform  has 
substantially  reduced  out-of-pocket  costs  for 
residential  care,  which  fell  from  around  78%  in 
2022 to about 51% by 2024, it has also led to an 
increase  in  both  supply  and  demand  for  nursing 
home 
staff 
shortages.(233)  At  the  same  time,  the  reform  has 
not  sufficiently  strengthened  the  provision  of 
home-based  care,  despite  it  being  more  cost-
effective and a stated policy priority(234). In 2025, 
Estonia put forward a proposal to integrate social 
and  healthcare  services,  although  implementation 
is  still  pending  (see  also  Annex  15).  Estonia  is 
continuing to improve the accessibility, availability 
and  quality  of  long-term  care,  through  ongoing 
measures under the ESF+. The ESF+ also supports 
the  continued  implementation  of  person-centred 
approaches,  community-based  care  models  and 
workforce training. A total of EUR 38.6 million has 
been  allocated  to  long-term  care  and  access  to 
services under the ESF+.    

Energy  and  transport  poverty  primarily 
affect vulnerable groups. In 2025, only 3.1% of 
all households and 5.7% of households below the 
poverty threshold were unable to keep their homes 
adequately  warm  (EU  average:  8.8%  and  19.7% 
respectively). 7.6% of all households and 15.7% of 
those below the poverty threshold reported arrears 
on  mortgages,  rents  or  utility  bills  (EU  averages: 
9.2%  and  20.5%  respectively).  Among  single-
parent households, 16.8% report arrears, with the 
share rising to 27.7% for those below the poverty 
threshold. Due to low population density, Estonia’s 
public transport network in many rural areas does 
not  provide  sufficient  access  to  essential  services 
within acceptable timeframes (see also Annex 19). 

(232) National Audit Office (2025) : Riigikontroll: Valitsus ja 
Riigikogu on olnud aastaid teadlik psüühikahäiretega 
inimeste abivajadusest, kuid vajadus aina kasvab ja abi 
viibib üha rohkem. 

(233) Ibid. 

(234) Ibid. 

88 

 
 
 
A  rising  number  of  households  cannot  afford  a 
personal  car,  with  single-parent  households  being 
the  most  affected  (17.5%  compared  with  an  EU 
average  of  14.7%  in  2025).  This  is  offset  by 
increased  private  car  use.  However,  in  2025, 
to  car  affordability  were  more 
challenges 
pronounced  in  Estonia  (7%)  than  in  the  EU  on 
average (5.5%). 

89 

 
 
ANNEX 13: EDUCATION AND SKILLS 

technology, 

engineering, 

Estonia  provides  high-quality  education  and 
training,  but  persistent  teacher  shortages 
risk  undermining 
its  sustainability,  while 
early  school 
leaving  and  broader  skills 
shortages  and  mismatches,  particularly  in 
science, 
and 
mathematics  (STEM)  fields,  pose  challenges 
to  competitiveness.  Ongoing  reforms  aim  to 
equip  all  young  people  with  at  least  upper-
secondary  qualifications  and  better  adapt 
vocational  education  and  training  (VET)  and  adult 
learning  pathways 
labour  market  needs. 
However,  persistent  shortages  of  teachers  and 
special  needs  support  staff  risk  undermining 
education  quality.  The  2025  country-specific 
recommendations  (CSRs)  for  Estonia  highlighted 
the need to improve  labour productivity and skills 
supply by reducing early school leaving, improving 
the labour-market relevance of the education and 
training  system  and  promoting  reskilling  and 
upskilling,  particularly  in  green  skills.  The  CSRs 
highlighted  meeting  the  growing  shortages  of 
STEM  specialists  and  better  attracting  and 
retaining  talent  as  crucial  to  increasing  skills 
supply. 

to 

the  skills 

to  use  artificial 

(see  2025  Country  Report). 

Estonia  equips  its  young  people  with  a  high 
level  of  basic  skills  but  is  facing  growing 
challenges  in  sustaining  its  teaching  staff. 
Estonia is one of the EU’s top performers in basic 
skills 
In  upper-
secondary education, the AI Leap was launched in 
September  2025  to  equip  students  and  teachers 
with 
intelligence 
effectively and responsibly and help the education 
system keep pace with rapid technological change. 
Nevertheless, educational inequalities have slightly 
increased  over  the  last  decade,  and  growing 
challenges  in  the  teaching  profession  represent  a 
serious  risk  to  education  quality.  Estonia  has  one 
of the oldest teaching populations in the EU, with 
27.8%  of  teachers  aged  60  and  over  in  2023, 
more than double the EU average (10.9%). Ageing 
has  intensified  over  the  past  decade,  while  the 
share  of 
teachers  under  35  has  remained 
relatively  stable (16.6%;  EU  average:  17.5%),  and 
is  insufficient  to  offset  retirements.  The  situation 
is particularly acute in STEM subjects. For example, 
in  some  regions,  over  40%  of  mathematics 
teachers  are  older  than  60  (220).  The  gender 
imbalance in the profession is also pronounced,  

narrowing the pool of available professionals. The 
trend  in  pupil  numbers,  influenced  by  declining 
demographics, varies unevenly across the country, 
with  small  increases  in  two  densely  populated 
counties (Harju and Tartu) in 2024 and declines of 
varying  depth  in  the  rest  of  the  country.  These 
regional  discrepancies  sustain  higher  demand, 
typically 
populated 
regions (235) (see Annex 18). Teacher shortages are 
already  evident  in  practice,  as  26%  of  general 
education 
formal 
qualification requirements in 2025 (236). 

teachers  do  not  meet 

concentrated 

in  more 

teachers 

Retaining  novice 
is  difficult. 
Estonia’s  2021-2035  education  strategy  aims  to 
retain  at  least  60%  of  initial  teacher  education 
graduates  in  teaching  roles  for  five  consecutive 
years  after  graduation  by  2035.  In  2023,  the 
share  stood  at  56% (237).  In  2023,  almost  half  of 
teachers  under  30  (49%)  expressed  uncertainty 
about  continuing  in  the  profession  for  more  than 
four  years  (EU  average:  15.2%).  This  highlights 
significant  retention  risks (238).  Participation 
in 
induction  programmes  among  new  teachers  has 
improved,  rising  from  31%  in  2018  to  58%  in 
2024,  yet  working  conditions  remain  demanding. 
The  reported  overall  stress  is  rising  (28.5%  of 
teachers  feel  stressed  ‘a  lot’;  EU  average:  16%), 
driven  mainly  by  the  responsibility  for  students’ 
learning  outcomes  and  social-emotional  well-
being, and the need to adapt teaching to students 
with  special  educational  needs (239).  Shortages  of 
further  exacerbate  workload 
support 
pressures.  

staff 

development 
in 

Policies to attract  and retain teachers  focus 
initial  education,  career  structures, 
on 
leadership 
and  working 
teacher  education 
conditions.  Enrolment 
recent  years, 
increased 
programmes  has 
supported by government scholarships and efforts 
to promote the profession. In 2026, salaries were 
increased by around 10%. The 2022-2026 teacher 
introduced  measures  such  as 
action  plan 
leadership  training  for  school  heads  and  micro-

in 

(235) Statistics Estonia. 

(236) Education statistics portal HaridusSilm. 

(237) Ministry of Education and Research. (2025). Haridus- ja 
noorteprogramm 2025-2028 (Education and Youth 
Programme 2025-2028). 

(238) OECD, 2024 TALIS. 

(239) OECD, 2024 TALIS. 

90 

 
 
 
 
 
credentials for non-fully qualified teachers. Further 
policy  responses  are  a  new  career  model  linking 
pay  to  experience  (which  took  effect  in  March 
2026),  and  additional  support  for  schools  during 
the transition towards introducing Estonian as the 
language of instruction in all public schools. Public 
reports  on  the  implementation  of  the  action  plan 
and  a  follow-up  plan  beyond  2026  are  not  (yet) 
available (240). 

is 

Estonia 
compulsory 
strengthening 
education to reduce early school leaving and 
support labour market participation.  In 2025, 
10.2%  of  young  people  left  the  education  and 
training  system  with  no  or  very  low  qualifications 
(EU  average:  9.1%).  Estonia  aims  to  reduce  early 
school  leaving by implementing a reform initiated 
in 2025 that makes education compulsory until at 
least  age  18  or  until  completion  of  upper-
secondary  or  vocational  education  (see  2025 
Country Report). This reform will be complemented 
by  the  introduction  of  a  preparatory  year  for 
learners  who  have  completed  lower  secondary 
school but do not have a place in upper-secondary 
or  vocational  education,  offering  small-group 
learning, individual curricula and targeted support, 
including  for  learners  with  skills  gaps  or  limited 
Estonian proficiency. The regulation on preparatory 
education was adopted in January 2026. A unified 
digital  admissions  platform  connects  upper-
secondary, 
preparatory 
programmes  and  helps  municipalities  guide 
transitions.  Monitoring  through  national  education 
and youth systems enables early identification and 
support  of  young  people  who  are  not 
in 
employment,  education  or  training.  The  reform 
aims to raise upper-secondary completion to 90%, 
reduce the share of low-qualified 18-24-year-olds 
outside  education  or  training  to  below  5%  by 
2035,  and  add  around  1 300  qualified  young 
people to the labour market each year.  

vocational 

and 

Reducing  early  school  leaving  also  depends 
on  the  capacity  of  the  education  system  to 
effectively  respond  to  pupils  with  special 
educational  needs  (SEN).  Pupils  with  some 
disabilities  are  more  than  twice  as  likely  to  leave 
school  early  compared  to  their  peers,  with  a  rate 
of  20.5%  in  2024,  above  the  EU  average  of 
17.1%.  While  schools  are  required  by  law  (241)  to 

(240) OSKA. (2022). OSKA general forecast 2022-2031 - Key 

help  pupils  with  SEN  by  adjusting  learning  goals 
and providing specialist support, this is hindered by 
acute  shortages  of  support  specialists  such  as 
speech  therapists  or  psychologists  (242),  especially 
in  VET,  where  90%  of  schools  were  found  not  to 
adequately  support  learners  with  SEN  (243).  In 
2023,  57.1%  of  teachers  worked  in  schools  with 
over 10% of pupils with SEN (EU average: 50.2%), 
up  from  only  29.8%  in  2018  (EU  average:  34%) 
(244).  This  greater  student  diversity 
requires 
teachers  to  adapt  their  teaching;  2024,  23%  of 
teachers  expressed  a  high  need  for  professional 
(EU 
learning 
average: 24.2%). Yet, only around half of teachers 
(51.2%)  had  attended  professional  training  in  the 
previous  year  that  they  found  impactful  (EU 
average: 56%) (245). 

learners  with  SEN 

in  teaching 

the 

the 

amended 

Alongside 
reforms  of  mandatory 
schooling  and  VET,  in  February  2026,  the 
Employment 
authorities 
Contracts  Act  to  expand  work  opportunities 
for  minors.  The  amendments  allow  7-17-year-
olds to work in family businesses in any sector, to 
work  more  during  school  holidays,  and  to  work 
more  hours  during  school  days.  The  amendments 
also  raise  the  maximum  working  time  for  minors 
aged  15-17  to  the  level  applicable  prior  to  the 
education  reform.  Given  the  objectives  of  the 
compulsory 
continued 
monitoring  will  be 
important  to  assess  the 
interaction  between  increased  work  opportunities 
for minors and educational outcomes. 

schooling 

reform, 

Ongoing  system-wide  VET  reforms  aim  to 
improve  VET  attractiveness  as  well  as  VET 
graduates’  employability,  and  to  strengthen 
skills supply and labour- market relevance. In 
2024,  only  74.7%  of  people  who  had  recently 
completed  VET  were  employed,  below  the  EU 
average of 80.0%. Nevertheless, of all people who 
had  recently  completed  VET,  a  high  share  had 
experienced  work-based 
(79.8%;  EU 
average: 65.2%). At the same time, participation of 
Estonian VET students in STEM fields is above the 
EU  average.  In  2024, 49.9%  of  VET  pupils  at 

learning 

(242) OSKA. (2022). OSKA general forecast 2022-2031 - Key 

findings. 

(243) Riigikontroll, 2025, Haridusliku erivajadusega noorte 

kutseõpingute ja töölesiirdumise toetamine. 

findings. 

(244) OECD, 2024 TALIS. 

(241) Basic Schools and Upper Secondary Schools Act, §6.  

(245) OECD, 2024 TALIS. 

91 

 
 
 
medium  level  were  enrolled  in  STEM  fields  (EU 
average: 36.6%), and 24.0% of them were female 
(EU  average:  15.9%).  From 
the  2025/2026 
academic year, four-year applied upper-secondary 
VET  programmes  are  being  introduced,  with  the 
volume  of  general  education  subjects  more  than 
doubled  to  support  smoother  progression  from 
VET to higher education. In 2025, 13 programmes 
information  and 
were 
(ICT),  engineering, 
technology 
communications 
construction,  biotechnology  and  healthcare. 
In 
total,  32  new  applied  VET  programmes  will  be 
launched  from  next  academic  year.  Quality 
assurance  and  optimisation  of  the  VET  provider 
network  are  ongoing, 
including  mergers  and 
reorganisation into regional education centres. 

launched,  notably 

in 

profiles, 
recognition 

competence-based 
and 
assessment 

The  professional  qualifications 
system 
reform, financed by the European Social Fund 
Plus  (ESF+),  aims  to  improve  flexibility  and 
responsiveness to labour market needs. It will 
and 
introduce 
improved 
of 
competencies, with implementation expected from 
is  also  developing  a 
autumn  2026.  Estonia 
national  skills  register  as  part  of  the  OsKuS 
initiative,  supported  by  the  ESF+.  The  OSKA  skills 
forecasts  help  align  qualifications  with the  labour 
market.  To  effectively  tackle  persistent  skills 
shortages,  education  policy  should  be  closely 
aligned with OSKA’s labour market forecasts, while 
education  programmes  could  better  reflect  these 
skills  projections  to  support  a  more  targeted 
response to changing workforce demands. 

Adult participation in learning remains above 
the  EU  average,  although  access  varies 
across  population  groups.  In  2022,  41.8%  of 
adults  aged  25-64  had  participated  in  education 
and  training  during  the  previous  12  months  (EU 
average:  39.5%) (246).  However,  access  to  adult 
learning  remains  uneven.  It  is  higher  among 
younger  adults  (49.5%  among  those  aged  25-34, 
compared  with  31.2%  among  those  aged  55-64) 
and  substantially  lower  among  adults  with  low 
levels  of  education  (18.9%,  in  line  with  the  EU 
average).  Regional  disparities  persist  and  are 
linked to differences in educational attainment. For 
example,  in  Harju  county,  46%  of  the  population 

has tertiary education, compared with 34% in Ida-
Viru county (247).  

Recent  adult 
learning  policies  focus  on 
quality assurance, flexible learning pathways 
and  targeted  financial  support.  Amendments 
to  the  Adult  Education  Act  adopted  in  January 
2025  introduced  a  national  framework  for  micro-
qualifications,  covering  their  scope,  structure  and 
study  volume,  and  clarified  requirements  for 
to  ensure  quality.  The 
training  providers 
amendments 
and 
professional 
pedagogical  competence  requirements  for  adult 
educators  that  entered  into  force  from  January 
2026. 
Employment 
Programme 2024-2029 approved in October 2025 
improve  access  to  skills  development  services 
from  2026  and  reorganise  Estonian  language 
learning. 
large-scale  programmes 
(supported  by  the  ESF+  and  the  Recovery  and 
Resilience  Facility)  promote  the  development  of 
professional and general skills.  

Amendments 

In  addition, 

introduced 

the 

to 

and 

and 

skills 

literacy, 

Adult skills outcomes are strong on average, 
but  gaps  persist  by  age,  socio-economic 
background 
domain.  
Results  from  the  2023  PIAAC  survey  show  that 
adult  skills  in  Estonia  exceed  the  OECD  average 
problem-
numeracy 
across 
solving (248).  However, 
the  survey  highlights 
substantial  disparities  across  population  groups. 
Skills levels are highest among adults aged 25-29 
and  lowest  among  those  aged  60-65,  with  a 
marked  decline  already  observable  in  the  35-39 
age  group.  PIAAC  2023  also  identifies  persistent 
socio-economic 
linked 
skills  differences 
characteristics and indicates a widening skills gap 
compared  with  the  previous  PIAAC  cycle. 
In 
addition,  in  every  region,  the  average  results  of 
those  of 
Russian-speakers  are 
Estonian-speakers. In digital competences, 12% of 
employees  report  lacking  sufficient  computer  and 
software  skills,  compared  with  an  OECD  average 
of 4%. At population level, 62.5% of adults had at 
least a basic level of digital skills in 2025, slightly 
above  the  EU  average  of  60.4%,  but  internal 
disparities,  particularly  among  older  adults,  risk 
undermining overall competitiveness. Furthermore, 
in light of changes in job profiles due to the uptake 
of artificial intelligence (AI), more focus on AI skills 

lower 

than 

to 

(246) Adult education survey. 

(248) OECD (2024): Survey of Adults Skills 2023. 

(247) Statistics Estonia (2024). 

92 

 
 
 
is  needed.  To  help  narrow  skills  gaps,  boost 
productivity  and  ease  labour  shortages,  Estonia 
could take measures such as: (i) providing targeted 
outreach via employers and employment services; 
(ii) expanding  modular  and  workplace-based 
(iii)  providing  financial  support  and 
training; 
guidance 
low-skilled  and  older  adults; 
(iv) strengthening  digital  and  AI  skills  provision; 
and  (v) improving  rural  access  to  online  learning 
infrastructure. 

for 

The  green  transition  requires  skills  that  are 
still in relatively short supply. The Green Skills 
programme,  financed  by  ESF+,  strengthens  the 
supply  of  green  skills  by  offering  free  up-  and 
reskilling  training  to  companies  and  individuals. 
Aligning  VET  programmes  with  green  transition 
needs  could  help  mitigate  skills  gaps  in emerging 
sectors. Since the pandemic, the energy sector has 
been experiencing rising labour shortages (2.5% in 
2024 vs 1.3% in 2019; EU average: 1.7% in 2024). 
At  occupational  level,  persistent  shortages  have 
been 
industrial  and  production 
engineers,  building  and  related  electricians,  and 
electrical mechanics and fitters, which are relevant 
both  to  the  clean  energy  transition  and  climate 
adaptation.  At  the  same  time,  in  energy-intensive 
industries,  workers’  participation  in  education  and 
training  was  8.6%  in  2024,  slightly  below  the  EU 
average (9.4%).  

reported  for 

Access  to  higher  education  remains  uneven. 
Whereas overall tertiary attainment is high (44.3% 
in 2025; EU average: 44.8%), some groups remain 
under-represented 
Russian-speaking 
(men, 
first-generation  students).  Financial 
students, 
support has been increased (through needs-based 
grants and a study loan reform), but non-financial 
aid  addressing the  concerns  of  under-represented 
groups, such as mentoring or peer networks, is not 
yet common. The ongoing VET reform (see above) 
presents  opportunities  for  stronger  collaboration 
between  VET  and  applied  higher  education, 
especially  outside  urban  centres,  which  can  help 
reach  under-represented  groups,  and  alleviate 
labour market demands. 

for 

still 

tertiary 

significantly 

educated  STEM 
Demand 
specialists 
exceeds 
supply. Three reasons for this can be identified: (i) 
overall tertiary student numbers have been falling 
in  the  last  decade,  reducing  the  number  of  STEM 
graduates  entering 
(see 
the 
Graph A13.1);  (ii)  the  average  dropout  rate  from 
the  first  undergraduate  year  in  STEM  courses  is 

labour  market 

higher than in other fields; and (iii) the green and 
transitions  alone  require  more  STEM 
digital 
specialists  than  are  currently  anticipated  to 
graduate from higher education (249). While Estonia 
remains among the leading EU countries in gender 
diversity  among  ICT  specialists  -  with  women 
accounting  for  around  22.5%  of  employed  ICT 
specialists  in  2025  (19.5%  for  the  EU) (250)  – 
critical labour shortages persist across key sectors. 
ICT,  industry  and  construction  are  among  the 
sectors  with  the  most  severe  shortages  of  skilled 
workers,  and 
for  engineers, 
rising  demand 
electricians  and  technicians (251).  In  2023,  Estonia 
ranked last among EU countries for the availability 
of engineers (252). While the proportion of students 
studying ICT has grown, this increase has come at 
the  expense  of  engineering  students.  To  counter 
this 
the  government  established  an 
Engineering Academy (with EUR 39 million of ESF+ 
IT 
funding)  alongside 
the 
Academy  programme.  First 
Engineering 
an 
improvement  in  drop-out  rates  of  engineering 
programmes. A comprehensive STE(A)M strategy is 
under  development  and  expected  in  June  2026. 
However,  according  to  the  National  Audit  Office, 
the  Engineering  Academy  programme  alone  will 
not  solve  the  shortage  of  engineers 
if  the 
foundation  in  mathematics  and  science  education 
remains  weak  in  basic  schools.  Basic  schools 
continue  to  struggle  with  uneven  STEM  teaching 
quality, 
limited 
technology-related 
opportunities 
extracurricular learning (253). 

the  well-established 
results  of 
towards 

shortages, 

Academy 

teacher 

trend, 

point 

and 

for 

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

(250) Eurostat, [isoc_sks_itsps] Employed information and 
communications technology (ICT) specialists by sex. 

(251) OSKA. (2022). OSKA general forecast 2022-2031 - Key 

findings. 

(252) Competitevness Report Estonia (2024): Konkurentsivõime 

raport 2024 

(253) Riigi tegevus inseneride järelkasvu tagamisel | Riigikontroll. 

93 

 
 
Graph A13.1: Development of STEM enrolments in 
Estonia, 2015-2023 

Source: Eurostat, educ_uoe_enrt03 

inflow 

Attracting  and  retaining  talent  from  abroad 
remains  critical  for  strengthening  Estonia’s 
research  and 
innovation  capacity.  Recent 
growth in PhD student numbers has been primarily 
driven  by  international  candidates,  particularly  in 
engineering  and  ICT,  where  around  50%  of  PhD 
students  come  from  abroad.  This 
is 
essential to offset  demographic decline, meet the 
national  target  for  PhD  graduates  (300  per  year) 
and  address  persistent  skills  shortages  in  priority 
sectors.  However,  graduate  retention  varies  by 
field, and constraints related to residence permits 
and  post-study  pathways  continue 
limit 
Estonia’s  ability  to  capitalise  fully  on  this  talent 
pool. To improve retention and better link domestic 
and  international  graduates  to  the  labour  market, 
Estonia 
research  and 
industry-oriented doctoral pathways, supported by 
stronger  science-business  cooperation.  However, 
the  uptake  of  industry-oriented  doctoral  studies 
has remained below expectations (see Annex 4). A 
new  2026-2029  talent  strategy,  set  to  be 
presented  in  September  2026,  aims  to  better 
attract  and  retain  talent  from  abroad,  by  aligning 
with  the  ‘Work  in  Estonia’  and  ‘Study  in  Estonia’ 
initiatives.  

is  promoting  applied 

to 

94 

01 0002 0003 0004 0005 0006 0007 0008 0009 00010 000201520162017201820192020202120222023Number of students enrolled by area of studyNatural sciencesICTEngineering 
     
ANNEX 14: SOCIAL SCOREBOARD 

Table A14.1:Social Scoreboard for Estonia 

Update of 4 May 2026. 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 2026 for details on the methodology 
(https://employment-social-affairs.ec.europa.eu/joint-employment-report-2026_en). 
Source: Eurostat 

95 

41.810.262.511.20.55.0781.77.51.8131.021.819.429.616.08.834.87.7Critical situationTo watchWeak but improvingGood but to monitorOn averageDynamic labour markets and fair working conditionsSocial protection and inclusionShare of individuals who have basic or above basic overall digital skills(% of the population aged 16-74, 2025)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2025)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2025)Self-reported unmet need for medical care (% of the population aged 16+, 2025)Disability employment gap (percentage points, population aged 20-64, 2025)Housing cost overburden (% of the total population, 2025)Adult participation in learning (during the last 12 months, excl. guided on the job training, % of the population aged 25-64, 2022)Equal opportunities and access to the labour marketBest performersBetter than averageEarly leavers from education and training(% of  the population aged 18-24, 2025)Young people not in employment, education or training(% of the population aged 15-29, 2025)Gender employment gap(percentage points, population aged 20-64, 2025)Income quintile ratio (S80/S20, 2025)At risk of poverty or social exclusion (AROPE) rate (% of the total population, 2025)Employment rate(% of the population aged 20-64, 2025)Unemployment rate(% of the active population aged 15-74, 2025)Long term unemployment(% of the active population aged 15-74, 2025)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2024)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2025) 
 
 
 
  
 
 
ANNEX 15: HEALTH AND HEALTH SYSTEMS 

Estonia’s  health  system  faces  challenges 
that  need  to  be  addressed  to  improve  the 
health  of  its  population,  social  fairness, 
competitiveness  and  productivity.  These 
challenges include: (i) limited access to healthcare 
and  low  life  expectancy,  the  latter  linked  to  high 
treatable  mortality;  (ii)  suboptimal  funding  and 
cost-effectiveness 
system; 
(iii) shortages  of  healthcare  workers;  and  (iv)  an 
uneven  geographical  distribution  of  healthcare 
resources.  Sustainable  funding  of  healthcare  and 
the need to improve accessibility and affordability 
the  2025 
of  healthcare  were 
country-specific recommendations (CSRs). 

health 

raised 

the 

of 

in 

Life  expectancy  at  birth  in  Estonia  remains 
lower  than  the  EU  average.  As  in  other  EU 
countries,  women  can  expect  to  live  longer  than 
men (8.3 years longer in 2024). However, they can 
only  expect  to  live  about  3.1 years  longer  than 
men in good health. The gender gap in healthy life 
years at age 65 is much lower – only a single year. 
As  a  result,  Estonian  women  tend  to  live  longer, 
but with greater limitations on their daily activities. 
to 
Inequalities 
socio-economic  status  also  remain  substantial.  In 
2023,  educational  inequalities  translated  into  a 
life expectancy gap at age 30 of 10 years for men 
and 8.5 years for women (254). There are also large 
regional  differences;  for  example,  people 
in 
Hiiumaa  live  more  than  10 years  longer  than  in 
Võru County (255). 

expectancy 

linked 

life 

in 

Treatable  mortality  remains  much  higher 
than  the  EU  average  (see  Graph A15.1). 
Although  it  has  improved  over  the  last  10 years, 
the  high  level  of  treatable  mortality  suggests 
shortcomings  in  the  effectiveness  of  the  health 
system.  Diseases  of 
the  circulatory  system 
(CVDs))  and  cancer 
(cardiovascular  diseases 
remain the leading causes of death, with mortality 
rates  higher  than  the  EU  average.  Mortality  from 
CVDs  is  particularly  high,  led  by  ischaemic  heart 
diseases  and  hypertension.  Cancer  prevalence  in 
Estonia  has  increased  substantially  over  the  last 
decade, but remains slightly below the EU average. 
The  2021-2030  Estonian  Cancer  Control  Plan 
it  further  by  strengthening 
seeks 

lower 

to 

(254) OECD/European Observatory on Health Systems and Policies 
(2025), Country Health Profile 2025: Estonia. State of Health 
in the EU. 

(255) Sustainability of healthcare. Scenarios until 2035 - Foresight 

Centre. 

prevention, promoting early detection and ensuring 
timely access to treatment. Estonia participates in 
several  joint  actions  funded  by  EU4Health,  which 
address  treatable  mortality,  particularly  when 
caused  by  cancer.  Estonia’s  suicide  rate  is  one  of 
the  highest  in  the  EU.  To  address  it,  Estonia 
launched its first Suicide Prevention Action Plan for 
2025-2028.  A  mental  health  action  plan  for 
2023-2026 is also being implemented.  

Graph A15.1: Treatable mortality 

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

level  of 

investment 

Preventable  mortality  in  Estonia  was  also 
very  high  in  2022  despite  a  comparatively 
high 
in  disease 
prevention.  Spending  on  prevention  in  2023 
accounted  for  4.2%  of  Estonia’s  total  health 
expenditure,  above  the  EU  average  of  3.65%.  It 
has  increased  slightly  over  the  last  10 years. 
However,  the  rate  of  preventable  mortality  is 
among  the  highest  in  the  EU,  with  only  a  5% 
decrease over the last decade. The newly adopted 
Public Health Act (2025) establishes the legislative 
framework  for  organising  and  protecting  public 
health,  defining  the  roles  and  duties  of  state  and 
local  authorities,  outlining 
requirements  and 
restrictions  to  safeguard  population  health  and 
setting  out  the  basis  for  financing  public  health 
measures and oversight. 

Alcohol  consumption  is  one  of  the  leading 
drivers of preventable mortality in Estonia. It 
accounts  for  approximately  one  quarter  of  all 
preventable  deaths  (256).  A  large  proportion  of 
deaths  was  also  linked  to  dietary  risk  factors, 
including insufficient intake of fruit and vegetables 
consumption  of  sugar-sweetened 
and  high 

(256) Country Health Profile 2025: Estonia  - see earlier footnote.  

96 

152.3129.4123.9135.6126.2115.894.889.291.793.389.786.8201420192020202120222023per 100 000 populationEstoniaEU 
 
 
       
 
 
 
Table A15.1: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 2023 data (or latest available). 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 Portugal (licensed to practice) and Slovakia (professionally active). Latest data 
update on nurses for Belgium and Sweden: 2022; for France: 2021; for Luxembourg: 2017. 
** latest available 10-year trend: ratio 2023/2014 or 2024/2013; a factor of 2.00 means that it has doubled in 10 years. 
***‘Available hospital beds’ covers somatic care, not psychiatric care. 
Source: Eurostat 

beverages.  Smoking  rates  have  declined  over 
recent  years  and  are  below  the  EU  average. 
However,  the  proportion  of  young  people  who 
report  smoking  e-cigarettes/vaping  is  particularly 
high.  Estonia  has  introduced  several  policies  to 
address  these  challenges,  including  its  national 
health plan for  2020-2030 and the Estonia 2035 
strategy.  Tobacco  product  excise  taxes  were 
increased  in  2025,  following  greater  marketing 
regulation  introduced  in  2019.  When  it  comes  to 
vaccinations,  Estonia  has  experienced  a  steep 
rates 
decline 
(particularly  for  measles).  As  a  result  of  the  low 
vaccination  uptake  and  misinformation  impacting 
trust  in  vaccines,  the  Ministry  of  Social  Affairs 
introduced tools to improve vaccine management.  

immunisation 

childhood 

in 

These  poor  health  outcomes  negatively 
affect  Estonia’s  workforce,  productivity  and 
competitiveness. In Estonia, mortality at working 
age as a proportion of total mortality is among the 
highest  in  the  EU,  exacerbating  the  effects  of 
population ageing on a shrinking labour force (see 
Annex 11).  Gains  in  health  status  from  further 
prevention investments could alleviate this impact. 
For  example,  preventing  all  deaths 
from 
non-communicable  diseases 
in  Estonia  would 
result  in  a  1.1%  gain  in  working-life  years  from 
2022  to  2040  (vs  0.9%  for  the  EU).  The  gain  in 
working-life  years  would  save  about  136 397  life 
years  in  Estonia  over  2022-2040.  This  increase 
would  mitigate  an  otherwise  expected  7% 
reduction  of  the  workforce  due  to  demographic 

ageing  of  the  2022  population  (7%  for  the  EU) 
(257). 

The  functioning  of  the  health  system  is 
hampered by low public spending. Spending on 
public  health  has  grown  substantially  in  Estonia 
over  the  last  decade  (38%  increase).  The  most 
recent  increases  were  driven  by  higher  wages  for 
healthcare workers, with doctors’ wages increasing 
by  approximately  25%  and  nurses’  salaries  by 
21%  in  2023.  Yet  in  2024,  health  spending  per 
inhabitant  (adjusted  for  differences  in  purchasing 
power)  was  one  of  the  lowest  in  the  EU  and  just 
77%  of  it  was  publicly  funded.  The  allocation  of 
spending  by  function 
in  2023  reveals  that 
outpatient  care  represents  the  largest  portion  of 
current  health  expenditure.  This  is  followed  by 
inpatient  care,  pharmaceuticals  and  medical 
devices, 
long-term  care  and  preventive  care. 
Historically,  investment  levels  have  been  low  in 
Estonia  and  relied  heavily  on  EU  funds.  At  the 
same  time,  ageing  infrastructure  (with  many 
facilities over 50 years old) and low availability of 
key  diagnostic  technology  raise  concerns.  The 
government  is  also  undertaking  a  broader  review 
of  healthcare  financing  to  improve  its  long-term 
sustainability  and  financial  protection.  Also,  the 
(RRP) 
Estonian 
includes  investments  that  can  address  the  2025 
CSR: 
infrastructure 
(construction  of  a  county  hospital  and  health 
implementation  of 
(ii) 
centre 

(i) improvement  of  health 

resilience  plan 

recovery  and 

in  Viljandi); 

(257) EC/OECD, State of Health in the EU: 2025 Synthesis Report. 

97 

2020202120222023202410-year change**EU average* (latest year) Cancer mortality per 100 000 population265.0265.8246.7238.0n.a.0.79233.1 (2023)Mortality due to circulatory diseases per 100 000 population 560.2 599.4 575.0 521.6n.a.0.75313.0 (2023)Current expenditure on health, purchasing power standards, per capita1 9012 0381 9892 1452 3381.643834.9 (2023)Public share of health expenditure, % of current health expenditure 77.1 76.1 74.8 75.8 76.61.0380.6 (2023)Spending on prevention, % of current health expenditure 4.98.85.74.2n.a.1.443.7 (2023)Available hospital beds per 100 000 population*** 397 389 374 364n.a.0.84440 (2023)Doctors per 1 000 population*3.53.43.53.5n.a.1.044.3 (2023)*Nurses per 1 000 population* 6.4 6.5 6.6 6.6n.a.1.177.6 (2023)*Mortality at working age (20-64 years), % of total mortality19.017.617.818.317.70.8414.3 (2023)Consumption of antibiotics in the community and hospital sectors,      defined daily doses per 1 000 inhabitants 10.5 10.1 12.4 12.7 13.01.0720.3 (2024) 
 
 
       
 
practices  in  primary  care  between  EU  countries. 
The  EU  Technical  Support  Instrument  (TSI)  has 
supported  Estonia  in  implementing  major  primary 
care  reforms, 
including  efforts  to  strengthen 
mental health management. All this is expected to 
help address the 2025 CSR.  

Graph A15.2: Out-of-pocket payments: share in 
healthcare spending and categories, 2023 

organisational  reforms;  and  (iii)  strengthening  of 
primary healthcare.  

Linked to low public funding, the country has 
a high level of OOP payments for healthcare 
(22%  in  2023  vs  an  EU  average  of  15%).  OOP 
payments  went  predominantly  on  outpatient 
medical goods, followed by dental care, long-term 
care  and  outpatient  specialist  care.  Existing 
include 
measures  to  mitigate  OOP  spending 
exemptions  and 
for 
vulnerable groups, annual caps on pharmaceutical 
co-payments  and  recent  expansions  in  benefit 
coverage, notably  in primary and dental  care. The 
most  recent  legislative  measure  to  be  mentioned 
here 
is  the  Medicines  and  Medical  Devices 
Reimbursement  Act  from  2025.  These  measures, 
together with the RRP and cohesion policy funding 
(see  previous  paragraph),  can  help  address  the 
2025 CSRs on affordability and accessibility. 

reduced  user  charges 

improve 

its  efforts  to  reduce 
Estonia  continues 
hospitalisations  and 
patients’ 
outcomes.  Estonia  has  gradually  downsized  its 
hospital  bed  capacity  in  recent  years.  From  2018 
to  2023, 
the  number  of  beds  per  1 000 
inhabitants  fell  by  more  than  9%  (see  Table 
A15.1).  Adopted  in  December  2024,  the  Hospital 
to  further 
Network  Development  Plan  aims 
consolidate the hospital sector, with the number of 
hospitals  planned  to  decrease  from  20  to  17  by 
2040  (part  of  the  RRP).  Occupancy  rates  for 
curative  care  beds  have  remained  below  70% 
since 2020, suggesting an inefficient allocation of 
reduced 
resources.  Estonia  has  successfully 
by 
for 
hospitalisations 
effectively  moving  care  into  community  settings 
(258).  Despite  modest  improvements  in  secondary-
care  quality  indicators,  Estonia's  30-day  mortality 
rates  for  acute  myocardial  infarction  and  stroke 
remain  above  the  EU  average.  To  address  this,  a 
nationwide  ischemic  stroke  care  pathway  was 
implemented in January 2025. Apart from the RRP 
measures  related  to  hospitals  and  primary  care, 
cohesion  policy  funds  also  play  a  role:  Estonia  is 
improving 
its  primary  care  by  setting  up 
multidisciplinary  healthcare  centres  and  offering 
complex  services via multiprofessional  teams  and 
investing 
care.  Estonia  also 
participates  in  the  joint  action  CIRCE-JA  (259) 
funded  by  EU4Health  aimed  at  transferring  good 

integrated 

conditions 

chronic 

in 

(258) Country Health Profile 2025: Estonia – see earlier footnote. 

(259) Home | CIRCE-JA. 

98 

Household out-of-pocket payment: direct payment for 
healthcare goods and services from the household primary 
income or savings, where the payment is made by the user at 
the time of the purchase of goods or the use of the services 
(Eurostat). VHI: voluntary health insurance. 
(1) Others: eyeglasses, hearing aids, lab tests... 
Source: Eurostat and Country Health Profiles - Dashboard 

Estonia  faces  challenges 
in  access  to 
healthcare,  with  high  unmet  needs  and 
significant inequalities. In 2025, the proportion 
of the Estonian population reporting unmet needs 
for  medical  care  remained  among  the  highest  in 
the  EU  (7.7%  vs  an  EU  average  of  2.4%).  Long 
waiting times are the main reason for these unmet 
needs  and  they  are  more  pronounced  among 
people at risk of poverty, with a gap of around 13 
%  (see  Annex 12).  Comparatively  high  unmet 
needs  for  medical  examination  are  reported  in 
rural  areas  (74% 
in  2025).  There  are  also 
significant  regional  differences  in  access;  for 
example, just 49% of the population lived within a 
10-minute drive of a hospital in 2023, one of the 
lowest  percentages  in  the  EU  (see  Annex 18). 
Estonia  is  taking  steps  to  integrate  health  and 
social  policies  (see  Annex  12)  and  to  advance 
personalised  medicine.  Both  can  contribute  to 
the  2025  CSRs  on  access  and 
addressing 
affordability  by 
improving  coordination  and 
continuity  of  care,  strengthening  prevention,  and 
supporting  more  targeted,  person-centred  service 
delivery. 

76%22%2%28%13%18%8%33%1%Gov. & CompulsoryOut-of-pocket (OOP)Voluntary (VHI)PharmaceuticalsOutpatient careLong-term careOthersDental careInpatient careShare ofspendingOOP BreakdownOOP share -EU-27 average:15% 
 
       
Shortages  of  health  workforce  limit  the 
availability  of  care,  particularly  in  rural 
areas.  Estonia  faces  persistent  shortages  in  its 
health  workforce.  In  2023,  Estonia  had  fewer 
doctors  and  nurses  than  the  EU  average  (see 
Table A15.1).  The  number  of  nurse  graduates  is 
increasing at a moderate rate and remains below 
the EU average. As for doctors’ graduates, the rate 
is  among  the  lowest  in  the  EU  and  it  dropped 
further  in  2023.  A  high  proportion  of  doctors  and 
nurses  are  55 years  of  age  and  over,  raising 
concerns  about  the  long-term  accessibility  of 
health  services  (particularly  in  rural  areas  (260)). 
Shortages are particularly high in family medicine, 
psychiatry  and  nursing.  Over  the  next  decade, 
Estonia’s health system faces a projected shortage 
of  around  1 300 doctors  and  nearly  750 nurses, 
and  significant  gaps 
in  psychologists  and 
pharmacists  (261).  The  situation  is  even  more 
challenging outside the major cities of Tallinn and 
Tartu (262). 

Working  conditions  are  a  major  deterrent  to 
entering  the  profession.  The  government  has 
taken  steps  to  address  these  challenges  by 
increasing  doctors’  and  nurses’  wages.  The 
Hospital  Network  Development  Roadmap  also 
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 and to incentivise health staff to work 
in  remote  areas.  It  is  also  addressing  the  low 
graduation 
increasing 
levels  of  nurses  by 
admissions to  nursing  training  by  5%.  In  addition, 
Estonia participates in the joint action HEROES (263) 
funded  by  EU4Health,  aimed  at  sharing  expertise 
among EU countries on health workforce planning. 
All these measures and funding could help address 
the 2025 CSR on access. 

EU, 

the 

Estonia’s  health  system  is  among  the  most 
but 
in 
digitally  mature 
interoperability  challenges  persist.  Estonia 
makes extensive use of digital tools to support the 
collection,  management  and  sharing  of  health 
data  across  care  providers.  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  and  doubled  between  2022  and 
2024.  Notable  progress  has  been  achieved 
through  the  roll-out  of  the  nationwide  e-booking 
system  and  the  introduction  of  the  redesigned 
Health Portal which improves usability for patients 
and  professionals.  At  the  same  time,  persistent 
challenges remain in ensuring full standardisation, 
interoperability  and  the  timely  exchange  of  data 
within the e-health ecosystem. Measures to boost 
the  digital  transformation  of  Estonia’s  health 
sector  set  out  in  its  RRP  include  updating  the 
and 
governance 
coordinating the development of e-health services. 
Estonia also 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.  All  these  measures  and  funding  have  the 
potential  to  partially  address  the  2025  CSR  on 
access.  

framework 

e-health 

for 

Estonia's  pharmaceutical  sector  holds  a 
modest position in the EU. It is characterised by 
one of the smallest economic contributions in the 
manufacturing  of  basic  pharmaceutical  products 
and  preparations.  Clinical  trials  in  Estonia  have 
seen  a  reduction  over  recent  years  to  14.5  per 
million  population  in  2024  (from  32.2  in  2022), 
lower  than  the  EU  average  of  18.3  (264).  Estonia's 
patent  activity  is  limited,  with  just  0.7 patents 
granted  per  million  population,  while  the  EU 
average  stands  at  1.8  (2024)  (265).  The  industry 
has  a  consistently  low  share  of  extra-EU  exports 
(0.56% in 2025 vs 13.85% for the EU average). 

(260) Tervishoiutöötajatega seotud trendid Eestis, Arenguseire 

keskus, 2025. 

(261) OSKA_Tervishoid_ENG_Key-findings.pdf. 

(262) Country Health Profile 2025: Estonia – see earlier footnote 

(264) US National Library of Medicine, https://clinicaltrials.gov. 

(263) The project – JA HEROES | Health Workforce Planning Project. 

(265) European Patent Office: Statistics & Trends Centre | epo.org. 

99 

 
 
 
 
ANNEX 16: HOUSING 

House  prices  have  been  rising  for  a  long 
time.  The  increase  in  house  and  rental  prices  in 
Estonia since the mid-2010s is among the highest 
in  the  EU,  with  the  strongest  growth  recorded  in 
Tallinn and its commuter belt. Construction of new 
dwellings  expanded  in  response  but  then  halted 
due  to  a  lack  of  demand  caused  by  higher 
borrowing and construction costs.  

in 

Estonia 

Housing  affordability 
has 
weakened over the past decade. Strong house 
price  and  rent  growth  has  contributed  to  a  rising 
low-income 
cost  overburden,  particularly  for 
households and single parents, with single parents 
at  risk  of poverty  in  Estonia  allocating  one  of  the 
highest shares of disposable household income to 
rent  in  the  EU.  Housing  vulnerability  remains 
strongly  linked  to  tenure,  and  is  close  to  the  EU 
average,  although  substantially  higher  for  owners 
without  a  mortgage.  Housing  availability  also 
labour 
remains  a  concern, 
shortages  in  construction, limited municipal  social 
housing  stock  and  increasing  pressure  in  urban 
areas. 

including  due  to 

By contrast, energy poverty remains relatively 
limited  on  average,  affecting  primarily 
vulnerable groups. The proportion of households 
unable to keep their homes adequately warm and 
in  arrears  on  utility  bills  is  well  below  the  EU 
average.  The  proportion  of  households  unable  to 
keep  their  homes  adequately  warm  is  however 
higher  among 
low-income  households  and 
households  with  older  adults  than  the  general 
population.  

low 

and 

gaps 

Estonia’s  decentralised  and  market-driven 
housing  policy  is  impacted  by  territorial 
development 
local 
administrative  capacity.  Estonia’s  housing 
policy is focused on support to homeownership via 
tax  relief  and  loan  guarantees,  with  minimal 
provision 
Estonia 
decentralised model for housing development and 
low 
support  faces  challenges  due 
local 
administrative 
increasing 
capacity 
support through digitalisation is envisaged.  

to 
although 

benefits. 

housing 

of 

progress, the impact on housing affordability, and 
support to vulnerable groups.  

Housing market developments 

from 

A  long-standing  trend  of  rising  house  prices 
continues.  House  prices  have  maintained  a 
pronounced  uptrend 
the  mid-2010s, 
following  their  post-2008-09  crisis  correction. 
Nominal  house  prices 
increased  particularly 
sharply  in  2020-2022,  when  very  low  mortgage 
interest  rates,  rising  household 
incomes,  the 
release  of  second-pillar  pension  funds  and  the 
sale  of  a  few  unicorn  start-ups  incentivised 
households with a willingness to pay a higher price 
to  purchase  real  estate.  Price  increases  were 
geographically  concentrated,  with  the  strongest 
growth  recorded in  Tallinn  and  its  commuter belt, 
reflecting  population  concentration  and  labour 
market  dynamics.  By  2025,  house  prices  were 
64%  higher  than  in  2020  in  nominal  terms, 
corresponding to an increase of about 15% in real 
terms  (Graph  A16.1).  This  price  growth  slowed  in 
2023,  as  tighter  financing  conditions  quickly 
translated into a higher financial burden due to the 
prevalence  of  variable-rate  mortgages  in  Estonia, 
and  economic 
the 
purchase  of  real  estate.  The  weaker  demand  was 
also  reflected  by  far  fewer  transactions.  Since 
2023,  however,  mortgage  interest  rates  have 
declined,  and  lending  volumes  have  expanded. 
Together with more favourable income taxation as 
of  2026,  this  has  led  to  a  housing  market 
revival (266). 
ratio  has 
The  price-to-income 
fluctuated and increased over the last 15 years by 
24%, one of the highest increases in the EU (Graph 
A16.1).  

stagnation  discouraged 

Estonia  is  currently  designing  a  housing 
policy  for  2025–2035  which  might  touch 
upon  several  aspects  relevant  to  housing 
affordability.  Confirmation  of  this  and  policy 
implementation  will  require  monitoring  to  assess 

(266) The Estonian Economy and Monetary Policy 4/2025. 

100 

 
 
 
 
 
Graph A16.1: Housing affordability selected indicators 

Source: Eurostat and European Commission calculations. 

Rental  prices 
increased  more  gradually 
during  the  2010s  but  rose  sharply  in  2022. 
Since  2020,  rental  prices  (including  existing  and 
new rental contracts) have increased by 32%, but 
the  steepest  increase  of  more  than  20%  was 
recorded  in  2022.  That  year  Estonia  witnessed  a 
large  inflow  of  Ukrainian  refugees.  The  rental 
market in Estonia is small, with home ownership at 
79.3%  (EU  average  of  68.4%  in  2024),  while  the 
share  of  renters  is  correspondingly  lower  (19.3%; 
EU: 30.2%). Although the rent to income ratio is on 
a decreasing trend after a peak in 2017, the 16% 
increase  between  2010  and  2024  is  one  of  the 
highest in the EU.  

activity 

construction 

Construction  of  new  dwellings  expanded  in 
response  to  rising  house  prices  but  has 
dwindled  over  the  last  years.  Housing  supply 
has  expanded  over  the  past  decade,  albeit  falling 
short of satisfying demand in high-growth regions. 
Residential 
increased 
substantially  in  response  to  fast  price  growth  in 
the early 2020s, as profitability rose. The number 
of  residential  building  permits  issued  increased 
sharply in 2019-2021. However, completions have 
become  constrained  by  labour  shortages,  sharply 
rising  construction  costs  and  more  stringent 
financing conditions for developers. The number of 
building permits issued has therefore been falling 
during  the  last  few  years,  suggesting  that  new 
housing  supply  has  become  weaker.  Meanwhile 
population  growth  has  become 
increasingly 
concentrated 
in  certain  areas,  exacerbating 
regional  disparities.  Tallinn  and  Tartu  keep 
experiencing high demand and insufficient supply, 
while  rural  Estonia  faces  excess  supply  and 
housing  quality  deterioration.  The  housing 
construction  gap  for  the  decade  till  2035  (based 
on  population  and  construction  projections)  is 
estimated  at  15 300  dwellings,  with  the  biggest 

investment  needs  concentrated  in  the  capital  city 
metropolitan region (267). 

Graph A16.2: House prices, rents and price-to-
income evolution in EE and EU27 since 2005 

Source: Eurostat 

for  a 

Older buildings are in need of renovation. Due 
to  a  large  stock  of  Soviet-era  buildings,  Estonia 
has  sizeable  investment  needs  related  to  energy 
efficiency  retrofitting,  climate  adaptation  and 
urban  infrastructure.  Up  to  14 000  apartment 
total  area  of 
buildings,  accounting 
18 million m2  will  need  to  be  fully  renovated 
(defined as an upgrade to at least energy class C 
by 2050, considering (i) the number of residential 
buildings  currently  in  use;  (ii)  the  volume  of 
renovations  completed  to  date  (3 000  apartment 
buildings  with  a  total  area  of  5 million m2  in 
2020);  (iii)  the  estimated  residential  building 
abandonment rate). In addition, Estonia intends to 
use  the  Social  Climate  Fund  in  particular  for 
housing  renovation,  allocating  substantial  funding 
to the renovation of apartment buildings to reduce 

(267) Balouktsi et al. (2026) Housing investment needs in the EU. 

JRC Technical Report 144419. 

101 

50751001251501752002252502753003253503754000507091113151719212325Index (2005 = 100)Nominal prices EENominal prices EU27Rental prices EERental prices EU27Price-to-income ratio EEPrice-to-income ratio EU27 
     
 
 
energy  costs  and  improve  living  conditions  for 
vulnerable  households.  Public  support  schemes 
and  EU-funded  renovations  therefore  play  an 
important  role  but  remain  limited  in  scale  (see 
Annex 9).  

Graph A16.3: House supply indicators in EE since 
2005 

(1) 4-quarters moving sums (averages for prices) 
Source: Eurostat 

Productivity  in  construction  is  weak.  The 
Estonian  construction  sector  is  characterised  by 
28%  lower  productivity  (gross  value  added  per 
hour  worked)  than  the  EU  average,  despite  a 
gradual  improvement  over  the  previous  decade. 
Costs  have  risen  particularly  sharply  since  2021 
due to rising prices of materials (many previously 
sourced from Russia), supply chain disruptions and 
increasing  wages.  As  a 
in  2024, 
construction producer costs were 38% higher than 
in  2020  and  nominal  unit  labour  costs  in  the 
construction sector were 62% higher – one of the 
highest sectoral increases in the EU (see Annex 5). 
Because  of  these  sharp  increases  in  costs  and 
prices,  combined  with  higher  borrowing  costs,  the 
main factor limiting construction activity in 2024-
2025 was lack of demand.  

result, 

Structural policies 

is 

designing 

Estonia 
a 
currently 
comprehensive  housing  policy  for  2025–
2035.  It  might  touch  upon  several  aspects 
(taxation,  spatial  planning,  funding,  development 
of  affordable  rental  housing,  measurement  and 
monitoring)  relevant  to  housing  affordability  and 
studied  in  this  annex.  Confirmation  of  this  and 

policy  implementation  will  require  monitoring  to 
impact  on  housing 
the 
assess  progress, 
affordability, and support to vulnerable groups. 

Estonia’s  housing  policy 
is  focused  on 
support to homeownership via tax relief and 
loan  guarantees,  with  minimal  provision  of 
housing  benefits.  Several  tax  relief  schemes 
were  recently  reformed.  Mortgage  interest  tax 
relief,  which  had  encouraged  households  to  take 
on  more  debt,  driving  demand  and  potentially 
increasing  house  prices,  was  abolished  in  2024. 
Residential  land  taxation  rates  in  Estonia  are  set 
by  municipalities  (0.1%–1%  of  the  land’s  value), 
which  can  provide 
incentives  to  occupy  the 
property (the homeownership tax incentive has not 
been  set  based  on  the  surface  area  since  2026 
but  as  an  absolute 
figure  –  maximum 
EUR 1 000) (268).  Estonia’s  tax  system  still  raises 
very  little  revenue  from  property  taxes,  reflecting 
Estonia’s  approach  of  taxing  land  rather  than 
property.  While  residential 
land  taxation  can 
provide  a  first  incentive  to  activate  the  land, 
exploring  a  phased-in 
tax  on  unoccupied 
residential  property  could  further  discourage 
owners  from  leaving  their  properties  vacant  in 
areas  under  housing  pressure  (see  Annex  3). 
Housing  support 
is  tied  to  the  subsistence 
allowance; there is no separate housing allowance. 
Although  social  housing  has  increased  in  recent 
years,  it  only  accounted  for  around  1.1%  of  the 
housing  stock  in  2017,  compared  with  an  OECD 
average of about 7%.  

support 

increasing 

Estonia  decentralised  model  for  housing 
development  and  support  faces  challenges 
due  to  low  local  administrative  capacity 
although 
through 
digitalisation  is  envisaged.  The  state  provides 
public  funding  support  (subsidies,  guarantees, 
loans)  while  local  authorities  are  responsible  for 
housing  support,  spatial  planning  and  land  policy 
implementation.  The  OECD recently  pointed  out 
significant  limitations  (269),  such  as  the  lack  of 
policy coherence between national and local levels 
and  the  low  administrative  capacity  of  local 
authorities.  The  creation  of  Maa-ja  Ruumiamet 
(Land  and  Spatial  Development  Board)  in  2025, 
harnessing  digitalisation,  aims  to  rationalise  and 

(268) Land tax | Estonian Tax and Customs Board. 

(269) Adapting land use and spatial planning to shrinkage in 
Estonia: Shrinking Smartly in Estonia | OECD, 2022 

102 

0123456780204060801001201401601802000507091113151719212325% of GDPIndex (2005 = 100)Residential building permits in m2, indexResidential buildings producer prices, indexInvestment in dwellings (right-hand side axis) 
  
 
foster  best  practice,  facilitate  access  to  expertise 
and improve implementation of planning decisions. 
This reform can build on Estonia’s fully digitalised 
building  permit  system,  which  allows  the  same 
project  to  be  evaluated  simultaneously  by  all 
public  authorities.  Lastly,  according  to  the  World 
Bank,  Estonia  was  among  the  most  performant 
Member 
construction 
regulation (270). 

regards 

States 

as 

Estonia’s housing policy is also characterised 
by  the  search  to  attenuate  territorial 
development gaps. These gaps pose a significant 
challenge for Estonia, reflected for housing in the 
proportion  of  vacant  housing  units  in  rural  areas 
from 16% in 2010 to 25% in 2024 and an annual 
abandonment  rate  of  0.7%),  representing  a 
worrying  trend  (see  Annex  18).  Low  incomes  and 
low  property  values  in  rural  areas  also  hinder 
investment in the renovation of the existing stock 
to  prolong  its  duration.  Several  measures  have 
been  put  in  place,  such  as  a  specific  co-loan 
scheme without collateral for households, or state 
financial  support 
for  municipal  build-to-rent 
schemes  in  rural  areas.  Complementary  support 
from EU funds was also directed to municipalities, 
with  EUR 23.4 million  supporting  the  construction 
of  housing  for  people  in  need  of  assistance  in 
2023. In the previous programming period, an EU-
co-financed  programme  (around  EUR 9.4 million) 
also  supported  the  adaptation  of  over  2 000 
homes for persons with disabilities. Estonia is also 
working  with  the  European  Investment  Bank  on  a 
major project (1 000-1 500 affordable new rental 
dwellings)  outside  the  main  cities  to  balance 
regional development.  

Vulnerable groups 

pressures 

affordability 

Housing 
are 
particularly  pronounced  for  low-income  and 
single-parent  households.  In  2024,  while  8.6% 
of  the  population  had  housing  costs  exceeding 
40%  of  disposable  household  income  (slightly 
above the EU average of 8.2% and 3.7 percentage 
points (pps) higher than in 2022), this rate rose to 
26.8%  among  single  parents,  well  above  the  EU 

average  of  14%  (271).  Among  people  at  risk  of 
poverty,  the  housing  cost  overburden  rate  also 
increased sharply by 10.7 pps to 29.6%, reflecting 
limited  access  to  affordable  housing.  Single 
parents  at  risk  of  poverty  in  Estonia  allocate  one 
of  the  highest  shares  of  disposable  household 
income  to  rent  in  the  EU  (46.7%  vs  32.3%  in 
2024), up significantly from 29.3% in 2015. Rising 
housing  costs  have  contributed  to  a  deterioration 
the  share  of 
in  housing  conditions,  with 
households 
in  overcrowded  dwellings 
living 
increasing  to  18.4%  in  2024,  5.7 pps  higher  than 
in 2020. 

rate  was 

Housing  vulnerability  in  Estonia  is  closely 
linked  to  housing  tenure  and  dependence  on 
municipal support, with tenue status strongly 
correlated  with  the  risks  of  poverty  and 
social exclusion. In 2024, the at-risk-of-poverty-
or-social-exclusion 
lowest 
(AROPE) 
among  homeowners  with  a  mortgage  or  loan 
(8.1%; EU: 9.6%), while it was substantially higher 
among  owners  without  a  mortgage  (23.5%;  EU 
18.4%).  Tenants  renting  at  market  price  recorded 
an  AROPE  rate  of  31.2%  (EU:  30.8%),  rising  to 
41.2% among those renting at a reduced price or 
free of charge (EU: 38.4%). The at-risk-of-poverty 
(AROP)  rate  among  tenants  stood  at  29.3%  (EU: 
25.6%), 
among 
homeowners (EU: 12.7%).  

compared  with 

19.1% 

pressures 

affordability 

are 
Housing 
particularly pronounced in large urban areas. 
A recent study led by the Ministry of Climate found 
that  the  availability  of  affordable  housing  was 
limited  in  the  urban  regions  of  Tallinn,  Tartu  and 
Pärnu (272).  Housing  prices  and 
rents  have 
increased  significantly 
incomes, 
exceeding  the  average  financial  capacity  of 
households,  with  particularly  adverse  effects  on 
young people and low-income households. For this 
sector  of  the  population,  this  trend  contributes  to 
spatial inequalities, encourages outward migration 
from city centres and delays household formation 
and housing-related investment. In contrast, many 
households  in  rural  areas  are  locked  into  housing 
with a very low residual value. 

faster 

than 

(270) Housing in the European Union: Market Developments, 

(272) Affordable and accessible housing policy analysis: 

Underlying Drivers, and Policies, 2025, p 62. 

Taskukohane eluase_Eesti_11-10.pdf. 

(271)The overburden rate should be read together with the tenure 
structure (homeowner, tenants), that may differ across 
country and regions.   

103 

 
 
 
For  older  persons 
in  Estonia,  housing 
challenges  are  closely  linked  to  owning  an 
ageing home and high poverty risks impeding 
capacity  for  investment  in  renovation.  Older 
people  are  more  likely to remain in  long-standing 
owner-occupied  dwellings,  many  of  which  were 
built several  decades ago and are not adapted to 
accessibility or energy-efficiency needs. Older-age 
poverty  risks  are  particularly  pronounced  among 
single-older-person  households,  which  can  limit 
the  ability  to  cover  maintenance,  renovation  and 
energy costs (see Annex 6).  

Energy  poverty  remains  relatively  limited. 
The proportion of households unable to keep their 
homes  adequately  warm  stood  at  3.6%  in  2024, 
well below the EU  average of 9.2%, while arrears 
on utility bills were also lower than the EU average 
(5.7%  compared  with  6.9%).  However, 
the 
proportion  of  households  unable  to  keep  their 
homes  adequately  warm  is  higher  among  low-
income  households  (6.7 %)  and  households  with 
older adults (7.9 %). 

Municipalities  play  a  key  role  in  housing  support, 
but  with  limited  capacity.  Targeted  support  is 
provided  through  emergency  shelters,  temporary 
accommodation,  day  centres,  which  offer  basic 
services  such  as  meals,  hygiene  facilities  and 
social  work  support,  and  general  housing-related 
benefits.  High  housing  development  prices 
constrain  municipal(273) 
investment,  which  the 
current  level  of  state  financial  support  does  not 
compensate. 
In  2023,  14  795  people  used 
municipal  dwelling  services.  The  most  recent 
partial  homelessness  count,  conducted  in  2021, 
identified  just  over  1  000  homeless  persons.  In 
2023,  1  836  people  stayed 
in  emergency 
accommodation.  Persons  with  disabilities  have 
among  the  highest  poverty  rates  (see  Annex  12). 
represented  12.9%  of  social 
Although 
housing  residents 
limited  data  on 
in  2021, 
affordable  and  accessible  housing  restricts  the 
assessment  of  how  effectively  municipal  social 
services meet their housing needs across regions.  

they 

(273) Affordable and accessible housing policy analysis 
Taskukohane eluase_Eesti_11-10.pdf 

104 

 
 
 
HORIZONTAL 
ANNEX 17: 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).  The  country  is  performing 
well and improving on adult learning (SDG 4). The 

competitiveness 

Graph A17.1: Progress towards the SDGs in Estonia 

participation  in  learning  in  the  past  four  years  up 
from  19.6%  of  the  active  population  aged  25-64 
in 2019 to 23.8% in 2025 (EU average: 13.7%). 

However,  it  still  needs  to  catch  up  with  the 
EU  average  on  SDG 9  (Industry,  innovation 
and  infrastructure)  and  SDG 8  (Decent  work 
and economic growth). Estonia’s in-work at-risk-
of-poverty  rate  (SDG  8)  increased  from  10.0%  of 
population  aged  18  or  over  in  2019  to  10.3%  in 
(EU  average:  8.2%).  Gross  domestic 
2024 
expenditure  on  R&D 
increased  from 
(SDG 9) 
1.59%  of  GDP  in  2019  to  1.99%  in  2024,  but  is 
still below the EU average of 2.24%. Similarly, the 
percentage of households with high-speed internet 
connection  (SDG 9)  increased  from  57.4%  of 
households  in  2019  to  76.3%  in  2024,  but 
remains  below  the  EU  average  of  82.5%.  The 
(RRP) 
Estonian 
includes  significant  reforms  and  investments  to 
increase  access  to  high-speed  internet  in  rural 
innovation  and  digital 
areas,  and 

resilience  plan 

recovery  and 

to  boost 

For a detailed progress assessment towards the various SDGs, see the annual Eurostat report ‘Sustainable development in the 
European Union’; for extensive data on the short-term SDG progress of EU countries, see Key findings – Sustainable development 
indicators; for an interactive visualization of SDG progress of EU countries, see SDG country overview. 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 or six 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 29 April 2026. Data refer mainly to the period 2019-2024 or 2019-2025. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

105 

 
 
 
 
 
 
 
transition in businesses.  There is further  room for 
remaining 
improvement 
challenges. 

in  addressing 

the 

related 

indicators 

the  SDGs 

While Estonia performs well and is improving 
to 
on  several  of 
sustainability  (SDGs 2,  6,  7,  and  15),  the 
country  needs  to  catch  up  with  the  EU 
average  on  SDGs 12,  13  and  14.  The  area 
under  organic  farming  (SDG 2)  increased  from 
22.3%  of  utilised  agricultural  area  in  2019  to 
22.6%  in  2024  (the  EU  average:  10.9%).  The 
country  is  also  performing  well  and  has  made 
progress  on  most  of  the  affordable  and  clean 
energy 
the 
(SDG 7), 
percentage  of  renewable  energy  in  gross  final 
energy  consumption,  from  31.7%  in  2019  to 
42.2%  in  2024  (EU  average  25.2%).  However, 
while  Estonia’s  material 
(SDG 12) 
decreased  from  28.6 tonnes  per  inhabitant  in 
2019  to  24.9  in  2024,  it  is  still  above  the  EU 
average  of  13.7 tonnes  per  inhabitant.  Similarly, 
while  the  country’s  air  emissions  intensity  of  fine 
particulate  matter  from  industry  (SDG 9)  has 
fallen  from  0.24  grams  per  euro  in  2018  to  0.16 
in  2023,  it  is  still  above  the  EU  average  of 
0.05 grams per euro.  

including  on 

footprint 

Conversely,  it  is  performing  well  but  is 
moving  away  from  SDG  11  (Sustainable 
cities and communities). The population living in 
households  suffering  from  noise  has  increased 
from 8.6% in 2018 to 9.6% in  2023 (EU  average 
18.1%). Similarly, the percentage of the population 
suffering from the housing cost overburden rate in 
cities has increased from 5.1% in 2019 to 8.4% in 
2019,  but  remains  well  below  the  EU  average  of 
9.8%. 

Estonia  is  performing  well  and  improving  on 
four  indicators  related  to  social  fairness 
(SDGs 1, 4, 7 and 10). It is also improving but 
still  needs to  catch  up on  two indicators for 
SDGs 3  and  5.  Estonia  is  performing  well  and 
improving  on  poverty  reduction  (SDGs 1  and  10), 
including  the  relative  median  at-risk-of-poverty 
to  poverty 
gap (down  from  22.0%  distance 
threshold in 2019 to  18.8% in 2024; EU average: 
22.7%).  But  it  still  needs  to  catch  up  on  some 
gender  equality  indicators  (SDG 5).  The  average 
gross  hourly  earnings  of women  went  from being 
21.6% lower than men in 2019 to 18.8% lower in 
2024  but  this  is  still  above  the  EU  average  of 
11.1%.  On  the  other  hand,  tertiary  educational 
attainment  (SDG 4)  increased  from  40.6%  of  the 

population  aged  25  to  34  in  2019  to  44.3%  in 
2025  (EU  average:  44.8%).  While  there  is  an 
improvement  on  the  self-reported  unmet  needs 
for  medical  care  (SDG 3),  falling  from  15.5%  of 
the population aged 16 or over in 2019 to 8.5% in 
2024,  this  is  still  above  the  EU  average  of  2.5%. 
The  Estonian  RRP  includes  measures  to  address 
challenges  in  primary  healthcare  and  long-term 
care. 

Estonia  is  moving  away  from  SDGs  and  still 
needs to catch up on one indicator related to 
macroeconomic  stability  (SDG  8).  But  the 
country  performs  well  and  is  improving  on 
SDG 17 (Partnerships for the SDGs). Real GDP 
per  capita  (SDG 8)  declined  (from  EUR 21 650  in 
2019 to EUR 21 250 in 2025) and remains below 
the  EU  average  of  EUR 34 110.(274)  The  general 
government gross debt (SDG 17)  grew from  9.0% 
of the GDP in 2019 to 24.1% of the GDP in 2025, 
but  it  remains  one  of  the  lowest  in  the  EU,  well 
below the EU average of 81.7%. 

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

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

with 2020 serving as the reference point. 

106 

 
 
ANNEX 18: COMPETITIVE REGIONS 

Regional development trends 

Estonia’s  convergence  on  the  EU  average 
GDP  per  head  since  its  accession  to  the  EU 
has  been  driven  mainly  by  the  stronger 
performance  of  the  regions  hosting  its  two 
largest cities, Tallinn and  Tartu. Over the past 
two  decades,  Estonia’s  GDP  per  head  has  grown 
significantly, rising from 55% of the EU average in 
2004  to  79%  in  2024  (in  purchasing  power 
standard,  PPS),  reflecting  substantial  long-term 
economic  convergence  (Map  A18.1).  There  are 
persistent territorial disparities: all NUTS 3 regions, 
except  the  capital  region  (107%),  are  well  below 
the  EU  average  in  GDP  per  head,  with  rates 
ranging from 51% in Kesk-Eesti to 63% in Lõuna-
Eesti.  

in  the  country,  but 

Over the last decade there has been regional 
convergence 
labour 
productivity  has  been  sluggish.  This  trend 
partly  reflects  a  slowdown  in  the  capital  region. 
Along  with  Kirde-Eesti,  these  two  areas  were  the 
only  ones  that  registered  real  GDP  per  head 
growth  far  below  the  EU  average  (EU  1.5%  vs 
0.9%  for  both  areas)  between  2014  and  2024. 
Labour  productivity 
remains 
significantly  below  the  EU  average  (Graph  A18.1, 
with  differences  in  productivity  across  regions 
among  the  most  pronounced  in  the  OECD(275). 
Strong wage growth has contributed to rising unit 
labour  costs  in  recent  years,  weakening  cost 
competitiveness.  

regions 

in  all 

Map A18.1:  GDP per head compared with the EU 
average (NUTS2). 

2021-2023 average GDP per head in purchasing power 
standard compared with the EU average. 
Source: Commission calculations based on Eurostat 16 July 
2025 data 

Graph A18.1: Labour productivity growth (2014 - 
2024) and labour productivity (2024) per hour 
worked; NUTS 3 level 

Source: Commission calculations based on Joint Research 
Centre (JRC) data 

(275) OECD (2025) Strengthening Place-Based Regional 

Development Policy in Estonia (EN) 

107 

0.71.53.02.31.80.90.9100735860578655EUEstoniaLääne-EestiLõuna-EestiKesk-EestiPõhja-EestiKirde-EestiAverage annual growth2024 (%)Productivity in 2024GDP/hour, EU27 = 100 
 
 
 
 
 
 
 
   
 
Table A18.1:Main development trends, challenges and the concentration of resources 

Source:  European Commission based on Eurostat data; categories of regions based on Map A18.1 

institutions  and  players  have 

regional 
the 
potential  to  play  a  stronger  role  in  place-based 
innovation ecosystems, particularly those in more 
remote  regions.  These  include  regional  university 
colleges,  which  already  play  a  significant  role  in 
regional  development,  particularly  in  Kirde-Eesti 
and  Lääne-Eesti, 
the 
located 
innovation poles of Tallinn and Tartu. There is also 
room  to  better  anchor  these  bodies  into  national 
innovation and regional development policies.  

further 

from 

trends 

demographic 

Estonia’s 
are 
characterised  by  population  growth  in  the 
main urban centres of Tallinn and Tartu and 
population  decline  in  most  other  regions. 
Between  2001  and  2021, 
the  population 
increased  by  14.9%  in  the  capital  region,  one  of 
the  steepest  increases  in  the  OECD,  but  declined 

Key challenges for regional 
competitiveness 

relatively 

Estonia’s  research and innovation  system is 
characterised  by 
low  R&D 
intensity  and  a  strong  concentration  of 
research  capacity  in  the  capital  region  and 
Tartu. R&D expenditure in Estonia remains below 
the  EU  average  (2.2%)  at  2%  of  GDP  in  2024. 
Regions outside main urban centres lack coherent 
innovation  ecosystems,  including  adequate  R&D 
supply,  tailored  business  support  services  and 
skilled professionals,  which limits firms’ ability to 
innovate  and  diversify (276).  However,  several 

(276) Strengthening Place-Based Regional Development Policy in 

Estonia, OECD, 2025. 

108 

Main development trendsTransition regions (population 1,37 million)Estonia is a single NUTS 2 region. Large disparities exist at NUTS 3 level, with only the capital region above the EU average in GDP per head  (PPS). The key challenge, particularly outside the capital, is to boost labour productivity and sustain growth amid declining cost competitiveness.Specific territories Regions on the eastern border are faced with particular challenges. Kirde-Eesti is undergoing major economic and social transformation as oil shale-based energy production is phased out. The region, which has a large Russian-speaking populatoin, has seen a significant fall in its population.  However, there are opportunities for diversifying into other industrial acitivities thanks to a strong industrial base, accumulated know-how, relatively good transport connectivity, regional university colleges, and a workforce transitioning out of fossil fuel industries. It is therefore crucial to continue and consolidate the economic transformation that began with support from the Just Transition Fund. Louna Eest includes Estonia's second-largest citiy, Tartu, as well as Kagu/Eesti, which cimprises some of the most peripheral parts of Estonia.  These areas face challenges linked to low population density and demographic decline, including difficulties in accessing basic services as well as weaker transport and energy connectivity. The islands and coastal areas benefit from tourism, but their reliance on ferries and, on the two larger islands air services, can complicate access to services, including healthcare. Differences in settlement patterns, infrastructure and connectivity mean that these regions are more sensitive to disruptions, highlighting the importance of strengthening regional resilience and the continuity of essential services. The capital region and, to a lesser extent, other urban areas face increasing congestion driven by urban sprawl, alongside growing challenges in climate adaptation, urban resilience, crisis preparedness and population protection.Transport and energy challenges The flagship TEN-T project in the region is Rail Baltica,  supported primarily from the Connecting Europe Facility, as well as SF, RRF, and considerable state budget support. More broadly, promoting a modal shift away from road transport, further decarbonising transport, and ensuring that the transport network is consistent with military mobility needs remain relevant objectives.  Improving the take-up and effectiveness of rail services, other public transport and light mobility would help to resolve a number of regional development bottlenecks.    
 
 
  
 
(A18.2).  The 

in  Kirde-Eesti 

by  16.5%  in  the  rest  of  the  country (277).  A 
continued  pattern  of  population  decline  affects 
most  regions:  growth  or  relative  stability  is 
concentrated in the capital region and Lõuna-Eesti 
(Tartu),  and  the  greatest  population  losses  are 
latest 
observed 
population  projections  from  Statistics  Estonia 
show that, over the next 25 years, the population 
will  decline  in  all  counties,  except  Harju  (capital 
region)  and  Tartu  County,  suggesting  a  further 
concentration of the population in the two largest 
urban  areas (278).  Harju  County  alone  makes  up 
population (279). 
almost 
Outmigration of the working-age population (15–
39)  has  been  particularly  pronounced  in  Kirde-
Eesti, while the capital region recorded strong net 
in  this  age  group,  exacerbating 
in-migration 
demographic and economic polarisation.  

Estonia’s 

half 

of 

border 

regions 

eastern 

Estonia’s 
– 
particularly  Kirde-Eesti  (Ida-Viru)  and  parts 
of Lõuna-Eesti  – face serious structural and 
demographic  challenges (280).  Kirde-Eesti 
is 
undergoing  economic  restructuring  linked  to  the 
phase-out  of  oil  shale-based  energy  production 
and has experienced sustained population decline 
and  high  unemployment.  Although  Lõuna-Eesti 
includes  Estonia's  second-largest  city,  Tartu,  it 
also  comprises  extensive  low-density  and  rural 
areas, particularly in Kagu-Eesti, that are affected 
by  ageing  and  outward  migration.  The 
just 
transition plan is being implemented in Kirde-Eesti 
to  support  economic  diversification  and  reskilling 
as part of the energy transition. In Kagu-Eesti, the 
World  Bank  Catching-up  Regions  Initiative  has 
supported  local  authorities  in  identifying  long-
term  development  priorities  and  strengthening 
project  preparation  and  implementation  capacity. 
These  initiatives  illustrate  differentiated,  place-
long-term 
to 
based 
development  needs  in  Estonia’s  eastern  border 
regions. 

approaches 

address 

demographic 

create 
Diverging 
distinct  development  challenges  across 
regions.  In  regions  with  shrinking  populations, 

trends 

of 

and 

public 

services 

there  is  more  pressure  on  labour  supply,  the 
local 
provision 
administrative  capacity.  Additionally,  existing 
infrastructure,  which  was  often  built 
to 
accommodate  larger  populations,  requires  costly 
changes  in  relation  to  the  reduced  demand (281), 
posing  challenges  to  the  ‘right  to  stay’.  By 
rapidly  growing  urban  areas  face 
contrast, 
challenges 
growth, 
to 
infrastructure  demand  and  competing  land-use 
needs. 

population 

related 

Map A18.2:  Population growth, 2015-2024 
(average annual change) 

Source: Eurostat 

Tertiary  educational  attainment  in  Estonia 
presents strong regional disparities, with the 
two biggest urban areas having nearly twice 
the  share  of  highly  educated  residents  as 
regions (282).  Higher  education  and 
other 
vocational  institutions  are  concentrated  in  Tallinn 
and  Tartu.  Limited  post-secondary  education 
options  in  other  regions  encourage  outmigration 
of  young  people.  This  limits  the  creation  of  and 
access to quality jobs (283). Peripheral regions also 
face  greater  difficulties  in  attracting  qualified 
staff,  and  the  general  shortage  of  teachers  will 

(277) Regionaalarengu  programm  2025-2028,  Regionaal- 

ja 

põllumajandusministeerium, 2025. 

(278) Statistics Estonia, 2024. 

(281) Shrinking Smartly in Estonia: Preparing Regions for 

Demographic Change, OECD, 2022. 

(279) Population, Statistics Estonia, 2026. 

(282) Education, Statistics Estonia, 2025. 

(280) Communication on the EU’s eastern regions bordering 

(283) Strengthening Place-Based Regional Development Policy in 

Russia, Belarus and Ukraine, European Commission, 2026. 

Estonia, OECD, 2025. 

109 

 
 
 
 
 
 
Table A18.2:Key regional indicators (at NUTS 3 level) in Estonia 

Dark green – the indicator is at least 120% of the EU average 
Light green – the indicator is at least 100% but less than 120%  of the EU average 
Yellow – the indicator is at least 90% but less than 100% of the EU average 
Light red – the indicator is at least 75% but less than 90% of the EU average 
Dark red – the indicator is less than 75% of the EU average. 
The colour scale applies to 'positive' indicators where higher values are favourable. 
For 'negative' indicators (where higher values are unfavourable) the colours are reversed. 
Source: Eurostat and JRC 

make it harder to maintain good-quality education 
in  these  areas  in  the  future  (see  Annex  13). 
Together, these trends risk undermining the ability 
of  regions  to  build  and  retain  human  capital, 
exacerbating  existing  territorial  disparities  and 
intergenerational inequalities (284). 

outside 

particularly 

Estonia  faces  a  decline  in  public  transport 
use  and  inadequate  access  to  jobs  and 
urban 
services, 
areas (285).  Key  challenges  include  rising  car  use 
in urban areas and the difficulty in providing cost-
effective  services  in  sparsely  populated  regions. 
These  challenges  are  aggravated  by  weak 
integration  between  passenger  rail,  long  distance 
coach,  regional  and  local  bus  networks (286)  (see 
Annex 7).  

Regional  disparities  persist  in  access  to 
social  and  healthcare  services  and  people’s 
satisfaction  with  these  services.  In  rural 

than 

facilities  are  often 
the  EU  average  for 

less 
areas,  healthcare 
accessible 
rural 
regions (287). Estonia is one of the Member States 
where distance to healthcare services contributes 
to  unmet  healthcare  needs  (Table  A18.2).  This 
improve  service 
is  scope  to 
suggests  there 
provision in rural areas and islands, particularly in 
primary  care (288)  and  transport  connectivity. 
These  challenges  are  compounded  by  acute 
shortages  of  healthcare  workers,  in  particular 
general 
health 
specialists.  Over  half  of  general  practitioners  are 
aged  over  60,  and  the  risk  of  shortages  is 
greatest in rural areas (289) (see Annex 15). 

and  mental 

practitioners 

Large urban areas face housing affordability 
challenges,  while  in  the  rest  of  the  country 
issues  relate  more  to  housing 
housing 
quality  and  availability.  Estonia’s  housing 
challenges  reflect  a  widening  territorial  divide 
between  dynamic  large  urban  centres  and  other 

(284) Strengthening Place-Based Regional Development Policy in 

Estonia, OECD, 2025. 

(287) 14% of the population in rural areas lives within a 10-

minute drive from a hospital compared with the EU average 
of 30% in rural areas. 

(285) Ühistranspordireform. Kontseptsioon, Regionaal- ja 

(288) Primary Health Care Development Plan 2035. 

põllumajandusministeerium, 2026. 

(286) Ibid. 

(289) Tervishoiutöötajatega seotud trendid Eestis, Arenguseire 

keskus, 2025. 

110 

GDP per head (PPS, index)Population growthNet migration of population aged 15-39Real GDP per head growthProductivity: GDP (PPS) per hour worked (index)Real productivity growth (per hour worked)Population aged 20-64Access to healthcare - Rural areasAccess to primary schools  - Rural areasEU27=100Average annual change per 1000 residentsAverage annual change per 1000 residents aged 15-39Average annual % changeEU27=100Average annual % change% of total populationPopulation within 10 minutes by car from nearest hospital  (%)Children under 15 within 15-minute walk to primary school (%)20242015-20242014-20232014-202420242014-2024202520232023EU1001.87.11.4100.00.758.33034Estonia794.211.51.473.11.557.71430Põhja-Eesti10611.722.70.785.90.959.91222Lääne-Eesti511.06.72.457.83.055.67.038Lõuna-Eesti620.01.52.760.22.356.93222Kesk-Eesti49-1.92.21.256.51.855.01133Kirde-Eesti49-10.1-6.70.754.70.953.91331  
 
 
 
  
 
regions of the country. In active housing markets, 
such  as  Tallinn,  Tartu  and  Pärnu,  housing  prices, 
rents  and  running  costs  have  risen  faster  than 
household  income.  This  reduces  affordability  and 
increases inequality, particularly for lower-income 
young  people.  Continued 
households  and 
population  concentration  in  the  capital  region 
further  intensifies  these  dynamics.  By  contrast, 
shrinking  regions  face  an  undersupply  of  quality 
low  attractiveness  and 
housing  alongside 
dereliction,  despite  relatively  favourable  price-to-
income  ratios (290).  Efforts  to  regenerate  housing 
are  hampered  by  high  vacancy  rates,  weak  and 
illiquid housing markets, limited access to finance, 
limited  renovation  incentives  and  an  ageing, 
energy-inefficient housing stock. This reduces the 
ability  of  regional  centres  to  attract  and  retain 
residents 
ultimately 
skilled  workers, 
weakening their growth potential (291). 

and 

Regional  disparities  in  access  to  finance 
remain a challenge. Companies located outside 
major urban centres often face greater difficulties 
in  obtaining  loan  capital  for  investment,  partly 
due to the low market value and limited liquidity 
of collateral assets (292).  Similar constraints apply 
to  residential  real  estate  collateral (293).  Limited 
access  to  finance  may  also  restrict  businesses’ 
ability  to  co-finance  investments  and  participate 
in 
development 
initiatives.  

investment 

broader 

and 

islands  suffer  from 

challenges  Estonian 
low 
economic diversification, and they are particularly 
exposed  to  the  impact  of  climate  change.  Harju 
County, hosting the ports of Tallinn and Muuga, is 
a  national  logistics  and  energy  gateway.  It  faces 
to  port  capacity,  digital 
challenges 
logistics,  decarbonisation  costs  and  geopolitical 
and security risks in the Baltic Sea. 

related 

Rural  areas  struggle  to  integrate  young 
people  into  the  labour  market.  Estonia’s  high 
youth  unemployment  rate  (19.4%,  EU:  15.2%, 
2025)  is  not  just  a  rural  phenomenon.  However, 
rural areas tend to record higher shares of young 
people  neither  in  employment  nor  in  education 
and  training  (NEET)  and  higher  rates  of  early 
leavers from education and training (Table A18.3). 
These  trends  constrain  future  labour  supply  and 
weaken 
regions 
undergoing economic restructuring, such as Kirde-
importance  of 
Eesti,  analyses  highlight 
aligning  education  and  skills  development  with 
emerging  labour  market  needs  to  support  job 
creation  and  economic  diversification.  Improving 
employment 
access 
opportunities  is  therefore  critical  for  the  long-
term economic viability of these regions (295). 

regional  competitiveness. 

education 

and 

the 

to 

In 

Coastal  areas  face  both  challenges  and 
opportunities  linked  to  the  sustainable  blue 
economy.  Coastal  tourism  accounts  for  the 
largest  share  of  both  added  value  (34%)  and 
employment  (53%)  in  the  blue  economy.  It  is 
followed  by  port  activities  (as  value  added)  and 
marine  living  resources  (as  employment) (294).  On 
the  western  coast,  tourism  and  fisheries  are 
major  employers  but  remain  constrained  by 
strong  seasonality,  environmental  pressures  and 
declining  fish  stocks,  which  limits  productivity 
growth  and  income  stability.  Beyond  connectivity 

(290) Eesti taskukohase ja kättesaadava eluasmepoliitika 
võimaluste analüüs, Kliimaministeerium 2025. 

(291) Ibid. 

(292) Regionaalarengu programm 2025-2028 ja programmi 

rahastamiskava. 

(293) Ministry of Agriculture and Rural Affairs, 2025. 

(294) Estonia - EU Blue Economy Observatory - European 

(295) Analüüs. Investeeringud Ida-Virumaale eeldavad tarka 

Commission. 

hariduskorraldust | Arvamus | ERR 

111 

 
 
 
Table A18.3:Main socio-demographic indicators by 
degree of urbanisation in Estonia, 2024 

green  transition (297).  Offshore  wind  development 
in  the  Gulf  of  Riga  and  around  the  islands  could 
deliver  significant  gains 
in  energy  security, 
industrial investment and regional development.  

to 

ability 

constrains 

Municipalities  face  challenges  ranging  from 
limited  service  provision 
financial 
sustainability. Despite administrative reforms in 
2017,  many  municipalities  remain  small  in  size 
and  have  limited  administrative,  financial  and 
human  capacity.  Limited  local  fiscal  autonomy 
further 
of  many 
the 
municipalities  to  deliver  services  efficiently  and 
implement  place-based  development  policies(298). 
Highly fragmented water services, combined with 
population  decline,  reduces  efficiency  and  results 
in  large  regional  disparities  in  water  prices.  This 
leads  to  increasing  difficulties  in  maintaining 
reliable, 
environmentally 
compliant  services(299).  Fragmented  governance 
and  weak  coordination,  inadequate  stormwater 
management, and insufficient climate adaptation, 
lead  to  growing  damage  to  public  infrastructure 
and  heightened  risks  in  urban  areas(300).  Limited 
further 
cooperation 
contributes  to  fragmentation  in  the  provision  of 
basic services, such as water services.  

between  municipalities 

high-quality 

and 

Note: The overburden rate should be read together with the 
tenure structure (homeowner, tenants), that may differ across 
country and regions. 
Source: Eurostat 

Rural areas in Estonia have the potential for 
renewable energy generation as the country 
transitions  away  from  oil  shale-based 
production.  However,  the  reliability  of  the 
electricity network is a particular concern in rural 
areas, and while strengthening the electricity grid 
would  improve  well-being,  network  service  prices 
need  to  remain  affordable (296).  Tapping  into  the 
country’s large potential for solar and wind power 
–  particularly  in  rural  and  sparsely  populated 
areas  –  could  support  regional  development  and 
contribute to EU-wide economic cohesion and the 

regional 

competitiveness 

is 
Estonia’s 
affected  by  limited  coordination  of  sectoral 
policies  and  low  fiscal  autonomy  at  local 
level.  National  policies  often  fail  to  take  into 
regional  differences (301): 
account 
territorial 
considerations  are  not  systematically  embedded 
sectoral  policy  design,  budgeting  and 
in 
limited 
implementation  due 
availability  and  use  of  regional  data.  As  a  result, 
central  government 
regional  spending  and 
investment decisions  are not  consistently  aligned 
with  a  shared  vision  for  regional  development, 
and  ministries  continue  to  pursue  separate 
approaches.  These  coordination  challenges  are 
compounded  by  the  low  fiscal  autonomy  of 

in  part  to  the 

(297) Ninth  report  on  economic,  social  and  territorial  cohesion, 

JRC, 2024. 

(298) Strengthening Place-Based Regional Development Policy in 
Estonia, OECD, 2022; Shrinking Smartly in Estonia, OECD, 
2022. 

(299) Veeteenuse reform, Kliimaministeerium, 2025. 

(300) Floods, Governments Office, 2025, Estonian cities, farmers 
must adapt to increasingly heavy rainfall, ERR, 2025. 

(301) Strengthening Place-Based Regional Development Policy in 

(296) ENMAK 2035, Kliimaministeerium, 2025. 

Estonia, OECD, 2025. 

112 

CitiesTowns and suburbsRural areas49.538.534.346.532.327.79.911.810.68.010.19.69.812.612.011.212.313.221.222.922.121.320.321.38.18.36.36.85.65.310.47.27.79.87.86.32.22.93.84.93.23.5Severe housing deprivation rate% of populationPopulation with high educational attainment% of population aged 25-64Early leavers from education and training% of population aged 18-24NEET 15-34: Neither in employment nor in education or training% of population aged 15-34At-risk-of-poverty or social exclusion rate (AROPE)% of populationUnemployment rate% of labour forceHousing cost overburden% of total population 
 
  
 
 
 
in 

line  with 

implement  place-based 

municipalities,  which  is  one  of  the  lowest  in  the 
OECD (302).  This  limits  their  ability  to  allocate 
local  needs  and  to 
resources 
effectively 
regional 
policies.  This 
fragmentation  weakens  policy 
effectiveness  from  a  regional  competitiveness 
perspective  and  contributes  to  the  continued 
concentration  of  economic  development  in  the 
capital  region (303).  There  are  emerging  civil 
preparedness  needs,  such  as  for  emergency 
shelters  and  strengthening  the  resilience  of 
essential  services,  which  could  impact  municipal 
capacity and budgets that are already strained.  

(302) Adapting intergovernmental fiscal transfers for the future: 
Emerging trends and innovative approaches, OECD, 2024. 

(303) National Spatial Plan 2050, 2025. 

113 

 
 
  
 
 
ANNEX 19: TRANSPORT 

the  challenges  Estonia 

This  Transport  Annex  presents  the  state  of  play 
and 
the 
implementation  of  the  trans-European  transport 
network  (TEN-T),  the  European  railway  traffic 
management system (ERTMS), and road safety. 

faces 

in 

transport  corridors 

run 
Two  European 
through  Estonia,  the  North  Sea  –  Baltic 
corridor  and  the  Baltic  Sea  –  Black  Sea  – 
Adriatic  Sea  corridor.  Estonia’s  railway  network 
is built on the Russian railway gauge (1 520 mm). 
The  TEN-T  in  Estonia  comprises  1 158 km  of  rail 
(404  of  which  are  on  the  core  network)  and 
1 344 km  of  road  (369  of  which  on  the  core 
network). Estonia has no inland waterways on the 
TEN-T,  five  airports  (including  one  core  airport), 
eight ports (including one core port) and two urban 
nodes. 

Passenger rail traffic around Tallinn and the 
second  biggest  city  Tartu  is  developing,  and 
lines  and  rolling  stock  are  gradually  being 
modernised.  Although  the  rail  network  –  except 
for  Rail  Baltica  –  is  considered  isolated  and 
exempt 
the 
modernisation  efforts  will  have  to  continue,  for 
instance  for  electrification  and  the  removal  of 
level-crossings.  

requirements, 

TEN-T 

from 

The largest railway project by far in Estonia 
and the Baltic states in the next multiannual 
financial  period 
is  Rail  Baltica.  Once 
completed, this railway line will connect the Baltic 
states  to  the  European  railway  network  at  the 
European standard gauge (1 435 mm). Rail Baltica 
is  also  significant  for  military  mobility.  Given  the 
significant  investment  needs  of  Rail  Baltica,  a 
combination  of  funding  programmes  should  be 
used  for  covering  the  different  elements  of  the 
project in Estonia. 

The  ERTMS  is  essential  to  digitalising  the 
railways and to modernising and harmonising 
railway  operations  across  Europe.  The  ERTMS 
ensures the safety of rail networks by providing a 
unified  signalling  system. 
that  significantly 
reduces  the  risk  of  accidents.  It  also  provides 
interoperability  between  national  rail  systems, 
improving  cross-border  train  movements.  In  this 
context, it is important to advance efforts towards 
a  comprehensive  multilateral  agreement  among 
the  Baltic  states,  to  strengthen  coordination  and 
support  smooth  cross‑border  railway  operations. 
Finally, the ERTMS enhances network capacity and 
the 
operational 
competitiveness of the rail sector. Only Rail Baltica 
will  have  to  be  ERTMS-equipped,  with  the  costs 
being included in the total project cost estimates. 

increasing 

efficiency, 

Continuing  the  implementation  of  the  Rail 
Baltica  mainline  and  constructing 
the 
Ulemiste  terminal 
in  Tallinn  remains  a 
priority  as  is  the  acceleration  of  the  design 
and  construction  of  the  EU  gauge  railway 
connection to the Port of Muuga.  

infrastructure, 

Estonia  has  little  experience  with  operating 
trains  on  the  existing  railway  network  to 
Latvia  and  Lithuania.  In  addition,  a  joint  model 
between  Estonia,  Latvia  and  Lithuania,  on  how  to 
operate railway traffic on the Rail Baltica line as a 
seamless  cross-border 
including 
traffic management, maintenance and operations, 
in  line  with  the  rules  of  the  single  European 
railway area is still  lacking. Harmonising technical 
and  operational  rules  with  the  minimisation  of 
national rules in line with the EU directives on rail 
interoperability  and  safety  remains  critical  to 
ensuring  that  a  new  landmark  rail  infrastructure 
such  as  Rail  Baltica  does  not  inherit  legacy 
operational rules. 

114 

 
 
 
 
Map A19.1:  TEN-T Cross-Border & National Priority Sections in Estonia. 

This  indicates  that  Estonia  is  unlikely  to 
reach  the  2030  target  of  halving  the 
number  of  road  fatalities  although  it  is  a 
small  country  where  the  number  of 
fatalities  is  subject  to  annual  fluctuations. 
Possible  ways  to  address  this  could  be  by 
the 
exploring  new  financial 
implementation 
safety 
measures,  with  a  focus  on  road  infrastructure 
works (305). 

resources  for 

delayed 

road 

of 

Road  crashes  impose  an  enormous  social, 
economic  and  health  burden  on  the  EU 
economy.  The  external  socio-economic  costs  of 
fatal,  serious  and  minor  injuries  have  remained 
persistently  high  despite  the  progress  made  in 
reducing  crash  frequency  and  severity.  These 
resources  could  otherwise 
innovation, 
education,  healthcare  and  other  crucial  public 
investments (304). 

fuel 

In 2024, Estonia was above the EU average 
(45)  with  50  road  fatalities  per  million 
inhabitants. Compared with the EU average, the 
distribution  of  fatalities  in  Estonia  showed  a 
relatively  high  proportion  of  fatalities  on  roads 
outside  urban  areas.   Data  for  the  period 
between 2019 and 2024 indicate an increase of 
33% in road fatalities was recorded. 

(304) Report on the implementation of the EU Road Safety 

Policy framework at the Mid-Point, COM(2026) 77 final. 

(305) More details in Report on the Implementation of the EU 

Road Safety Policy framework at the Mid-Point – Estonia, 
SWD(2026) 40 final. 

115 

 
 
 
 
 
 
 
Graph A19.1: Estonia's road fatalities per million, 
2024 

Map A19.2:  Estonia's road safety map 

Source: Report at the Mid-Point - Estonia, SWD(2026) 40 
final. 

The  map below  presents  the  roads  where  the 
infrastructure  safety  is  poor  and  where  urgent 
action is therefore required.  

Source: TENtec Information System and TEN-T map library - 
European Commission 

116 

 
 
 
 
 
117