Europaudvalget 2025
KOM (2025) 0206
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EUROPEAN
COMMISSION
Brussels, 4.6.2025
SWD(2025) 206 final
COMMISSION STAFF WORKING DOCUMENT
2025 Country Report - Estonia
Accompanying the document
Recommendation for a COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Estonia
{COM(2025) 206 final}
EN
EN
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ECONOMIC DEVELOPMENTS AND KEY POLICY
CHALLENGES
Muted growth with high inflation
but steady employment
In 2024,
Estonia’s economy shrank for
the second year in a row.
Real GDP declined
by 0.3%. The recession was broad-based, with
contractions in private consumption and
exports, and a sharp fall in investment. Growth
showed signs of picking up in the last quarter
of 2024, supported by goods exports and
consumption, but investment remained weak.
The outlook for the recovery is muted for a
number of reasons: Estonia’s main trading
partners are expected to grow only modestly;
investment expectations are very uncertain;
and several tax increases in 2025 will dampen
private spending. Rising government spending
may support growth but, as it is directed
towards defence, could also mean higher
imports. Real GDP is projected to grow by
1.1% in 2025 and 2.3% in 2026.
High inflation accompanied the recession.
The harmonised index of consumer prices
(HICP) increased by 3.7% in 2024. It fell in the
first half of the year but that was later
reversed, with inflation in services and food
particularly high (see Graph 1.1). Inflation is
set to stay on the high side in 2025, as the
new budget plans substantial tax increases.
The HICP was up by around 5% at the start of
the year.
The Estonian labour market remains
resilient.
After rising to historical levels in
2023, employment and activity rates remained
steady at 81.8% and 88.3% respectively in
2024
among the highest in the EU (see
Annex 10). The increase has been particularly
marked among older workers in recent years,
due the rising retirement age and relatively
low pensions compared to wages, which
incentivise work beyond pension age.
Unemployment has risen as a result of the
recession, reaching 7.6% in 2024 (see Social
Scoreboard in Annex 13). Labour shortages,
previously widely reported, have eased.
Graph 1.1:
HICP breakdown 2020-2025
30
25
y-o-y % change, pps.
20
15
10
5
0
-5
20
21
Services
Non-energy industrial
Energy
22
23
24
Processed food
Unprocessed food
HICP
25
Source:
Eurostat
Public finances improved in 2024.
The
general government deficit stood at 1.5% of
GDP (down from 3.1% in 2023). This
improvement was due to a combination of
stronger tax revenues and lower-than-
expected government spending. Firstly,
increased rates of value added tax (VAT) and
environmental taxes were coupled with higher
revenues from labour taxes, due to rapid wage
growth, and from VAT and corporate income
taxes, due to purchases of motor vehicles and
distribution of profits in anticipation of future
tax increases. Secondly, the state spent less on
defence, social benefits and local government
operating expenses than was budgeted for.
The general government deficit is forecast to
be 1.4% in 2025 and 2.4% in 2026.
Government debt is expected to rise from
23.6% of GDP in 2024 to 23.8% in 2025 and
reach 25.4% in 2026.
2
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Net expenditure is projected to grow
below the recommended maxima.
In 2024,
net expenditure(
1
) in Estonia grew by 1.8%
(see Annex 1). This was mainly driven by
discretionary revenue measures, mentioned
above, whose revenue increasing annual
impact is deducted from net expenditure. On
the expenditure side, also mentioned above,
the foreseen budget was not fully
implemented. In 2025, net expenditure is
forecast by the Commission to grow by 2.1%,
which is below the maximum growth rate
recommended by the Council(
2
). The
cumulative growth rate of net expenditure in
2024 and 2025 taken together is projected at
3.9%, which is also below the maximum rate
recommended by the Council.
to 3.6% of GDP in 2021 and 3.9% in 2022,
before narrowing to 1.7% in 2023 and 1.5% in
2024. The decline in goods exports was
particularly pronounced.
House prices in Estonia have risen
markedly.
They were 63% higher in 2024
than in 2019 (20% in real terms, allowing for
inflation). In both 2023 and 2024, nominal
house prices increased by 6%, and are thought
to be overvalued, fuelled by a set of one-off
liquidity boosts, such as a release of the
second pillar pension funds and buyouts of
several Estonian startups, and rising nominal
wages. The lack of alternative investment
opportunities amid limited housing supply
added to house price appreciation (see more in
Annex 9).
However, Estonia’s ratio of non-
performing loans is one of the lowest in the
euro area, so risks to macroeconomic stability
seem to be limited.
Some macroeconomic challenges…
Price
and
cost
competitiveness
deteriorated
amid
the
protracted
recession while the current account
remains in deficit and house prices have
risen considerably.
This was highlighted in
the in-depth review for Estonia that was
undertaken as part of the macroeconomic
imbalance procedure earlier this year. The
review also highlighted the limited progress
made on the policy front(
3
).
In recent
years, Estonia’s current account
has
been
in
deficit,
signalling
deteriorating competitiveness.
The current
account swung from surplus in the second half
of the 2010s to deficit since 2020, widening
(
1
) Net expenditure is defined in Article 2(2) of Regulation
(EU) 2024/1263 as government expenditure net of (i)
interest expenditure, (ii) discretionary revenue
measures, (iii) expenditure on programmes of the Union
fully matched by revenue from Union funds, (iv)
national expenditure on co-financing of programmes
funded by the Union, (v) cyclical elements of
unemployment benefit expenditure, and (vi) one-off
and other temporary measures.
(
2
) Council Recommendation of 21 January 2025
endorsing the national medium-term fiscal-structural
plan of Estonia (OJ C, C/2025/655, 10.2.2025, ELI:
http://data.europa.eu/eli/C/2025/655/oj).
( ) SWD(2025)123 final
3
…with
several factors contributing
to competitiveness losses
Estonia’s
export
performance
has
deteriorated in the past few years.
Its
world market share increased between 2019
and 2021 but has since been stagnating.
Russia’s war
of aggression against Ukraine
has changed the geopolitical landscape and
driven Estonia to cut its remaining economic
ties with Russia. At the same time,
Estonia’s
major trading partners, Finland, Sweden and
Germany, have experienced very weak growth
over the past few years, which was one of the
factors in the decline in exports in 2023 and
2024.
A new challenge in this respect is the
uncertainty in global trade.
As a very open
economy, Estonia heavily relies on trade for its
growth. While
Estonia’s
direct exposure to the
US is relatively small, the country is vulnerable
to US tariffs through their impact on main
trading partners and also uncertainty that
impacts investment decisions.
Estonia faced a sharp increase in energy
and raw material prices
following Russia’s
full-scale invasion of Ukraine and a decline in
3
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domestic energy production. In Estonia as in its
Baltic neighbours, energy prices have
remained high, feeding into production and
transport costs. In addition, Estonia has seen
strong increases in the price of raw materials,
particularly wood and metals, key inputs in
construction and furniture production.
Nominal wage growth was strong amid a
tight labour market.
After sizeable rises in
the last two years, nominal wage growth
slowed to 5.6%(
4
) in 2024. Much higher
nominal wages fed through into sharp
increases in unit labour costs (ULCs). Nominal
ULCs per hour increased by 15.6% in 2023
and 7.6% in 2024, compared to increases of
6.7% and 5.0% respectively in the EU as a
whole. Labour productivity per hour worked in
Estonia decreased in 2023 and 2024 by 6.3%
and 0.8% respectively, whereas in the EU as a
whole it decreased by 0.6% in 2023 and
increased by 0.4% in 2024.
Much higher costs led to productivity
losses.
Rising input, capital and labour costs
with no accompanying growth affected
productivity, particularly labour productivity,
which fell to its lowest level in over five years
in 2023, to 67.1% of the EU average per hour
worked. Permanently higher wage and input
costs call for policies that would enable
Estonia to move up the value added ladder to
remain competitive.
collected in recent years. Tax revenues
increased to 33.7% of GDP in 2023, but they
remained substantially below the EU average
of 39% (see Table A13.1 in Annex 2).
Estonia relies heavily on labour and
consumption taxes, while capital taxation
remains limited.
Estonia continues to rely
heavily on taxes on labour, which are often
seen as detrimental to growth (see Graph
A13.1 in Annex 2). A flat-rate tax on labour
leads to relatively high taxation of low-wage
earners, reducing the redistributive power of
the tax system. In 2023, the share of
consumption taxes was, at 38.9%, well above
the EU average of 26.9%, and is bound to
increase further in 2024 mainly due to the
VAT rate increase from 20% to 22%. In
addition, a security surcharge (until end 2028)
will be levied as of mid-2025, temporarily
increasing the VAT rate to 24%. In 2023, taxes
on capital accounted for 8.5% of total tax
revenues in Estonia, versus an EU average of
21.9%. The corporate income tax rate for
distributed dividends has increased from 20%
to 22% in 2025(
5
). In 2025 the reduced tax
rate of 14% applied to regular dividends will
also be abolished. These measures will reduce
the gap with the EU average.
Increasing the share of land or property
taxes in overall tax revenues could help
boost public revenues, without weighing
on economic growth.
Recurrent taxes on
immovable property amounted to 0.5% of
total revenues (EU average of 2.5%) in 2023.
Estonia levies a yearly land tax of between
0.1% and 1.0% on all residential and
commercial land. Although a land tax still puts
some pressure on property owners to rent out
or dispose of vacant properties, the effect is
modest. According to the 2021 Population and
Housing Census(
6
), 24% of all dwellings in
Estonia were classified as vacant (up from
16% in 2011). Increasing the land tax rate in
more affluent areas and taxing vacant
(
5
) The government also approved an additional 2%
security surcharge on corporate income tax as of 2026,
but the new coalition government announced in March
that this increase would be abolished.
(
6
)
Population census 2021 | Statistikaamet
Public finances under pressure to
address rising structural spending
needs
Estonia is struggling to raise tax
revenues, which is needed to fund public
spending.
As mentioned across this report,
Estonia faces several challenges which will
require additional public spending, including
spending on healthcare, long-term care and
defence.
The
unfavourable
economic
conditions have lowered the amount of tax
(
4
) European Commission, European Economic Forecast.
Spring 2025.
4
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properties could increase supply in the housing
market and bring in additional public revenue
to finance key policies. The negative impact on
low-income households could be remedied
with
targeted,
need-based
support
mechanisms.
A regular expenditure-review process is
on track to be implemented.
Estonia is
working on integrating regular spending
reviews and policy evaluations into medium-
term budget planning, using the European
Commission’s Technical Support Instrument.
The project is due to be completed in the
autumn of 2025, but some key conclusions
can already be drawn: (i) introduce annual
spending reviews; (ii) integrate spending
reviews into budget planning; and (iii) amend
the legal framework to improve the spending
reviews process and its governance.
Implementing such reviews to prioritise key
areas of expenditure would contribute to a
more efficient allocation of public funds in the
face of rising structural spending needs.
inadequate and skill levels are highly variable
across regions, limiting companies’ ability to
develop higher value added activities. Estonian
policy actively tackles this, but more could be
done to focus the training policy on the low-
skilled and to improve the hiring rules for
foreign workers with technical qualifications
(see Section 2).
Estonia needs to reduce its dependence
on fossil fuels and oil shale and invest
more in renewable energy.
Despite progress
in reducing oil shale production and use,
Estonia faces a significant challenge in its
clean transition due to the high reliance on this
resource-intensive fossil fuel. Transitioning
away from oil shale and supporting companies
in their green initiatives is therefore essential
to improve competitiveness. Estonia would
also benefit from reducing high emissions
from road transport by electrifying railways,
improving rural public transport and reducing
dependence on private cars (see Section 3).
Estonia could benefit from an accelerated
transition to a circular economy.
Despite
progress in waste management, recycling and
reuse rates remain below EU standards. To
address this, Estonia needs new policies and
economic incentives to promote separate
waste collection and increase recycling efforts
(see Section 3).
Estonia faces persistent challenges
regarding its social protection system.
The proportion of older people, single- person
households and people with disabilities at risk
of poverty or social exclusion remains high,
due to low social spending and low impact of
social transfers (excluding pensions) on
poverty reduction. In-work poverty is high
among part-time workers and the self-
employed, and there are people in non-
standard forms of employment not yet eligible
for unemployment benefits. Pension adequacy
is strained by demographic pressures. While
Estonia has taken steps to address the
challenges, they do not appear to be sufficient
to reduce poverty for some groups (see
Section 4).
Despite reforms and investments, access
to healthcare and long-term care remains
Key challenges holding back
growth and competitiveness in
Estonia
There is a growing need to boost
innovation and R&D investment.
Estonia’s
business R&D expenditure as a percentage of
GDP remains below the EU average.
Underinvestment in R&D, outside the
information and communications technology
sector, impedes technological advancement.
Direct public support for business R&D has
increased, but policies beyond grant schemes
are underdeveloped. The effective use of
public funds, national and EU, is crucial for
Estonia to bridge the innovation and
productivity gap and achieve sustainable
economic growth (see Section 2).
Skills shortages hold back labour
productivity and competitiveness.
The lack
of skilled labour is a particular constraint,
especially for Estonia’s manufacturing and
information and communications technology
sectors. The supply of skilled graduates is
5
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Box 1:
UN Sustainable Development Goals (SDGs)
Estonia performs well and is improving on several of the SDGs related to environmental
sustainability (SDGs 2, 7 and 15), but needs to catch up with the EU average on others (SDGs 6,
9, 12, 13 and 14). The country is similarly improving on one (SDG 5) and performing well and
improving on two SDGs (4 and 7) related to fairness. However, Estonia is diverging from SDGs
related to macroeconomic stability and still needs to catch up on one SDG indicator (SDG 8).
Although Estonia is performing well and improving on quality education (SDG 4), the country still
needs to catch up with the EU average on other indicators (SDG 8 and 9) related to productivity.
uneven due to lack of adequate funding.
While reforms and investments are ongoing,
self-reported unmet needs for medical care
are still among the highest in the EU, as are
out-of-pocket
payments
(on-the-spot
payments made by patients to healthcare
providers), though they appear to be
decreasing. Long waiting times and uneven
quality and availability of health and long-
term care across municipalities are linked to
inadequate public funding, among the lowest
levels in the EU (see Section 4).
6
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Box 2:
Barriers to private and public investment
According to Eurostat, total investment in Estonia as a percentage of GDP is relatively high
compared to the EU average.
As regards private investment, foreign direct investment plays a bigger role in the economy than
in other EU Member States (in 2023, inflows amounted to around 4.5% of GDP), particularly in
the tech and information technology sectors. Estonian firms, by contrast, invest much less than
their European counterparts. Several barriers contribute to this, especially the following.
Uncertainty about the future.
This is probably the greatest obstacle to investment in
Estonia, with 88% of firms reporting it as an obstacle. The war in Ukraine and overall
geopolitical context is a key factor.
Lack of skilled workers.
According to a recent survey, this remains an obstacle for
75% of businesses, and the major obstacle to investment for 32% of businesses.
High energy costs.
This is an investment barrier for 73% of Estonian companies,
according to 2024 data.
Access to finance.
16% of firms face financial constraints, more than double the
figure for last year and well above the EU average of 6.9%. Estonian firms rely mostly
on own resources and equity and much less on capital markets to finance new
investments, with a market funding ratio of just 15.8% as of end 2023, compared to an
EU average of 49.6%.
Public investment in Estonia is shaped
by the green and digital transitions and increased
defence spending due to
Russia’s full-scale
invasion of Ukraine. In addition, public investment is
hampered by the difficulties of investing in outlying and eastern border regions where the
particular lack of private finance makes public investment all the more important.
The implementation of Estonia’s RRP is well underway. At present, Estonia has fulfilled
49 % of the milestones and targets in its RRP.
It remains important to accelerate the implementation of the cohesion policy
programme. The mid-term review offers opportunities to speed up progress and better
address EU strategic priorities related to competitiveness, defence, housing, water
resilience and the energy transition.
Estonia has not yet taken advantage of the opportunities provided by the Strategic
Technologies for Europe Platform under Cohesion Policy and the Recovery and
Resilience Facility to reallocate resources towards this priority. However, Estonia can still
seize these opportunities to support the development or manufacturing of critical
technologies in the areas of digital and deep tech, clean and resource efficient
technologies, and biotechnologies.
7
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INNOVATION, BUSINESS ENVIRONMENT AND
PRODUCTIVITY
Competitiveness is hampered by
low labour productivity and skills
shortages
Recent economic trends have resulted in
competitiveness losses for Estonian
companies.
As described in the previous
section, the Estonian economy has been in
recession for two consecutive years. Yet the
labour market has remained quite resilient,
with high employment rates and strong
increases in nominal wages. This has driven
labour productivity down to well below the
euro area average in most sectors (
7
) (Graph
2.1).
Skills mismatches and low levels of skills
challenge labour productivity growth.
While the shortage of labour has eased, the
lack of skilled workers remains the major
obstacle to investment for 32% of businesses,
and there are skills mismatches, with both
over- and under-qualification (see Annexes 4
and 10). With a growing information and
communications technology (ICT) sector, the
most critical gap is in science, technology,
engineering, maths, computers and software.
Current challenges will become even more
acute as the digital and green transitions
require more specialists than are expected to
graduate from tertiary and vocational
education. Without more skilled people,
Estonia risks getting stuck in a low-skills trap
in some sectors, limiting companies' ability to
develop higher value added activities.
Graph 2.1:
Gross value added per employee in
2023, NACE activities
160
140
120
100
80
60
40
20
0
Euro
C
I
R
G
M
O
D
A
Q
H
B
K
N
S
E
P
F
J
Estonia
Euro area
(1) Real estate activities (L), activities of households as
employers (T), and activities of extraterritorial
organisations (U) are not shown.
(2) Sector codes: A agriculture; B mining; C
manufacturing; D energy; E water supply; F construction;
G wholesale and retail trade; H transport; I
accommodation and food services; J information and
communication; K financial services; M professional and
scientific services; N administrative and support services;
O public administration and defence; P education; Q
health services; R arts and entertainment; S other
services.
Source:
Eurostat
(
7
) See In-Depth Review 2025 Estonia, SWD(2025) 123
final.
To ensure that the supply of skills
matches the demands of the labour
market, skills development policies are
planned from primary education to adult
learning.
Estonia actively promotes science,
technology, engineering and mathematics
education at all levels, focusing on updating
curricula, enhancing teaching quality and
fostering student interest (see section 4). It
has set up ICT and engineering academies,
supported by EU cohesion policy. Although
Estonia performs well in adult learning, there
are considerable differences across age and
skills groups (see Annex 12). Participation is
lowest among the low-skilled population, with
less than 19% participating in adult learning.
The Estonian recovery and resilience plan
contains measures to improve the skills of
8
TOTAL
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young people through the
‘My
First Job’
scheme, helping to closing the skills gap.
Investing more in career guidance and
increasing training opportunities could reduce
skill mismatches, especially for the low-skilled.
Attracting
and
retaining
qualified
workers can help Estonia address skills
shortages.
While Estonia’s capacity to attract
and retain foreign talent has grown in the last
years, it still falls short of meeting the growing
demand for skills in key sectors, considering
the recent data on the most requested
occupations and OSKA projections(
8
) (see
Annex 10). Simpler rules to hire foreign
workers with technical qualifications targeting
sectors with persistent skills shortages could
help alleviate skills gaps.
Graph 2.2:
Composition of NFC funding in % of GDP
250
200
% of GDP
150
100
50
0
Loans
EE
Trade credit and advances
EU
Bonds
Unlisted shares
Listed shares
Other equity
(1) The sum of NFC liabilities reflects only the total of
the NFC liabilities considered. Reference period 2023.
Source:
Eurostat, FISMA E2 calculations
Becoming more competitive is
especially pressing at regional
level
At regional level, policies aimed at
closing productivity gaps have had
limited effect.
Regional GDP per capita data
show that Tallinn and Harju county have a
much higher economic output per person than
other regions (Annex 17). Scaling-up and
larger tech-based companies are based in
Tallinn and Tartu, as are ICT companies, which
are the main investors in innovation. At the
same time, Estonia’s economic restructuring,
aimed at reducing oil shale reliance, is set to
cause significant job losses in Ida-Virumaa
county, where oil shale companies are major
employers.
Simultaneously,
the
green
transition is creating labour shortages in
technical
professions
and
specialised
occupations, despite growing awareness of
green skills among small and medium-sized
enterprises (SMEs). In other regions, the
economy is largely based on forestry,
agriculture, wood and food processing, which
have less added value (see Annex 17).
(
8
) The Estonian Qualification Authority (OSKA) General
labour forecast 2022 -2031 :
OSKA üldprognoos 2022-
2031 | OSKA uuringud;
The need for foreign labour until
2035:
Välistööjõud | OSKA uuringud
Some market failures are related to the
ineffectiveness of policies to close
disparities.
Regional economies are more
exposed to risks stemming from the limited
supply of skills, high uncertainty and
insufficient access to finance. This limits
domestic and foreign private investment. It
also affects policy outreach in critical domains
like energy and renewables, resource
productivity, and research and innovation,
where the investment required exceeds
companies’ profits
or savings (see Annex 5).
Estonia's performance on licensing processes
is only average compared to other OECD
countries (see Annex 4). Improving it, and
taking further action to lessen the personal
cost of insolvency for entrepreneurs could help
boost investment at local and other levels, as
could reducing uncertainty in building
regulations(
9
) (see Annex 4).
Improving access to finance and
leveraging public funding could
help raise competitiveness
Access to finance remains a constraint
for businesses, hampering innovative
investment.
According to the SME access-to-
finance survey, a higher proportion of Estonian
(
9
) OECD Economic Survey Estonia, 2024.
9
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SMEs report financing constraints compared to
the EU average, demonstrating the need for
improved financial instruments and market
access (see Annex 5). SMEs also report a
particularly high degree of late payments,
resulting in delays in the repayments of loans,
and forcing companies to look for additional
financing (See Annex 4). Estonian firms rely
less on funding from capital markets than the
EU average, with a significant share of
investment funded internally (see Graph 2.2).
This is influenced by the income tax system,
and the prevalence of SMEs contribute to this
trend. A modest institutional investor base
further compounds the issue. Further
promoting institutional investors’ participation
in the venture-capital market, and the equity
market more generally, could help address this
problem (Annex 5).
A coordinated approach targeting the
diverse funding sources could help to
boost innovation potential.
The effective
use of public funds, national and EU, could
help Estonia bridge the innovation and
productivity gap and achieve sustainable
economic growth. There is also scope to
leverage national, private and institutional
financing through financial instruments and
coordinated
investments.
Addressing
fragmentation in funding programmes could
improve policy effectiveness and facilitate the
shift towards higher value added activities. To
adapt to new challenges, it could be useful to
strengthen long-term strategic planning. This
could be done through stronger integration of
new strategic sectors like defence, and raising
resource efficiency (see Annex 17).
investment strategies. The overall picture is
distorted by the strong ICT sector, which
accounts for nearly half of total R&D
expenditure. Concurrently, the number of
patent applications filed under the Patent
Cooperation Treaty per EUR 1 billion of GDP
has declined, suggesting that the public
science base does not translate into
technological performance and business
innovation as well as it might (see Annex 3).
While direct public support for business R&D
has increased, policies beyond grant schemes
are underdeveloped, hindering Estonia's ability
to address the needs of firms with limited
ability to make use of research discoveries.
In addition, the share of applied research
in total R&D financing decreased to 23%
in 2023.
The Applied Research Centre was
launched in 2024 and is expected to help
companies to better exploit research results.
Still, it will take time to develop a fully
functional research technology organisation
capable of benefiting a wide range of
businesses. Strong collaboration between
business and academia is missing, and there is
scope to strengthen the role of universities in
innovation, to enable faster deployment of
new technologies.
Since the start of Russia’s war of
aggression against Ukraine, Estonia has
been increasing its spending on defence.
In line with the NATO rules, the country has
allocated at least 2% of its GDP to military
expenditure since 2015. The budget strategy
for 2025 to 2028 calls for yearly defence
allocations of no less than 3.3% of GDP. In
addition, in March 2025, the government
declared its plan to increase it further, to at
least 5% from 2026 onwards. This strong
focus on defence aims to reassure investors
as to the credibility of Estonia’s military
deterrence and thereby reduce geopolitical
investment risks.
Increased defence spending could also
benefit Estonia’s innovative defence and
aerospace companies.
More than half the
military budget is earmarked for acquiring
equipment. In 2024, around 20% of the
defence-equipment-related tenders were won
by Estonian suppliers. The number of
A growing need to boost
innovation and R&D investment,
particularly in defence
Underinvestment
in
research
and
development, outside the ICT sector,
impedes technological advancement.
Data
from the Innovation Scoreboard (see Annex 3)
show that Estonia’s business R&D expenditure
as a percentage of GDP remains below the EU
average, underscoring the need for enhanced
10
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companies in the sector has already grown
from a handful at the start of the decade to
more than 140. The Estonian government has
decided to develop a defence industry park for
the production of ammunition and military
explosives, which will also boost foreign
investments into Estonia(
10
). However, the
Estonian defence industry also faces
challenges in raising funds from the private
market due to the rules and restrictions that
some banks, mutual-, pension- and venture-
capital funds have against investing in lethal
technologies.
(
10
)
Estonian Public Broadcasting (ERR)
11
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DECARBONISATION, ENERGY AFFORDABILITY AND
SUSTAINABILITY
Estonia faces high energy prices
and security challenges on critical
energy infrastructure
Estonia’s is moving towards renewable
energy though domestically sourced oil
shale remains a significant part of the
energy mix.
After prohibiting imports and
purchases of Russian natural gas in 2022,
Estonia reduced its natural gas demand by
28% between August 2022 and July 2024,
significantly exceeding the EU’s 15% target.
From 2022 to 2023, Estonia’s energy mix
shifted significantly towards renewables (the
share rose from 27.2% to 34.6%). Despite a
slight decrease in its share in the energy mix
from 60.5% in 2022 to 58.2% in 2023,
domestically sourced oil shale remained the
primary energy source (see Annex 8).
Electricity prices in Estonia remain high
and volatile due to the intermittent
nature of renewable energy.
In 2024,
Estonia’s average wholesale electricity price
was EUR 87.3/MWh, similar to other Baltic
states but higher than the EU average of
EUR 81/MWh (see Annex 8). Renewable energy
sources account for a growing proportion of
electricity generation, up from 50% in 2023 to
57% in 2024. Unfortunately, the supply of
renewable energy is volatile (subject to
weather conditions) and often insufficient
when demand is largest (for example during
dark winter months). This pushes up electricity
prices and impacts the economy, driving
inflation and affecting households and
businesses’ competitiveness. For instance, in
2024, 73% of Estonian companies cited
energy costs as an investment barrier.
In addition, Estonia faces energy security
issues due to hybrid attacks on pipelines
and submarine cables in the Baltic Sea.
Successful
synchronisation
with
the
continental European electricity network as of
9 February 2025 strengthens energy security
but demands additional efforts to improve grid
resilience and protect critical energy
infrastructure. In addition, recent disruptions in
the energy connection with Nordic countries
have shown the vulnerabilities of the energy
supply system in Estonia. The implementation
of measures to ensure security of supply in
the Estonian energy market is therefore crucial
(see Annex 8).
Investing in renewable energy capacity
and streamlining permitting processes
are crucial.
In line with the recovery and
resilience plan, legislation was amended in
2024 to streamline planning, permitting and
environmental impact assessment processes
for wind energy projects, and wind priority
development areas were set up (with a total
capacity of 1 000 MW). However, there is
scope for additional measures to promote
investment in renewables and support
flexibility technologies such as battery storage
systems, to ensure grid stability and
renewable energy integration.
Energy-intensive industry and low
resource productivity undermine
Estonia’s competitiveness
Estonia is among the worst performers in
the EU in terms of resource productivity,
largely due to the resource-intensive oil
shale industry.
The Estonian economy is
highly energy-intensive due to the still quite
considerable use of oil shale in the energy
sector, and for transport and heating buildings.
12
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High energy-intensity combined with an
increase in energy consumption puts a strain
on the competitiveness of the Estonian
economy. In 2023, Estonia generated only
EUR 0.63 per kg of material used consumed,
compared to the EU average of EUR 2.22 (see
Annex 7). The construction, wood and
metalworking industries, which are significant
exporters in Estonia, are heavy consumers of
energy and raw materials, such as wood and
energy produced from oil shale, contributing to
the country’s poor resource productivity. This
could be improved by switching away from
fossil fuels, which account for almost 30% of
domestic extraction used (a significant
component in the calculation of resource
productivity). Despite a decrease in 2023, the
domestic extraction of fossil fuels remains
high at 8.1 tonnes per capita, above the 2020
level of 7.4 tonnes. Efforts are underway to
phase out oil shale production and use, which
could be accelerated. Beyond the shift away
from oil shale, other significant measures to
boost resource productivity and decarbonise
could include: further development of
resource-efficient green technologies, support
for energy and resource efficiency in major
sectors, as outlined in the 2023 Circular
Economy
Action
Plan
and
further
improvements in circularity.
Supporting companies in their green
transition and in developing clean
technologies is crucial to reducing the
Estonian economy's resource intensity.
The Green Fund, supported by the Recovery
and Resilience Facility, finances the
development and scaling-up of innovative
green start-ups and small to medium-sized
enterprises, enhancing their competitiveness.
Estonia has high potential for net-zero
technologies and should continue to further
develop 'clean industry' (see Annex 7).
improvement.
Although Estonia’s circular
material use rate is above the EU average
(18.1% in 2023 after reaching 21.4% in 2022,
see Annex 7
for further details), Estonia’s rate
of preparing for reuse and recycling of
municipal waste is 33%, significantly below
the EU average of 49% (see Annex 7).
Estonia could take further steps to fully
embrace circular economy practices and
align with EU standards.
Accelerating the
transition to a circular economy is crucial for
enhancing Estonia’s competitiveness, as it
promotes sustainable economic development,
improves resource efficiency and reduces
reliance on imported raw materials. To speed
up the transition to a circular economy, Estonia
could introduce new policy instruments to
support municipalities in organising separate
collection of different waste types and
improve recycling performance. Economic
policy instruments to make reuse and recycling
more economically attractive could be
introduced,
such
as
pay-as-you-throw
schemes and financial penalties for not
meeting recycling targets. An incineration tax
to incentivise recycling practices could be
introduced at municipality level.
Climate risks pose significant threats to
Estonia’s economy and society.
In the
period from 1980 to 2023, insurance covered
only 15% of economic losses due to extreme
weather and climate-related events. From
2013 to 2022 considerable loss of life
resulted from extreme heat, one of the highest
figures in northern Europe. With the trend
increasing over time, climate impacts are
posing a risk to public health, especially for
vulnerable
groups
(see
Annex
9).
Strengthening the capacity for systemic risk
assessments would be key to drawing up
proper adaptation action plans and to ensuring
that the public and businesses were prepared.
Estonia’s transition to a circular
economy is underway but could be
faster
Estonia has made progress in waste
management but there is still room for
Improving energy efficiency is
needed
Estonia continues to make significant
progress in its efforts towards reaching
13
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the 2030 EU targets for energy
efficiency.
However, the country could
intensify its efforts in the residential sector
and better target energy renovation schemes
towards the most vulnerable households, to
reach the 2030 building decarbonisation
objective set in its latest long-term renovation
strategy and achieve the target for reduction
of emissions under the Effort Sharing
Regulation. Estonia continues to rely mostly on
grant-based funding schemes for energy
efficiency, and the use of financial instruments
remains limited.
achieve the target under Effort Sharing
Regulation, policies would have to be
designed and implemented swiftly.
Estonia
has recently introduced vehicle taxes for
private passenger cars based on weight and
CO
2
emissions. However, taxes with lower
rates for older vehicles
designed to avoid
negative impacts on vulnerable groups
may
fail to induce a shift towards a cleaner vehicle
fleet, while still placing a burden on the most
vulnerable in rural areas with inadequate
public transport. To ensure a just and fair
transition, structural measures could help to
support transport for
Estonia’s vulnerable
populations who may be negatively affected.
To reduce people’s dependence on private
cars, Estonia is making efforts to
electrify the railway network and develop
other means of public transport.
Currently,
12% of the rail network is electrified
compared to an EU average of 57% (2022),
but investments are being made with support
from various EU budget instruments. Estonia is
considering purchasing sustainable electric
buses
with
associated
recharging
infrastructure to provide green, on-demand
public transport in rural areas. It would take
the share of sustainable buses in the whole
public bus fleet up to 42% from the current
30%.
The shift of freight transport from road
to rail
has been lagging. Creating incentives
for companies would help speed up the shift
of freight to rail.
Better transport policy can help reduce
regional disparities.
Improving transport
mobility by integrating local transport systems
can address regional disparities. Integrated
ticketing and planning systems are crucial.
Harjumaa county (including Tallinn) has
implemented such a system under the
recovery and resilience plan, but further
efforts and digitalisation are needed.
Decarbonising transport and
improving urban mobility
Estonia’s record
on transport could be
improved.
Estonia outperforms the EU
average in factors such as transport
infrastructure (Annex 17). However, the sector
is a high greenhouse gas emission producer
accounting for about 15% of the country’s
total emissions, with 90% of those just from
road transport. Estonia’s car ownership rate is
one of the highest in the EU. In 2023, its cars
were amongst the oldest in the EU and 75.5%
were petrol-powered. As a corollary, only 6.3%
of new vehicles were electric (see Annex 7).
Although the increase in electric cars is a
positive trend, the figure is worse than both
Estonia’s Baltic neighbours and the EU
average of 14.5%. The cross-border Rail
Baltica project, which aims to strengthen
connectivity between the Baltic states and the
rest of the EU, is crucial for shifting transport
from road to rail and enhancing sustainable
mobility. However, its progress has been slow
and would benefit from measures to speed up
implementation.
To reach the 2030 target for reducing
greenhouse gas emissions (
11
) and
(
11
) The national greenhouse gas emission reduction target
is set in Regulation (EU) 2023/857 (the Effort Sharing
Regulation), to align action in the sectors concerned
with the objective of reaching the EU-level economy-
wide target of achieving a 55% reduction in greenhouse
gas emissions relative to 1990 levels.
14
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SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS
Graph 4.1:
At risk of poverty or social exclusion
(AROPE) rates for different population categories
EE
60
% of
population
Strengthening social protection
Due to gaps in social protection, Estonia
continues to face challenges related to
poverty and social exclusion, despite
recent improvements.
Effective social policy
is key to Estonia’s competitiveness. While
increases in pensions and child benefits have
improved some social indicators, the risk of
poverty and social exclusion rate (AROPE)
remains high in 2024, especially among older
people, in particular people aged 65 and over
living alone, persons with disabilities and
single-person households. Behind Estonia's
relatively high poverty figures is its low
expenditure on social protection benefits
remaining among the lowest in the EU at
15.4% of GDP in 2023, against 26.8% for the
EU as a whole. The impact of social benefits
(excluding pensions) on poverty also remains
well below the EU average (see Annex 11).
Reviewing the adequacy and efficiency of the
benefits system could help reduce poverty
risks, as could targeting support towards
vulnerable groups such as persons with
disabilities, single-person households and
older people.
In-work poverty remains relatively high,
particularly for those in non-standard
forms of work.
The In-work poverty rate was
10.3% in 2024 (EU: 8.2%). It was particularly
high among part-time workers and the self-
employed, and is aggravated by relatively low
minimum wages, despite recent increases to
adjust for inflation and agreements with social
partners (see Annex 11). The share of low-
wage earners is among the highest in the EU.
Increasing collective bargaining coverage and
the membership in in trade unions and
employers’ organisations could help improve
working conditions and their involvement in
policymaking.
50
40
30
20
10
0
2019
2021
2015
2016
2017
2018
2020
2022
2023
Single-parents
Elderly (65+)
Persons with disabilities
Total
Source:
Eurostat, EU-SILC [ilc_peps01n]
Gaps in unemployment benefit coverage
remain a challenge, particularly gaps for
those in non-standard forms of work,
including self-employed people.
The self-
employed
remain
not
covered
by
unemployment insurance, which increases
their risk of poverty. They continue to rely on
the non-contributory state unemployment
allowance (under the same conditions as
employees) and have access to sickness
benefits only through voluntary coverage.
Estonia plans to reform its unemployment
insurance system by 2026 and to expand
eligibility for unemployment benefits to
individuals in non-standard forms of work who
are currently excluded (
12
).
(
12
) These include sole proprietors, entrepreneur account
holders and members of management and supervisory
bodies. Those in temporary employment, part-time and
on-call work, temporary agency work, other multi-party
employment relationships and dependent self-
employment are already covered.
15
2024
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Regional disparities remain pronounced, with
rural areas and the eastern border regions
facing greater poverty risks. Poverty rates are
more than twice as high in the Ida-Viru (35%)
and Lääne-Viru (29.2%) counties than in Harju
(15.5%) and Rapla (14.1%) (see Annex 11).
The north-east and south-east border regions
are lagging behind the national average
poverty rate due a lack of entrepreneurial
activity, leading to fewer paid jobs and lower
incomes, as well as lower skills levels and
limited access to services in rural areas. Rural
areas also report the highest rates of young
people not in employment, education or
training, along with higher school leaving
rates. There is scope for special support for
the border areas, to further address income
and regional inequalities and to strengthen
social protection mechanisms so as to provide
an effective safety net for the most affected
households and vulnerable groups, and to
support entrepreneurship (see Chapter 2).
Estonia faces difficulties maintaining
adequate pensions, in part due to
demographic pressures.
Despite recent
pension increases, driven mostly by inflation
adjustments and rising social tax contributions,
pensions remain among the lowest in the EU
relative to wages, contributing to high old-age
poverty (see Annex 11)(
13
). The adequacy of
minimum pensions (EUR 372 as of April 2024)
remains an issue. The 2021 pension reform,
which made it possible to opt out of the
statutory funded pension scheme, risks further
undermining pension adequacy and increasing
the long-term poverty risk for retirees. To
mitigate this, Estonia has introduced measures
such as an income tax exemption, the
possibility to increase contributions to
mandatory funded pensions (the second pillar)
and allowances for pensioners living alone. In
spite of these efforts, improving pension
adequacy remains key to reducing the risk of
poverty for older people.
Improving access to health and
long-term care
Despite past measures, Estonia faces
persistent challenges in healthcare and
long-term care provision.
Access to
adequate healthcare and long-term care
contributes to competitiveness by ensuring
that skilled workers need not stop working
prematurely for health reasons or to care for
family members. Thanks to reforms and
increased investment in recent years, self-
reported unmet needs for medical care fell
from 12.5% in 2023 to 8.5% in 2024.
However, unmet needs remain among the
highest in the EU, due to long waiting times
and the uneven quality and availability of
healthcare services across the country. Unmet
needs are twice as high for persons with
disabilities, mostly as a result of regional
disparities in access to services (see Annex
11). Public expenditure on long-term care and
healthcare services remains low and well
below the EU average, and workforce
shortages and reliance on municipal funding
further limit service provision. Low public
spending leads to high out-of-pocket(
14
)
payments for healthcare (see Annex 14).
Estonia is developing community-based
service centres, reorganising special care
institutions,
strengthening
primary
healthcare and developing home care
services,
to address these issues, with the
support of the Recovery and Resilience Facility
and EU cohesion funds. The 2023 long-term
care reform allocated additional funding to
local governments, reducing out-of-pocket
costs for general care services. Estonia is also
gradually increasing dental care benefits and
reducing co-payments for medical goods.
However, Estonia has not reformed the
financing of its health and long-term care
systems.
To further reduce the unmet need
for medical care and high out-of-pocket
(
14
) "Out-of-pocket payments" refer to direct payments
made by individuals to healthcare providers at the time
of service use
(
13
) Under current policies, public pension spending is
projected to decline by about 1 pp of GDP by 2070 (see
Annex 11).
16
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payments, adequate financing and quality
remain crucial, especially as population ageing
is expected to increase demand. Strengthening
home and community-based care, alongside
assistive technologies, would help improve
service accessibility and effectiveness across
the country. Innovative healthcare solutions
could be further explored, such as integrating
healthcare with the social sector and using
mobile trailers with facilities for medical
examinations.
issue in Tallinn, which accounts for a third of
the population and over half of GDP. In 2024,
apartments were 2.9 times more expensive
per square metre in the capital than in the rest
of Estonia (up from 2.3 in 2010) (
17
). This is an
obstacle for labour mobility and results in lost
competitiveness.
There is room to improve the quality of
the housing stock, especially outside
major urban areas.
While Estonia has very
high levels of property ownership, with 80.7%
of people living in homes they own in 2023
(EU average: 69.2%), investment in existing
properties is limited outside major urban
areas. Low incomes and low property values
are an obstacle in rural areas, resulting in
incremental deterioration of the housing stock.
Lack of affordable and low quality
of housing
House prices have increased rapidly and,
although wages had mostly caught up by
2024, the lack of affordable housing in
Tallinn remains an issue for labour
mobility.
Residential property prices boomed
in 2021 and 2022, outpacing wage growth
and reducing housing affordability. The boom
was fuelled by
among other things
pension
fund withdrawals and the conversion of stock
options from Estonian unicorns(
15
) into real
estate investments, particularly in and near
Tallinn. In 2023 and 2024, residential real
estate prices have more or less stagnated
while wages have continued to increase. Still,
compared to incomes, real estate prices per
square metre remain above the EU average.
Furthermore, partly due to a lack of
competition between mortgage providers,
which is hindered by high costs associated
with refinancing, mortgage interest rates in
Estonia (and Latvia) are the highest in the EU
(
16
). High interest rates and rising average
property prices have reduced households'
borrowing capacity over the past decade, with
a higher share of annual income going on
mortgage payments. The housing cost
overburden rate has almost doubled since
2021, reaching 8.6% in 2024 (see Annex 11).
The cost of housing is a particularly acute
(
15
) A unicorn is a privately owned start-up company, which
has reached a valuation of $1 billion or more.
(
16
) European Central Bank (2025), Loans for house
purchases.
Investment in education will help
alleviate skills shortages
The performance of the education system
is relatively strong but teacher shortages
are a challenge.
According to the OECD PISA
results, Estonia is one of the EU’s top
performers in basic skills. However,
inequalities have been widening slightly over
the past decade, and teacher shortages pose a
risk to the quality of education. Shortages
remain particularly severe in science and
mathematics, with intense labour market
competition for graduates and support
specialists. Many new teachers leave the
profession, leading to an insufficient supply of
fully qualified staff. The shortages of fully
qualified teachers are exacerbated by an
ageing teacher population; the Estonian
teaching force is one of the oldest in the EU
(see Annex 12). Estonia could improve teacher
shortages by implementing the 2022-2026
teacher action plan, focusing on teacher
retention, while preparing a follow-up to the
plan that goes beyond 2026.
(
17
)
KV.EE real price statistics.
The rest of Estonia refers to
unweighted average price in all counties except
Harjumaa, where Tallinn is located.
17
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The education system could still be better
aligned with skills needs in the labour
market.
The high rate of early school leavers
(11% in 2024) is a persistent challenge for
skills supply to the labour market. Early school
leavers have significantly lower employment
rates and are at greater risk of poverty and
social exclusion. (see Annex 12). The dropout
rate from higher education is relatively high,
as is the gender gap in favour of women.
While educational attainment tends to be
higher among women than men, women are
often hired for less prominent positions,
limiting the full use of their skills. The dropout
rate is also higher for people with disabilities.
Estonia has raised the compulsory education
age to 18. However, the effectiveness of this
reform will depend on its implementation and
appropriate funding. The high rate of early
school leaving could be reduced by fully
implementing the reform of vocational
education and training (VET), which seeks to
better integrate VET with upper secondary
general education. Furthermore, persisting
skills shortages (see Section 2) could also be
better addressed by better aligning education
policy with the OSKA labour market
forecasting system, to improve the labour
market relevance of education and training.
Increasing tertiary educational attainment and
reducing dropout rates could improve the skills
available in the workforce. There is also scope
for further involving social partners in
designing education policies relevant to the
labour market. Addressing these challenges
could also help reduce skills shortages and
thus improve Estonia’s competitiveness (see
Section 2).
These findings are consistent with the
second-stage analysis in line with the
Social Convergence Framework.
The
analysis points to challenges related to the
high share of the population at risk of poverty
or social exclusion, high income inequality, the
low impact of social transfers on poverty
reduction, and high self-reported unmet needs
for medical care. However, it does not point
to overall social convergence challenges for
Estonia, also in light of the measures
implemented or planned.(
18
)
(
18
) European Commission,
SWD(2025)95.
The analysis
relies on all the available quantitative and qualitative
evidence and the policy response undertaken and
planned.
18
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KEY FINDINGS
To boost competitiveness, sustainability and
social fairness, Estonia would benefit from:
implementing the RRP,
including the
REPowerEU
chapter;
swiftly
implementing cohesion policy,
taking
advantage of the opportunities under the
mid-term review and making optimal use
of EU instruments, including
InvestEU
and
STEP,
to improve competitiveness;
ensuring new and stable sources of
public revenue,
including increasing the
share of property taxation in public
revenue and implementing spending
reviews;
strengthening
the societal
and
economic resilience of regions,
paying
particular attention to Estonia’s eastern
borders;
addressing skills shortages and
mismatches to strengthen labour
productivity
and
innovation
performance,
including by reducing early
school leaving, making education and
training more relevant to the labour
market and better attracting and retaining
talent from third countries;
improving access to financing and
funding,
especially for small businesses
and companies in remote regions, to
facilitate innovative investment, including
by
promoting institutional investors’
participation in the venture capital and
equity
market
and
addressing
fragmentation in funding programmes;
boosting
innovation
and
R&D
investment
by prioritising applied
research funding, strengthening the role of
universities in the innovation system and
enabling faster
technologies;
deployment
of
new
securing
critical
energy
infrastructure,
while investing in
renewable energy capacity, reducing
overall dependence on fossil fuels and
moving away from oil shale, streamlining
permitting processes and enhancing
flexibility technologies such as battery
storage systems;
improving resource productivity and
reducing the energy intensity of the
economy
by continuing to support the
take-up of resource-efficient green
technologies and supporting resource
efficiency and circularity more generally;
decarbonising transport
and achieving
the target under the Emission Sharing
Regulation by shifting freight transport
from road to rail, speeding up
electrification of railways and supporting
the transition to electric vehicles;
to support upward social convergence,
reducing poverty by strengthening
social protection
for older people, people
with
disabilities
and
single-person
households by increasing the adequacy
and efficiency of the benefit system and
better targeting vulnerable groups, and by
extending coverage of unemployment
benefits, in particular to those in non-
standard forms of work who are still
excluded;
improving access to long-term care
and healthcare
to reduce unmet needs
for medical care and reduce out-of-pocket
payments, by reforming the funding of
healthcare and long-term care.
19
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ANNEXES
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LIST OF ANNEXES
Fiscal
A1.
A2.
Fiscal surveillance and debt sustainability
Taxation
25
25
31
Productivity
A3.
A4.
A5.
A6.
Innovation to business
Making business easier
Capital markets, financial stability and access to finance
Effective institutional framework
34
34
38
44
53
Sustainability
A7.
A8.
A9.
Clean industry and climate mitigation
Affordable energy transition
Climate adaptation, preparedness and environment
58
58
64
70
Fairness
A10. Labour market
A11. Social policies
A12. Education and skills
A13. Social Scoreboard
A14. Health and health systems
75
75
79
83
87
88
Horizontal
A15. Sustainable development goals
A16. CSR progress and EU funds implementation
A17. Competitive regions
91
91
93
101
LIST OF TABLES
A1.1.
A1.2.
A1.3.
A1.4.
A1.5.
A1.6.
A1.7.
A1.8.
A1.9.
General government balance and debt
Net expenditure growth
Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation
Defence expenditure and the national escape clause
Macroeconomic developments and forecasts
General government budgetary position
Debt developments
RRF
Grants
Projected change in age-related expenditure in 2024-2040 and 2024-2070
26
26
27
27
27
28
28
29
29
23
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A1.10.
A2.1.
A3.1.
A4.1.
A5.1.
A6.1.
A6.2.
A7.1.
A8.1.
A9.1.
A13.1.
A14.1.
A16.1.
A16.2.
A17.1.
A17.2.
Fiscal Governance Database Indicators
Taxation indicators
Key innovation indicators
Making Business Easier: indicators.
Financial indicators
Estonia. Selected indicators on administrative burden reduction and simplification
Key Digital Decade targets monitored through the Digital Economy and Society Index
Key clean industry and climate mitigation indicators: Estonia
Key Energy Indicators
Key indicators tracking progress on climate adaptation, resilience and environment
Social Scoreboard for Estonia
Key health indicators
Selected EU funds with adopted allocations - summary data (million EUR)
97
Selection of indicators at regional (NUTS 3) level in Estonia
Socio-demographic indicators by degree of urbanisation, 2024
30
32
37
43
52
54
55
63
69
74
87
89
96
102
103
LIST OF GRAPHS
A2.1.
A2.2.
A4.1.
A5.1.
A5.2.
A5.3.
A5.4.
A5.5.
A6.1.
A6.2.
A6.3.
A7.1.
A7.2.
A7.3.
A8.1.
A8.2.
A8.3.
A9.1.
A9.2.
A10.1.
A10.2.
A11.1.
A11.2.
A12.1.
A12.2.
A14.1.
A14.2.
A15.1.
A16.1.
A16.2.
A17.1.
Tax revenue shares in 2023
Tax wedge for single and second earners, % of total labour costs, 2024
Making Business Easier: selected indicators.
Net savings-investment balance
International investment position
Capital markets and financial intermediaries in Estonia
Composition of NFC funding as % of GDP
Composition of household financial assest per capita and as % of GDP
Trust in justice, regional / local authorities and in government
Indicators of Regulatory Policy and Governance (iREG)
Participation rate of 25-64 year olds in adult learning (%) by occupation
GHG emissions intensity of manu-facturing and energy-intensive sectors, 2022
Greenhouse gas emissions in the effort sharing sectors, 2005 and 2023
Municipal waste treatment
Retail energy price components for household and non-household consumers, 2024
Monthly average day-ahead wholesale electricity prices and European benchmark natural gas prices (Dutch TTF)
Estonia's installed renewable capacity (left) and electricity generation mix (right)
Direct dependency(1) on ecosystem services(2) of the gross value added generated by economic sector in 2022
Investment needs and gaps in EUR million, in 2022 constant prices
Key labour market indicators
Labour market outcomes of young people (15-24)
At-risk-of-poverty or social exclusion rate, age groups
In-work-poverty rate, groups
Teacher shortages (2015-2022)
Employment rate by educational attainment (annual)
Life expectancy at birth, years
Treatable mortality
Progress towards the SDGs in Estonia
Distribution of RRF funding in Estonia by policy field
Distribution of cohesion policy funding across policy objectives in Estonia
GDP per capita in 2010-2022 in capital region (Harjumaa) and counties at EUs external border (% of Estonian average)
31
32
40
44
44
46
48
49
53
54
56
60
61
61
64
64
66
72
72
75
76
79
80
83
84
88
88
91
94
94
103
LIST OF MAPS
A17.1.
GDP per head (in purchasing power standard PPS), NUTS 3, 2023
101
24
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FISCAL
ANNEX 1: FISCAL SURVEILLANCE AND DEBT SUSTAINABILITY
This Annex contains a series of tables relevant for the assessment of the fiscal situation in Estonia,
including how Estonia is responding to Council recommendations issued under the reformed Economic
Governance Framework.
The reformed framework, which entered into force on 30 April 2024(
19
), aims to strengthen debt
sustainability and promote sustainable and inclusive growth through growth-enhancing reforms and
priority investments. The medium-term fiscal-structural plans (hereinafter, MTPs or plans) constitute the
cornerstone of the framework, setting the budgetary commitment of Member States over the medium
term. The latter is defined in terms of net expenditure growth, which is the single operational indicator for
fiscal surveillance.
Estonia submitted its plan on 11 October 2024. The plan covers the period until 2028, presenting a fiscal
adjustment over four years. On 21 January 2025, the Council adopted the Recommendation endorsing
Estonia’s
plan.(
20
)
The assessment of the implementation of the Council Recommendation endorsing Estonia’s
plan is carried
out on the basis of outturn data from Eurostat and
the Commission’s Spring 2025 Forecast and taking
into account the Annual Progress Report (APR) that Estonia submitted on 29 April 2025. Furthermore,
given Estonia’s
request to activate the National Escape Clause
(
21
) in accordance with the Commission
Communication of 19 March 2025(
22
), the assessment also considers, as appropriate, the projected
increase in defence expenditure based on the Commission Spring 2025 Forecast.
The Annex is organised as follows. First, developments in
government deficit and debt
are presented
based on the figures reported in table A1.1. Then, the assessment of the
implementation of the
Council Recommendation endorsing the plan
follows, based on the relevant figures presented in
Tables A1.2 to A1.8, including data on defence expenditure.
The Annex also provides information on the
cost of ageing
and the
national fiscal framework.
Fiscal
sustainability risks are discussed in the Debt Sustainability Monitor 2024.(
23
)
Developments in government deficit and debt
Estonia’s government deficit amounted to 1.5% of GDP in 2024. Based on the Commission’s Spring 2025
Forecast, it is projected to decrease to 1.4% in 2025. The government debt-to-GDP ratio amounted to
23.6% of GDP at the end of 2024 and, according to the Commission, it is projected to increase to 23.8%
end-2025.
(
19
) Regulation (EU) 2024/1263 of the European Parliament and of the Council (EU) on the effective coordination of economic policies
and on multilateral budgetary surveillance, together with the amended Regulation (EC) No 1467/97 on the implementation of the
excessive deficit procedure, and the amended Council Directive 2011/85/EU on the budgetary frameworks of Member States are the
core elements of the reformed EU economic governance framework.
(
20
) OJ C, C/2025/655, 10.02.2025, ELI:
http://data.europa.eu/eli/C/2025/655/oj.
(
21
) On 30 April 2025, Estonia requested to the Commission and to the Council the activation of the National Escape Clause. On this
basis, the Commission adopted a Recommendation for a Council Recommendation allowing Estonia to deviate from, and exceed,
the net expenditure path set by the Council, COM(2025)604.
(
22
) Communication from the Commission accommodating increased defence expenditure within the Stability and Growth Pact of 19
March 2025, C(2025) 2000 final.
(
23
)
European Commission (2025) ‘Debt Sustainability Monitor 2024,’
European Economy-Institutional Papers
306.
25
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Table A1.1:
General government balance and debt
Variables
1
2
2024
% GDP
% GDP
Outturn
-1.5
23.6
APR
-1.5
22.5
2025
COM
-1.4
23.8
APR
-2.5
24.0
2026
COM
-2.4
25.4
General government balance
General government gross debt
Source:
Commission Spring 2025 Forecast (COM), Annual Progress Report (APR)
Developments in net expenditure
The net expenditure(
24
) growth of Estonia in 2025 is forecast by the Commission(
25
) to be below the
recommended maximum. Considering 2024 and 2025 together, the cumulative growth rate of net
expenditure is also projected below the recommended maximum cumulative growth rate.
Table A1.2:
Net expenditure growth
Annual
REC
2024
2025
2026
Cumulative*
COM
REC
Growth rates
1.8%
n.a.
2.1%
9.2%
4.1%
14.8%
APR
n.a.
2.1%
n.a.
COM
n.a.
3.9%
8.2%
APR
1.1%
1.0%
5.0%
n.a.
7.1%
5.1%
* The cumulative growth rates are calculated by reference to the base year of 2023.
Source:
Council Recommendation endorsing the national medium-term fiscal-structural plan of Estonia, Annual Progress Report
(APR) and Commission's calculation based on Commission Spring 2025 Forecast (COM).
General government defence expenditure in Estonia amounted to 2.0% of GDP in 2021, 2.2% of GDP in
2022 and 2.7% of GDP in 2023.(
26
) According to the Commission 2025 Spring Forecast, expenditure on
defence is projected to amount to 3.4% of GDP in 2024 and 3.8% of GDP in 2025.
(
24
) Net expenditure is defined in Article 2(2) of Regulation (EU) 2024/1263 as government expenditure net of (i) interest expenditure,
(ii) discretionary revenue measures, (iii) expenditure on programmes of the Union fully matched by revenue from Union funds, (iv)
national expenditure on co-financing of programmes funded by the Union, (v) cyclical elements of unemployment benefit
expenditure, and (vi) one-off and other temporary measures.
(
25
) European Commission Spring 2025 Forecast
European Economy-Institutional paper 318,
May 2025.
(
26
) Eurostat, government expenditure by classification of functions of government (COFOG).
26
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Table A1.3:
Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the
recommendation
Variables
Total expenditure
Interest expenditure
3
Cyclical unemployment expenditure
4
Expenditure funded by transfers from the EU
5
National co-financing of EU programmes
6
One-off expenditure (levels, excl. EU funded)
Net nationally financed primary expenditure (before
7=1-2-3-4-5-6
discretionary revenue measures, DRM)
8
Change in net nationally financed primary expenditure (before DRM)
9
DRM (excl. one-off revenue, incremental impact)
Change in net nationally financed primary expenditure
10=8-9
(after DRM)
11
Outturn / forecast net expenditure growth
12
Recommended net expenditure growth*
13=(11-12) x 7
Annual deviation
14 (cumulated from 13)
Cumulated deviation
15=13/17
Annual balance
16=14/17
Cumulated balance
17
p.m. Nominal GDP
1
2
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
bn NAC
% change
% change
bn NAC
bn NAC
% GDP
% GDP
bn NAC
2023
Outturn
16.7
0.1
0.0
0.7
0.1
0.0
15.8
2024
Outturn
17.4
0.2
0.0
0.5
0.1
0.0
16.5
0.7
0.4
0.3
1.82%
1.9%
0.0
0.0
0.0
0.0
39.5
2025
COM
18.7
0.2
0.0
0.7
0.1
0.0
17.7
1.2
0.9
0.3
2.1%
7.1%
-0.8
-0.8
-2.0
-2.0
41.5
2026
COM
19.7
0.3
0.0
0.8
0.1
0.0
18.5
0.8
0.1
0.7
4.1%
5.1%
-0.2
-1.0
-0.4
-2.3
43.5
38.2
* The growth rate for 2024 is not a recommendation but serves to anchor the base, as the latest year with outturn data when
setting the net expenditure path is year 2023.
Source:
Commission Spring 2025 Forecast and Commission's calculation
Table A1.4:
Defence expenditure and the national escape clause
1
2
3
4
Total defence expenditure
of which: gross fixed capital formation
Flexibility from increases in defence expenditure
Cumulated balance after flexibility
% GDP
% GDP
% GDP
% GDP
2021
2.0
0.7
2022
2.2
0.7
2023
2.7
1.3
2024
3.4
1.2
2025
3.8
1.5
1.5
-3.5
2026
4.1
1.5
1.5
-3.8
Source:
Eurostat (COFOG), Commission Spring 2025 Forecast and Commission's calculation
Table A1.5:
Macroeconomic developments and forecasts
Variables
1=7+8+9
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
2024
% change
% change
% change
% change
% change
% change
pps
pps
pps
% pot GDP
% change
%
% change
% change
% change
% change
% GDP
Outturn
-0.3
-0.3
0.3
-6.9
-1.1
0.0
-2.0
1.2
-0.9
-4.3
0.2
7.6
-0.5
3.7
3.7
5.6
-0.8
APR
1.7
-0.4
0.0
7.6
2.5
2.0
1.9
-1.7
0.4
-3.6
-0.1
7.1
1.8
5.1
3.9
5.2
n.a.
2025
COM
1.1
1.4
1.2
1.6
2.2
2.6
1.4
0.0
-0.3
-3.4
-0.1
7.6
1.2
3.8
3.9
4.5
-0.7
APR
2.5
1.5
2.0
1.1
3.0
2.6
1.5
-0.9
0.2
-2.1
0.5
6.6
2.0
3.4
2.8
5.1
n.a.
2026
COM
2.3
2.4
2.5
3.1
2.4
2.9
2.6
0.0
-0.3
-1.5
0.2
7.3
2.0
2.3
2.6
4.0
-0.4
Real GDP
Private consumption
Government consumption expenditure
Gross fixed capital formation
Exports of goods and services
Imports of goods and services
Contributions to real GDP growth
- Final domestic demand
- Change in inventories
- Net exports
Output gap
Employment
Unemployment rate
Labour productivity
HICP
GDP deflator
Compensation of employees per head
Net lending/borrowing vis-à-vis the rest of the
world
Source:
Commission Spring 2025 Forecast (COM), Annual Progress Report (APR)
27
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Table A1.6:
General government budgetary position
Variables (% GDP)
1=2+3+4+5
2
3
4
5
8=9+16
9
10
11
12
13
14
15
16
18=1-8
19=1-9
20
21
22=20-21
23=22+16
2024
Outturn
42.5
14.1
9.0
12.7
6.7
44.0
43.4
12.3
6.4
15.1
0.7
6.1
2.9
0.6
-1.5
-0.9
0.6
0.0
0.6
1.2
APR
43.5
14.4
9.9
12.6
6.6
45.0
44.5
11.8
6.5
15.3
0.8
7.1
3.0
0.5
-1.5
-1.0
n.a.
0.0
0.2
0.8
2025
COM
43.8
14.9
9.9
12.7
6.3
45.2
44.6
11.9
6.6
15.4
0.8
7.2
2.8
0.5
-1.4
-0.8
0.3
0.0
0.3
0.8
APR
42.7
14.6
9.1
12.6
6.4
45.2
44.7
11.7
6.7
15.2
0.8
7.0
3.3
0.5
-2.5
-1.9
n.a.
0.0
-1.5
-0.9
2026
COM
42.8
15.2
9.2
12.6
5.8
45.3
44.7
11.9
6.8
15.4
0.8
7.1
2.7
0.6
-2.4
-1.8
-1.7
0.0
-1.7
-1.1
Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure
of which:
- Compensation of employees
- Intermediate consumption
- Social payments
- Subsidies
- Gross fixed capital formation
- Other
- Interest expenditure
General government balance
Primary balance
Cyclically adjusted balance
One-offs
Structural balance
Structural primary balance
Source:
Commission Spring 2025 Forecast (COM), Annual Progress Report (APR)
Table A1.7:
Debt developments
Variables
1
2=3+4+8
3
4≈5+6+7
5
6
7
8
Gross debt ratio* (% of GDP)
Change in the ratio (pps. of GDP)
Contributions**
Primary balance
'Snow-ball' effect
of which:
- Interest expenditure
- Real growth effect
- Inflation effect
'Stock-flow' adjustment
2024
Outturn
23.6
3.4
0.9
-0.1
0.6
0.1
-0.7
2.6
2025
APR
22.5
-1.1
1.0
-0.7
0.5
-0.4
-0.9
-1.3
COM
23.8
0.2
0.8
-0.6
0.5
-0.2
-0.9
0.0
APR
24.0
1.5
1.9
-0.6
0.5
-0.5
-0.6
0.1
2026
COM
25.4
1.5
1.8
-0.5
0.6
-0.5
-0.6
0.2
* End of period.
** The 'snow-ball' effect captures the impact of interest expenditure on accumulated general government debt, as well as the
impact of real GDP growth and inflation on the general government debt-to-GDP ratio (through the denominator). The stock-flow
adjustment includes differences in cash and accrual accounting (including leads and lags in Recovery and Resilience Facility grant
disbursements), accumulation of financial assets, and valuation and other residual effects.
Source:
Commission Spring 2025 Forecast and Commission's calculation (COM), Annual Progress Report (APR)
28
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Table A1.8:
RRF
Grants
Revenue from RRF grants (% of GDP)
1
2
RRF grants as included in the revenue projections
Cash disbursements of RRF grants from EU
2020
n.a.
n.a.
2021
0.0
0.3
2022
0.1
0.0
2023
0.3
0.6
2024
0.4
0.3
2025
0.6
0.6
2026
0.4
0.4
Expenditure financed by RRF grants (% of GDP)
3
4
5
6=4+5
Total current expenditure
Gross fixed capital formation
Capital transfers
Total capital expenditure
2020
0.0
0.0
0.0
0.0
2021
0.0
0.0
0.0
0.0
2022
0.0
0.0
0.0
0.1
2023
0.0
0.0
0.2
0.3
2024
0.1
0.1
0.3
0.3
2025
0.1
0.2
0.3
0.5
2026
0.0
0.0
0.3
0.3
Other costs financed by RRF grants (% of GDP)
7
8
9
Reduction in tax revenue
Other costs with impact on revenue
Financial transactions
2020
0.0
0.0
0.0
2021
0.0
0.0
0.0
2022
0.0
0.0
0.3
2023
0.0
0.0
0.0
2024
0.0
0.0
0.0
2025
0.0
0.0
0.0
2026
0.0
0.0
0.0
Source:
Annual Progress Report
Cost of ageing
Total age-related spending in Estonia remains stable overall, at around 17% of GDP
(see Table
A1.9). This aggregate stability results from a projected decrease in pension and education spending being
offset by rising expenditure on healthcare and long-term care. The decline in public pension spending of
about 1 pp of GDP by 2070 is situated mostly in the 2060s.
Public healthcare (
27
) and long-term care (
28
) expenditure remain below the EU average and are
set to remain mostly stable over the forecast horizon.
Public healthcare expenditure is projected at
5.1% of GDP in 2024 (below the EU average of 6.6%) and is expected to increase by 0.3 pps by 2040 and
by a further 0.3 pps by 2070. Public expenditure on long-term care is projected at 0.5% of GDP in 2024
(below the EU average of 1.7%) and is expected to increase by 0.2 pps of GDP by 2040 and by a further
0.4 pps of GDP by 2070.
Table A1.9:
Projected change in age-related expenditure in 2024-2040 and 2024-2070
age-related
expenditure
2024 (% GDP)
EE
EU
17.3
24.3
age-related
expenditure
2024 (% GDP)
EE
EU
17.3
24.3
change in 2024-2040 (pps GDP) due to:
pensions
-0.3
0.5
healthcare
0.3
0.3
long-term care
0.2
0.4
education
-0.5
-0.3
total
-0.2
0.9
age-related
expenditure
2040 (%GDP)
17.1
25.2
age-related
expenditure
2070 (%GDP)
-0.5
1.3
16.9
25.6
EE
EU
EE
EU
change in 2024-2070 (pps GDP) due to:
pensions
-1.1
0.2
healthcare
0.6
0.6
long-term care
0.6
0.8
education
-0.5
-0.4
total
Source:
2024 Ageing Report (EC/EPC).
(
27
) Key performance characteristics, recent reforms and investments are discussed in Annex 11. 
(
28
) The quality and the accessibility of the long-term care system are covered in Annex 9.
29
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National fiscal framework
The Estonian Fiscal Council is a relatively small Independent Fiscal Institution (IFI) closely
attached to the central bank.
It performs the legally required activities of a euro area IFI (endorsement
of the macroeconomic forecast and assessment of compliance with the budget balance rule). It is involved
in the assessment of the budgetary plans but does not provide an endorsement. There is logistical support
from the Estonian central bank and the three economists also come from the central bank. While the
current set-up seems to be working, issues of independence may arise.
Table A1.10:
Fiscal Governance Database Indicators
2023
Country Fiscal Rule Strength Index (C-FRSI)
Medium-Term Budgetary Framework Index (MTBFI)
Estonia
13.65
0.72
EU Average
14.52
0.73
The Country Fiscal Rule Strength Index (C-FRSI) shows the strength of national fiscal rules aggregated at the country level based
on i) the legal base, ii) how binding the rule is, iii) monitoring bodies, iv) correction mechanisms, and v) resilience to shocks. The
Medium-Term Budgetary Framework Index (MTBFI) shows the strength of the national MTBF based on i) coverage of the
targets/ceilings included in the national medium-term fiscal plans; ii) connectedness between these targets/ceilings and the
annual budgets; iii) involvement of the national parliament in the preparation of the plans; iv) involvement of independent fiscal
institutions in their preparation; and v) their level of detail. A higher score is associated with higher rule and MTBF strength.
Source:
Fiscal Governance Database
30
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ANNEX 2: TAXATION
This annex provides an indicator-based
overview of Estonia’s tax system.
It includes
information on: (i) the tax mix; (ii) competitiveness
and fairness aspects of the tax system; and (iii)
tax collection and compliance.
Estonia’s recent tax reforms will help the
government
generate
much-needed
additional revenue in light of its defence and
healthcare spending needs.
Overall, tax
revenues were equivalent to 33.7% of Estonia’s
gross domestic product (GDP) in 2023,
considerably below the EU average of 39% (see
Table A2.1). They increased to 35.5% in 2024. The
tax mix relies strongly on taxes on labour and
consumption, which accounted for 52.7% and
38.9% of total tax revenues respectively in 2023
(see Graph A2.1). In particular, the share of
consumption taxes was significantly above the EU
average of 26.9%, and may rise even further due
to the increase in the standard VAT rate from 20%
to 22% in January 2024 and the increase in the
reduced VAT rates for accommodation services
(from 9% to 13%) and press publications (from
5% to 9%) that came into effect in January 2025.
In addition, a ‘security surcharge’ will be levied
from July 2025, temporarily increasing the
standard VAT rate by a further 2 percentage points
to 24% for three years.
Graph A2.1:
Tax revenue shares in 2023
Tax revenue shares in 2023, Estonia (outer ring) and EU (inner ring)
8.5
businesses. At the same time, Estonia continues to
not levy corporate-income tax on reinvested or
retained earnings, encouraging businesses to
instead reinvest profits for growth rather than
distributing them, fostering innovation and
expansion. The forward-looking average effective
tax rate, which indicates the expected tax burden
for investment (
29
), was 15.7% in 2023, below the
EU average of 18.9%.
Revenues from environmental taxes as a
share of GDP are 0.6 percentage points
higher in Estonia than the EU average (2.6%
vs 2.0%), but have decreased over time.
Estonia levies relatively high excise duties on road
fuels, and has introduced a new vehicle tax that
came into effect in January 2025. On pollution
and resources taxes, Estonia has already
implemented four of the six main types of
pollution and resources taxes (i.e. taxes on NOx
emissions, waste landfilling, discharge of waste
into water, and plastic products). There may be
scope to expand waste disposal taxes, including
taxes on incineration. Estonia does not have taxes
on fertilisers and pesticides. The share of
environmental taxes in total revenues was 7.7% in
2023.
The personal income tax system remains
simple and predictable in Estonia, but it is
somewhat less progressive than that of
other Member States.
This is borne out by the
labour tax wedge(
30
), which is below the EU
average for single people with high incomes (see
Graph A2.2). The recent replacement of the
progressive basic exemption with a universal flat
exemption from tax of EUR 8 400 per year is likely
to reduce the progressivity of the tax system at
the upper end of the income spectrum even
further. On the other hand, Estonia has been
successful in increasing work incentives for low-
(
29
) Effective average tax rates measure the effect of taxation
on investment projects earning economic rents. This indicator
is based on a comparison of the net present value of pre-tax
and post-tax cash flows. It is used to analyse investment
decisions at the extensive margin, e.g. when a multinational
enterprise decides to locate a plant in one of many
jurisdictions (for the first time) or to make one of a number
of technology choices.
(
30
) The tax wedge is defined as the sum of personal income
taxes and employee and employer social-security
contributions net of family allowances, expressed as a
percentage of total labour costs (the sum of the gross wage
and social-security contributions paid by the employer).
21.9
51.2
38.9
26.9
52.7
Source:
Taxation Trends Data, DG TAXUD
Despite recent tax reforms, Estonia’s
corporate-tax system is likely to continue to
encourage business reinvestment.
A 2%
security surcharge will be levied on corporate
profits from January 2026 to December 2028.
This will come on top of the recent increase in the
corporate-tax rate from 20% to 22%, effective as
of January 2025. Together with the abolition of
the reduced 14% tax rate that applied to regular
dividends, this may somewhat diminish the
attractiveness of Estonia’s tax environment for
31
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Table A2.1:
Taxation indicators
EE
Median (EU-27)
Tax structure
2010
Total taxes (including compulsory actual social contributions) (% of
GDP)
Taxes on labour (% of GDP)
of which, social security contributions (SSC, % of GDP)
Taxes on consumption (% of GDP)
of which, value added taxes (VAT, % of GDP)
Taxes on capital (% of GDP)
Personal income taxes (PIT, % of GDP)
Corporate income taxes (CIT, % of GDP)
Total property taxes (% of GDP)
Recurrent taxes on immovable property (% of GDP)
Environmental taxes (% of GDP)
Effective carbon rate in EUR per tonne of CO
2
equivalents
Tax wedge at 50% of average wage (single person) (*)
Tax wedge at 100% of average wage (single person) (*)
Corporate income tax - effective average tax rates (1) (*)
Difference in Gini coefficient before and after taxes and cash social
transfers (pensions excluded from social transfers) (2) (*)
Outstanding tax arrears: total year-end tax debt (including debt
VAT gap (% of VAT total tax liability, VTTL) (**)
33.0
17.1
12.2
13.6
8.5
2.3
5.3
1.3
0.4
0.3
3.3
NA
37.3
40.1
16.5
6.4
Estonia
2021 2022
33.8
17.3
11.6
13.4
9.1
3.1
6.8
1.5
0.3
0.2
2.6
76.9
31.5
38.2
15.7
7.9
5.5
1.5
32.8
17.0
11.3
13.1
9.1
2.7
6.3
1.6
0.3
0.2
2.5
NA
32.3
39.1
15.7
6.7
4.9
4.4
2023
33.7
17.8
12.0
13.1
9.1
2.9
6.3
1.9
0.3
0.2
2.6
73.4
30.8
39.9
15.7
7.2
2024
35.5
2010
37.8
19.8
12.9
10.9
6.8
7.1
8.6
2.2
1.9
1.1
2.5
NA
33.9
40.9
21.3
8.6
2021
40.2
20.5
13.0
11.2
7.3
8.5
9.6
2.9
2.2
1.1
2.4
86.0
31.8
39.9
19.3
8.2
35.5
EU-27
2022 2023
39.7
20.1
12.7
10.9
7.4
8.7
9.4
3.2
2.1
1.0
2.1
NA
31.5
39.9
19.1
7.9
32.6
7.0
39.0
20.0
12.7
10.5
7.1
8.5
9.3
3.2
1.9
0.9
2.0
84.8
31.5
40.2
18.9
7.7
2024
By tax base
Some tax types
Progressivity &
fairness
31.4
40.6
31.8
40.3
Tax administration &
considered not collectable) / total revenue (in %) (*)
compliance
5.9
6.6
(1) Forward-looking effective tax rate (KPMG).
(2) A higher value indicates a stronger redistributive impact of taxation.
(*) EU-27 simple average.
(**) Forecast value for 2023. For more details on the VAT gap, see European Commission, Directorate-General for Taxation and
Customs Union, VAT gap in the EU - 2024 report,
https://data.europa.eu/doi/10.2778/2476549
For more data on tax revenues as well as the methodology applied, see the Data on Taxation webpage,
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en.
Source:
European Commission, OECD
income earners, which is reflected in the reduction
in the tax wedge for workers earning 50% of the
average wage from 37.3% in 2010 to 31.4% in
2024. Overall, however, the redistributive effect of
Estonia’s tax and benefits system remains
somewhat below the EU average. The reduction in
income inequality as measured by the Gini
coefficient was 7.2 points in 2023, which was
below the EU average of 7.7 points.
Graph A2.2:
Tax wedge for single and second earners,
% of total labour costs, 2024
Tax wedge, % of total labour costs
50
45
40
35
30
25
40.6
31.4
35.0
35.0
41.2
20
50
100
150
Earnings as % of the average wage
Single earner - EE
Second earner - EE
Single earner - EU average
Second earner - EU average
Estonia performs well on tax compliance and
tax administration, including digitalising the
tax administration.
Outstanding tax arrears
decreased in 2022 by 0.6 percentage points to
4.9% of total net revenue (in comparison with the
previous year). The amount of arrears that the
Estonian tax administration considers collectable
was rather stable between 2018 and 2022, at
around 87%. The VAT compliance gap (an indicator
of the effectiveness of VAT enforcement and
compliance) was estimated at EUR 152 million or
4.4% of the VAT total tax liability in 2022, an
increase of 2.9 percentage points compared with
2021. Nevertheless, with an EU average VAT
compliance gap of approximately 7.0%, Estonia
still ranked ninth among the EU Member States in
2022 (i.e. only eight EU Member States had a
lower VAT compliance gap). Between 2018 and
2022, the VAT compliance gap fell from 5.6% to
4.4%. In Estonia, the cost-of-collection ratio
(expressed as a percentage of total net revenue)
remained stable at below 0.5% during the period
2018-2022.
Estonia’s
digitalisation
of
the
tax
administration is well-advanced.
Estonia is one
of only seven EU countries which has both
launched and implemented: (i) a strategy for
digital transformation; (ii) a strategy to identify the
The tax wedge for second earners assumes a first earner at
100% of the average wage and no children. For the full
methodology, see OECD, 2016, Taxing Wages 2014-2015.
Source:
European Commission
32
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skills required for a successful digital
transformation; and (iii) a strategy for building a
digital culture within the tax administration.
Estonia’s tax administration pre-fills
only personal-
income-tax files; corporate-income-tax and value-
added-tax returns remain not pre-filled.
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).
Estonia scores well on dispute resolution.
The
number of mutual-agreement-procedure (
31
) cases
initiated in the year 2023 was only two (
32
). No
cases were pending from previous years.
(
31
) The Mutual Agreement Procedure (MAP) is an administrative
procedure between tax authorities of Member States
engaged in a tax dispute. During the MAP, national
authorities endeavour to resolve the dispute within 2 years,
or 3 years if the procedure is extended due to a justified
request.
(
32
) See page 4 in the following document: https://taxation-
customs.ec.europa.eu/document/download/6bab1a20-40a1-
4b97-852d-
29246fd11cae_en?filename=DRM_2023_Final.pdf
33
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PRODUCTIVITY
ANNEX 3: INNOVATION TO BUSINESS
Estonia’s innovation system
is
now
performing slightly above the EU average,
but the progress made in the public science
base does not fully translate into
technological performance and business
innovation.
According to the 2024 European
Innovation Scoreboard(
33
), Estonia has rejoined the
group of ‘strong innovators’. In 2022, Estonia’s
performance in the Summary Innovation Index
was 98.6% of the EU average, while the figure
reached 104.8% in 2024. Estonia’s R&D
intensity (
34
) increased over the 2017-2O23
period: R&D intensity was 1.84% in 2023,
compared to 1.76% in 2022. While the country
possesses a dynamic R&D base, in particular in the
ICT sector, and good framework conditions for tech
start-up support for the innovativeness of
Estonia’s
economy,
its
performance
in
technological developments as captured by patent
data has declined in recent years. Innovation in
green technologies could be further strengthened.
Research and innovation (R&I) funding of data
science is lagging behind given the increasing pace
of developments in AI tools.
data science and informatics. While the new
national Applied Research Centre has health data
solutions among its five priorities, the Estonian
Research Agency has so far dedicated just a small
percentage of funding from its budget to
computer science and informatics (
35
). Investments
in AI research in the fields where Estonia has
developed scientific strongholds over the years
could allow it to exploit many underused or even
untapped opportunities. For instance, Estonia could
further capitalise on its extensive work on health
data and genome research.
Business innovation
The volume of business R&D activities has
expanded in recent years.
Many Estonian
businesses have increased R&D investments in
recent years, particularly by hiring researchers.
This is reflected in the researchers employed by
business per thousand of the active population.
Business enterprise expenditure on R&D reached
1.06% of GDP in 2023 compared to 0.59% in
2017. However, this is still well below the EU
average of 1.49% and only around half of the
expected 2% level. ICT is the core sector of the
Estonian R&I ecosystem: business expenditure in
the ICT sector accounts for 49.2% of total R&D
expenditure.
On
technology
developments
captured by patent data, Estonia’s patent
applications filed under the Patent Cooperation
Treaty per billion euro of GDP steadily declined
from 1.52 in 2017 and 1.02 in 2021 to 0.6 in
2022.
While the level of direct public support to
business R&D has increased in recent years,
the policy mixes beyond grant schemes are
less developed.
Support to business R&I has
been strengthened in recent years. Overall, direct
public support to business R&D increased from
0.056% of GDP in 2017 to 0.100% in 2022, in line
with the EU average of 0.100%. However, the
policies beyond grant schemes are less developed.
The corporate income tax system has no special
provisions to favour investment in R&D.
(
35
)
https://www.etag.ee/wp-
content/uploads/2022/01/Eesti_teadus_2022.pdf,
p. 72.
Science for innovative ecosystems
Estonia has a good quality public research
base, with stable funding.
The quality of
research outputs, as measured by the share of
scientific publications within the top 10% most
cited publications worldwide as a percentage of
total publications, is slightly above the EU average
(10.2% in 2021 vs 9.6%) and has increased over
the last decade (7.0% in 2012). Public expenditure
on R&D as a percentage of GDP is also just above
the EU average (0.76% vs 0.72%), remaining more
or less unchanged over the last few years.
R&I funding of data science is lagging behind
given the increasing pace of developments in
AI tools.
Estonia has established itself as a hub of
(
33
) 2024 European Innovation Scoreboard (EIS),
country profile
Estonia.
The EIS provides a comparative analysis of
innovation performance in EU countries, including the relative
strengths and weaknesses of their national innovation
systems (also compared to the EU average).
(
34
) Defined as gross domestic expenditure on R&D as a
percentage of GDP.
34
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Cooperation between public research and
businesses remains limited, but the new
Applied Research Centre will help companies
to better exploit research results.
In 2022,
R&D activities commissioned by businesses to
universities and public research organisations
represented 6.8% of public R&D. This is an
improvement compared to 5.2% a year earlier and
reaches nearly the EU average of 6.96%. In 2024,
Estonia launched the national Applied Research
Centre, co-funded by the European Regional
Development Fund and partly also by the recovery
and resilience plan. However, it will take years to
develop a fully functional research technology
organisation that benefits a wide range of
businesses. The Applied Research Centre will help
Estonian businesses develop knowledge-intensive
products and services. Its fields of activity will be
health data, biorefining, drone technologies,
hydrogen technologies and autonomous vehicles.
Its first laboratories are expected to be established
in 2025, starting with a biorefining lab. Estonia is
strengthening R&I Centres of Excellence that are
also enablers of cooperation between academia
and business: in 2024, the Estonian Research
Agency launched 10 Centres of Excellence.
Business R&D that supports innovations in
green technologies could be further
strengthened.
According to the European
Innovation Scoreboard, the share of Estonian
patented inventions in environment-related
technologies dropped substantially in recent years.
As part of the recovery and resilience plan, the
Enterprise and Innovation Foundation supports the
development of new green and energy efficient
technologies by innovative start-ups through the
SmartCap investment funds. Moreover, as part of
the national Applied Research Programme, the
Estonian Business and Innovation Agency has been
managing a new clean-tech programme since
2024, including support in recycling materials and
developing sustainable technologies. Estonia has
launched several notable R&D projects co-funded
by Horizon Europe programmes in the field of bio-
based industry. However, implementation of the
bio-based solution by industry has been lagging.
Estonia has made considerable progress in
business digitalisation, but areas such as
data analytics still need attention to fully
align with its EU Digital Decade targets.
The
adoption of digital technologies by businesses in
Estonia
shows
mixed
progress.
Estonia
outperforms the EU average in cloud computing
adoption (52.6% vs 38.9%) but its performance in
data analytics (25.6% vs 33.2%) remains below
average. In 2024, AI adoption by Estonian firms
surpassed that of European ones (13.3% vs
12.6%), while small and medium-sized enterprises
(SMEs) with at least a basic level of digital
intensity accounted for 71.2%, slightly below the
EU average of 72.9%. To drive digital
transformation, Estonia has launched initiatives
under its recovery and resilience plan together
with national strategies such as European Digital
Innovation Hubs. The AI & Robotics Estonia Hub
provides businesses with assistance in testing and
validating innovative robotics, AI technologies and
algorithms.
The government’s commitment to digital
transformation and its supportive regulatory
environment further fuel the growth of the
digital sector.
Estonia has already demonstrated
its strong position in the digital economy, ranking
4th in EU in terms of its digital economy’s
contribution to gross value added. Estonia is a
front runner in providing key public services
digitally both for businesses and for citizens (
36
).
Nevertheless, in 2021 the Estonian Digital Agenda
2030 revealed three priorities: (i) developing
further digital public services; (ii) focusing on
cybersecurity; and (iii) improving connectivity
across the country. The Digital Agenda 2030
strategy is linked to far-reaching R&D
programmes aimed at establishing Estonia as a
centre of excellence for deep-tech start-ups.
Financing innovation
The venture capital level stabilised at above
0.3% of GDP in 2022 and 2023, the highest
level in the EU.
Venture capital intensity picked
up from 2018, quadrupling in five years. Estonia
has a well-established tech ecosystem that has
attracted investments of over 1% of GDP in the
last decade (
37
).
Alternative financing has gained traction in
the Estonian financial ecosystem thanks to
public-funded initiatives together with a
(
36
) Estonia 2024 Digital Decade Country Report.
(
37
)
‘State
of European Tech 24: The definitive take on European
tech’.
35
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thriving ecosystem for start-ups and tech
businesses.
New private equity and venture
capital funds aimed at SMEs have largely
benefited from the support of national
promotional institutions (e.g. Enterprise Estonia)
and supranational organisations (European
Investment Fund, Baltic Innovation Fund, European
Bank for Reconstruction and Development) over
the past decade. They have played an essential
role in expanding alternative sources of funding
and creating a critical mass of investors. Initiatives
such as EstFund (established in 2016 by the
Estonian government and the European
Investment Fund) have encouraged the growth of
local private equity/venture capital funds. The
availability of venture capital has fuelled the
innovation ecosystem. Fundraising has benefited
significantly from the creation of the Baltic
Innovation Fund in 2012 and a five-year extension
of the initiative in July 2019. This public support
has been complemented by a range of
organisations that not only foster the
entrepreneurial spirit among Estonians, but also
seek to attract foreign founders and investors. The
business-friendly legislation and tax system
supports entrepreneurship.
universities had introduced or were implementing
entrepreneurship education. Nevertheless, further
efforts could be made in higher education to align
the entrepreneurship education curriculum with
labour market needs as practical entrepreneurial
experiences in higher education remain limited.
Innovative talent
The shortage of skilled workers affects
Estonia’s innovation capacity.
The number of
ICT graduates is one of the highest in the EU, but
the declining number of new graduates in science
and engineering is of particular concern. This
number has fallen several years in a row to 9.2
per thousand of those aged 25-34 in 2022,
compared to the EU average of 17.5. The decline
in engineering, construction, manufacturing and
maths
may
hinder
Estonia’s
innovation
performance in the long run (see Annex on
Education and Skills).
Entrepreneurship education in Estonia is high
quality and well developed in all educational
levels.
It is an important education policy priority,
and it has been anchored in the Education
Strategy 2035 and in national curricula. Between
2016-2023 a systematic entrepreneurship
education program,
Edu ja Tegu,
was run which
successfully developed and expanded this
educational area. As a result, by 2023, 43% of
kindergartens, 83% of schools and 94% of
36
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Table A3.1:
Key innovation indicators
Estonia
Headline indicator
R&D intensity (gross domestic expenditure on R&D as % of GDP)
Science and innovative ecosystems
Public expenditure on R&D as % of GDP
Scientific publications of the country within the top 10% most cited publications
worldwide as % of total publications of the country
Researchers (FTE) employed by public sector (Gov+HEI) per 1000 active population
International co-publications as % of total number of publications
R&D investment & researchers employed in businesses
Business enterprise expenditure on R&D (BERD) as % of GDP
BERD performed by SMEs as % of GDP
Researchers employed by business per thousand active population
Innovation outputs
Patent applications filed under the Patent Coop. Treaty per billion GDP (in PPS €)
Employment share of high-growth enterprises measured in employment (%)
Digitalisation of businesses
SMEs with at least a basic level of digital intensity % SMEs (EU Digital Decade target by
2030: 90%)
Data analytics adoption % enterprises (EU target by 2030: 75%)
Cloud adoption % enterprises (EU Digital Decade target by 2030: 75%)
Artificial intelligence adoption % enterprises (EU target by 2030: 75%)
Academia-business collaboration
Public-private scientific co-publications as % of total number of publications
Public expenditure on R&D financed by business enterprises as % of GDP
Public support for business innovation
Total public sector support for BERD as % of GDP
R&D tax incentives: foregone revenues as % of GDP
BERD financed by the public sector (national and abroad) as % of GDP
Financing innovation
Venture capital as a % of GDP (calculated as a 3-year moving average)
Seed stage funding share (% of total venture capital)
Start-up stage funding share (% of total venture capital)
Later stage funding share (% of total venture capital)
Innovative talent
New graduates in science and engineering per 1000 population aged 25-34
Graduates in the field of computing per thousand population aged 25-34
2012
2017
2020
2021
2022
2023
2024
EU
average
(1)
2.24
0.72
9.6
5.7
55.9
1.49
0.40
5.7
2.8
12.51
72.91
33.17
38.86
13.48
7.7
0.050
0.204
0.102
0.100
0.074
7.3
44.0
48.7
17.5
3.6
USA
2.10
0.88
7.0
4.6
50.6
1.21
0.40
2.1
0.7
11.48
:
:
:
:
6.4
0.026
0.116
0.000
0.116
0.033
14.2
76.8
9.0
13.6
3.03
1.25
0.65
8.0
4.5
59.0
0.59
0.29
2.4
1.5
10.94
:
:
:
:
8.7
0.032
0.056
0.000
0.056
0.024
13.8
48.1
38.1
10.7
3.72
1.73
0.75
8.8
4
65.8
0.95
0.50
3.2
1.2
12.71
:
:
:
:
8.7
0.049
0.091
0.000
0.091
0.104
23.5
22.0
54.4
9.51
4.19
1.75
0.75
10.2
4.5
67.8
0.98
0.98
3.5
1.0
:
:
:
50.52
2.77
8.8
0.039
0.097
0.000
0.097
0.231
19.4
38.7
41.9
9.75
5.50
1.76
0.76
:
4.7
67.7
0.99
0.50
4.3
0.6
:
66.95
:
:
:
8.5
0.052
0.100
0.000
0.100
0.343
14.8
47.8
37.4
9.18
4.9
1.84
0.76
:
4.9
69.8
1.06
:
4.3
:
:
:
25.57
52.6
5.19
8.6
:
:
:
:
0.335
15.3
46.1
38.6
:
:
:
:
:
:
:
:
:
:
:
:
71.2
:
:
13.89
:
:
:
:
:
:
:
:
:
:
:
3.45
0.64
12.3
:
39.3
2.70
0.30
:
:
:
:
:
:
:
8.9
0.020
0.251
0.141
0.110
:
:
:
:
:
:
(1) EU average for the last available year or the year with the largest number of country data
Source:
Eurostat, DG JRC, OECD, Science-Metrix (Scopus database), Invest Europe, European Innovation Scoreboard
37
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ANNEX 4: MAKING BUSINESS EASIER
Estonian companies’ competitiveness has
suffered from the weak economic situation
and declining productivity of recent years.
Strong integration into the Single Market, high
business efficiency and a supportive regulatory
framework (especially in entrepreneurship) are
among the key strengths of the Estonian business
environment. Cost pressures and increasing
competition are some of the key challenges for
the industry and particularly for small and
medium-sized enterprises (SMEs).
The level of labour shortages is relatively
low, but the non-availability of skilled labour
remains an issue for Estonia.
75% of the
companies (in line with EU average) listed it as an
obstacle for investment in the 2024 EIB
investment survey (
43
) and 32% stated it as a
major obstacle (
44
). Shortages are particularly
prevalent in the STEM sector (see Annex 12). For
example, the European Centre for the
Development of Vocational Training estimates that
almost 14 000 new jobs will be created between
2025 and 2035 in computer programming. This is
over 10 000 more jobs than in any other sector,
demonstrating the changing skill requirements and
employee profile (
45
). The share of enterprises
providing ICT training in Estonia was still below EU
average in 2024 (
46
). However, Estonia’s recovery
and resilience plan (RRP) has measures to
facilitate access to transversal skills and Estonia
has reported significant progress in digital skills in
2023.
Estonia is performing above the EU average
in innovation (
47
).
However, fewer Estonian firms
reported innovation activity in the last financial
year than in the previous year (only 24% in 2024,
lower to 43% in 2023 and the 2024 EU average
32%) (
48
). Estonia generally underperforms in
business R&D investment and public support for
business R&D (
49
). Estonian firms also reported a
share of investment in intangible assets of 26%,
significantly lower than the EU average of 38% (
50
)
(see Annex 3).
SMEs make up a particularly large share of
Estonia’s industrial firms –
99.9% (
51
).
The
share of value added by SMEs in the non-financial
business sector (NFBS) was 81.7% in 2023, the
highest within EU. The share of SME employment
was 82.7%, significantly higher than the EU
average 65.2%, so Estonian SMEs are particularly
(
43
)
(
44
)
(
45
)
(
46
)
EIB Investment Survey 2024: European Union overview
EIB Investment Survey 2024 Country Overview: Estonia.
CEDEFOP Skills Forecast.
European Innovation Scoreboard 2024 Country Profile
Estonia
Economic framework conditions
GDP growth is expected to be moderate in
2025, but productivity is still weak.
Total
factor productivity declined by 1.3% in 2024 and
is expected to continue declining in 2025. Inflation
and cost pressures in Estonia remain among the
highest in the euro area and a large increase in
nominal labour costs is continuing to weigh on the
economy. Uncertainty about the future is the
greatest obstacle to investment in Estonia, with
88% of firms reporting it as an obstacle (
38
). The
share of firms investing has remained relatively
stable, but the share of firms expecting to increase
their level of investment dropped significantly in
2024 to a net balance of -12% (
39
).
Estonia performed relatively well in terms of
labour and material shortages in 2024.
Only
8.6% of firms faced constraints related to labour
shortages (EU average 20.2%), which was also
slightly lower than in the previous year when the
share had already considerably decreased (
40
).
Similarly, only 4.2% of firms faced material
shortages in 2024 (less than half the EU average
of 10%) (
41
). The vacancy rate has also been
decreasing since 2022(
42
), with unemployment
increasing in the last two years. Unemployment
reached 7.6% in 2024 and is expected to remain
at the same level in 2025.
(
38
)
EIB Investment Survey 2024: European Union overview
(
39
)
EIB Investment Survey 2024 Country Overview: Estonia
(
40
) ECFIN BCS
(
41
) ECFIN BCS
(
42
) Eurostat
(
47
)
European Innovation Scoreboard 2024 Country Profile
Estonia.
(
48
)
EIB Investment Survey 2024 Country Overview: Estonia
(
49
)
European Innovation Scoreboard 2024 Country Profile
Estonia
(
50
)
EIB Investment Survey 2024 Country Overview: Estonia.
(
51
)
SME Performance Review 2024 - Estonia country sheet
38
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important
to Estonia’s competitiveness (
52
). Estonia
is also known for its start-ups and has produced
10 unicorn companies (
53
).
Estonian SMEs reported costs of production
and labour as their biggest challenge in
2023.
This was still slightly better than the EU
average and Estonia’s Baltic peers –
at 6.1 (on a
scale from 1 to 10; the EU average was 6.8,
Lithuania 6.3 and Latvia 6.5). Other significant
challenges are competition (where Estonia ranked
worse than the EU average) and the non-
availability of skilled staff and experienced
managers. Estonian SMEs reported a particularly
low level of challenges in access to finance and
regulation (
54
). The availability of skilled staff was
considered an obstacle to investment by a
particularly large share of micro and small
companies (78%) (
55
). In 2023, Estonia
experienced the worst decline in the value added
of SMEs (inflation-adjusted) among EU Member
States (minus 20.4%) (
56
). Estonia is also expected
to remain one of the worst performers in 2024 (
57
).
Regarding enabling business infrastructure,
Estonia performs well in logistics.
Estonia has
a good overall score in the World Bank’s Logistics
Performance Index and better than the scores of
its Baltic peers Latvia and Lithuania (
58
). However,
infrastructure is not Estonia’s
strongest
component within the index. Improvement is
needed in both physical and digital infrastructure,
but neither of these two areas was flagged up as
a significant obstacle to investment in Estonia
(fewer than 30% of respondents considered them
to be an obstacle) (
59
).
Estonia has strengthened its digital
infrastructure with significant advancements
in connectivity.
Fibre to the premises (FTTP)
coverage reached 76.9% in 2023
well above the
EU average of 64%
although rural areas still
(
52
)
SME Performance Review Annual Report 2023/2024.
(
53
)
why estonia - Startup Estonia.
(
54
)
SME Performance Review Annual Report 2023/2024.
(
55
)
EIB Investment Survey 2024 Country Overview: Estonia
(
56
) Annual growth rate of SME adjusted for inflation value
added in the NFBS in 2023 in the EU-27 and across EU
Member States
Estonia, available in
SME Performance
Review Annual Report 2023/2024
.
57
( )
SME Performance Review Annual Report 2023/2024
(
58
)
Logistics Performance Index (LPI).
(
59
)
EIB Investment Survey 2024: European Union overview
require substantial improvement (67.8% vs the EU
average of 52.8%). Very high capacity network
(VHCN) coverage stands at 76.9%, slightly below
the EU average of 78.9%. To address connectivity
challenges, Estonia has allocated EUR 24.3 million
through different initiatives under its RRP.
Estonia’s overall 5G coverage reached 87.5% in
2023, just below the EU average of 89.3%. Estonia
has demonstrated strong growth in 5G
deployment, with a 102% annual increase that is
significantly above the EU average of 10%.
However, 5G coverage in the critical 3.4-3.8 GHz
spectrum band remains at 43.7%
below the EU
average of 50.6%.
In terms of cybersecurity, Estonia has made
commendable strides in enhancing digital
resilience.
90.9% of enterprises deploy ICT
security measures
slightly below the EU average
of 92.8%. The number of enterprises in Estonia
that experienced ICT security incidents leading to
unavailability of ICT services due to attack from
outside increased slightly from 3.1% in 2022 to
3.6% in 2024, exceeding the EU average of 3.4%.
56.7% of Estonian SMEs experienced late
business-to-business payments in 2024.
This
was significantly higher than the EU average of
47.9%, showcasing payment issues in Estonian
businesses (
60
). In 2023, 54% of companies in
Estonia were affected by late payments. This was
the highest share in the last five years and well
above the EU average. These late payments
resulted in 44% of firms delaying their own
payments to their suppliers in 2023, triggering a
domino effect in late payments down the value
chain. 39% of firms indicated that late payments
were affecting their production and operations,
and 30% indicated that late payments were
delaying their repayments of loans or obliging
them to use additional financing (
61
). The share of
finance-constrained firms has more than doubled
since last year (according to the latest EIBIS),
mainly due to a greater share of firms being
rejected when applying for finance or thinking that
it was too expensive (see Annex 5).
(
60
) SAFE survey
(
61
)
EU Payment Observatory Analysis.
39
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Graph A4.1:
Making Business Easier: selected
indicators.
(1) Regulatory
burden
Regulation as a major
obstacle to investment
24.5
14.9
41.6
EU Trade Integration
57.0
Material shortages as a
factor limiting production
10
4.2
peers (e.g. 61% for both in Latvia) (
63
). In addition,
Estonia is one of the best performers in the
OECD’s Product Market Regulation indicator, which
shows that Estonia has fewer regulatory barriers
in product markets than the OECD average.
However, Estonia could further simplify its
regulatory and administrative burden, particularly
in licensing where Estonia is ranked around the
OECD average. It could also further align itself
with best practices, for example by regularly
reviewing and updating the licences required to
start a business (
64
). The share of firms in Estonia
employing staff to deal with regulatory
compliance is above EU average (
65
).
Tax compliance costs for SMEs have
traditionally been relatively low in Estonia
compared to the EU average as well as its
Baltic peers.
While several recent tax reforms
may imply some adjustment costs for smaller
businesses, Estonia’s digitised tax system is likely
to ease the transition and help minimise
compliance burdens. In 2022, Estonia was at the
lower end for both total enterprise tax compliance
cost and corporate income tax (CIT). In terms of
value added tax (VAT) compliance cost, Estonia
was around the EU average in 2022 (
66
). The
recent tax reforms may make Estonia’s tax
environment less attractive for businesses, but the
corporate tax system is likely to remain favourable
(see Annex 2).
Estonia has taken steps to improve its
insolvency framework in recent years.
Previously, Estonia was considered to have an
average framework in place but scored relatively
low particularly in treatment of failed
entrepreneurs. This might have deterred aspiring
entrepreneurs. Improvement on this, for example
in relation to time to discharge, has taken place
already between 2016 and 2022 (
67
). However, the
personal cost of insolvency could yet be further
reduced in Estonia (
68
). In 2023, both business
registrations
and
bankruptcy
declarations
increased in Estonia, with bankruptcies growing by
(3) Shortages
(2) Single
Market
16.6
(4) Late payments
from public entities
9
47.9
from private entities
56.7
0
10
20
30
40
Share (%)
50
60
EU27
EE
Share of (1) enterprises, (2) average intra-EU exports and
imports in GDP, (3) firms, (4) SMEs.
Sources:
(1) EIB IS, (2) Eurostat, (3) ECFIN BCS, (4) SAFE
survey.
The attractiveness of Estonia to foreign
investors has generally been quite high.
Estonia is outperforming its Baltic peers and
Finland on foreign direct investment (FDI). The
inward FDI stocks dropped significantly as a share
of GDP in 2022 but returned to almost the
previous level of around 100% in 2023 (97.7%).
This was higher than the EU average of 84.1% (
62
).
Regulatory and administrative
barriers
Regulation is less of an obstacle in Estonia
but further simplification is warranted.
48%
of firms see Estonia’s business regulations as an
obstacle to investment. 52% see labour
regulations as an obstacle. Both scores are better
than the average for the EU (66% for business
and 62% for labour regulations) and its Baltic
(
63
)
EIB Investment Survey 2024: European Union overview
(
64
)
OECD PMR country note Estonia.
(
65
)
EIB Investment Survey 2024 Country Overview: Estonia
(
66
)
Tax compliance costs for SMEs 2022.
(
67
)
OECD working paper Enhancing insolvency frameworks to
support economic renewal 2022.
68
( )
OECD Economic Surveys: Estonia 2024.
(
62
)
Eurostat.
40
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51.7% (the third fastest rate in the EU). This
increasing trend continued in 2024 (
69
).
Estonia is considered to have a supportive
national context for entrepreneurship.
Estonia
scored fifteenth (with a score of 5.4) in the Global
Entrepreneurship Monitor National Entrepreneurial
Context Index 2024/2025, which provides an
overview of how supportive the national context is
to start a new enterprise. Despite a good overall
score, Estonia’s score dropped significantly from
previous year largely due to declines in two
government policy conditions, ‘Support and
Relevance’ and ‘Taxes and Bureaucracy’ as well as
in the ‘Entrepreneurial Education Post-School’
condition. Estonia could improve in particular in
entrepreneurial education, with only 44.7% of
adults in Estonia (which ranked 45 out of 51
countries) considering themselves to have the
skills and knowledge to start a business (
70
). The
self-employment rate of 10% in Estonia was
below the EU average, particularly in terms of
female and youth self-employment (
71
).
fragmentation in those sectors (
74
). Estonia’s
services trade restrictiveness is generally below
the OECD average and is particularly low in the
insurance sector. However, architectural and legal
services are more restricted than the global
average, particularly for the movement of
professionals (
75
). This restrictiveness is less
reflected in the intra-EEA trade, Estonia having in
contrast a low level of intra-EEA trade restrictions
e.g. in legal services (
76
).
Estonia generally complies well with EU law.
Estonia’s single market transposition deficit was
just above the EU average in December 2024 and
was at the same level as the previous December
at 0.9%. This signals that some further work on
the timely transposition of directives into national
law could be warranted. The transposition of nine
single market directives was overdue (in December
2024) and the average delay in transposing those
directives was also higher than EU average. In
terms of the conformity deficit (the percentage of
wrongly transposed single market directives),
Estonia is performing better than the EU average
(it ranks 12). Estonia had 12 pending single
market infringement proceedings in December
2024, which was half the EU average of 24. This
was an increase on the previous year but Estonia
is still one of the best performers in the
infringement category this year. In 2024, Estonia
resolved 100% of the SOLVIT cases it handled as
lead centre (the EU average was 84.9%) (
77
).
Regulatory restrictiveness for professions is
generally lower than the EU average.
However, legal professions are subject to relatively
heavy regulation. Lawyers and notaries in Estonia
face particularly stringent entry and conduct
regulations (
78
). This can impact competitiveness in
the legal sector.
Single Market
Estonia is a small open economy and
continues to be well integrated into the
Single Market and to actively engage in
international trade.
74% of Estonian companies
engage in international trade (
72
) and Estonia
scored fifth in terms of EU trade integration,
demonstrating a high degree of EU trade
integration (measured using the percentage ratio
of trade volumes to GDP). This percentage
decreased slightly from last year, in line with a
general trend among EU Member States (57% in
2024, 60% in 2023) (
73
). However, a large majority
of Estonian exporters (88% vs the EU average of
60%) reported that they have to comply with
different standards and consumer protection rules
in different EU Member States. This share is
particularly high in the manufacturing and
construction sector (94% in 2024), indicating
(
69
) Eurostat
(
70
)
GEM Global Entrepreneurship Monitor 2024/2025
(
71
)
OECD report The Missing Entrepreneurs 2023.
(
72
)
EIB Investment Survey 2024 Country Overview: Estonia
(
73
) Eurostat
Public procurement
Estonia continues to have an average
performance in public procurement.
In single
(
74
)
EIB Investment Survey 2024 Country Overview: Estonia
(
75
)
OECD Services Trade Restrictiveness Index 2024 Estonia.
(
76
)
OECD Services Trade Restrictiveness Index 2024 Simulator.
(
77
)
Country data: Estonia | Single Market and Competitiveness
Scoreboard
(
78
)
OECD PMR country note Estonia.
41
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bids, Estonia scored around the EU average in
2024 with 27%, slightly decreasing from 26% in
the previous year. Despite an average
performance in general, Estonia was still among
the worst performers in direct awards in 2024 (the
percentage of public procurement negotiated
without any call for bids), with a score of 13% (
79
).
Estonia is making progress on strategic
public procurement.
In particular, Estonia is
taking steps in green public procurement, though
social and innovation procurement is lagging a bit
behind. On socially responsible public procurement,
Estonia has a comprehensive legal framework but
there are only a few good examples in practice,
and there is a general lack of awareness about the
possibilities it offers and how to apply it in
practice. One of the key factors hindering progress
in strategic public procurement is a lack of
professionalism. Estonia has launched (together
with the OECD) a project called ‘Promoting the
Uptake of Strategic Public Procurement in Estonia
through Professionalising the Public Procurement
Workforce’ (
80
). Completion of this project would
enable both Estonian enterprises and public
authorities to better leverage strategic public
procurement.
(
79
) Commission internal
(
80
)
Ministry of Finance, 2023.
42
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Table A4.1:
Making Business Easier: indicators.
Estonia
POLICY AREA
INDICATOR NAME
2020
Investment climate
Material shortage, firms facing constraints, %
1
Shortages
Labour shortage, firms facing constraints, %
1
Vacancy rate, vacant posts as a % of all
available ones (vacant + occupied)
2
Transport infrastructure as an obstacle to
investment, % of firms reporting it as a major
obstacle
3
Infrastructure
VHCN coverage, %
4
FTTP coverage, %
4
5G coverage, %
4
7.1
7.9
1.1
21.7
27.2
1.5
20.4
23.3
1.8
4.4
9.1
1.5
4.2
8.6
1.3
10.0
20.2
2.3
2021
2022
2023
2024
EU-27
average
6.7
-
-
-
2.8
73.4
73.4
18.3
5.5
76.3
76.3
43.3
8.6
76.9
76.9
87.5
8.3
-
-
-
13.4
78.8
64.0
89.3
Reduction of regulatory and administrative barriers
Impact of regulation on long-term investment,
Regulatory environment
% firms reporting business regulation as a
8.9
5.6
9.5
major obstacle
3
Payment gap - corporates B2B, difference in
15.0
13.9
13.2
days between offered and actual payment
5
Payment gap - public sector, difference in days
13.9
11.0
15.9
between offered and actual payment
5
Late payments
Share of SMEs
experiencing late
payments, %*
6
from public or private
entities in the last 6
months
from private entities
in the previous or
current quarter
from public entities in
the previous or
current quarter
14.7
14.9
24.5
15.3
18.1
53.7
-
-
-
15.6
15.1
-
37.8
48.4
45.2
-
-
-
-
56.7
47.9
-
-
-
-
9.0
16.6
Integration
Single Market
EU trade integration, % (Average intra-EU
50.3
imports + average intra EU exports)/GDP
2
EEA Services Trade Restrictiveness Index
7
Transposition deficit, % of all directives not
transposed
8
Conformity deficit, % of all directives
transposed incorrectly
8
SOLVIT, % resolution rate per country
8
Number of pending infringement proceedings
8
0.039
0.5
1.4
100
12.0
58.1
0.039
1.2
0.9
100
8.0
65.4
0.039
0.4
0.9
100
7.0
59.7
0.039
0.9
1.1
100
10.0
57.0
0.042
0.9
0.8
100
12.0
41.6
0.050
0.8
0.9
84.9
24.4
Compliance
Public procurement
Single bids, % of total contractors**
8
Competition and
transparency in public
procurement
Direct awards, %**
8
27
12
25
9
32
11
26
12
27
13
-
7.0
*Change in methodology in 2024: reporting late payments from public and private entities separately.
** Data on single bids for 2024 is provisional and subject to revision. Due to missing data, the EU average of direct awards data is
calculated without Romania.
Sources:
(1) ECFIN BCS, (2) Eurostat, (3) EIB IS, (4) Digital Decade Country reports, (5) Intrum Payment Report, (6) SAFE survey, (7)
OECD, (8) up to 2023: Single Market and Competitiveness Scoreboard, 2024: Public procurement data space (PPDS).
43
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ANNEX 5: CAPITAL MARKETS, FINANCIAL STABILITY AND ACCESS TO FINANCE
Estonian firms access only a part of the
above average savings of the country’s
households, also as direct retail participation
in capital markets is low.
Moreover, pension-
fund assets have been decreasing following a
policy change in 2021 that turned the ‘second
pillar’ of pensions into a voluntary savings scheme.
Apart from its very modest size, the country’s
institutional investor base also has a conservative
investment profile and mostly invests outside
Estonia. In addition, over 95% of companies in
Estonia are SMEs, which find it difficult to access
the capital markets and their opportunities. This
leaves internal financing as the main alternative to
bank funding for Estonian firms. Thanks to public
support initiatives, alternative funding through
private equity and venture capital has gained
traction in the country, boosting early-stage
entrepreneurial activity. Nevertheless, financing
gaps remain for companies in the later financing
stages.
Graph A5.1:
Net savings-investment balance
30 % of GDP
25
20
15
10
5
0
-5
-10
2017
2018
2019
2020
2021
2022
2023
Private investment, net
Private saving, net
Borrowing from the rest of the world
Lending to the government
Private saving, gross
Source:
AMECO.
Availability and use of domestic
savings
The Estonian economy invests part of its net
savings abroad.
Over the last decade, the private
savings ratio, net of fixed capital consumption,
fluctuated around its ten-year average of 10.1%
of GDP, reaching a maximum of 13.6% in 2020
(see Graph A5.1). The net private investment ratio,
which measures the net contribution of the private
sector to capital accumulation in the country,
exhibited a ten-year average of 7.3% of GDP and
reached a maximum of 11.1% in 2022. At the
same time, during the same period the
government balance was in regular surplus,
averaging 0.8% of GDP. Thus, except for the last
couple of years, the high positive balance between
net domestic savings and net investment, together
with the government surpluses, resulted in net
lending abroad by Estonia, averaging 0.7% of GDP,
with a peak of 5.4% in 2021. Hence, some of
Estonia’s net savings, i.e. after accounting for the
investments that are necessary to merely maintain
the existing capital structure of the economy, are
used to finance projects abroad, except over the
last couple of years.
The Estonian economy exhibits a negative
net international investment position.
Between 2009 and 2023 the NIIP has
strengthened almost every year, reflecting an
improvement in international competitiveness,
however remaining in negative territory (see Graph
A5.2). As of Q3-2024, total assets on foreigners
reached 172.1% of GDP, while liabilities to
foreigners stood at 185.8% of GDP, resulting in a
negative NIIP of 13.7% of GDP (see Graph A3.2).
The accumulated net portfolio investment, which
reached 38% of GDP as of Q3-2024, did not
suffice to counterbalance a negative net foreign
direct investment balance of -54.7%, together
with net other investments of -2.3%. The stock of
official foreign reserve assets amounted to 5.3%
of GDP. The Estonian economy thus appears to be
a net capital importer, notably mainly by means of
foreign direct investments in the country.
Graph A5.2:
International investment position
250
%
200
of GDP
150
100
50
0
-50
-100
-150
-200
-250
2017
2018
2019
2020
2021
2022
2023
2024-Q3
Foreign Direct Investment, Assets
Other investment, Assets
Foreign Direct Investment, Liabilities
Other investment, Liabilities
Portfolio Investment, Assets
Official reserve assets
Portfolio Investment, Liabilities
NIIP
Source:
ECB.
44
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Structure of the capital markets and
size of the financial sector
In terms of capital market development,
Estonia lags behind the rest of the EU.
Nevertheless, despite the similar economic
structure and size, stock exchanges of Estonia
have been able to achieve a somewhat higher
level of development than its neighbouring
countries. Whereas the market capitalisation of
listed stocks reached 5.9% in Lithuania and only
1.2% in Latvia, it amounted to 12.2% of GDP in
Estonia at the end of Q3-2024. In comparison, the
EU average is 69.3% of GDP. State and local
government-controlled companies account for
slightly more than a third of market capitalisation
in Estonia. The situation is similar in the debt
securities market: the corporate bond market is
very thin and activity there was very weak even
when low interest rates prevailed in financial
markets over the previous decade.
The
prospects
for
capital
market
development are limited by the low number
of listed enterprises.
Estonia has established a
good market infrastructure, as well as a regulatory
framework that meets international standards,
ensuring adequate market transparency and
investor protection. Nevertheless, local businesses
tend to rely on bank intermediation rather than
attracting investments through stock and bond
issues or from alternative sources. This results in
low interest from institutional and retail investors,
and thus few local opportunities to raise share
capital. As there is a relatively large share of
foreign-owned companies in Estonia, some
companies can borrow from their parent
companies. The small size of the local market also
leads large companies to borrow abroad to a
significant extent and to issue bonds in foreign
markets. Lacking market activity by institutional
investors creates conditions for weak demand for
corporate stocks and bonds. Furthermore, the
level of borrowing by the Estonian general
government is low, and so few government bonds
are issued. In terms of the international market,
projects developed in Estonia are relatively low
value, which makes them less attractive to
international investors. The relative lack of liquidity
in the market, which is reflected in the sluggish
trading activity and in the relatively large spreads
between bid and offer prices, even for the most
liquid shares, hampers attractiveness for short-
term investors and traders.
Over the course of 2024, the Minister of
Finance put together a strategy for the
Estonian capital markets.
In this respect, in
September 2024, for the first time, the state
issued bonds aimed at Estonian retail investors.
The offer was oversubscribed more than four
times. The bond has been listed on Nasdaq Tallinn
where it can be traded on the secondary market.
Moreover, the listing of state-owned companies
was discussed.
Estonia’s monetary financial sector is very
small compared with the EU average and
concentration is high.
At the end of Q3-2024,
banks’ total assets were equivalent to 108.7% of
GDP, significantly below the EU average of
248.1%. The banking sector is highly concentrated,
and borrowing costs are among the highest in the
EU in almost all lending segments. The top five
monetary financial institutions represent more
than 90% the sector, vs. an EU average of 54%.
Foreign presence is high and accounts for over
half of total assets. Notably, Swedbank (
81
) and
SEB Pank, which are the second and third largest
banks in Estonia, are Swedish owned. While in
2016 the share of domestic banks was still only
6.6%, this share had amounted to almost half of
the sector by end 2023, which is largely due to the
establishment of the Luminor head office in
Estonia in 2019, now the largest bank in terms of
assets, and currently majority owned by US
investment firm Blackstone. Luminor has branches
in Latvia and Lithuania and has sizeable loan
portfolios in these countries. At the end of 2023,
AS Luminor was the biggest entity in terms of
total assets (31%), followed by Swedbank AS
(27%), AS SEB Pank (16%) and then AS LHV Pank
(12%). The financial groups that own the biggest
banks in Estonia often also own the insurance
companies, fund managers and lease companies
with the largest market share through the banks.
Due to its integration with the Nordic banking
systems, the financial sector of Estonia depends
partly on developments in parent banks and their
strategic decisions.
(
81
)
In October 2021, the ownership of the subsidiary banks in
Estonia, Latvia and Lithuania was placed in the holding
company Swedbank Baltics AS which is wholly owned by
Swedbank AB, and which is under the supervision of the
European Central Bank.
45
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Graph A5.3:
Capital markets and financial
intermediaries in Estonia
120
100
80
Non-financial corporations
Insurance corporations
Investment funds
% of GDP
the drop in securities prices (
82
). According to Eesti
Pank, Estonia's three-pillar pension system saw
assets reach 22% of GDP again in Q3-2024,
driven by significant growth in third-pillar funds
and strong second-pillar returns.
MFIs
Other financials
Government
40
20
Financial corporations
60
Insurance and pension funds
Non-financial corporations
Resilience of the banking sector
Financial soundness indicators suggest that
Estonian banks have remained strong,
despite facing a challenging macroeconomic
environment.
Estonia’s banking sector has coped
relatively well with the multiple shocks in recent
years, from the pandemic crisis to Russia’s
aggression against Ukraine and the energy crisis.
Despite remaining high and still above the EU
average of 20.1%, capital adequacy of Estonian
banks has been steadily declining over time, from
30% in 2017 to 21.2% in Q3-2024 (see Table
A5.1). This ratio comes with heterogeneity across
banks: the two subsidiaries of Swedish banks rely
on internal ratings-based models for certain
segments of their loan portfolios, which
traditionally result in lower risk-weights and higher
capital ratios, even though in the last two years
these ratios have declined. The Common Equity
Tier 1 (CET1) ratio has exhibited a notable
downward trajectory, falling from 30% in 2017 to
19.9% in Q3-2024, however still above the EU
average of 16.6%. The decline reflects reforms to
corporate taxation, which have incentivized banks
to prioritize dividend payouts over profit retention,
but also growing bank leverage and the extension
of banks’ loan portfolios. Differences across
institutions are also significant; especially small
banks exhibit lower buffers.
Eesti Pank and Finantsinspektsioon have
both set additional requirements for the own
funds held by the banks in order to ensure
their resilience.
In response to rapid credit
growth over 2022, the countercyclical capital
buffer (CCyB) was tightened to 1% from
December 2022 and was further raised to 1.5%
effective since December 2023 on top of the base
requirement for own funds and the capital
conservation buffer. The four largest banks have
to hold an additional 2% in own funds for the
(
82
)
Eesti Pank, 2023, The Structure of the Estonian Financial
Sector.
MFIs
0
Listed equity
Bonds
Assets by sector
Source:
ECB, EIOPA, AMECO.
The Estonian insurance sector is very small.
The total value of assets of the insurance sector in
EU countries is equivalent to 54.8% of GDP on
average. By contrast, the figure for insurers
registered in Estonia was only 6.6% at the end of
Q3-2024. The small size of insurance-sector
assets in the country can be explained by the
underdevelopment of life insurance. Non-life
insurance has the largest share of the total
insurance market (86% at the end of Q1-2023). A
major role in the Estonian insurance sector is
played by mandatory insurance products that are
compulsory either by law or as a requirement of a
lender financing the purchase of an asset. This
structure is very different from that found in most
EU countries, where life insurance is often used as
a long-term savings product (e.g. to build up
pension pots). About half of all insurers operating
in the Estonian market are branches of foreign
insurance companies; several Estonian insurers
also operate in the Latvian and Lithuanian
markets.
Assets held by Estonian pension funds have
been decreasing following a policy change in
2021 that turned the second pillar pension
into a voluntary savings scheme.
The total
value of pension funds was equivalent to 12% of
GDP at the end of 2022, down from 19% in 2020.
Since the start of 2021, pension investors can exit
the second pension pillar before reaching
retirement age, which 20% of Estonian pension
savers did over 2021. More money was withdrawn
in subsequent waves of exits. In 2022, the value
of pension fund assets declined mainly because of
46
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systemically important institution buffer. The
internal ratings-based banks have to meet the
own funds requirement by applying a minimum
risk weight of at least 15% on average to the
mortgage-backed claims of Estonian residents.
The profitability of Estonian banks is high.
Over 2023 Estonian banks achieved a record-high
return on equity ratio of 18.5%, which fell back to
17.7% in Q3-2024, still significantly exceeding the
EU average (10%). The profitability of the banks
was mainly bolstered because current accounts
are a large share of total deposits and are
generally not remunerated in Estonia, which
contributes to quite large spreads between interest
income and interest expenses. The dominance of
floating-rate loans, together with the still resilient
quality of the loan portfolio and a relatively high
cost-efficiency have also contributed to a
significant increase in banks' profitability.
Banks’ balance sheets show improved asset
quality.
With an aggregate non-performing loan
(NPL) ratio of 1.2% in Q3-2024, which is below the
EU average of 1.9%, credit quality has improved
significantly over the past years. The level of
problem loans remains good taking into account
the extent of the decline in the economy. Although
problem loans have been growing slowly since the
start of 2023 as a share of the bank portfolios,
that share remains small compared to what was
seen in earlier episodes or in other EA countries.
The biggest deterioration in quality has been in
consumer loans, mostly at smaller banks. The
quality of the corporate loan portfolio is generally
good. Companies in real estate and construction
account for a large part of the loan portfolio of the
Estonian banking sector, but the share of those
loans that are overdue has remained small
throughout the recession. With 31.7% in Q3-2024,
banks’ aggregate coverage ratio of NPLs
by the
provisions made in Estonia remains short of the
EU average by almost 10 percentage points. Yet,
the statistics from the European Central Bank
show that the ratio of restructured, or forborne,
loans to NPLs in Estonia has been one of the
highest in the EA for the past couple of years,
which may indicate that the banks operating in
Estonia handle payment difficulties more
proactively and before the loans become non-
performing.
Funding risk remains low in general and
liquidity ratios remain at a good level.
The
banks get a lot of their funding from local
depositors, but those deposits are still not enough
to finance all of the lending activity of the banks:
the loan-to-deposit ratio was 101% in Q3-2024,
comparable to the EU average of 106.7%.
Alternatives to local deposits are intragroup loans
from foreign parent banks, deposits from other
countries including those taken through deposit
platforms, and covered bonds. Over 2024, the
liquidity coverage ratio increased to 203.6% in Q3-
2024, as demand deposits were partially replaced
by term deposits. As a result, banks’ funding costs
also rised, especially for smaller banks, as these
have lower shares of demand deposits.
Resilience of the non-bank financial
intermediaries
Estonian insurers have a relatively strong
exposure towards the banking sector.
At the
end of 2020 on average approximately 42% of
insurers’ total investment was concentrated
towards banks, according to EIOPA. Moreover, the
bank exposure was predominantly situated with
cross-border banks (65%) and in bank bonds
(mainly covered bonds). Estonian insurers hold
more liquid assets, above the EA median (57%).
Solvency is below the EU average, but significantly
above regulatory limits.
Sources of business funding and the
role of banks
Firms in Estonia rely less than the EU
average on funding from capital markets.
More specifically, the market-funding ratio (
83
) as
of end-2023 was only 15.8%, compared with an
EU average of 49.6%. At the end of 2023, bank
finance through loans accounted for 25% of all
funding sources for Estonian non-financial
corporations (NFCs), whereas listed shares and
bonds accounted for only 2.3% of funding. The
equivalent figures for the EU average are 27.2%
for bank funding and 23.8% for listed shares and
bonds. The small share of listed shares and bonds
in the capital structure of firms is compensated for
(
83
) i.e. the volume of corporate bonds and listed shares of NFCs
relative to the volume of those two and bank loans to NFCs.
47
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by the high share of unlisted shares in Estonia,
which is 60% vs an EU average of 24.5%. At
214%, NFC funding as a share of Estonian GDP
more or less corresponds to the EU average of
230.3% of GDP (see Graph A.1).
Estonia has a large share of investment
funded internally.
The primary and most
significant source of funds for companies is equity,
or the internal funds from within that company.
These internal funds are primarily current cash
flows and financial buffers that were built up by
the country’s firms in previous years. This
favouring of internal funding is partly because of
the Estonian income tax system, under which
profits are not taxed until they are paid out as
dividends. It is also partly because Estonian
companies are generally small or medium-sized,
and external funding is more expensive for smaller
companies than it is for large companies.
According to the 2024 EIB Investment Survey (
84
),
74% of Estonian firms’ investment
needs are
covered by internal funding, compared with an EU
average of 66%. Moreover, the country has a high
share of finance-constrained firms (16% vs an EU
average of 6.9%).
At the same time, 23% of all Estonian firms
surveyed in 2024 believed that their
investment activities over the last three
years were not sufficient.
This is
together
with the other two Baltic countries (Lithuania and
Latvia)
one of the highest levels of self-reported
underinvestment among the EU (EU average of
14%), suggesting that there is a financing gap in
Estonia relative to investment demand, especially
for SMEs. Although firms have no major problem
accessing loans in Estonia, there has been a sharp
increase in the share of firms in the country that
are dissatisfied with the cost of finance (up from
5% in 2022 to 26% now). The level of
dissatisfaction among Estonian firms is higher
than in the EU overall (14%). The widespread use
of loan contracts with floating interest rates
means that the recent rise in interest rates has
almost entirely passed through into the loan costs
of Estonian companies, which has put Estonian
companies in a more difficult position than their
foreign competitors because the interest rates on
loans are higher in Estonia.
Although the rate of growth in borrowing by
Estonian companies and households slowed
down in 2023, it is still one of the highest in
the euro area.
Companies’ interest in increasing
their investments or taking loans has been
hampered by falling profits and a large part of
production capacity in the economy remaining
underutilised amidst unusually high interest rates.
Over the course of 2024, credit growth recovered,
as lending standards eased on the back of
expectations of monetary policy easing. However,
credit growth generally remains modest, with the
exception of the real estate and construction
sectors, which have again become the sectors with
the fastest growth in borrowing. For NFCs, annual
credit growth stabilised over 2024 reaching 6.5%
in November 2024. At the end of November 2024,
bank credit accounted for 26.6% of the total
corporate debt portfolio of Estonian firms.
Households have continued to borrow quite
actively despite the recession, as unemployment
has remained moderate while nominal wages have
grown. For households, the annual rate of credit
growth for adjusted loans gradually edged up
from 6.3% in mid-2023 to 7.5% in November
2024. The yearly growth in the stock of housing
loans has accelerated gradually and reached 7%
by the end of September 2024. As debt liabilities
increased at a similar rate to disposable income,
the debt burden of households did not change over
2024.
Graph A5.4:
Composition of NFC funding as % of GDP
250
200
% of GDP
150
100
50
0
Loans
Bonds
EE
Trade credit and advances
Listed shares
Other equity
EU
Unlisted shares
The sum of NFC liabilities only reflects the total for the NFC
liabilities considered. Reference period 2023.
Source:
Eurostat and FISMA E2 calculations.
(
84
)
EIB Investment Survey 2024 - Estonia.
48
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Capital markets and the participation
of retail investors
The market capitalisation of Estonia’s stock
market expressed as a percentage of GDP is
among the lowest in the EU.
The equity market
is extremely small in terms of capitalisation
(equivalent to 12.2% of GDP vs an EU average of
69.3% as of 2024-Q3) and volumes traded. The
capital markets in Estonia have contracted in
recent years, partly due to the country's 2021
pension reforms, which enabled savers to
withdraw funds from pillar 2 pension schemes. In
addition, the start of Russia's war of aggression on
Ukraine has led to a decline in investor sentiment,
resulting in reduced trading and holding by
Estonian investors of international securities. The
small size and low liquidity of the equity markets
has prompted major index providers to continue to
classify Estonia, and also Latvia and Lithuania, as
‘frontier’ markets despite their sound macro-
economic and institutional frameworks.
The funding of NFCs via the capital markets
is very low in comparison with other EU
countries.
The market-funding ratio stood at
15.8% at the end of 2023, vs 49.6% for the EU on
average (
85
). Local businesses tend to rely on bank
intermediation and own funds rather than
attracting investments through stock and bond
issues or from alternative sources. As there is a
relatively large share of foreign-owned companies
in Estonia, some companies can borrow from their
parent companies. The small size of the local
market also leads large companies to borrow
abroad more often and to issue bonds in foreign
markets. Furthermore, the level of borrowing by
the Estonian general government is low, and so
few sovereign bonds are issued. This all results in:
(i) few local investment opportunities; (ii) low
interest from institutional and retail investors; and
thus (iii) few local opportunities to raise share
capital. The lack of market activity by institutional
investors further weakens demand for corporate
stocks and bonds.
In addition, most companies (over 95%) in
Estonia are SMEs, which find it difficult to
gain access to the capital markets and their
(
85
) CMU Dashboard indicators
opportunities.
Although Nasdaq’s Baltic First
North Market offers a trading facility with reduced
reporting requirements, targeting primarily smaller
cap issuances, SMEs and start-ups seeking to list
on Baltic First North face a significant challenge
due to the mandatory audit of their financial
statements every six months. Moreover, Estonia
cannot take advantage of this SME market
because there are no established SME growth
markets in Estonia, nor in the other Baltic states.
Graph A5.5:
Composition of household financial assest
per capita and as % of GDP
90
80
70
60
200
150
100
250
50
40
30
20
10
0
EE
EU
EE
EU
50
0
per capita (000 EUR) (lhs)
Currency and deposits
Investment funds
Listed shares
Other equity
% of GDP GDP (rhs)
Insurance and pension funds
Bonds
Unlisted shares
HH Debt (liability)
The sum of household assets only reflects the total for the
household assets considered. Reference period 2023.
Source:
Eurostat and FISMA E2 calculations.
Estonian households’ financial assets have
almost no exposure to bonds, listed shares,
pension funds, or insurance funds.
The saving
rate of Estonian households is relatively low and
they hold relatively few financial assets. In
particular, they hold very little in investment and
pension products. Since the country’s 2021
pension reforms, households’ financial assets held
in pension and insurance funds has fallen from the
equivalent of 21% of GDP in 2020 to perhaps
1.4% of GDP in 2023 (vs. 58.3% in the EU on
average in 2023), according to Eurostat data
(Graph A5.5).
Instead, households’ financial assets
held in investment funds has increased over the
last couple of years to 16% of GDP in 2023, (still
below the EU average of 21% of GDP in 2023). All
in all, the share of households’ total financial
assets held in pension funds, insurance funds or
directly in financial investment instruments was
equivalent to barely 17% in 2023, substantially
short of the EU average of 79%. Instead, the most
investment instrument most preferred by Estonian
households is private equity (unlisted shares),
followed by bank deposits. The government
introduced an investment account system in 2011,
49
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but this has achieved only moderate success. One
reason for this is that certain popular investment
vehicles, such as equity crowdfunding, have been
excluded from the benefits of this system,
including the ability to defer income tax.
Recent policy initiatives aim to promote the
degree of retail participation in Estonian
financial markets.
In September 2024, the
Estonian
state
issued,
for
the
first
time, government bonds to retail investors. These
government bonds offer small investors a fixed
interest rate and the opportunity to trade those
bonds on the Tallinn Stock Exchange. The offer
was oversubscribed by more than four
times. Encouraging the build-up of universal
funded supplementary pension schemes would
positively contribute to (i) the sustainability and
adequacy of pension benefits; (ii) investment in
equity; (iii) access to finance; (iv) growth; and (v)
innovation.
majority of the insurance sector’s investments
are
made abroad.
Pension funds have contributed to the
development of the Estonian capital
markets, but their domestic investment
remains low.
Thanks to the Investment Funds Act
of 2016, pension funds in the country were given
more opportunities to invest in Estonia. However,
only about 11% of pension-fund assets are now
held in Estonian assets. One of the challenges of
developing the Estonian capital markets would
therefore be to incentivise the pension funds to
invest more domestically by creating the right
capital markets eco-system.
The participation of domestic institutional
investors in providing funding for start-ups
and venture-capital investors is increasing.
The three Baltic states (Estonia, Latvia and
Lithuania) and the European Investment Fund
have created the Baltic Investment Funds, a joint
‘fund of funds’ investing in private equity and
venture capital in the region. This has injected
significant momentum into the Estonian private-
equity market. This initiative has encouraged
pension funds and other private investors to enter
the market, investing in domestic private-equity
funds.
The role of domestic institutional
investors
Estonia’s institutional investor base remains
very small.
Total assets under the management
of domestically based pension funds, insurance
corporations and investment funds at the end of
2022 were equivalent to 22.4% of Estonian GDP,
one of the lowest levels in the EU (where the
average is equivalent to more than 100% of GDP).
Domestic institutional investors allocate only a
very small portion of their portfolio to domestic
financial assets.
Estonian insurers favour secure fixed-income
investment instruments and have a
relatively large exposure to the banking
sector.
The investment instruments most
preferred by insurance companies are fixed-
income securities (about 70%), mostly comprised
of corporate bonds (e.g. of banks) and (foreign)
government bonds. Estonian insurers hold another
15% in investment funds and equity. The
European Insurance and Occupational Pensions
Authority
calculated
that
on
average
approximately 42% of Estonian
insurers’ total
investment was concentrated in banks at the end
of 2020. These investments were predominantly in
the equity of cross-border banks (65%) and in
bank bonds (mainly covered bonds). The large
The depth of venture and growth
capital
Even though its venture-capital and private-
equity markets are very young, Estonia is
one of the leading private-equity/venture-
capital ecosystems in the EU.
According to the
CMU Dashboard, Estonia leads Europe in annual
venture-capital investments relative to GDP, with
new venture-capital investments equivalent to
0.44% in 2022, and 0.15% in 2023 (vs. an EU
average of 0.08% and 0.05% respectively).
Equally, the country leads in terms of annual
private-equity investments relative to GDP
(equivalent to 1.3% of GDP in 2022 vs and EU
average of 0.6%). Finally, Estonia also dominates
in terms of capital raised through IPOs, which was
equivalent to 1.5% of the country’s GDP in 2023,
vs an EU average of 0.1%. In the past eight years,
listed companies in Estonia have raised more than
EUR 1.2 bn through public share offerings.
Moreover, crowdfunding and peer-to-peer (P2P)
50
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lending platforms have grown rapidly to offer
alternative debt-based funding. Nevertheless, gaps
have been identified in both: (i) the later financing
stages for companies, where capital requirements
are higher; and (ii) the very early stages, where
risk is too high for some investors. Nevertheless,
early-stage entrepreneurial activity in Estonia is
significantly higher than the EU average. The
country also has a high number of unicorn
companies, relative to its size (see annex on
Innovation to business).
Estonia has high ambitions to become a
major European hub for the finance sector
and for those developing pioneering financial
solutions.
In this regard, Finantsinspektsioon, the
country’s financial supervisory authority has taken
the initiative to create an innovation hub. In 2023,
Finantsinspektsioon also launched a regulatory
sandbox to help FinTech companies adapt their
technology to local regulatory requirements. The
government is also in the midst of creating a
FinTech strategy, as the country does not have one
yet, unlike Latvia and Lithuania. Furthermore,
Estonia’s high ambitions in the e-finance
domain
are underscored by new legislation introduced by
the Ministry of Finance that will set operational
and supervisory requirements for the FinTech
sector. The bill includes provisions to cover
crowdfunding platforms and platforms that
facilitate investment in crypto assets. Moreover,
the bill will require all virtual currency-service
providers licensed by the FSA to apply for activity
licences.
companies, the SmartCap Green Fund set up with
the EU money is now providing anchor
investments in two specialist green-tech venture-
capital funds and extending its direct investment
focus to take in companies ready to scale up. The
Green Fund was set up in 2022 by state-owned
fund-management company SmartCap, whose
main role is to act as a fund of funds, using public
money to attract in private investment. Estonia
also uses European Investment Bank finance and
EU cohesion policy funds to move faster towards a
carbon-neutral and more digital society.
Financial literacy
Financial literacy in Estonia is above the EU
average.
According to a 2023 Eurobarometer
survey (
87
), Estonians exhibit a higher level of
financial literacy than the EU average. Specifically,
23% of Estonians have a high level of financial
literacy, 61% a medium level, and 16% a low
level, outperforming the EU averages of 18%
(high), 64% (medium), and 18% (low). Financial
literacy is crucial for promoting retail-investor
participation in capital markets but also for
familiarising SMEs with alternatives to bank
financing.
Financing the green transition
Sustainable finance in Estonia is still in the
initial stages of development.
The average
issuance in the country over 2021-2023 of bonds
with environmental, social, and governance
objectives as a share of Estonia’s total bond
issuance was one of the lowest of all EU Member
States (
86
). However, Estonia is leveraging
EUR 100 mn from the NextGenerationEU recovery
fund to bolster venture capital for green
technology start-ups and scale-ups. After initially
offering direct investment to early-stage
(
86
) Source: AFME CMU Key Performance Indicators, Seventh
Edition, November 2024.
(
87
) Source:
Monitoring the level of financial literacy in the EU -
July 2023 - Eurobarometer survey.
51
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Table A5.1:
Financial indicators
Total assets of MFIs (% of GDP)
Common Equity Tier 1 ratio
Total capital adequacy ratio
Overall NPL ratio (% of all loans)
NPL (% loans to NFC-Non financial corporations)
NPL (% loans to HH-Households)
NPL-Non performing loans coverage ratio
Return on equity
Loans to NFCs (% of GDP)
Loans to HHs (% of GDP)
NFC credit annual % growth
HH credit annual % growth
Stock market capitalisation (% of GDP)
Initial public offerings (% of GDP)
Market funding ratio
Private equity (% of GDP)
Venture capital (% of GDP)
Financial literacy (composite)
Bonds (as % of HH financial assets)
Listed shares (as % of HH financial assets)
Investment funds (as % of HH financial assets)
Insurance/pension funds (as % of HH financial assets)
Total assets of all insurers (% of GDP)
Pension funds assets (% of GDP)
11-17
18-24
25-27
1-3
4-10
1
1
Banking sector
2017
104.7
30.0
30.6
1.9
3.2
1.6
25.4
2018
99.1
30.3
31.0
1.3
2.2
1.3
25.0
2019
101.1
25.7
26.3
1.6
2.5
1.7
34.4
2020
123.4
27.0
27.8
1.6
1.9
1.6
30.9
2021
121.4
23.3
24.3
1.1
1.4
0.9
30.6
2022
104.7
20.9
22.0
0.8
1.2
0.6
32.9
2023
109.3
20.9
22.2
1.1
1.0
1.0
34.1
18.5
25.7
32.0
5.8
6.4
13.1
1.45
15.8
0.28
0.14
46.5
0.4
3.2
12.3
1.1
6.3
-
2024-Q3
108.7
19.6
21.2
1.2
1.3
1.1
31.7
17.7
25.6
32.6
4.2
7.0
12.2
-
-
-
-
-
-
-
-
-
6.6
-
EU
248.4
16.6
20.1
1.9
3.5
2.2
42.1
10.0
30.0
44.5
0.8
0.7
69.3
0.05
49.6
0.41
0.05
45.5
2.7
4.8
10.0
27.8
54.8
23.4
9.2
9.8
8.3
7.4
9.5
10.9
28.8
27.7
25.6
27.4
26.3
25.3
33.6
32.9
32.5
35.0
32.9
31.5
5.8
4.7
2.7
3.4
6.8
11.7
7.1
6.6
6.4
5.1
7.9
11.1
10.8
9.9
9.8
11.1
17.1
12.8
0.21
0.84
0.00
0.02
0.84
0.23
23.1
24.5
24.1
22.3
22.5
20.5
0.04
0.67
2.41
1.27
1.60
1.26
0.02
0.12
0.09
0.10
0.47
0.42
-
-
-
-
-
-
0.2
0.3
0.3
0.3
0.3
0.3
1.5
1.4
1.6
2.0
3.4
2.8
1.4
1.2
1.3
1.4
11.9
10.4
14.5
14.3
15.4
15.4
1.5
1.1
7.3
7.2
7.0
7.3
7.2
5.9
-
-
16.7
19.0
-
-
Colours indicate performance ranking among 27 EU Member States.
Non-banks sector
Annualised data.
Credit growth and pension funds EU data refers to the EA average.
Source:
ECB, ESTAT, EIOPA,
DG FISMA CMU dashboard,
AMECO.
52
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ANNEX 6: EFFECTIVE INSTITUTIONAL FRAMEWORK
Estonia’s institutional framework influences
its competitiveness.
While trust in the national
government and justice is above the EU average,
trust in regional and local authorities has
decreased recently. Overall, Estonia has a well-
established regulatory framework and a
productive civil service. Estonia has made
remarkable progress in digital public services,
surpassing EU Digital Decade targets for both
citizens and businesses (
88
) The country is
perceived as a good place for doing business, with
effective justice and relatively low administrative
burden.
Graph A6.1:
Trust in justice, regional / local authorities
and in government
0.9
0.8
0.7
administration (EU: 23%) (
89
). The perceived quality
of government has improved and stands above
the EU average (
90
). In 2022 the government
launched a pilot project for regional development
agreements with wider territorial scope. These
agreements bring together central, regional and
local administrations and non-governmental
organisations to agree on the design of sectoral
policies
and
measures
to
encourage
entrepreneurship and competitiveness.
Quality of legislation and regulatory
simplification
Overall performance in developing and
evaluating legislation is above the EU
average.
It has also remained broadly stable over
2021-2024. Performance in regulatory tools like
ex ante impact assessments and stakeholder
engagement is stronger than for ex post
evaluation of legislation. It is also stronger for
primary laws than for subordinate regulations.
There is scope for strengthening oversight and
quality controls of regulatory impact assessments
and ex post evaluation of legislation for both
primary and secondary legislation (Graph A6.2).
In 2023, the government prepared an open
government roadmap (
91
) to improve public
consultations
which
contained
30
recommendations for state institutions and local
governments. It also drew up a roadmap on public
engagement in EU affairs (
92
). One of the new
requirements is that all ministries will prepare an
annual public engagement plan and make this
available to stakeholders.
Estonia has mechanisms for simplifying
regulation and identifying administrative
burdens.
However, these typically apply to some
(and not all) primary laws. Additional practices,
such as conducting in depth reviews of specific
regulatory areas and public stocktakes of
(
89
)
Understanding Europeans’ views on reform needs
- April
2023 - - Eurobarometer survey
(
90
)
Inforegio
European Quality of Government Index
(
91
)
Open government roadmap (2023).
(
92
)
Public engagement roadmap in EU matters: sample
documents
.
0.6
0.5
0.4
0.3
0.2
0.1
Autumn
Autumn
Autumn
Autumn
Autumn
Autumn
Autumn
Summer
Summer
Autumn
Winter
Spring
Spring
Spring
Spring
Spring
Winter
Spring
Spring
0
2014 2015
2016
2017
2018
2019 2020 2022
2023
2024
Justice, legal system EU27
Justice, legal system EE
Regional or local public authorities EU27
Regional or local public authorities EE
Government EU27
Government EE
(1) EU27 from 2019; EU28 before
Source:
Standard Eurobarometer surveys
Public perceptions
Trust in national government and justice is
above the EU-27 average
(Graph A6.1). Trust in
regional and local authorities has decreased
recently. When asked about aspects that can
increase trust in Estonia’s public administration,
53% of citizens pointed to more transparency
about decisions and the use of public money (EU:
44%), 46% to less bureaucracy (EU: 52%) and
34% to more moral integrity in the public
(
88
) The Digital Decade Policy Programme sets out a pathway for
the EU’s digital transformation, including concrete
commitments from Member States to jointly achieve
objectives (e.g.
competitiveness, resilience, sovereignty)
and digital targets by 2030.
53
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Table A6.1:
Estonia. Selected indicators on administrative burden reduction and simplification
Ex ante impact assessment of legislation
When developing new legislation, regulators are
required to …
Ex post evaluation of legislation
Is required to consider the consistency of regulations
and address areas of duplication.
Is required to contain an assessment of administrative
burdens.
Is required to contain an assessment of substantive
compliance costs.
Compares the impact of the existing regulation to
alternative options.
Periodic ex post evaluation of existing regulations is
mandatory.
Government uses stock-flow linkage rules when
introducing new regulations (e.g., one-in one-out).
A standing body has published an in-depth review of
specific regulatory areas in the last 3 years.
In the last 5 years, public stocktakes have invited
businesses and citizens to assess the effectiveness,
efficiency, and burdens of legislation.
Identify and assess the impacts of the baseline or
‘do nothing’ option.
Identify and assess the impacts of alternative non-
regulatory options.
Quantify administrative burdens of new
regulations.
Quantify substantial costs of compliance of new
regulations.
Assess macroeconomic costs of new regulations.
Assess the level of compliance.
Identify and assess potential enforcement
mechanisms.
Yes / For all primary laws
For major primary laws
For some primary laws
No / Never
(1) This table presents a subset of iREG indicators focusing on regulatory costs. The indicators refer to primary legislation.
Source:
OECD (2025), Regulatory Policy Outlook 2025 [https://doi.org/10.1787/56b60e39-en] and Better Regulation across the
European Union 2025 (forthcoming).
legislation
could
further
enhance
such
mechanisms (table A6.1). Reducing administrative
burden is closely linked to advancing digital
government in Estonia. Since 2020, the
government has launched a set of measures to
reduce reporting burden for companies by means
of data-sharing between agencies. The first phase
was aimed at sharing data from reporting on
wages, salaries and labour costs. The next phase
will focus on data relating to economic
transactions,
accommodation
and
the
93
environment ( ).
Estonia actively promotes innovation in
policymaking
(
94
). An innovation award funded by
the 2021-2027 EU cohesion policy encourages
projects that contribute to economic growth and
business development in Estonia, as well as
innovation procurement. One such example of
innovation procurement is a public sector
experimentation guide created for public sector
entities (
95
). Moreover, Estonia has committed in
the future to allocating 2% of the total public
procurement volume and 5% of total procurement
costs to innovation procurement (
96
).
Graph A6.2:
Indicators of Regulatory Policy and
Governance (iREG)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Primary laws Subordinate Primary laws Subordinate Primary laws Subordinate
regulations
regulations
regulations
EE_Stakeholder
engagement
EE_Regulatory Impact
Assessment
EE_Ex-post evaluation of
legislation
Methodology
Transparency
2021
Systematic adoption
Oversight and quality control
EU-27
Source:
OECD (2025), Regulatory Policy Outlook 2025 and
Better Regulation across the European Union 2025
(forthcoming).
(
93
)
Data-based reporting | Statistikaamet
(
94
)
Public Sector Innovation Awards | Government Office
(
95
)
Innotiim esitleb avaliku sektori katsetamise juhendit |
Riigikantselei
(
96
)
Riigihangetes hakatakse hindama innovatsiooni | Majandus-
ja Kommunikatsiooniministeerium
54
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Table A6.2:
Key Digital Decade targets monitored through the Digital Economy and Society Index
Estonia
2022
Digitalisation of public services
Digital public services for citizens
1
Score (0 to 100)
EU-27
2024
96
2023
2023
94
2022
2024
79
2023
Digital Decade
target by 2030
EU-27
100
2030
100
2030
100
2030
92
2021
2
3
Digital public services for businesses
Score (0 to 100)
98
2021
99
2022
99
2023
85
2023
79
2023
Access to e-health records
Score (0 to 100)
na
2021
89
2022
98
2023
Source:
State of the Digital Decade report 2024
The OECD product market regulation
indicators show that Estonia’s licensing
system is slightly more burdensome than the
EU-27 average and could be further aligned
with best practices.
For example, although the
government keeps an up-to-date online inventory
of all permits and licences required/issued to
businesses by public bodies, there is no
requirement for the government to regularly
assess whether such licences and permits are still
required or should be withdrawn (see also
Annex 4). Moreover, the B-READY indicators (
97
)
show considerable potential for cutting the time it
takes to obtain building and environmental
permits. Unlike 19 other EU Member States,
Estonia does not have a dedicated institution for
promoting pro-productivity policies.
the Collective Agreements Act entered into force,
establishing criteria to extend collective
agreements. Prior to the legislative change, there
were altogether three sectoral (extended)
collective agreements in two sectors: one in health
care and two in transport (one covering freight
transport, the other covering passenger transport).
Strengthening social dialogue remains important in
order to increase collective bargaining coverage.
Technical Assistance allocates nearly EUR 1 million
to trade union and employers’ main organisations.
In addition, ESF+ currently supports social dialogue
with around EUR 400 000.(
99
)
Digital public services
Estonia is among the EU’s top performers in
terms of digital public services
(Table A4.2) It
is using AI to improve quality of digital public
services (
100
). Estonia has excelled also in terms of
access to e-health records. It achieved a score of
97.5 in 2023, compared to an EU average of 79.1.
Citizens can access all relevant health data online
through the national e-health portal which
integrates records from public and private
providers.
However,
accessibility
and
interoperability are hindered slightly by the
absence of an e-health mobile application.
(
99
) For an analysis of the involvement of
Estonia’s
social
partners at national level in the European Semester and the
Recovery and Resilience Facility, see Eurofound (2025),
National-level social governance of the European Semester
and the Recovery and Resilience Facility.
(
100
)
https://www.ria.ee/en/state-information-system/machine-
learning-and-language-technology-
solutions/burokratt#implementation
Social Dialogue
The involvement of social partners in
reforms and policies in Estonia has improved
in recent years but remains limited.
The main
challenges are related to the relatively low
collective bargaining coverage rate (only 19% in
2021) as well as the extremely low density of
trade union and employers’ organisations
(respectively 6% and 25% in 2019(
98
)). The last
measure concerning the social dialogue was
implemented in November 2021, when changes in
(
97
) World Bank. 2024. Business Ready 2024. Washington, DC:
World Bank. doi:10.1596/978-1-4648-2021-2.
(
98
) OECD/AIAS database on Institutional Characteristics of Trade
Unions, Wage Setting, State Intervention and Social Pacts
(ICTWSS)
55
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Estonia is advancing towards seamless,
automated exchange of authentic documents
and data across the EU.
It has developed the
necessary infrastructure and is beginning the
process of connecting up the first authorities to
the Once-Only Technical System (
101
).
The proportion of e-government users
reached 94.7% in 2023
(EU 75%), while the
proportion of Estonians using eID reached more
than double the EU average (EE 89.4%; EU 41.1%)
(
102
). However, Estonia has not yet set up and
notified eID schemes for legal persons under the
eIDAS Regulation(
103
). This means that Estonian
businesses cannot authenticate themselves to
access public services provided by other Member
States, including those enabled by the Once-Only
Technical System(
104
), part of the EU Single Digital
Gateway.
Graph A6.3:
Participation rate of 25-64 year olds in
adult learning (%) by occupation
45
40
Civil service
A high level of skills among Estonian civil
servants has enabled a productive civil
service.
Estonia has a very high proportion of civil
servants with higher education qualifications (EE
72.2%; EU 54%(
105
)). The proportion of civil
servants pursuing continuous training is also far
above the EU average (Graph A6.3). Although the
average age of civil servants in Estonia is among
the lowest in the EU, the country has identified
several agencies where ageing may become a
concern. Workforce ageing is occurring faster at
local government level. In 2023, staff turnover
decreased to 14.2%, compared to 16.4% in 2022.
A major reason why civil servants are leaving their
jobs is an increase in the public administration’s
workload without a corresponding increase in
resources. Civil service restructuring is another
reason (
106
). In 2023, legal amendments reduced
salary growth for senior civil servants up until 1
April 2028.
35
30
25
Integrity
A lower percentage of companies than the EU
average consider corruption to be a problem.
In Estonia, only 36% of companies consider that
corruption is widespread (EU average 64%), while
only 10% consider that corruption is a problem
when doing business (EU average 36%) (
107
).
Moreover, 52% of companies believe that people
and businesses caught for bribing a senior official
are appropriately punished (EU average 31%) (
108
).
Some high-level corruption cases are ongoing,
including proceedings against a former minister.
However, there are no ongoing foreign bribery
cases. (
109
) Furthermore, only 7% of companies (EU
(
105
) Eurostat. Employees by educational attainment level, sex,
age.
(
106
) Civil Service Yearbook 2023, MoF (2024). Available at:
https://www.fin.ee/sites/default/files/documents/2024-
05/ATAR%202023.pdf
(Accessed on 05/01/2025).
(
107
) Flash Eurobarometer 543 on businesses’
attitudes towards
corruption in the EU (2024).
(
108
) Ibid.
(
109
) See the 2024 country-specific chapter for Estonia of the
Rule of Law Report, p. 10.
20
15
10
5
0
EE
EU-27
2021
EE
EU-27
2022
EE
EU-27
2023
EE
EU-27
2024
Public administration and defence; compulsory social security
High-skilled occupations
Unskilled occupations
Total economy
Medium-skilled occupations
Armed forces
Source:
European Commission, based on the Labour Force
Survey
(
101
) European Commission,
Once-Only Technical System
Acceleratormeter.
(
102
) European Commission.
Digital Decade 2024: Country reports
(
103
) European Commission,
eIDAS Dashboard.
(
104
) European Commission,
The Once Only Principle System: A
breakthrough for the EU’s Digital Single Market
56
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average 27%) think that corruption has prevented
them from winning a public tender or a public
procurement contract in practice in the last three
years (
110
). Healthcare, the local government and
political party financing as well as obtaining
residence and work permits are considered to be
at high-risk of corruption (
111
).
Estonia has implemented a public register
for lobbyists and discussions were initiated
on introducing lobbying rules in Parliament.
As with most Member States, Estonia has
implemented rules on government. Moreover,
specific guidelines on ‘revolving doors’ are
currently being developed by the Public Ethical
Council and are expected in 2025. In addition,
political groups started discussions on possible
guidelines on lobbying also for Parliament, which
could foster transparency in corporate lobbying.
(
112
)
Justice
The justice system is performing efficiently.
The length of court proceedings in first instance
civil and commercial cases has increased (from
158 days in 2022 to 196 days in 2023). The
length of court proceedings in first instance
administrative cases has remained stable year-on-
year (166 days in 2022, 167 days in 2023). The
number of pending cases is among the lowest in
the EU. The quality of the justice system is
considered to be good overall. Estonia is among
the best performing Member States in terms of
digitalisation of justice. As regards judicial
independence, no systemic deficiencies have been
reported. (
113
)
(
110
) Flash Eurobarometer 543 on businesses’
attitudes towards
corruption in the EU (2024).
(
111
) See the 2024 country-specific chapter for Estonia of the
Rule of Law Report, p. 14.
(
112
) Ibid., p. 12.
(
113
) For more detailed analysis see the upcoming 2025 EU
Justice Scoreboard and the 2024 Rule of Law Report.
57
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SUSTAINABILITY
ANNEX 7: CLEAN INDUSTRY AND CLIMATE MITIGATION
Estonia
faces
significant
challenges
regarding its clean industry transition and
climate mitigation,
specifically in transitioning
away from oil shale and increasing its net zero
technology
manufacturing
capacity
(with
commitments made to cease electricity production
from oil shale by 2035 and to phase out oil shale
in energy production by 2040), as relevant policy
frameworks and incentive schemes remain limited.
The country relies heavily on imports for critical
raw materials, posing a geopolitical risk. Its
greenhouse gas emissions reduction efforts in
transport lag behind targets. In the sustainable
industry domain, Estonia's circular economy
transition is hindered by low recycling rates and
underinvestment, requiring substantial policy and
financial commitments to improve resource
productivity and waste management. This annex
reviews the areas in need of urgent attention in
the areas of clean industry transition and climate
mitigation in Estonia, looking at different
dimensions.
manufacturing capacity.
A few relevant
incentive schemes are in place, targeting batteries
and storage technologies. Focusing on small to
medium-sized enterprises, Estonia provides grants
for the development of green technologies,
including net zero technologies, as part of its
recovery and resilience plan. In addition, the
Estonian clean tech association, representing over
130 clean tech companies, is working together
with the Ministry of Climate on a roadmap for the
clean technology sector (
116
).
One of the main challenges to Estonia’s
clean transition is the continued use of oil
shale, a particularly resource-intensive fossil
fuel.
In terms of resource productivity, measured
as gross domestic product (GDP) over domestic
material consumption (DMC), Estonia was among
the worst EU performers in 2023 (
117
). In domestic
extraction used, which is a significant component
within the domestic material consumption, fossil
fuels represent a large share for Estonia (almost
30%). Despite a decrease in 2023, the domestic
extraction of fossil fuels remains above the 2020
level at 8.1 tonnes per capita (7.4 tonnes in 2020).
(
118
). The country is however making progress in
reducing the production and use of oil shale (
119
).
The transition away from oil shale means that jobs
and skills needs are shifting too; increasing green
skills through reskilling and upskilling is
particularly important for Estonia (see Annex 12
on Education and Skills).
Transforming the car industry
Faster transition to electric vehicles would
advance decarbonisation in Estonia.
While
Estonia does not have a domestic car
manufacturing industry, it is among the five
countries with the highest motorisation rate in the
EU, with 630 cars per thousand inhabitants in
2023. In terms of car age, Estonia has one of the
oldest car fleets in Europe, with 32.3% of cars
being older than 20 years (
120
). For new cars
purchased in 2023, Estonia was among the
(
116
)
The Estonian Cleantech Association, 2024
(
117
)
Eurostat
(
114
) European Commission: Directorate-General for Energy, The
net-zero manufacturing industry landscape across the
Member 2025,
https://data.europa.eu/doi/10.2833/2181110.
(
115
)
European Commission
(
118
)
Statistics Estonia
(
119
)
Statistics Estonia, 2024
(
120
)
Eurostat
Strategic autonomy and technology
for the green transition
Estonia’s manufacturing capacity across all
net zero technologies remains modest, but
there is potential for innovative technologies
(
114
). Estonia hosts innovative wind turbine
companies such as Eleon, and focuses on research
and innovation within the industry. It plans to
establish a large, cutting-edge manufacturing base
and innovation platform for new-generation
offshore wind technology solutions. Estonia is also
home to advanced solutions in battery and storage
technologies and electrolysers. In hydrogen,
Estonia has an active industrial community, and
Estonian companies are involved in two Important
Projects of Common European Interest (IPCEIs) on
the hydrogen value chain (
115
).
Currently, Estonia has no policy framework
aiming at scaling up its net zero technology
58
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countries with the highest share of petrol-powered
cars (75.5%). Only 6.3% of newly purchased
vehicles in 2023 in Estonia were fully electric,
which is slightly below both Baltic peers Latvia and
Lithuania and well below the EU average of 14.5%
(
121
).
in an environmentally friendly manner (
127
). In
addition, Estonia is in a position to become an
important player in magnet manufacturing. A plant
for the production of permanent rare earth
magnets, used for example in the manufacture of
electric vehicles, is expected to start operations in
2025 (
128
).
Critical raw materials
Estonia mines oil shale and peat but relies on
imports for critical raw materials.
The country
ranks 136th out of 183 countries in the Mining
Contribution Index (
122
). However, Estonia is home
to one of Europe’s largest phosphorite
deposits (
123
). A recent report by the Geological
Survey of Estonia showcases north Estonia’s
potential for critical raw materials and
recommends further studies (
124
). In terms of
import dependencies for critical raw materials,
Estonia import concentration is around the EU
average of 0.22, which indicates a moderate
degree of import dependency. The main critical
raw materials imported to Estonia from non-EU
countries in 2023 were titanium (Russia, Saudi-
Arabia) and rare earth elements (Russia) (
125
). This
indicates a particularly high degree of geopolitical
risk.
Aside from domestic primary production,
recycling and increased use of secondary
materials can help reduce dependency on
imports.
Estonia performs well in the circular use
of materials. In recent years it has been among
the top five EU performers, with a circular material
use rate of 21.4% in 2022 compared to the EU
average of 11.5%(
126
).
Estonia is taking a leading role in rare earth
metal separation.
Two ongoing studies of the
University of Tartu supported by the Just
Transition Fund focus on the extraction of rare
earth metals from raw materials (e.g. natural ores)
Climate mitigation
Industry decarbonisation
Manufacturing production in Estonia has a
low greenhouse gas emissions intensity, and
only accounts for a minor share of total
emissions.
Around 8% of Estonia’s total
greenhouse gas emissions come from industry,
among the lowest share in the EU (
129
). With
120 g CO2eq per euro of gross value added (GVA),
the emissions intensity of manufacturing in
Estonia only amounts to 44% of the EU average
(270 g) and is the fourth lowest in the EU.
Between 2017 and 2022, the emissions intensity
of Estonia’s industry
declined by 62%, significantly
more than in the EU overall where it declined by
20%. Emissions related to industry processes and
product use account for a relatively large share of
emissions from manufacturing, 51%. In the EU
overall, this is at 43%, with the rest related to
energy use.
The recent decline of the greenhouse gas
emissions
intensity
of
Estonia’s
manufacturing in both categories is due to
cleaner energy sources and energy efficiency
improvements.
Between 2017 and 2022, both
the energy- and non-energy-related emissions
intensity of manufacturing declined by around
(
127
)
Invest in Estonia, 2024
(
128
)
Invest in Estonia, 2023
(
129
) In 2023. Manufacturing includes all divisions of the
“C”
section of the NACE Rev. 2 statistical classification of
economic activities. In the remainder of this section, unless
indicated otherwise, data on manufacturing refer to the
divisions of the NACE section C excluding division C19
(manufacture of coke and refined petroleum products), and
the year 2022. The source of all data in this section is
Eurostat; data following the UNFCCC Common Reporting
Framework (CRF) are from the European Environment Agency
(EEA), republished by Eurostat.
(
121
)
European Environment Agency
(
122
)
Mining Contribution Index (MCI) 6th edition
(
123
)
The Geological Survey of Estonia, 2023; See also Annex 8.
(
124
)
The Geological Survey of Estonia, 2025
(
125
)
JRC RMIS Country Profile Estonia
(
126
)
Eurostat
59
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60%, among the largest declines in the EU (
130
). In
the same period, the share of electricity and
renewables in final energy consumption of the
manufacturing sector increased by 9 percentage
points, to 61%, the fifth highest in the EU; the
energy intensity of manufacturing in Estonia
declined by 28%, from 1.4 GWh to 1.0 GWh per
euro of GVA. Estonian energy-intensive industries
have been particularly affected by high energy
prices, and in 2024 energy costs were reported as
an obstacle to investment by 73% of Estonian
companies (
131
).
Graph A7.1:
GHG emissions intensity of manufacturing
and energy-intensive sectors, 2022
4
3.5
3
sector, which emits 1 kg of greenhouse gases per
euro of GVA, Estonia’s energy-intensive
sectors
have very low emission intensities of production,
between 0.1 and 0.5 kg
CO2eq/€, well below EU
levels as a whole.
Estonia has started putting in place policies
to support the decarbonisation of the
industry.
It has adopted policies to deploy
renewables such as offshore wind and measures
to improve energy efficiency and support the
hydrogen economy as part of its long-term
development strategy
‘Estonia
2035’.
Reduction of emissions in the effort sharing
sectors
To attain its 2030 target for the effort
sharing sectors, Estonia needs to swiftly
specify and implement further climate
mitigation policies (
133
).
GHG emissions from
Estonia’s effort sharing sectors in 2023 are
expected to have been 2.8% below those of 2005.
By 2030, current policies are projected to reduce
them by 13.5% relative to 2005 levels; additional
policies currently considered by Estonia are
projected to achieve reductions of a further 3.9
percentage points. This results in a sizeable
shortfall against Estonia’s effort sharing target of
24%, of 6.6 percentage points (
134
). Swift and
steady adoption and implementation of further
climate mitigation measures will be critical. While
Estonia plans to use domestic flexibilities available
under the Effort Sharing Regulation, this would not
be sufficient to close the gap.
Swift action on decarbonising transport
appears particularly exigent in Estonia.
(
133
)The national greenhouse gas emission reduction target is
set out in Regulation (EU) 2023/857 (the Effort Sharing
Regulation), to align the action in the sectors concerned
with the objective of reaching the EU-level economy-wide
target of greenhouse gas reductions of at least 55%
relative to 1990 levels. The target applies jointly to the
sectors outside the current EU emissions trading system,
notably buildings (heating and cooling), road transport,
agriculture, waste, and small industry (known as the effort
sharing sectors).
(
134
) The emissions from effort sharing sectors for 2023 are
based on approximated inventory data. The final data will be
established in 2027 after a comprehensive review.
Projections on the impact of current policies (‘with existing
measures’, WEM) and additional policies (‘with additional
measures’, WAM) as
per Estonia’s
final updated national
energy and climate plan.
KG CO
2
eq / €
2.5
2
1.5
1
0.5
0
C-C19
C17
Estonia
C20
EU-27
C23
C24
Source:
Eurostat.
Estonia’s energy-intensive
industries (
132
) are
not large greenhouse gas emitters.
They
account for 8% of Estonia’s manufacturing GVA
(2022). Except for paper and paper products
(
130
) For the GHG emissions intensity of GVA related to energy use
and industrial processes and product use respectively, GHG
emissions are from inventory data in line with the UNFCCC
Common Reporting Format (CRF), notably referring to the
source sectors CRF1.A.2
fuel combustion in manufacturing
industries and construction and CRF2
industrial processes
and product use. The CRF1.A.2 data broadly correspond to
the NACE C and E sectors, excluding C-19. GVA data (in the
denominator for both intensities) are aligned with this
sectoral coverage. Therefore, they are not fully consistent
with the data referred to in other part of this section.
(
131
) See the
EIB Investment Survey 2024 Country Overview:
Estonia.
For a detailed analysis of energy prices, see Annex 8
on the affordable energy transition.
(
132
) Notably, the manufacture of paper and paper products
(NACE division C17), of chemicals and chemical products
(C20), “other” non-metallic
mineral products (C23; this
division includes manufacturing activities related to a single
substance of mineral origin, such as glass, ceramic products,
tiles, and cement and plaster), and basic metals (C24). To
date, these industries are energy-intensive
i.e. consuming
much energy both on site and/or in the form of purchased
electricity
and greenhouse gas emissions intensive, in
various combinations.
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Between 2005 and 2023, greenhouse gas
emissions from road transport increased by 23%
in Estonia, while they decreased by 5% in the EU
overall. Speeding up climate mitigation in these
sectors would help protect households, businesses
and transport users in Estonia from the impact of
the forthcoming carbon price.
Graph A7.2:
Greenhouse gas emissions in the
effort sharing sectors, 2005 and 2023
7
6
5
MtCO2e
4
3
2
1
0
2005
Domestic transport (excl. aviation)
Agriculture
Waste
2023
Buildings (under ESR)
Small industry
Estonia, despite low municipal waste
generation per capita, struggles with
recycling and composting due to insufficient
systems
and
overcapacity in
waste
treatment facilities.
Although Estonia is one of
the Member States with the lowest municipal
waste generation per capita, its 33% rate of
preparing for reuse and recycling in 2022 put it
significantly below the estimated EU average of
49% in the same year (see Graph A7.3). In
addition, concerns have been raised about
Estonia’s
lack of a unified waste data
management system at the local level and about
the quality of the data provided. Estonia started
diverting municipal waste from landfilling by
putting in operation a mechanical biological
treatment plant. Finally, the share of composting
and digestion is rather low, at 5% in 2022, due to
an insufficient separate collection system and
uneven capacity for treating biowaste across
regions.
Graph A7.3:
Municipal waste treatment
600
500
Source:
European Environment Agency.
Sustainable industry
400
369
383
395
373
373
Circular economy transition
Despite some positive trends, Estonia still
lags behind on the circular transition.
Estonia’s circular
material use rate has been
increasing since 2014 (it reached 21.4% in 2022,
with a negative change in 2023 to 18.1%) and is
still above the EU average of 11.8%. Nevertheless,
Estonia remains one of the worst EU performers
for material usage and resource productivity. In
2023, Estonia generated EUR 0.63 per kg of
material against the EU average of EUR 2.23 (
135
).
The material footprint of 29.9 tonnes per capita in
2023 is the fourth highest value in the EU and
more than double the EU average of 14 tonnes per
capita, indicating an over-consumption of raw
materials.
Kg per capita
300
200
100
0
2019
2020
2021
2022
2023
Material recycling
Composting and digestion
Landfill/disposal
Total incineration (incl. energy recovery)
Waste treatment unspecified
EU-27 total waste per capita
Source:
Eurostat
(
135
) Resource productivity measures the total amount of
materials directly used by an economy in relation to GDP.
Improving resource productivity can help to minimise
negative impacts on the environment and reduce
dependency on volatile raw material markets.
There is scope for Estonia to implement additional
policies to increase circularity. In 2023, Estonia
adopted a white paper outlining the broad
objectives and framework for the transition to a
circular economy. In the same year, Estonia also
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published a circular economy action plan (
136
)
under the recovery and resilience plan. The action
plan groups together 10 key actions for the
transition from across the policy landscape. Other
circular economy-related activities in the plan
include: support for the digitalisation of the
economy: reskilling of workers; and the adoption of
resource-efficient green technologies.
Current investment in the circular transition
is insufficient.
To meet its environmental
objectives for the circular economy and waste,
Estonia needs to increase circular economy
investments by an estimated EUR 54 million per
year, with an additional EUR 12 million needed for
waste management action. Combined, this
amounts to EUR 66 million per year, representing
0.18%
of Estonia’s GDP
(
137
). To close the circular
economy investment gap, EUR 14 million is
needed for recent initiatives, such as eco-design
for sustainable products, packaging and packaging
waste, labelling and digital tools, critical raw
materials recycling, and measures proposed under
the amendment of the Waste Framework
Directive. A further EUR 40 million in investment is
needed to unlock Estonia’s circular economy
potential.
Zero pollution industry
Air quality in Estonia is generally good, with
some exceptions.
The latest available annual
estimates (for 2022) by the European Environment
Agency for Estonia attribute 100 deaths each year
(or 880 years of life lost (YLL)) to fine particulate
matter (PM
2.5
); 10 deaths each year (or 180 YLL)
to nitrogen dioxide (NO
2
); and 30 deaths each year
(or 1 300 YLL) to ozone.
Estonia’s rate for pollutant releases to air is
around the EU average.
The emissions of
several air pollutants have decreased significantly
since 2005, while GDP growth has continued.
According to the inventories submitted under
Article 10(2) of the National Emission Reduction
Commitments (NEC) Directive in 2024, Estonia has
met its emission reduction commitments for
2020-2029 for air pollutants, NOx, non-methane
(
136
) Ministry of Climate, 2023,
Eesti taaste ja vastupidavuskava
raames sätestatud ringmajanduse tegevuskava,
Link.
(
137
) European Commission, DG Environment,
Environmental
investment needs & gaps assessment programme,
2025
update. Expressed in 2022 prices.
volatile organic compounds (NMVOC), sulfur
dioxide (SO
2
), ammonia (NH
3
) and PM
2.5
. According
to the latest projections submitted under
Article 10(2) of the NEC Directive, Estonia is on
track to meet its emission reduction commitments
for 2030 onwards for NO
x
, NMVOC, SO
2
, NH
3
and
PM
2.5
. Estonia submitted its updated national air
pollution control programme to the Commission on
30 March 2023. To meet its environmental
objectives on pollution prevention and control
(towards zero pollution), Estonia needs to provide
an additional EUR 66 million per year (0.18% of
GDP), mostly related to measures on clean air (
138
).
(
138
) European Commission, DG Environment,
Environmental
investment needs & gaps assessment programme,
2025
update. Expressed in 2022 prices.
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Table A7.1:
Key clean industry and climate mitigation indicators: Estonia
Strategic autonomy and technology for the green transition
Net zero industry
Operational manufacturing capacity 2023
- Solar PV (c: cell, w: wafer, m: module), MW
- Wind (b: blade, t: turbine, n: nacelle), MW
Automotive industry transformation
Motorisation rate (passenger cars per 1000 inhabitants), %
New zero-emission vehicles, electricity motor, %
Critical raw materials
Material import dependency, %
Climate mitigation
Industry decarbonisation
GHG emissions intensity of manufacturing production, kg/€
Share of energy-related emissions in industrial GHG emissions
Energy-related GHG emissions intensity of manufacturing
and construction, kg/€
Share of electricity and renewables in final energy consumption
in manufacturing, %
Energy intensity of manufacturing, GWh/€
Share of energy-intensive industries in manufacturing production
GHG emissions intensity of production in sector [...], kg/€
- paper and paper products (NACE C-17)
- chemicals and chemical products (NACE C20)
- other non-metallic mineral products (NACE C23)
- basic metals (NACE C24)
Reduction of effort sharing emissions
GHG emission reductions relative to base year, %
- domestic road transport
- buildings
2005
Effort sharing: GHG emissions, Mt; target, gap, %
Sustainable industry
Circular economy transition
Material footprint, tonnes per person
Circular material use rate, %
Resource productivity, €/kg
Zero pollution industry
Years of life lost due to PM2.5, per 100,000 inhabitants
Air pollution damage cost intensity, per thousand € of GVA
Water pollution intensity, kg weighted by human factors per bn € GVA
191
67
49
84
28.1
0.2
96
-
702
571
27.5
0.9
2018
30.6
13.8
0.6
6.2
Estonia
2019
28.7
15.3
0.7
2020
28.4
16.4
0.8
2021
26.9
20.0
0.9
2022
27.5
21.4
1.0
2023
29.9
18.1
1.0
0.70
0.17
3.96
0.22
0.62
0.17
3.60
0.20
2018
18.3
-11.5
0.72
0.17
3.91
0.17
2019
16.8
-19.1
0.94
0.13
0.67
0.18
2020
9.9
-23.2
0.95
0.14
0.30
0.11
2021
-7.6
13.2
-26.7
2021
5.7
2017
0.35
44.7
122.6
52.4
1.41
2018
0.33
52.4
122.1
53.4
1.41
Estonia
EU-27
50-100 (m)
-
2017
550
0.10
2017
2018
563
0.32
2018
23.4
2019
598
0.28
2019
24.4
- Electrolyzer, MW
- battery, MWh
2020
608
1.78
2020
26.7
2021
620
2.15
2021
30.4
2022
622
3.37
2022
25.3
-
-
2023
630
6.30
2023
19.2
Trend
2018
539
1.03
2018
24.2
2021
561
8.96
2021
22.6
Estonia
2019
0.33
50.5
120.3
47.2
1.27
2020
0.18
49.1
79.4
55.1
1.18
2021
0.11
41.2
54.3
57.8
1.04
2022
0.12
48.8
49.7
61.1
1.01
8.4
0.97
0.25
0.45
0.13
2022
-10.6
18.1
-41.9
2022
5.5
1.21
0.33
0.66
0.08
2023
-2.8
22.7
-32.0
2023
6.0
2023
0.14
50.8
-
63.9
1.02
EU-27
2017
0.34
44.8
158.4
43.3
1.29
2022
0.27
42.5
132.9
44.2
1.09
7.3
-
-
-
-
0.73
1.25
2.53
2.79
2018
1.4
21.4
0.68
1.26
2.24
3.49
2023
5.2
32.9
WAM
-6.6
Target
-24.0
Trend
WEM
-10.5
EU-27
2018
14.7
11.6
2.1
2021
15.0
11.1
2.3
Source:
Net zero industry:
European Commission:
The net-zero manufacturing industry landscape across Member States: final
report,
2025.
Automotive industry transformation:
Eurostat.
Critical raw materials:
Eurostat.
Climate mitigation:
See
footnotes in the "climate mitigation" section; reduction of effort sharing emissions:
EEA greenhouse gases data viewer;
European
Commission,
Climate Action Progress Report,
2024.
Sustainable industry:
Years of life lost due to PM2.5: Eurostat and EEA,
Harm to human health from air pollution in Europe: burden of disease status,
2024. Air pollution damage: EEA,
EU large industry
air pollution damage costs intensity,
2024. Emissions covered: As, benzene, Cd, Cr, Hg, NH3, Ni, NMVOC, NOX, Pb, dioxins, PM10,
PAH, SOX. Water pollution intensity: EEA,
EU large industry water pollution intensity,
2024. Releases into water covered from
cadmium, lead, mercury, nickel. Other indicators: Eurostat.
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ANNEX 8: AFFORDABLE ENERGY TRANSITION
This annex outlines the progress made and
the ongoing challenges faced in enhancing
energy competitiveness and affordability,
while advancing the transition to net zero.
It
examines the measures and targets proposed in
the final (draft) updates to the national energy
and climate plans (NECPs) for 2030.
In 2024, Estonia has progressed towards a cleaner
energy system, has massively developed its
renewable electricity production, and has achieved
the synchronisation project with the European
continental grid. The most pressing challenges
revolve around high energy prices, and security of
supply linked with security of energy
infrastructure.
trends, with the exception a lower taxes and levies
component for non-household consumers (8.6%
compared to 15% for EU) and higher than average
gas network costs (17.8% in Estonia compared to
7.1% in the EU) also for non-household
consumers.
Graph A8.2:
Monthly average day-ahead wholesale
electricity prices and European benchmark natural gas
prices (Dutch TTF)
Energy prices and costs
Graph A8.1:
Retail energy price components for
household and non-household consumers, 2024
(i) the Title Transfer Facility (TTF) is a virtual trading point for
natural gas in the Netherlands. It serves as the primary
benchmark for European natural gas prices.
(ii) Baltics and CWE respectively provide average prices in the
Baltic market (Estonia, Latvia, and Lithuania) and central-
western European market (Belgium, France, Germany,
Luxembourg, the Netherlands, and Austria).
Source:
S&P Platts and ENTSO-E
(i) For household consumers, consumption band is DC for
electricity and D2 for gas. Taxes and levies are shown
including VAT.
(ii) For non-household consumers, consumption band is ID for
electricity and I4 for gas. Taxes and levies are shown
excluding VAT and recoverable charges, as these are typically
recovered by businesses.
Source:
Eurostat
Estonia retail energy prices in 2024 remained
consistent with 2023 levels,
still below the EU
average for households' electricity (-22%) and gas
(-34%) and industry electricity prices (-16%), but
above the EU average in the case of industry gas
prices (+7%). The share of the energy and supply
component for both gas and electricity prices
decreased between 2023 and 2024, following the
same trend as the EU average. Retail prices
components (energy and supply, network costs,
taxes and levies) shares in Estonia follow EU-wide
Estonia’s wholesale electricity prices were,
at an average of 86.5 EUR/MWh in 2024 (
139
),
on par with the other Baltic states but above
the EU average (81 EUR/MWh).
Prices in
Estonia declined early in the year amid falling
natural gas costs. They then surged during the
spring/summer, diverging from Central Western
European markets. Electricity consumption
decreased in Estonia compared with 2023, but the
650 MW Estlink 2 connection, which usually brings
cheaper electricity from Finland as well as limited
non-fossil flexibility, was out of service and this
created a supply-demand gap in the summer. This
gap was mainly covered by higher imports from
Latvia (increasing almost tenfold in summer
2024 (
140
) vs 2023) where not only hydropower
but also costly natural gas-fired generation were
ramped up (respectively +45% (
141
) and +13% in
summer 2024 vs summer 2023), especially during
peak demand hours. Consequently (and to a
(
139
) Fraunhofer (ENTSO-E data).
(
140
) June to August.
(
141
) ENTSO-E.
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greater extent than in 2023), these conditions
drove concentrated price spikes in evening hours
(18h-21h), when solar output declined and
demand remained high. However, average daytime
hourly prices throughout the year were lower than
in 2023, probably due to the uptake of solar
output in Estonia (+28% in 2024) and in
neighbouring markets (
142
). Prices in Estonia and
the Baltic region then stabilised in the winter,
supported by stronger wind generation than in
2023 (
143
) and Estlink 2 returning to operation in
September, while Central Western European
markets faced strong price spikes due to the
Dunkelflaute (
144
).
Flexibility and electricity grids
Estonia is part of the Baltic capacity
calculation region (CCR) (
145
). It is connected to
Finland and Latvia and indirectly to Sweden via the
Estlink interconnectors and the Baltic transmission
network. In 2024, the regional electricity trade
continued to be influenced by the Baltic region’s
dependence on imports from the Nordic countries
(especially Finland). Congestion in the Estlink
interconnectors is hindering full price convergence
with Finland. Similarly, cross-border capacity with
Latvia is sometimes limited and this affects
market integration with the rest of the Baltic
region. Member States should ensure that a
minimum of 70% of technical cross-border
capacity is available for trading. Estonia’s
wholesale electricity market faces challenges due
to its small size and reliance on oil shale
generation, which frequently acts as the main
driver of prices (especially when renewable
generation is low).
The
EU Member States’ electricity interconnection
target is at least 15% by 2030, but Estonia’s level
of electricity interconnection is already 59.63%
and therefore four times higher than the EU
(
142
) Fraunhofer (ENTSO-E data).
(
143
) In November-December 2024, electricity generation from
wind power amounted to 0.07 TWh in Latvia (+73% vs the
same period in 2023), 0.37 TWh in Estonia (+210%) and
0.8 TWh in Lithuania (+53%).
144
( ) Yearly electricity data, Ember (generation and consumption
data throughout the paragraph).
145
( ) Estonia, Latvia, Lithuania, Poland, Finland and Sweden are
part of the Baltic capacity calculation region (CCR). A CCR is a
group of countries that calculate cross-border electricity
trade flows together.
target. This is an important basis for the
synchronisation of the Estonian electricity system
with the EU electricity system, which successfully
took place in February 2025. The investment part
of the synchronisation project has been
progressing well. It is crucial to speed up the
upgrades of Estlink 1 and Estlink 2, which have
suffered delays. Further attention should also be
paid to advancing the Estonian-Latvian offshore
Elwind project. Estonia has other important
projects to ensure the efficient functioning of the
energy market by improving cross-border
interconnections, such as EstLink 3 between
Estonia and Finland and the Estonia-Latvia
‘fourth
interconnection’ (both of these could be completed
by 2035). Price differentials between Finland and
Estonia and recent incidents affecting undersea
cables underscore the importance of these
projects. Estonia actively participates in the Baltic
Energy Market Interconnection Plan (BEMIP) High
Level Group to boost regional cooperation with
neighbouring countries.
Estonia is reforming its energy infrastructure
permitting processes to increase renewable
development.
Legislation was amended in 2024
to
streamline
planning,
permitting
and
environmental impact assessment processes for
wind energy projects, and to establish wind priority
development areas (1 000 MW total capacity). This
is part of Estonia’s recovery and resilience plan
(RRP).
No comprehensive data are available on
renewable energy sources (RES) curtailment
in 2024.
ACER (basing its calculations on ENTSO-E
data) observed 129 instances of negative prices in
Estonia in 2023.
Estonia is actively expanding its energy
flexibility
through
energy
storage
deployment, demand response solutions and
market integration.
Eesti Energia developped
Estonia’s
first large-scale
storage system, a
26.5MW BESS, with larger projects also in
development. Some renewable energy developers
have announced plans to construct battery energy
storage systems in Estonia (as stand-alone
systems or coupled with additional generation
capacity). These are expected to be operational in
2025.
Estonia has implemented a smart metering
system that gives 99% of consumers access to a
smart meter. Dynamic price contracts are offered
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to household consumers, facilitated by the
availability of smart meters. The Estonian
government
did
not
implement
direct
compensation measures for household energy bills
in 2024 (as it had in previous years). The focus
instead shifted towards long-term strategies to
enhance energy security and stabilise prices.
Regarding energy communities, the concepts of
energy communities (ECs) and renewable energy
communities (RECs) are defined in legislation,
which also contains some rights and obligations.
According to the draft NECP, Estonia is planning to
promote individual and collective self-consumption
of renewable energy and RECs by issuing a
handbook for RECs. The draft NECP does not set
quantitative targets for self-consumption or for
ECs. The framework would generally benefit from
further improvements.
Electricity
accounted for 20.1% of Estonia’s
final energy consumption (FEC) in 2023
(slightly below the EU average of 22.9%) and
this share has slightly increased in the last
decade (
146
),
partly due to an unfavourable
electricity-to-gas
price
ratio
that
disincentivizes electrification and cost-
effective decarbonization.
Electricity accounts
for 19.9% and 45.5% of
households’ and
industry’s FEC respectively. The transport sector’s
FEC is negligible at 0.6%. Further progress in
electrification across sectors is required in order to
cost-effectively decarbonise the economy and
bring the benefits of affordable renewable
generation to consumers.
In 2024’s second
semester, Estonia had relatively low retail
electricity prices, but its household electricity-to-
gas price ratio reached 2.8. For this consumer
segment, while price differentials discourage
electrification, taxes and levies for electricity and
gas are similar, leaving little room for fiscal
adjustment. For energy-intensive industries on the
other hand, the electricity-to-gas price ratio was
below the EU average but still affected by a fiscal
burden skewed towards electricity. Taxes and
levies made up 8,5% of electricity costs and 5,1%
for gas, increasing the price ratio from 2.4 to 2.5.
(
147
)
Renewables and long-term contracts
Graph A8.3:
Estonia's installed renewable capacity
(left) and electricity generation mix (right)
“Other”
includes renewable municipal waste, solid biofuels,
liquid biofuels, and biogas.
Source:
IRENA, Ember
In 2024, renewable energy sources (RES)
accounted for 57% (vs 47% in the EU as a
whole), an increase on 50% in 2023 (
148
).
Renewable installed capacity in Estonia surged by
52% in 2024, from 1 456 MW in 2023 to 2 226
the following year. Estonia’s total wind capacity in
Estonia was 594 MW (+70%) in 2024 (all of this
was onshore). As regards the acceleration of solar
deployment, total installed capacity was 1326 MW
in 2024 (+63%). Estonia’s share of renewable
electricity is projected to reach 100% in 2030.
Wind power will become the main source of
renewable electricity (with a 73% share and
6.84 GW of installed capacity), followed by solar
PV (with a 11% share and 1 GW of installed
capacity).
Estonia’s framework is now moderately-to-
strongly aligned with the Commission’s
Recommendation on Permitting(
149
). The
(
147
) Analysis based on Eurostat data for the second semester of
2024. For household consumers, consumption band is DC for
electricity and D2 for gas, which refer to medium-sized
consumers and provide an insight into affordability. For non-
household consumers, consumption band is ID for electricity
and I4 for gas, referring to large-sized consumers, providing
an insight into international competitiveness (price used for
the calculation excludes VAT and other recoverable
taxes/levies/fees as non-household consumers are usually
able to recover VAT and some other taxes).
(
148
) Yearly electricity data, Ember.
(
149
) Commission Recommendation (EU) 2024/1343
(
146
)
The
CAGR (compound annual growth rate) was -0.3%
between 2013 and 2023. The minimum/maximum shares
were 20.1% and 24.3% respectively. Source: Final energy
balances, Eurostat.
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Estonian authorities have taken several important
steps in this regard, including introducing
legislation that enables favourable permit-
granting procedures and streamlining offshore
permit-granting procedures. Estonia has developed
a comprehensive procedural manual for project
developers and municipalities. A single contact
point mediates exchanges between project
developers and relevant authorities. A single
unified application process for marine activities
has been introduced. The digitalisation of all
permit procedures has improved efficiency and
transparency. Environmental regulations are
characterised by clearly defined deadlines,
including maximum duration times for the entire
permitting process. More could be done (for
instance, by allowing sandboxing) because lack of
implementation may be delaying development of
more innovative research projects. Estonia’s RRP is
set to fund a project to strengthen the expertise of
local authorities in the area of renewable energy
by hiring specialists, but the results of this
measure remain to be seen.
Estonia has made a commitment to have
400 MW installed onshore wind capacity by
2026 as part of the Wind Pledges under the
European Wind Power Action.
According to the
draft NECP, Estonia will develop 1.3 GW of
onshore wind and 1 GW of offshore wind by 2030.
These goals are consistent with Estonia’s non-
binding agreement (as defined by the non-binding
goals in the 2023 EU Sea Basins agreements).
However, no new schedule on the expected
allocation of support for renewables has yet been
released on the Union Renewables Development
Platform. The Commission Recommendation(
150
)
that was issued following the adoption of the draft
plan underlines the importance of developing
comprehensive long-term planning for the
deployment of renewable energy (particularly
wind) in order to increase visibility for the EU’s
manufacturing industry and grid operators in line
with the European Wind Power Package.
In the draft NECP, Estonia refers to the use of
tenders to shift nearly half of the central
government’s electricity consumption to renewable
energy by means of power purchase agreements
(PPAs).
Energy efficiency
Estonia continues to make significant
progress towards the 2030 EU targets for
energy efficiency.
Primary energy consumption
(PEC) decreased by 12.9% to 4.11 Mtoe in 2023.
Final energy consumption (FEC) decreased by 5.9%
to 2.61 Mtoe. Compared with 2022, FEC decreased
in all main sectors: by 5.9% in industrial, by 2.9%
in residential, by 1.0% in transport and by 20.7%
in services. This progress is above the EU average
and highlights Estonia’s commitment to energy
efficiency. The recast Energy Efficiency Directive
requires Estonia to reach a PEC of 3.14 Mtoe and
a FEC of 2.53 Mtoe by 2030.
Estonia has not notified its comprehensive
heating and cooling assessment.
This
assessment should identify the potential for the
application of high-efficiency cogeneration and
efficient district heating and cooling, as required
by Article 25(1) of the recast Energy Efficiency
Directive. No estimate is available on when it will
be done.
Estonia needs to step up its efforts in the
residential sector if it is to make a
meaningful contribution to the 2030 building
decarbonisation milestone set in its latest
long-term renovation strategy (LTRS).
Residential FEC decreased between 2022 and
2023 but, from a medium-term perspective, it has
been stagnating or even slightly increasing since
2018 (when climate corrections are applied).
Heating and cooling represented more than
85% of Estonia’s FEC in 2022.
Approximately
20 000 heat pumps were sold in 2023 (a decrease
of 8% on 2022). Financial subsidies are available
for up to 70% of the cost of replacing an old boiler
with a heat pump or other environmentally
friendly alternatives. Estonia’s relatively high
share
of renewables in heating and cooling (66.67% in
2023) is mainly related to biomass use. Heat
pumps cover slightly more than 10% of this share.
Estonia continues to rely mostly on grant-
based funding schemes for energy efficiency
and the use of financial instruments remains
limited.
No new schemes were created for the
financing of energy efficiency in 2024, but several
previously implemented schemes remain in place
(e.g. the Green Fund and the Apartment Building
(
150
) Commission recommendation (EU) 2024/606
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Reconstruction grant). As regards EU funds,
Estonia’s RRP, which was updated in 2023 to
address REPowerEU objectives, continued to drive
progress in 2024 (particularly through increased
investment in residential and service buildings).
measures accounted for the full volume.
Additionally, Estonia’s 2023 Effective Carbon
Rate(
154
)
averaged EUR 96.85 per tonne of CO₂,
above the EU weighted mean of EUR 84.80(
155
).
Security of supply and diversification
Estonia already banned imports and
purchases of Russian natural gas in 2022.
Estonia reduced its natural gas demand by 28%
between August 2022 and July 2024, but this was
well below the EU’s 15% target. Estonia accesses
natural gas via Lithuania’s ‘Independence’ floating
storage regasification unit (FSRU) in Klaipeda,
Finland’s Inkoo FSRU via the Balticconnector and
Latvia’s Inčukalns underground storage facility.
Estonia’s energy mix saw a notable shift
towards renewables from 27.7% in 2022 to
34.6% in 2023.
Domestically sourced oil shale
remained the main source, though its share did
decrease slightly from 60.5% to 58.2%. Natural
gas usage remained relatively stable, rising
marginally from 6.0% to 6.3%.
The Estonian governing coalition took a
decision in principle in 2024 to initiate a
special plan for the potential location of a
future nuclear power plant.
Estonia does not
currently have nuclear capacity.
Fossil fuel subsidies
In 2023, environmentally harmful(
151
) fossil fuel
subsidies without a planned phase-out before
2030 represented 0.11%(
152
)
of Estonia’s GDP(
153
),
below the EU weighted average of 0.49%. Tax
(
151
) Direct fossil fuel subsidies that incentivise maintaining or
increasing in the availability of fossil fuels and/or use of
fossil fuels.
(
152
) Numerator is based on volumes disclosed by the Estonian
authorities via the 2025 NECPR reporting. For all Member
States, it includes public R&D expenditures for fossil fuels as
reported by the IEA (Energy Technology RD&D Budgets) and
excludes, for methodological consistency, excise tax
exemption on kerosene consumed in intra-EU27 air traffic.
(
153
) 2023 Gross Domestic Product at market prices, Eurostat.
(
154
) The Effective Carbon Rate is the sum of carbon taxes, ETS
permit prices and fuel excise taxes, representing the
aggregate effective carbon rate paid on emissions.
(
155
) OECD (2024), Pricing Greenhouse Gas Emissions 2024
68
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Table A8.1:
Key Energy Indicators
Estonia
2021
Household consumer - Electricity retail price (EUR/KWh)
Energy & supply [%]
Network costs
Taxes and levies including VAT
VAT
Household consumer - Gas retail price
Energy & supply
Network costs
Taxes and levies including VAT
VAT
Non-household consumer - Electricity retail price
Energy & supply
Network costs
Taxes and levies excluding VAT
Non-household consumer - Gas retail price
Energy & supply
Network costs
Taxes and levies excluding VAT
Wholesale electrity price (EUR/MWh)
Dutch TTF (EUR/MWh)
0.1631
46.8%
28.9%
24.2%
16.7%
0.0592
63.0%
13.9%
23.1%
16.7%
0.1058
56.3%
17.3%
11.6%
0.0409
63.7%
13.6%
7.1%
86.5
n/a
EU
2023
0.2249
50.1%
27.6%
22.4%
16.7%
0.0945
69.1%
10.3%
20.6%
16.6%
0.1494
59.6%
16.6%
8.6%
0.0745
71.7%
10.3%
1.6%
91.0
n/a
2022
0.2353
56.1%
22.0%
21.9%
16.7%
0.1098
72.9%
7.0%
20.1%
16.7%
0.1906
67.7%
10.3%
6.5%
0.1098
76.0%
5.1%
2.6%
192.0
n/a
2024
0.2257
48.6%
28.2%
23.3%
18.0%
0.0738
58.3%
18.0%
23.7%
18.0%
0.1361
56.8%
18.1%
8.6%
0.0533
59.8%
17.8%
5.3%
87.0
n/a
2021
0.2314
36.6%
26.7%
36.7%
14.5%
0.0684
43.7%
22.5%
33.8%
15.5%
0.1242
43.0%
15.8%
30.4%
0.0328
66.2%
7.7%
12.5%
111.0
46.9
2022
0.2649
54.3%
25.3%
20.3%
13.4%
0.0948
61.0%
17.3%
21.7%
11.6%
0.1895
66.5%
10.7%
9.9%
0.0722
77.3%
3.8%
6.1%
233.2
123.1
2023
0.2877
55.6%
24.8%
19.6%
13.8%
0.1121
64.5%
17.1%
18.4%
10.2%
0.1971
63.0%
11.9%
11.2%
0.0672
77.3%
5.3%
7.3%
99.1
40.5
2024
0.2879
47.8%
27.2%
25.0%
14.6%
0.1128
53.9%
18.3%
27.8%
13.6%
0.1661
55.8%
15.5%
15.4%
0.0517
68.7%
7.1%
11.6%
84.7
34.4
2017
Gross Electricity Production (GWh)
Combustible Fuels
Nuclear
Hydro
Wind
Solar
Geothermal
Other Sources
Gross Electricity Production [%]
Combustible Fuels
Nuclear
Hydro
Wind
Solar
Geothermal
Other Sources
Net Imports of Electricity (GWh)
As a % of electricity available for final consumption
Electricity Interconnection [%]
Share of renewable energy consumption - by sector [%]
Electricity
Heating and cooling
Transport
Overall
13,160
12,397
-
26
723
14
-
-
94.2%
0.0%
0.2%
5.5%
0.1%
0.0%
0.0%
-2,734
-35.3%
63.2%
17.6%
52.2%
0.4%
29.5%
2018
12,364
11,682
-
15
636
31
-
-
94.5%
0.0%
0.1%
5.1%
0.2%
0.0%
0.0%
-1,897
-22.9%
69.0%
19.7%
53.7%
3.3%
30.0%
2019
7,616
6,836
-
19
687
74
-
-
89.8%
0.0%
0.2%
9.0%
1.0%
0.0%
0.0%
2,157
26.1%
67.6%
22.0%
52.2%
6.2%
31.7%
2020
6,078
4,959
-
30
844
245
-
-
81.6%
0.0%
0.5%
13.9%
4.0%
0.0%
0.0%
3,644
42.4%
67.6%
28.3%
58.8%
12.2%
30.1%
2021
7,204
6,095
-
23
733
354
-
-
84.6%
0.0%
0.3%
10.2%
4.9%
0.0%
0.0%
2,629
32.5%
83.4%
29.2%
61.3%
11.2%
37.3%
2022
8,937
7,650
-
23
668
596
-
-
85.6%
0.0%
0.3%
7.5%
6.7%
0.0%
0.0%
1,011
13.8%
85.8%
29.1%
65.4%
8.5%
38.5%
2023
5,745
4,317
-
24
683
721
-
-
75.1%
0.0%
0.4%
11.9%
12.5%
0.0%
0.0%
3,304
47.2%
69.4%
31.8%
66.7%
9.1%
41.0%
2024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
62.8%
-
-
-
-
2020
Import Dependency [%]
of Solid fossil fuels
of Oil and petroleum products
of Natural Gas
Dependency from Russian Fossil Fuels [%]
of Natural Gas
of Crude Oil
of Hard Coal
10.5%
391.8%
130.0%
100.0%
46.2%
0.0%
100.0%
2021
1.4%
95.2%
54.9%
100.0%
11.5%
0.0%
83.0%
2022
6.2%
95.8%
108.6%
100.0%
0.0%
0.0%
66.7%
2023
3.5%
268.7%
81.2%
100.0%
0.0%
0.0%
0.0%
2020
57.5%
35.8%
96.8%
83.6%
41.0%
25.7%
49.1%
2021
55.5%
37.2%
91.7%
83.6%
40.9%
25.2%
47.4%
2022
62.5%
45.9%
97.8%
97.6%
20.7%
18.4%
21.5%
2023
58.3%
40.8%
94.5%
90.0%
9.3%
3.0%
1.0%
2017
Gas Consumption (in bcm)
Gas Consumption year-on-year change [%]
Gas Imports - by type (in bcm)
Gas imports - pipeline
Gas imports - LNG
Gas Imports - by main source supplier [%]
Latvia
Finland
Russia
0.5
-5.0%
0.5
0.5
0.0
0.0%
1.2%
98.4%
2018
0.5
2.9%
0.5
0.5
0.0
0.0%
0.0%
99.8%
2019
0.5
-8.2%
0.5
0.5
0.0
0.0%
0.0%
99.0%
2020
0.4
-8.2%
0.4
0.4
0.0
50.3%
0.0%
46.2%
2021
0.5
14.1%
0.5
0.5
0.0
82.8%
0.0%
11.5%
2022
0.4
-25.3%
0.4
0.4
0.1
84.2%
0.0%
0.0%
2023
0.3
-14.2%
0.3
0.3
0.0
48.7%
51.3%
0.0%
Source:
Eurostat, ENTSO-E, S&P Platts
69
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ANNEX 9: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT
Estonia faces major challenges in climate
adaptation such as the wide gap in climate
insurance
coverage
and
increased
vulnerability to extreme weather events.
It
has made some progress in implementing policy
measures on climate adaptation, but Estonia has
one of the three regions identified as hotspots of
climate risks most affected by climate change:
low-lying coastal regions. Estonia is vulnerable to
impacts of climate change such as rises in
temperature, rainfall and sea level and extreme
weather phenomena accompanied by coastal and
inland floods, wildfires and new pathogens. The
state of nature and ecosystems is also a cause for
concern in Estonia, reducing the country’s climate
resilience.
due to extreme heat in northern Europe(
157
). The
trend increases over time, posing a risk to public
health, especially for vulnerable populations.
Estonia has implemented in the last years
several national policy measures related to
adaptation and preparedness.
In 2017, it
adopted a national adaptation strategy and a plan
on climate change adaptation (NAP). Since then,
Estonia has strengthened its adaptation
governance structures. In 2023, the establishment
of a Climate Ministry gave further emphasis to
climate change mitigation and adaptation issues.
However, Estonia has limited capacity for
conducting systemic risk assessments, which may
hinder progress. Estonia is also preparing a climate
law expected to take effect in 2025, to improve
climate change adaptation. The law sets national
climate change adaptation goals, mainstreams
climate adaptation in sectoral development plans,
and requires regular assessments of climate risks
and action plans prepared at both national and
local levels. This aligns with the European Climate
Law recommendations (
158
).
Many local authorities in Estonia are
developing local energy and climate plans.
Approximately 41.7% of the population live in
areas covered by the Covenant of Mayors for
Climate and Energy. Five of the main local
authorities participate in the EU mission on
adaptation to climate change to enhance their
work on climate adaptation.
Climate adaptation and resilience
Estonia is vulnerable to the impacts of
climate change.
The impacts for Estonia include
rises in temperature, rainfall and sea level,
extreme weather phenomena such as coastal and
inland floods, wildfires and new pathogens.
Coastal regions and inland water bodies are at risk
of more frequent flooding due to rising sea levels
and increased precipitation. In the past, an
unexpected emergence of Vibrio infections in the
Baltic Sea coincided with warming sea surface
temperature patterns. Heatwaves are expected to
become more frequent and intense, posing a
public health threat, and droughts will increase in
frequency and severity, affecting agriculture and
water resources. Storms are a hazard to the
electricity grid
especially in rural areas. Estonia’s
RRP includes an investment to strengthen the
electricity grid and protect it against storms at the
same time.
The climate risks pose significant threats to
Estonia’s economy and society.
Between 1980-
2023, Estonia suffered economic losses estimated
at EUR 332 million due to weather- and climate-
related extreme events. The overall insurance
coverage over this period only covered 15% of the
economic losses (
156
). Estonia also recorded one of
the highest number of deaths per 100 000 citizens
Water resilience
Despite Estonia having sufficient water
resources, measures are needed to tackle
deteriorating chemical water quality, boost
resilience and narrow the annual investment
gap.
The Water Exploitation Index Plus (WEI+)
reached 2.2 in 2022, having stabilised after
peaking at 8.5 in 2018, with no indication of
serious overuse of water resources. Nevertheless,
there has been a deterioration in the ecological
status of surface water bodies, and a steep
reduction in the share of surface water bodies in
good chemical status. The assessment of the third
(
157
) ibid.
(
158
) C(2023) 9602.
(
156
) EEA, 2024,
Economic losses from weather- and climate-
related extremes in Europe,
Link.
70
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river basin management plan shows that the
ecological status/potential of surface water bodies
has deteriorated since the second plan, with 53%
reported as having good ecological status/potential
against the EU average of 37%. The most
significant pressure identified is diffuse pollution.
More precisely, the problem is nutrient pollution
affecting 93% of water bodies. The situation
regarding chemical status has not improved since
the second plan, with only 9.7% of surface water
bodies classified as having good chemical status
(EU average 31%). The status of 83% of surface
water bodies remains unknown, even though the
Water Framework Directive entered into force over
20 years ago.
None of the 16 coastal waters reach good
ecological nor good chemical status. Failure to
achieve good chemical status is mainly due to two
specific substances: mercury and polybrominated
diphenyl ethers. Both pose significant threats to
humans and to the aquatic environment, and are
in the group of ubiquitous, persistent, bio-
accumulative and toxic substances. Water
abstraction is one of the main forms of pressure
on groundwater bodies in Estonia. According to the
third plan, 26% of groundwater bodies are
reported as having poor chemical status. Failure is
mostly due to mining of oil shale, industry and
agriculture. Other reasons are deteriorating quality
in drinking water protected areas and saline or
other intrusion, which might be linked to excess
abstraction of groundwater bodies adjacent to the
coast.
Untreated urban waste water in Estonia
significantly impacts water quality, affecting
nearly all coastal waters and half of the
country’s rivers.
The Urban Wastewater
Treatment Directive (UWWTD) aims to protect
human health and the environment from the
effects of untreated urban waste water. An
infringement proceeding was opened against
Estonia in February 2024 for failure to meet the
Directive’s requirements on discharges of
industrial waste water into urban wastewater
treatment plants. The third river basin
management plan reports that water quality is
affected by urban wastewater discharges. In
particular, discharges undermine the water quality
in 94% of coastal waters and 50% of Estonia’s
rivers.
Estonia needs to invest more each year in
water, primarily in wastewater management.
Water investments in Estonia are estimated to be
around EUR 73 million per year (in 2022 prices) in
the 2021-2027 period (see Graph A9.2). Of this,
EUR 21 million is for wastewater management,
EUR 17 million for drinking water and around
EUR 34 million for the other aspects of the Water
Framework Directive (water management and
protection). To meet the environmental targets
under the Water Framework Directive and the
Floods Directive, Estonia has an investment gap of
EUR 65 million per year (0.18% of GDP), with most
related to waste water (EUR 59 million per year).
Drinking water measures require an additional 7
million per year.
Biodiversity and ecosystems
The state of nature and ecosystems is a
cause for concern in Estonia, reducing the
country’s climate resilience.
Estonia is host to
60 habitat types and 96 species covered by the
Habitats Directive (
159
). In 2022, 17.9% of land in
Estonia was covered by the Natura 2000 network
(EU coverage 18.6%). Including other nationally
designated protected areas, a total of 21% of land
is protected. Estonia protects 18.7% of its marine
waters, exceeding the EU average of 12.1%. The
share of species reported as having good
conservation status in 2018 is 56.2%, a 2.7%
increase on the 53.5% reported in the previous
reporting period. The share of assessments for
species in bad or poor conservation status slightly
increased to 36% (from 35% in the previous
period). The common farmland bird index, too,
indicates a downward
trend in species’
conservation status. It fell from 74.1 in 2018 to
69 in 2020 and below the EU average of 74.6 in
the same year. Estonia’s
2030 environmental
development plan contains several measures that
aim to improve biodiversity in agricultural
ecosystems, including enhancing the biodiversity
of agricultural landscapes, with a particular focus
on pollinators and farmland birds.
Nature degradation creates significant risks
to the economy and to competitiveness.
40%
of Estonia’s gross value added is very highly
and
directly dependent on ecosystem services. Several
(
159
) EEA, 2019, Number of habitats and species per Member
State,
Link.
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sectors such as agriculture, forestry, fisheries,
construction, mining and metals, water utilities and
healthcare (see Graph A9.1) are particularly
dependent on ecosystem services. 100% of the
gross value added generated by these sectors is
directly dependent on ecosystem services. In
addition, Estonia has a particularly high degree of
dependency on ecosystem services in its
economy’s downstream value chain, with 50% of
gross value added being highly dependent. This
means that failure to maintain the capacity of
ecosystems to deliver services could entail
significant costs, or even stop production in these
sectors. Protecting and restoring key ecosystems
would
help
maintain
the
long-term
competitiveness of these sectors.
Graph A9.1:
Direct dependency(1) on ecosystem
services(2) of the gross value added generated by
economic sector in 2022
0%
Agriculture
Forestry
Fishery and acquaculture
Mining and metals
Construction
Water utilities
Healthcare delivery
Aviation travel and tourism
Food beverages and tobacco
Supply chain and transport
Public services and others
Electricity
Chemical and materials industry
Electronics
Oil and gas
Real estate
Heat utilities
Automotive
Retail consumer goods and…
Information technology
Banking and capital markets
Insurance and asset…
Digital communications
High
Medium
Low
To meet the environmental objectives concerning
the protection and restoration of biodiversity and
ecosystems and other related horizontal
measures, Estonia has an investment gap
estimated at around EUR 0.6 billion per year,
corresponding to 1.63% of its GDP (see Graph
A9.2).
Graph A9.2:
Investment needs and gaps in EUR million,
in 2022 constant prices
800
700
600
500
400
300
200
20%
40%
60%
80% 100%
100
-
Biodiversity
Baseline
Water
Gap
Source:
European Commission, DG Environment,
Environmental investment needs & gaps assessment
programme, 2025 update.
Sustainable agriculture and land use
Estonia’s carbon removals are in line with
the 2030 target for land use, land-use
change and forestry (LULUCF).
In 2014, net
carbon removals turned into net emissions and
have remained above zero since then. Since 2020,
however, LULUCF emissions have fallen. As
recommended in the previous European Semester,
continued improvements in forest management
and action to restore wetlands could help Estonia
continue to reverse the decline in net carbon
removals from the atmosphere. To meet its 2030
LULUCF target, additional carbon removals of -0.4
million tonnes of CO
2
equivalent (CO
2
eq) are
needed (
160
). The latest available projections show
a surplus compared to the target of -0.4 million
(
160
) National LULUCF targets of the Member States in line with
Regulation (EU) 2023/839.
(1) Dependency based on the sector’s own operations,
excluding value chain operations within countries and across
international value chains. A high dependency indicates a high
potential exposure to nature-related shocks or deteriorating
trends, which means that the disruption of an ecosystem
service could cause production failure and severe financial
loss.
(2) Ecosystem services are the contributions of ecosystems to
the benefits that are used in economic and other human
activity, including provisioning services (e.g. biomass
provisioning or water supply), regulating and maintenance
services (e.g. soil quality regulation or pollination), and cultural
services (e.g. recreational activities).
Source:
Hirschbuehl et al., 2025,
The EU economy's
dependency on nature,
Link.
72
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tonnes of CO
2
eq for 2030 (
161
). Therefore, Estonia
is on track to meet the 2030 target.
Although Estonia’s overall greenhouse gas
emissions from agriculture are relatively
moderate, Estonia’s agriculture is still a
source of emissions and continues to have an
impact on air, water and soils.
In 2022,
agriculture generated 1.6 million tonnes of CO
2
eq,
accounting for around 11% of the country’s total
emissions (excluding LULUCF). This includes
856 000 tonnes of CO
2
eq from livestock. Pesticide
levels have exceeded the set thresholds in 20% of
surface water monitoring stations (
162
). Peat
extraction has destroyed approximately 30 000 ha
of raised bogs in Estonia, with around 20 000 ha
still in use. Drained peatlands are among the
country’s largest source of greenhouse gas
emitters. The drainage of bogs increased Estonia’s
total emissions by 2.3-2.7 times compared to their
natural state. Restoring these degraded areas is
crucial, both for biodiversity protection and for
climate change mitigation.
Estonia is transitioning to a more
sustainable food system by fostering
sustainable farming practices and raising
agronomic standards, in particular by
encouraging
organic
farming
and
environmental training for farmers.
23.4% of
Estonia’s land is under organic farming. This is the
second highest result in the EU and well above the
EU average of 10.5%. Estonia is contributing
substantially to achieving the target to have 25%
of the
EU’s agricultural land under organic farming
by 2030. Forests cover around 50% and
agricultural land covers some 25% of the country.
Agricultural land is mainly cultivated with
extensive
techniques.
Estonia’s
common
agricultural policy (CAP) strategic plan uses around
EUR 456 million (68%) of its total CAP budget to
support environmental and climate objectives. The
focus is on carbon sequestration, biodiversity and
valuable grasslands, as well as increasing
knowledge about sustainable production. Farmers
can receive additional payments if they commit to
adopting certain agronomic practices that are
beneficial for the environment and climate.
Estonia’s CAP strategic plan implements enhanced
(
161
) Climate Action Progress Report 2024, COM/2024/498.
(
162
) EEA, 2024, Pesticides in rivers, lakes and groundwater in
Europe,
Link.
standards for good agricultural and environmental
conditions,
which
contribute
to
greater
environmental and climate ambitions and applies
to almost all utilised agricultural land. For
example, the plan sets a requirement for increased
soil cover during the sensitive winter period in
order to protect soils across the whole country. For
the same purpose, over 23% of utilised
agricultural land receives support for practising
organic farming, which contributes to a reduced
use of pesticides, improved water and soil quality,
and carbon sequestration. In order to maintain
good agri-environmental conditions, it is also
important to continue to raise environmental
awareness. Therefore, in many cases, one of the
basic conditions for farmers to receive support is
to attend training on environmental topics.
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Table A9.1:
Key indicators tracking progress on climate adaptation, resilience and environment
Climate adaptation and preparedness:
Drought impact on ecosystems
[area impacted by drought as % of total]
Forest-fire burnt area
(1)
[ha, annual average 2006-2023]
Economic losses from extreme events
[EUR million at constant 2022 prices]
Insurance protection gap
(2)
[composite score between 0 and 4]
Heat-related mortality
(3)
[number of deaths per 100 000 inhabitants in 2013-
2022]
Sub-national climate adaptation action
[% of population covered by the EU Covenant of Mayors
for Climate & Energy]
Water resilience:
Water Exploitation Index Plus, WEI+
(4)
[total water consumption as % of renewable freshwater
resources]
Water consumption
[million m
3
]
Ecological/quantitative status of water bodies
[% of water bodies failing to achieve good status]
Surface water bodies
Groundwater bodies
Biodiversity and ecosystems:
Conservation status of habitats
(6)
[% of habitats having a good conservation status]
Common farmland bird index
2000=100
Protected areas
[% of protected land areas]
Sustainable agriculture and land use:
Bioeconomy's added value
(7)
[EUR million]
Landscape features
[% of agricultural land covered with landscape features]
Food waste
[kg per capita]
Area under organic farming
[% of total UAA]
Nitrogen balance
[kg of nitrogen per ha of UAA]
Nitrates in groundwater
(8)
[mgNO
3
/l]
Net greenhouse gas removals from LULUCF
[Kt CO
2
-eq]
-
21.0
-
4.8
(9)
(5)
Estonia
2018
31.46
31
-
-
96
-
-
96
2019
7.84
31
-
-
96
2020
0
31
-
-
96
2021
9.07
31
-
0.88
96
2022
4.73
31
2023
15.55
31
4
0.63
EU-27
2018
6.77
2021
2.76
24 142
62 981
43
43
43
43
43
42
41
44
Estonia
2018
2.6
2019
1.1
2020
1.0
2021
1.7
2022
2.2
2023
-
EU-27
2018
4.5
2021
4.5
498
409
357
411
483
-
-
-
-
-
-
-
Estonia
47%
7%
-
-
-
-
-
-
EU-27
59%
93%
2018
56.7
74.1
-
2019
-
74.7
-
2020
-
69.0
-
2021
-
-
21
2022
-
-
21
2023
-
-
-
2018
14.7
72.2
-
2021
-
74.4
26
Estonia
2018
1 762
-
2019
1 878
-
2020
1 927
-
2021
2 293
-
2022
2023
EU-27
2018
634 378
2021
716 124
6
-
-
22.3
-
5.0
3 279
125
22.4
-
5.5
1 243
128
23.0
-
5.2
812
134
23.4
-
-
339
-
-
7.99
-
-
-
256 077 -
240 984
-
3 471
(1) The data show the average for the timespan 2006-2023 based on EFFIS - European Forest Fire Information System.
(2) Scale: 0 (no protection gap)
4 (very high gap). EIOPA, 2024, Dashboard on insurance protection gap for natural catastrophes.
(3) van Daalen, K. R. et al., 2024, The 2024 Europe report of the Lancet Countdown on health and climate change: unprecedented
warming demands unprecedented action. The Lancet Public Health.
(4) This indicator measures total water consumption as a percentage of the renewable freshwater resources available for a given
territory and period. Values above 20% are generally considered to be a sign of water scarcity, while values equal or greater than
40% indicate situations of severe water scarcity.
(5) European Commission, 2024, 7th Implementation Report from the Commission to the Council and the European Parliament on
the implementation of the Water Framework Directive (2000/60/EC) and the Floods Directive (2007/60/EC) (Third River Basin
Management Plans and Second Flood Risk Management Plans).
(6) For this indicator, the EU average includes figures for the UK under the previous configuration, EU-28.
(7) European Commission, 2023, EU Bioeconomy Monitoring System dashboards.
(8) Nitrates can persist in groundwater for a long time and accumulate at a high level through inputs from anthropogenic sources
(mainly agriculture). The EU drinking water standard sets a limit of 50 mg NO
3
/L to avoid threats to human health.
(9) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2024
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839
Annex IIa.
Source:
Eurostat, EEA.
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FAIRNESS
ANNEX 10: LABOUR MARKET
Despite the recession, in 2024 the Estonian
labour market remained resilient.
The
employment rate remained high, above the 2030
national target for the third consecutive year and
ranking among the highest in the EU. However,
signs of strain are emerging, with the
unemployment rate rising since 2022 and
sustained labour shortages in key sectors. Russia’s
war of aggression against Ukraine has negatively
impacted the economy, adding to structural
challenges such as persistent regional disparities,
labour market inequalities, skills mismatches and
shortages impacting Estonia’s competitiveness and
potential economic growth.
Employment remained strong in 2024 even
as unemployment increased.
After rising to
historically high levels in 2023, the employment
and activity rates remained high in 2024 at 81.8%
and 88.3%, making the country one of the ‘best
performers’ in the EU
(75.8% and 80.4%
respectively). This high employment rate, already
above the national 2030 target of 81.3%, is even
more remarkable against the background of the
very large influx of Ukrainian refugees living in
Estonia (equal to about 2.6% of the Estonian
population) (
163
). Ukrainians are well integrated
into the labour market, with 57% of temporary
protection beneficiaries (20-64 years old)
employed, and the share of Ukrainians among all
registered unemployed people declining from
12.5% in November 2022 to 6.8% in September
2024. In 2024, Estonia had one of the highest
employment rates (75.7%) among older workers
(in the age group 55-64), significantly higher than
the EU average (65.2%). The employment rate of
older workers has been rising steadily, largely
because of the gradual increase in the retirement
age and the strong motivation to continue working
due to low pensions relative to wages. However,
the unemployment rate has been rising from 5.6%
at the onset of the recession in 2022 to 6.4% in
2023, and even further to 7.6% in 2024 (EU:
5.9%). It is expected to remain around 7% in 2025
due to prolonged expectations of weak economic
activity and demand. Long-term unemployment
rose considerably in 2024, reaching 1.8% and
almost equalling the EU average of 1.9%.
Graph A10.1:
Key labour market indicators
EE
25
20
86
15
10
5
78
0
76
84
82
80
%
%
90
88
2014
2021
2012
2013
2015
2016
2017
2018
2019
2020
2022
2023
Activity rate 20-64 (rhs)
Unemployment rate 15-74 (lhs)
Long-term unemployment rate 15-74 (lhs)
Youth unemployment rate 15-24 (lhs)
NEETrate 15-29 (lhs)
Activity rate and Employment rate (% of population), total,
ages 20-64
Unemployment rate and long-term unemployment rate (% of
labour force), total, ages 15-74
Youth unemployment rate (% of labour force), total, ages 15-
24
NEET: Not in employment, education or training (% of
population), total, ages 15-29
Source:
Eurostat, LFS
Regional differences are considerable, with
higher unemployment rates in rural areas.
In
2023, the unemployment rate reached 10.1% in
the north-east of the country compared to
unemployment rates between 6% and 7.5% in
other regions. This can be partly explained by the
predominance in the north-east region of the
industrial sector (particularly the oil shale sector).
This sector was most affected by the recession,
which also led to expectations of a higher
unemployment rise among men. Many other socio-
economic indicators are considerably worse than
average in the border regions both in north-east
and south-east Estonia, with significant variations
in GDP per capita between Põhja-Eesti and the
remaining regions (see Annex 17).
Despite efforts to improve young people’s
labour market outcomes, challenges persist.
The youth unemployment rate (15-24) increased
in 2024 and is higher than the EU average (19.1%
vs EU: 14.9%) and significantly above the rate for
the general population. It also remains
significantly above pre-pandemic levels. Youth
(
163
) Statistics Estonia (data from Jan 2024).
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employment and labour force participation stood
at 35.4% and 43.7% in 2024, respectively, slightly
above the EU average. After steadily decreasing in
the last decade, the share of young people not in
employment, education and training (NEET) rose to
11% in 2024, above pre-COVID-19 levels and in
line with the EU average. Young people not in
education or training face more difficulties in
finding a job in rural areas, also due to lower
educational outcomes and higher early school
leaving, regional gaps, and language barriers for
the Russian-speaking population. To help NEETs
transition into employment, the Estonian
government adopted the reinforced Youth
Guarantee action plan in 2022. The action plan
focuses on increasing youth employment, which
includes preventing young people from ending up
in a NEET situation and supporting young people
who do experience such a situation. As part of its
recovery and resilience plan (RRP), Estonia is
implementing the ‘My First Job’ scheme, which
helps get young people into employment by paying
a wage subsidy to the employer and reimbursing
them the training costs.
Graph A10.2:
Labour market outcomes of young people
(15-24)
EE
%
35
%
80
70
Vulnerable groups, including adults with
lower-level qualifications and persons with
disabilities, also face barriers to labour
market integration.
Employment outcomes in
Estonia are closely tied to educational attainment
(see Annex 12). The employment rate for people
with less than lower-secondary educational
attainment, at 65.7%, was more than 23
percentage points (pps) lower than for those who
have post-secondary educational attainment in
2024. After rising sharply in 2022, the disability
employment gap narrowed by 6 pps in 2023 and
stabilised in 2024, below the EU average (20.8 pps
vs 24 pps in 2024). Estonia set the target for the
employment rate of persons with disabilities at
52% by 2030. Despite this, the risk of poverty and
social exclusion among persons with disabilities is
one the highest in the EU (see Annex 11). Targeted
measures would help to better integrate
underrepresented groups and those outside the
labour market as well as help them retain an
adequate standard of living.
Nominal wage growth was strong in 2024,
coupled with reduced inflation rates,
allowing for real wages to rebound.
Nominal
wages growth in Estonia is expected to slow to
5.8% in 2024 after reaching 8.2% in 2023 (
164
),
above the EU average in both years (5.9% in 2023
and 5% in 2024). Real wages have only partly
recovered from the losses in 2022 and 2023, with
a projected increase of 2.3% in 2024 on the back
of decreasing inflation, and they remain below
2021 levels. Unit labour costs are projected to
grow by 5.7% in 2024, significantly less than in
2023 (15.2%). Labour productivity continued to
decline, with the country’s
productivity per hour
worked falling to 67.9% of the EU average in
2023, the lowest in over five years. Gross
disposable household income per capita remained
under pressure in 2023, falling again to 126% of
the 2008 value from 130.5% in 2022 (EU: 111.1%
in 2023, up from 110.5% in 2022, 2008=100),
reflecting rising living costs and the eroded
purchasing power. Minimum wages will rise by 8%
in nominal terms and reach EUR 886 in 2025,
outpacing both inflation and average wage growth,
and thereby improving the purchasing power of
(
164
) European Commission,
European Economic Forecast. Autumn
2024.
For nominal wages, pay per employee includes: i)
wages and salaries payable in cash or in kind; and ii) social
contributions payable by employers. For real gross wages,
the deflator used is the Harmonised Index of Consumer
Prices (HICP).
30
25
60
50
20
40
15
30
10
5
0
20
10
0
2011
2015
2022
2009
2010
2012
2013
2014
2016
2017
2018
2019
2020
2021
Unemployment rate (lhs)
NEET(lhs)
Employment rate (rhs)
Unemployment ratio (lhs)
In education, training (rhs)
Employment rate (% of population), total, ages 15-24;
Youth in education and training (% of population), total, ages
15-24
Youth unemployment rate (% of labour force), total, ages 15-
24
Youth unemployment-to-population ratio (% of population),
total, ages 15-24
NEET: Not in employment, education or training (% of
population), total, ages 15-24
Source:
Eurostat, LFS
2023
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low-income earners. However, they remain among
the lowest in the EU. In-work poverty continues to
be high, at 10.2% in 2024 (EU: 8.2%), potentially
indicating further scope to improve the adequacy
of minimum wages (see Annex 11).
Social
dialogue
could
be
further
strengthened
to
increase
collective
bargaining coverage.
The share of collective
bargaining in Estonia is particularly low (
165
), while
the share of low-wage earners is among the
highest in the EU (
166
). The involvement of social
partners in reforms and policies in Estonia has
improved in recent years but remains limited. The
2023 agreement on the minimum wage
framework (on top of the regular yearly minimum
wage negotiations) sets out the minimum wage
growth rate until 2027, when it should reach 50%
of the average salary.
The gender pay gap remains high, although
the situation is slowly improving.
After rising
to 21.3% in 2022, the unadjusted gender pay gap
fell to 16.9% in 2023. While it is still among the
highest in the EU (EU: 12.7% in 2022), it has
decreased significantly in the long term, falling by
12.9 pps since 2013. At the same time, Estonia is
among the best performers as regards the gender
employment gap (1.7% vs 10% in the EU in 2024).
According to national statistics (
167
), the largest
salary differences between men and women were
reported in the fields of wholesale and retail trade,
motor vehicle and motorcycle repair (25.5%),
information and communication (25.1%), and
financial and insurance activities (24.9%). Under
the RRP, steps have been taken to reduce the
gender pay gap, including the development of a
digital tool prototype (
168
) to help employers
analyse the wage gap in their company and take
informed wage decisions.
Labour shortages have decreased, but some
sectors and occupations face significant
challenges.
The job vacancy rate remains
relatively low (1.5% in Q4-2024), below both its
pre-pandemic level (1.9% in Q4-2019) and the EU
average (2.3% in Q4-2024), continuing its decline
since peaking in Q1-2022. However, significant
shortages are reported in ICT, financial and
insurance activities, public administration, defence,
education and healthcare. According to CEDEFOP-
EURES data (
169
), the most requested occupations
were teachers, sales workers, personal service
workers, metal and machinery workers and
construction workers (
170
). Labour shortages are
expected to be further exacerbated by an ageing
workforce, with the share of those aged 65+ rising
to 20.5% in 2024 (EU: 21.6%), a 4.1 pps increase
over the last decade. The ageing of teachers and
high retirement rates are already creating
shortages in the education system (see Annex 12),
with healthcare and education also impacted by
the difficult working conditions. In October 2024,
the share of employers expecting labour shortages
to limit their production was relatively low in
industry (8.9%), construction (8.5%), and services
(6.1%) (
171
), compared to both the EU averages
and pre-pandemic levels. On the other hand,
unmet demand for employment as measured by
the labour market slack (
172
) increased to 12.8% in
2024, slightly above the EU average (11.7%).
Skills shortages and mismatches persist.
In
2024,
Estonia’s
macroeconomic
skills
173
mismatch ( ) slightly increased to 15.8% from
15.4% in 2023, but it remained below the EU
average of 19.2%. Despite a slight increase in
2024, the overqualification rate in Estonia has
been on a declining trend since 2013, with 22.2%
of higher education graduates employed in
occupations not requiring such qualifications in
2024 (EU: 21.5%). On the opposite side, 12% of
workers are underqualified according to the OECD,
and 23% report that some of their skills are lower
than what is required for their job (OECD average:
(
169
)
EURES - Countries and occupations | CEDEFOP..
(
170
) From Jan to Sept. 2024.
(
171
) Commission, DG ECFIN Business and consumer surveys.
(
172
) Labour market slack refers to all unmet needs for employment, or
the extent to which labour supply exceeds labour demand in the
short run. It has four components: underemployed people working
part-time, unemployed people, people seeking work but not
immediately available, and those available to work but not seeking.
(
165
) OECD/AIAS database on Institutional Characteristics of Trade
Unions, Wage Setting, State Intervention and Social Pacts
(ICTWSS); EE’s
collective bargaining coverage:
19.1% in
2021.
( ) European Commission,
Economic inequalities in the EU.
166
(
167
) Statistics Estonia’s and Eurostat’s methodologies for
calculating the gender wage gap differ. Eurostat’s wage gap
does not take into account companies and institutions with
less than 10 employees, or the fields of agriculture, forestry
and fishing, public administration and defence.
(
168
) A digital tool for analysing the gender pay gap, known as the
‘Palgapeegel’
(‘Pay Mirror’) platform:
Palgapeegel |
Majandus- ja Kommunikatsiooniministeerium.
(
173
)
The macroeconomic skills mismatch indicator measures the
dispersion of employment rates across skill groups (proxied by
qualification levels, with ISCED 0-2 low; 3-4 medium and 5-7 high).
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10%) (
174
). Improving the labour market relevance
of education and training can help further address
labour shortages and skills mismatches, by
improving career guidance, addressing the gender
pay gap, increasing reskilling and upskilling
opportunities, and better anticipating skills needs.
These efforts would help Estonia maintain its
employment rate in line with the national target of
81.3% and make progress towards achieving the
2030 adult learning target of 52.3%.
Attracting talent can help address Estonia’s
workforce shortages.
According to the Estonian
Qualifications Authority, annual labour demand
will exceed the number of new entrants in the next
years (See Annex 12), making employment
increasingly reliant on higher labour force
participation and migration (
175
). While the
integration of foreign workers has grown, it is still
not always aligned with evolving labour market
needs. Exceptions exist for start-ups, ICT
specialists, and other categories, but many sectors
struggle to attract skilled workers without high-
end salaries (
176
). Better anticipation of skills needs
through expanded use of the OSKA system and
accessible pathways for skilled foreign labour in
sectors facing persistent shortages will contribute
to sustaining Estonia’s competitiveness.
The workforce is adapting to the green and
digital transitions, with a growing need for
skilled workers in emerging sectors.
Estonia
has a large and growing pool of digital experts and
strong digital skills across the population. In 2024,
ICT specialists made up 7.2% of the workforce (EU:
5%). In particular, as regards women working as
ICT specialists, Estonia is performing very well with
27.6%, well above the EU average of 19.5%. The
share of the general population with at least basic
digital skills exceeds the EU average (62.6% vs
55.6%), as does the share of workers with these
skills (71% vs EU: 64.7%). However, 67% of
Estonian companies struggle to recruit ICT
specialists, highlighting that a skills gap still exists.
Under the RRP, Estonia is taking measures to
strengthen the capacity of businesses to foster the
digital transition, through upskilling and retraining
in ICT, as well as through a better recognition of
(
174
)
Survey of Adults Skills 2023: Estonia | OECD.
(
175
) OSKA general forecast 2022-2031
(
176
) Foreign workers are exempted from the migration quota if
their salary is at least 1.5 times the national average wage
skills acquired outside formal learning. To ensure
that basic digital skills are widespread among its
population, Estonia is implementing measures to
‘educate the educators’ supported by the European
Social Fund. The green transition had a sizeable
impact on the Estonian labour market, with
employment in energy-intensive industries
declining from 2.8% in 2020 to 1.7% in 2024.
Upskilling and reskilling in these industries is
growing (see Annex 12), with the share of workers
taking part in education and training rising from
8.7% in 2015 to 19.6% in 2023 (EU: 10.9%).
Investments under the RRP and Just Transition
Fund include measures to mitigate the social and
employment impact of this transition, including
retraining and upskilling programmes for workers
in the oil shale industry and effective job transition
measures. The European Social Fund Plus will
integrate the development of green skills into
labour market, education and training measures,
which helps increase the attractiveness and
people’s awareness of study fields related to
green and digital change.
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ANNEX 11: SOCIAL POLICIES
Despite recent improvements, Estonia
continues to face significant challenges
related to poverty and social exclusion,
particularly among vulnerable groups and in
rural areas.
Although inflation levels have
stabilised after the peaks in recent years, some
households, older people especially, struggle to
meet their essential needs. Income inequalities
also persist, partially related to low minimum
wages and the limited redistributive impact of the
tax and benefits system. The limited capacity of
the social protection system and uneven access to
quality long-term care services also pose risks for
Estonia’s sustainable and inclusive growth.
Addressing these challenges will support more
inclusive growth and strengthen competitiveness.
Poverty and social exclusion risks remain
high, especially for some groups and in rural
areas.
After peaking at 25.2% in 2022, when it
reached its highest level in nine years, the at-risk-
of-poverty or social exclusion (AROPE) rate
decreased significantly in the last two years,
falling to 24.2% in 2023 and to 22.2% in 2024.
This improvement was mainly driven by the at-
risk-of-poverty
(AROP)
rate
falling
by
2.3 percentage points (pps) to 20.2% in 2024.
While the AROPE and AROP rates are now back to
2021 levels, they remain higher than the EU
averages (21% and 16.2% in 2024). Persistent
poverty risks are driven by a combination of
factors, including limited economic opportunities
and employment support, and are aggravated by
insufficient access to healthcare and social
services, especially in rural areas. For older people
and persons with disabilities, the AROPE rates
(39.4% and 39.1%) fell considerably in the last
two years, dropping by 13.1 and 8.7 pps
respectively, but remain among the highest in the
EU due partly to the relatively low adequacy of
pensions and the social protection system (see
below). In 2024, 71.5% of older people living alone
and 50.2% of single-person households
experienced poverty. There are significant regional
differences in the social situation in Estonia (see
Annex 17), with relative poverty being more than
twice as high in the counties of Ida-Viru (35%) and
Lääne-Viru (29.2%) than in Harju (15.5%) and
Rapla (14.1%). Many other socio-economic
indicators are considerably worse than average in
the north-east and south-east border regions.
Further targeted support aimed at strengthening
social cohesion and resilience in these regions
could
be
considered.
Addressing
these
vulnerabilities will help Estonia move towards its
national 2030 target of reducing the number of
people at risk of poverty or social exclusion by
39 000 compared to 2019, as so far this number
has declined by only 9 000.
Graph A11.1:
At-risk-of-poverty or social exclusion rate,
age groups
EE
60
50
40
% of
population
30
20
10
0
2019
2021
2015
2016
2017
2018
2020
2022
2023
Children (<18y)
Elderly (65+)
Working age (18-64)
AROPE: At-risk-of-poverty or social exclusion rate (% of total
population).
Source:
Eurostat, EU-SILC [ilc_peps01n]
The risk of poverty or social exclusion among
children is relatively low, but disparities
persist.
After an increase in 2023, the AROPE rate
for children fell by 1.8 pps to 16.5% in 2024,
remaining below the EU average of 24.8% in
2023. The poverty or social exclusion risk for
children is highly dependent on the education level
of their parents, spanning from 10.1% for parents
with higher education to 45.6% for children of
parents with a low level of education. Single-
parent households face a higher poverty risk
(35.3%). To mitigate the impact of poverty on
children, Estonia is also implementing the
European Child Guarantee (ECG) as part of its
2022 action plan. While considerable progress has
been made in the provision of the key social
services covered under the ECG, more work is
needed to target the most vulnerable groups and
to achieve the national 2030 target of reducing
the number of children in poverty by 13 000.
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Graph A11.2:
In-work-poverty rate, groups
EE
35
30
25
20
15
10
% of
employed
5
0
Total
Part-time
Temporary
Self-employed
In-work-poverty rate (% of employed). Employed who have an
equivalised disposable income below 60% of the national
equivalised median income.
Source:
Eurostat, EU-SILC
Despite recent efforts, Estonia continues to
face high in-work poverty risks.
In 2024, in-
work poverty in Estonia remained above the EU
average (10.3% vs 8.2%), with a high AROP rate
among part-timers (27% vs 14.3% for the EU in
2023), the self-employed (29.6% vs 20.7% for the
EU) and quasi-jobless households (75.9% vs
61.2% for the EU). Household income declined
further in 2023 (see Annex 10) and, while inflation
eased considerably in 2024, prices have increased
around 40% over the last three years (
177
). As a
result, 7.7% of the population, or approximately
104 700 people, experienced material and social
deprivation in 2024. Estonia has raised minimum
wages in recent years to reduce in-work poverty,
but they remained among the lowest in the EU in
2024 at EUR 820 per month, barely above the
AROP threshold (EUR 807 per month). In 2025, the
minimum wage will increase by 8% in nominal
terms, outpacing both projected inflation and
average wage growth (see Annex 10). The
minimum wage framework, drawn up with social
partners in 2023, sets the growth rate trajectory
until 2027, when the minimum wage should reach
50% of the average salary.
(
177
) Statistics Estonia. This indicates the increase in the cost of a
basket of consumer goods; it does not, however, reflect all of
the increase in the cost of living. Namely, Estonia’s consumer
price index does not include an interest rate component.
The social protection system still has
adequacy and coverage gaps.
Estonia’s social
protection benefits expenditure is one of the
lowest in the EU (15.4% vs 26.8% of GDP in 2023)
and in the Baltics. The current geo-political
situation and increased public spending on defence
calls for efficient and well-targeted funding that
will slowly but steadily continue to improve social
protection. The impact of social transfers
(excluding pensions) on poverty reduction
increased from 27.7% in 2023 to 31.5% in 2024,
below the EU average of 34.4%, pointing to
further scope for increasing both the efficiency
and effectiveness of social benefits. The low
coverage and restrictive eligibility criteria of
unemployment benefits, especially for people in
non-standard forms of work and the self-
employed, contribute to higher poverty risks. The
self-employed are not covered by unemployment
insurance and can only access the non-
contributory unemployment allowance (under the
same conditions as employees). There are also
gaps in sickness benefits, where the self-employed
only have access to voluntary coverage. With the
self-employed and part-time workers accounting
for a growing share of total employment
rising
from 9% to 12% and from 11.7% to 15.7%
respectively in the last decade (
178
)
it is crucial
that Estonia proceeds as planned with reforming
its unemployment insurance system by 2026 and
proposing legislation in 2025 to extend the
coverage of the unemployment insurance benefits
system to people in non-standard forms of work.
The subsistence benefit (Estonia’s minimum
income scheme) is relatively low (41.4% of the
poverty threshold vs 55.6% for the EU; 41.4% of
the income of a low-wage earner vs 46.1% for the
EU) (
179
).
Inequalities are relatively high, exacerbated
by economic and structural factors that
impact lower-income groups.
Income inequality,
as measured by the income quintile share ratio,
fell in 2024 , when the income of the richest 20%
of the population was around 5 times that of the
poorest 20%. Wealth inequalities in Estonia are
among the highest in the euro area, with the
richest 10% holding 59% of net wealth (euro area
average: 53.4%). The income share of the bottom
40% is below the EU average, but it rose back to
(
178
) Estonian Central Bank,
‘Job
Market Review 2, 2024’.
(
179
) SPC benchmarking exercise on minimum income - Income
2022.
2016
2017
2018
2019
2020
2021
2022
2023
2024
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2020 levels in 2024. Estonia has one of the
smallest middle classes in the EU, with 55% of
households in the medium-income bracket (
180
). It
has one of the largest low-income classes in the
EU, with 33% of households in this category.
Inequalities are mainly driven by the low adequacy
of the social safety net and the weak income
redistribution system. The impact of taxes (see
Annex 1) and transfers in reducing income
inequality (measured by the S80/S20 ratio) is
weak (40% vs 48% for the EU) (
181
). Other
significant factors include the high percentage of
low-wage earners, leading to high in-market
income inequality, and the low coverage of
collective bargaining (21%). Several tax reforms
(see Annex 12) in 2025 are not expected to reduce
income inequality (
182
). The
Estonia 2035
development strategy, adopted in 2021, sets
modest strategic goals for reducing inequality and
poverty, but acknowledges the importance of
addressing regional, gender and age-based
inequalities in the job market.
Pension adequacy remains a challenge, with
low replacement rates and demographic
pressures.
Pensions increased sharply in recent
years, growing by 10.6% in 2024 due to
indexation and rising social tax revenues. However,
they remain among the lowest in the EU relative to
work incomes and a main driver of old-age
poverty, with an aggregate replacement ratio of
50% in 2024 (vs 61% in the EU) and a relative
median income ratio of 61% for those aged over
65 in 2024 (EU: 90% in 2024) (
183
). The adequacy
of minimum pensions (EUR 372 as of April 2024)
remains an issue. The 2021 pension reform, which
introduced the option to opt out from the statutory
funded pension scheme, risks further undermining
pension adequacy and increasing long-term
poverty risk for retirees (
184
). By the end of 2022,
(
180
) Eurofound (2024):
Developments in income inequality and
the middle class in the EU | European Foundation for the
Improvement of Living and Working Conditions,
p. 63.
(
181
) Source: European Commission calculations based on
Eurostat.
(
182
) Euromod analysis (2024).
(
183
) The aggregate replacement ratio is defined as the ratio of
the median individual gross pension of people aged 65-74
to the median individual gross earnings of people aged 50-
59., while the relative median income ratio compares the
median equivalised disposable income of individuals aged
65 and over to that of all individuals aged below 65.
(
184
) Ministry of Finance and Ministry of Social Affairs: Estonian
Pension System Sustainability Analysis (2022):
Eesti
214 000 people had opted out of the scheme,
taking out around 30% of the total funding
(EUR 1.8 billion) (
185
). Recent adjustments, an
income tax exemption up to EUR 776 (
186
) and
allowances for pensioners living alone can help
reduce old-age poverty. Demographic trends are
likely to put financial pressure on the pension
system, which is increasingly relying on longer
working lives to maintain its adequacy and fiscal
sustainability. The share of the population aged 65
and over is projected to rise from 20.4% in 2022
to 27.1% in 2050, with the old-age dependency
ratio increasing from 32.3% to 46.2%.
Estonia continues to face challenges with
long-term care and healthcare provision, as
quality and availability vary significantly
across municipalities.
Despite falling sharply in
2024, self-reported unmet needs for medical care
remain among the highest in the EU, at 8.5% (EU:
2.5%) (see Annex 14). It remains roughly twice as
high for persons with disabilities compared to
others, mostly related to regional income
inequalities. Estonia’s long-term
care (LTC)
services are severely underfunded, with one of the
lowest public expenditure levels in the EU (0.4% of
GDP vs 1.7% in 2022). The lack of quality services
is exacerbated by staff shortages. In 2019, only
10.3% of people aged 65 and over used home
care services (EU: 28.6%), and in 2022 only 2.9%
of those aged over 65 received public home care,
compared to 4.3% in 24-hour residential care. In
2023, home services recipients were significantly
less than those utilising residential care (
187
),
pointing to an insufficient supply of home care
services. Supply has increased in the last 10 years,
but significant regional differences remain due to
reliance on municipal funding. Access to social
services varies significantly depending on the
municipality, driven by inequalities in supply and
pricing. While quality assurance measures exist,
such as recommended guidelines for service
providers and municipal supervisors, enforcement
of these measures is weak. The insufficient
availability of care services often shifts caregiving
responsibilities to relatives, particularly women,
limiting their job market participation and reducing
pensionisüsteemi jätkusuutlikkuse
analüüs_sotsiaalministeerium.pdf.
(
185
)
2024 Ageing Report Estonia - Country Fiche
(
186
) As of January 2025.
(
187
) According to the Ministry of Social Affairs.
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Estonia’s competitiveness. With demand for
healthcare and LTC growing due to demographic
changes, ensuring sufficient funding for both is
warranted.
Estonia has made progress in addressing
healthcare and LTC challenges, supported by
EU funds.
Initiatives include community-based
service places (including for the elderly) and
integrated centres for social and welfare services
supported by the European Regional Development
Fund. Several reforms included in the Estonian
recovery and resilience plan were adopted to help
improve LTC access, such as legislation defining
long-term care and requiring local authorities to
prioritise home-based care with quality services.
An action plan was also introduced to integrate
social and healthcare services. The European
Social Fund Plus (ESF+) is financing accessible,
high-quality social services to support carers and
persons with disabilities in accessing the job
market and society. A major step in LTC provision
was the care reform which entered into force in
July 2023. It provided additional financial
resources to local governments to help them
organise LTC, reducing out-of-pocket payments for
general care services. Challenges remain in
ensuring the adequate financing, quality and
availability of care services in all municipalities.
Better coordination between social security,
healthcare systems and municipalities, along with
prioritisation of home and community-based care
and assistive technologies, could improve the
quality of these services.
Energy and transport poverty remain
relatively low.
In 2024, 3.6% of households were
unable to keep their homes adequately warm and
5.7% faced arrears on utility bills, both below the
EU averages (9.2%. and 6.9%). Estonia addresses
energy poverty mainly through social welfare
measures and financial assistance for low-income
households, aiming to improve building energy
efficiency and provide support for energy bills.
Other structural measures will be supported by the
Social Climate Fund in the coming years. As
regards transport poverty, the share of people who
could not afford a car stood at 7.2% in 2024 (EU:
5.6%), with vulnerable income groups experiencing
fewer difficulties than their EU counterparts.
House prices have been trending upwards at
a fast pace, almost doubling since 2015.
After
increasing by 15.1% and 22.2% in 2021 and 2022
respectively, the growth rate slowed by 5.9% in
2023. In Q3-2024, house prices were still growing
at 6.4% year-on-year. They are estimated to be
overvalued by around 10% as at end-2024.
Mortgage rates increased from 2.7% in 2022 to
5.5% in 2023, moderating mortgage issuance
slightly. Building permits decreased significantly in
2022 and 2023, returning to the lower level of
2015, implying that housing supply will drop and
house prices will continue to increase. However,
the number of permits started increasing again in
2024.
Overall
housing
affordability
has
deteriorated over the past decade.
House
prices have increased more rapidly than household
income in the last ten years and the house price-
to-income ratio has grown by around 10% since
2015. House price levels compared to incomes
remain one of the highest in the EU. Taking into
account the cost of mortgage funding, the
borrowing capacity of households worsened over
the past decade as well since an average
household now needs a higher share of its annual
income for mortgage payments. While the rental
market is very small, the ratio of new rents to
incomes decreased over the last decade.
Despite
recent increases, Estonia’s housing
cost overburden is still relatively low.
In
2024, 8.6% of the population faced housing costs
above 40% of their total disposable household
income (EU: 8.2%), up 3.7 pps from 2022. Among
those at risk of poverty, the housing cost
overburden rate rose by 10.7 pps to reach 29.6%
(vs 31.1% for the EU), driven by limited access to
affordable housing. As a result, the percentage of
households living in overcrowded accommodation
rose to 18.4% in 2024, 5.7 pps higher than in
2020. The latest partial homelessness count took
place in 2021 when just over 1 000 people were
reported as homeless. Home ownership in Estonia
remains much higher than the EU average (80.7%
vs 69.2% for the EU in 2023), with a smaller share
of the population renting (19.3% vs 30.2% for the
EU).
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ANNEX 12: EDUCATION AND SKILLS
Estonia provides its young people with high-
quality basic education, but skills shortages
and mismatches risk limiting the country’s
competitiveness.
However, inequalities have
been widening slightly over the past decade, and
teacher shortages pose a risk to the quality of
education, especially in science, technology,
engineering and maths (STEM) fields. Estonia does
not fully capitalise on its high-performing basic
education system as the share of young people
leaving the education system with lower
secondary education or less is still relatively high.
To tackle early leaving from education, skills
shortages and mismatches, the country extended
obligatory learning until age 18 and is
restructuring
vocational
upper
secondary
education. In many sectors of the economy, skills
shortages and mismatches hamper productivity
and innovation. Against the backdrop of a
shrinking workforce and low resource and labour
productivity, the education and training system is
under pressure to ensure a sufficient supply of
highly skilled graduates in fields relevant to the
labour market, especially in upper secondary
vocational and higher education.
A recent reform of early childhood education
and care (ECEC) aims to improve quality and
participation.
Participation in ECEC of children
aged three to the start of compulsory education
(seven years) stood at 91.2% in 2023, somewhat
below the EU average of 94.6% and the EU target
of 96% by 2030. The rate was 37.8% for children
under the age of three, close to the national
Barcelona target of 40.5% and in line with the EU
average (37.5%). While municipalities are legally
required to provide a place in childcare to every
child from 18 months onwards, some struggle to
do so due to a shortage of places. A new ECEC law,
which will take effect in September 2025, is
expected to help alleviate these shortages and
further improve quality by integrating childcare
services and preschool education into a single
system and standardising requirements (e.g. on
staff qualifications). Integrated ECEC systems, like
the one to be fully established through the reform,
are in line with EU policy recommendations (
188
).
While Estonia is one of the EU’s top
performers in basic skills, educational
inequalities have slightly increased over the
(
188
)
Council Recommendation of 22 May 2019 on High-Quality
Early Childhood Education and Care Systems.
last decade.
The 2022 OECD Programme for
International Student Assessment (PISA) confirmed
that the country has the smallest share of low-
achieving pupils in the EU (only 15% of pupils
have a low performance in mathematics, 13.8% in
reading and 10.1% in science). However, the
performance gap between advantaged and
disadvantaged pupils has slightly widened (4.5 pps
in mathematics, 4.7 pps in reading and 5.1 pps in
science), but the increase was below the EU
average
(7.4 pps,
8.2 pps
and
7.4 pps,
respectively). This widening socio-economic gap
risks exacerbating educational inequalities. These
inequalities have negative implications later in life,
limiting the participation of disadvantaged young
people in higher education and of adults who are
less qualified in lifelong learning. In turn, this
impacts these vulnerable young people’s labour
market prospects and career opportunities.
Graph A12.1:
Teacher shortages (2015-2022)
80
70
60
50
40
30
20
10
0
%
2015
2018
Estonia
EU
2022
(1) % of students in schools where principals report that a
lack of teaching staff hinders instruction
Source:
OECD (2023), PISA 2022 results (Volume II)
Persistent teacher shortages pose a risk to
the quality of education.
The 2022 PISA survey
shows a significant increase in the number of
pupils who study in schools where school leaders
perceive the shortage of teachers (73% vs 44% in
2018) or of qualified teachers (51% vs 33% in
2018) as an obstacle to teaching (see Graph
A10.1). Shortages remain particularly severe in
science and mathematics and for support
specialists. The shortages of fully qualified
83
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teachers (
189
) are exacerbated by: (i) an ageing
teacher population (
190
); (ii) high dropout rates of
entry-level teachers (
191
); and (iii) the new
requirements for Estonian language proficiency to
manage the transition to Estonian as language of
instruction in all public schools. A recent audit
warned that the share of qualified teachers is
moving away from the 2026 target of 90% (
192
).
The reasons for teacher shortages relate to: (i)
high workloads, flat career structures and below-
average pay for tertiary-educated workers; (ii) a
lack of recognition for the teaching profession; (iii)
insufficient preparation for the job, especially for
novice teachers; and (iv) varying levels of school
management quality. As Estonia’s workforce is
shrinking, competition from other sectors further
exacerbates teacher attrition, particularly in
subjects linked to STEM (
193
).
Policies to attract and retain more teachers
target initial education, career structure, pay
and working conditions, but funding
constraints may be a challenge.
As admissions
to initial teacher education programmes have
increased in recent years (partly due to
scholarships), teacher retention is a key issue. This
starts with graduates from initial teacher
education who do not work as teachers,
constituting a teacher reserve that could reduce
the shortage of qualified teachers (
194
). The 2022-
2026 teacher action plan sets out measures to
make the teaching profession more attractive (
195
).
The Education Ministry plans to extend the plan
beyond 2026. There are, however, no publicly
available progress reports on the action plan.
Teacher pay still lags behind the pay of similarly
educated workers (
196
)). After pay rises of 23.9% in
(
189
) The share of fully qualified teachers (teaching certificate and
master’s degree) decreased from 87% to 81%
between
2017 and 2022.
(
190
) educ_uoe_perp01: in 2022, 37.1% of teachers were over 55,
well above the EU average of 24.8%.
(
191
) In 2022, 55% of teacher training graduates had worked as a
teacher for five consecutive years after graduation.
(
192
) National Audit Office, 2024,
Õpetajate vastavus
kvalifikatsiooninõuetele ja ainepädevus.
(
193
) Leijen et.al. (2024)
The shortage of teachers in Estonia,
European Journal of Teacher Education.
(
194
) Arenguseire Keskus (2024).
Õpetajate reserv Eestis
(
195
) Estonian Ministry of Education and Research. (2021).
Õpetajate järelkasvu tegevuskava
(Action Plan for the Next
Generation of Teachers).
(
196
) OECD (2024) Education at a Glance, Figure D3.1.
2023 and 6.6% in 2024, no funding for further
increases is included in the 2025 state budget and
in the government-approved fiscal strategy for the
next four years (
197
)). The government has
developed a four-stage career model with
potential salary increases per level, but its
implementation depends on the availability of
state funding.
Graph A12.2:
Employment rate by educational
attainment (annual)
EE
100
90
80
70
60
50
40
30
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
%
population
20-64
High skilled
Medium skilled
Low skilled
Employment rates of people aged 20-64 (% of population)
Source:
Eurostat, LFS [lfsa_ergaed]
Early school leaving and dropping out from
higher education result in an insufficient
supply of skilled graduates.
More than 1 in 10
young people leave the education and training
system with very low or no qualifications (11% in
2024), and boys are more likely to do so than girls
(13.3% vs 8.6%). While this is close to the EU
average (9.3%), the early leaving rate has not
significantly decreased in the last decade. Early
school
leavers
have
significantly
lower
employment rates (see Graph A12.2) and higher at
-risk-of-poverty-and-social-exclusion
(AROPE)
rates (Estonia has one of the highest AROPE rates
in the EU, see Annex 10). In 2024, 42.7% of
Estonians aged 25-34 held a university degree
(EU: 44.2%), but the dropout rate from higher
education is relatively high, as is the gender gap
(21.6 pps vs an EU 11.2 pps difference in favour
of women in 2024). While women tend to have
(
197
) Ministry of Finance (2024): 2025 state budget
2025. aasta
riigieelarve seletuskiri_final.pdf.
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higher educational attainment than men, they are
often hired for less prominent positions, limiting
the full use of their skills. Estonia’s gender pay gap
remains high despite the country’s strong
performance in the gender employment gap (see
Annex 10). Early school leaving remains higher for
persons with disabilities (24.9% vs 8.9% for
people with no disability in 2024), indicating the
need for stronger inclusion efforts.
To reduce early school leaving, the
government raised the compulsory education
age to 18 in 2024 (previously 16 years).
The
reform will require ninth grade pupils in the
2025/2026 academic year to stay in formal or
non-formal education until 18, unless they
complete their education earlier. It aims to ensure
that less than 5% of pupils leave education and
training early and that all young people acquire
upper secondary education or vocational skills. Its
effectiveness will depend on implementation and
adequate funding.
An ambitious reform aims to boost the
attractiveness of vocational education.
In
2023, 43.4% of pupils in medium-level education
attended vocational education and training (VET)
programmes (EU: 52.4%) (
198
). VET graduates’
exposure to work-based learning fell to 79.8% in
2025 (EU: 65.3%). The new reform aims to better
integrate vocational education with other
educational levels by bridging formal and non-
formal learning and strengthening links between
general, vocational and applied higher education.
The reform: (i) promotes work-based learning; (ii)
brings in new curricula focused on general
competencies; (iii) proposes vocational secondary
education as a viable alternative to general upper
secondary education; and (iv) puts in place career
counselling and flexible study arrangements to
retain students and reduce dropout rates. The first
pilots of the new curricula will be implemented in
2025/2026, with all VET curricula updated by
2027. Employment rates of VET graduates have
fluctuated
dropping from 77% before the
COVID-19 pandemic to 72% in 2020 and 2021,
then rising to 84.7% in 2023. This highlights the
need for the VET system to better respond to
labour market demands and improve the flexibility
of VET provision (
199
).
Estonia performs well in adult skills and
digital literacy, but skills shortages and
mismatches remain.
Estonian adult skills exceed
the OECD average, although older adults are
significantly less proficient in all areas (
200
). In
2023, 62.6% of the population had at least a
basic level of digital skills (vs 55.6% in the EU).
However, skills shortages and mismatches remain,
with over 18 000 additional workers needed every
year according to OSKA projections (
201
)
with half
of these requiring higher education and a third
requiring vocational skills. According to the OECD,
23% of workers report that they have lower skills
than required for their job (OECD: 10%). On
qualifications, almost 40% of workers are
overqualified or underqualified (
202
). Mismatches
can also be a driver of unemployment when
unemployed persons are inefficiently matched
with job vacancies. Depending on the region and
industry, the contribution of mismatch to the level
of unemployment is roughly 5-8%, a study
found (
203
). In 2022, 41.8% of adults participated
in education and training over the last 12 months,
exceeding the EU average of 39.5%. Participation
is higher among young people (49.5% for 25-34-
year-olds vs 31.2% for 55-64-year-olds) and
considerably lower for adults with lower levels of
education at 18.9%, in line with the EU average.
Estonia aims to further strengthen adult learning,
targeting an annual participation rate of 52.3% by
2030 to support upskilling and labour market
adaptability. In addition, a project funded by the
EU’s Technical Support Instrument, running
between 2024 and 2026, aims to help Estonia
improve its skills forecasting and governance.
Estonia is making educational pathways
more flexible to better reach under-
represented groups.
The rise in varied and
flexible learning and career pathways gives new
(
199
) Cedefop & ReferNet (2023) VET developments in line with
national and European priorities.
(
200
) OECD (2024),
Survey of Adult Skills 2023: Estonia.
(
201
) The Estonian Qualification Authority (OSKA):
OSKA
üldprognoos 2022-2031 | OSKA uuringud.
(
202
) OECD (2024),
OECD Economic Surveys: Estonia 2024.
(
203
) Ferraro, S., & Kommer, P. (2023). Is there a labour market
mismatch in Estonia? Measuring regional, occupational and
industrial labour market mismatch.
Baltic Journal of
Economics, 23(2),
200–228.
(
198
) European Commission,
Education and Training Monitor 2024.
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opportunities to different societal groups to
participate in learning. Efforts focus on recognising
skills acquired in different contexts and boosting
transparency for learners, employers and other
specialists through a digital skills profile tool.
Micro-credentials, or
‘micro-qualifications’ in
Estonia, are a flexible tool for adult learners to
gain partial or full qualifications. To regulate this
emerging field and extend the micro-qualifications
system to vocational education and adult training
institutions, amendments to the Adult Education
Act were adopted in July 2024 and will enter into
force in 2025. These lay down micro-qualifications
and set out principles for providing them and a
quality assurance mechanism. Nevertheless, it is
challenging to ensure that these new opportunities
cater to the varied learning needs of different
groups (e.g. low-skilled adults, older adults, people
with little learning experience).
EU funds support large scale programmes
that aim to shape the development of adult
learning opportunities.
The ongoing professional
qualifications system reform (
204
), financed by the
European Social Fund (ESF), improves the system’s
flexibility and responsiveness to market changes.
If implemented effectively, it can improve adult
education and career and training planning. In
2023, EUR 70 million was allocated under the
European Social Fund Plus (ESF+) to open up adult
learning opportunities, including by supporting the
development of professional and general skills.
As part of the broader need for upskilling
and reskilling the current workforce,
developing green skills is particularly critical
for Estonia’s green transition.
The country is
facing economic restructuring to decrease its
dependence on oil shale. 40% of the biggest
employers registered in the Ida-Viru County (in
North-East Estonia) are oil shale companies. The
shift from oil shale for energy production
threatens around 16 000 jobs, posing broader
economic risks in the region. In 2024, Estonia
reported labour shortages in occupations requiring
specific skills related to the green transition,
including plumbers and pipe fitters, electricians,
and industrial and production engineers (
205
). 31%
of small and medium-sized enterprises recognise
(
204
)
ESF project ‘Reform of Estonian professional qualifications
system’
- OSKA.
(
205
) European Labour Authority,
EURES Report on labour
shortages and surpluses 2024,
2025.
the growing importance of green skills (EU: 42%).
Estonia is expanding upskilling and reskilling
efforts in energy-intensive industries. Among
those, investments under the Just Transition Fund
aim to mitigate the social and employment impact
of the transition, including through reskilling and
upskilling programmes for workers in Ida-Viru’s oil
shale industry and job transition measures. In
addition, Estonia supports the green skills relevant
to VET and adult education under its recovery and
resilience plan.
Estonia has a high share of tertiary ICT
graduates but faces a shortage of specialists
in STEM fields due to rising demand.
Among
young people (16-24), basic digital skills
proficiency is among the highest in the EU (86.8%
vs 69.6% on average). The share of STEM tertiary
graduates is slightly higher than the EU average
(27.5% vs 26.6% in the EU in 2022), and the share
of ICT graduates is one of the highest (9.6% vs
4.5% in the EU). Among pupils in medium-level
VET, 49.2% were enrolled in STEM fields in 2022
(36.2% in the EU). However, the supply is
insufficient to meet the growing demand as the
green and digital transitions require more STEM
specialists than are currently projected to graduate
(
206
). Computer programming will have by far the
highest number of job openings in the next 10
years (see Annex 3), and the lack of computer and
software skills is the main gap identified among
under-skilled Estonian workers (
207
).
The country promotes teaching and learning
STEM subjects at all types and levels of
education.
From primary school to upper
secondary education, VET, adult education and
non-formal learning, programmes and initiatives
aim to raise interest in STEM, update learning
content and improve teaching quality. Student
enrolment has increased in ICT but declined in
technology and engineering. This has resulted in
setting up ICT and engineering academies, funded
partly by EU cohesion policy (
208
). Closing the
supply gap for STEM professionals will largely
depend on these measures.
(
206
) OSKA. (2020a).
Eesti tööturg täna ja homme 2019-2027
(Estonia’s labour market today and tomorrow 2019-2027).
(
207
) OECD (2024):
Survey of Adult Skills 2023: Estonia
(
208
) Education and Youth Board;
IT Akadeemia programm,
Inseneriakadeemia.
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ANNEX 13: SOCIAL SCOREBOARD
Table A13.1:
Social Scoreboard for Estonia
Social Scoreboard for Estonia
Adult participation in learning (during the last 12 months, excl. guided on
the job training, % of the population aged 25-64, 2022)
Early leavers from education and training
(% of the population aged 18-24, 2024)
Equal opportunities and
access to the labour market
Share of individuals who have basic or above basic overall digital skills
(% of the population aged 16-74, 2023)
Young people not in employment, education or training
(% of the population aged 15-29, 2024)
Gender employment gap
(percentage points, population aged 20-64, 2024)
Income quintile ratio
(S80/S20, 2024)
Employment rate
(% of the population aged 20-64, 2024)
Dynamic labour markets
and fair workingconditions
Unemployment rate
(% of the active population aged 15-74, 2024)
Long term unemployment
(% of the active population aged 15-74, 2024)
Gross disposable household income (GDHI) per capita growth
(index, 2008=100, 2023)
At risk of poverty or social exclusion (AROPE) rate
(% of the total population, 2024)
At risk of poverty or social exclusion (AROPE) rate for children
(% of the population aged 0-17, 2024)
Impact of social transfers (other than pensions) on poverty reduction
(% reduction of AROP, 2024)
Social protection and
inclusion
Disability employment gap
(percentage points, population aged 20-64, 2024)
Housing cost overburden
(% of the total population, 2024)
Children aged less than 3 years in formal childcare
(% of the under 3-years-old population, 2024)
Self-reported unmet need for medical care
(% of the population aged 16+, 2024)
Critical situation
To watch
Weak but improving Good but to monitor
On average
Better than average
Best performers
41,8
11,0
62,6
11,0
1,7
5,03
81,8
7,6
1,8
126,0
22,2
16,5
31,5
20,8
8,6
36,8
8,5
(1) Update of 5 May 2025. Members States are categorised based on the Social Scoreboard according to a methodology agreed
with the EMCO and SPC Committees. Please consult the Annex of the Joint Employment Report 2025 for details on the
methodology (https://employment-social-affairs.ec.europa.eu/joint-employment-report-2025-0).
Source:
Eurostat
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ANNEX 14: HEALTH AND HEALTH SYSTEMS
Estonia’s
health system faces challenges
that need to be addressed if the country is to
improve the health of its population and
social
fairness,
while
boosting
the
competitiveness of its economy.
These
challenges include: (i) limited access to care and
low life expectancy, the latter linked to high
treatable mortality; (ii) suboptimal funding and
cost-effectiveness of the health system; (iii)
shortages of healthcare workers; and (iv) an
uneven geographical distribution of healthcare
resources.
Life expectancy at birth in Estonia rebounded
to its pre-COVID-19 level but remains among
the lowest in the EU.
There are striking gender
gaps in health outcomes. While women can expect
to live nine years longer than men, they can only
expect to live about 2.6 years longer than men in
good health. Treatable mortality remains among
the highest in the EU (126.2 per 100 000
population in 2022 vs an EU average of 89.7),
suggesting that the health system is not as
effective as it should be. Diseases of the
circulatory system (‘cardiovascular diseases’) and
cancer remain the leading causes of death, with
mortality
rates
higher
than
the
EU
average. Estonia participates in several joint
actions funded by EU4Health, which address
treatable mortality, particularly caused by cancer.
Estonia’s
suicide rate is one of the highest in the
EU. In 2025, Estonia launched its first Suicide
Prevention Action Plan for 2025–2028, aiming to
comprehensively reduce the number of suicides. In
2022, a mental health action plan for 2023–2026
was adopted. It focuses on improving mental
health services, promoting mental well-being, and
reducing stigma associated with mental health
issues.
Graph A14.1:
Life expectancy at birth, years
81.3
Graph A14.2:
Treatable mortality
per 100 000 population
133.5
129.4
123.9
135.6
126.2
91.3
89.2
91.7
93.3
89.7
2018
2019
Estonia
2020
EU
2021
2022
Age-standardised death rate
(mortality that could be
avoided through optimal quality healthcare)
Source:
Eurostat (hlth_cd_apr)
80.4
80.1
80.6
81.4
79.0
78.9
77.2
78.1
2022
EU
79.1
2019
2020
Estonia
2021
2023
Health expenditure in Estonia is low, as is the
share of health costs supported by public
funds.
In 2022, health spending per inhabitant
(adjusted for differences in purchasing power) was
one of the lowest in the EU and only 75% of it was
publicly funded (see Annex 1). The country
therefore has a high level of out-of-pocket
payments for healthcare (23.2% in 2022 vs an EU
average of 14.3% (
209
)). Accordingly, Estonia
received a country-specific recommendation in
2024 to ‘improve access to and financing of
healthcare and long-term
care’ (see Annex 16).
Out-of-pocket payments went predominantly
towards outpatient medical goods, followed by
dental care, long-term care and outpatient
specialist care. Estonia is gradually increasing
dental care benefits and reducing co-payments for
medical goods. Starting in 2025, the Medicines
and Medical Devices Reimbursement Act will
reduce co-payments for medicines, medical
devices, and inpatient nursing care, with additional
compensation measures taking effect in May
2025. In 2023, spending on public health
increased, primarily driven by rising wages of
healthcare professionals. The government is
currently conducting an analysis of Estonia’s
healthcare financing and exploring potential
solutions. Several options to make the financing of
healthcare more sustainable have been proposed
by experts, but a final decision has not been taken
yet. Historically, investment levels have been low,
with a marked increase in recent years. In 2022,
investment in health capital formation as a share
of total health expenditure was higher than the EU
average (
210
). Through its recovery and resilience
(
209
) OECD/European Commission (2024),
Health at a Glance:
Europe 2024 - State of Health in the EU Cycle,
pp.186-187.
210
( ) see Health at a Glance Europe 2018, 2020, 2022 and 2024.
Source:
Eurostat (demo_mlexpec)
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Table A14.1:
Key health indicators
2019
Cancer mortality per 100 000 population
Mortality due to circulatory diseases per 100 000 population
Current expenditure on health, purchasing power standards, per capita
Public share of health expenditure, % of current health expenditure
Spending on prevention, % of current health expenditure
Available hospital beds per 100 000 population**
Doctors per 1 000 population*
Nurses per 1 000 population*
Mortality at working age (20-64 years), % of total mortality
Number of patents (pharma / biotech / medical technology)
Total consumption of antibacterials for systemic use,
daily defined dose per 1 000 inhabitants****
279.5
570.3
1 739
74.5
3.6
402
3.5
6.2
18.6
1
11.8
2020
265.0
560.2
1 901
77.1
4.9
397
3.5
6.4
19.0
4
10.5
2021
265.8
599.4
2 058
76.1
8.8
389
3.4
6.5
17.6
4
10.1
2022
246.7
575.0
2 014
74.8
5.7
374
3.5
6.6
17.8
0
12.4
2023
n.a.
n.a.
n.a.
76.1
n.a.
n.a.
n.a.
n.a.
18.3
4
12.7
EU average*
(latest year)
234.7 (2022)
336.4 (2022)
3 684.6 (2022)
81.3 (2022)
5.5 (2022)
444 (2022)
4.2 (2022)*
7.6 (2022)*
14.3 (2023)
29 (2023)***
20.0 (2023)
*The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple
average is used based on 2022 (or latest 2021) data except for Luxembourg (2017). Doctors’
density data refer to practising
doctors in all countries except Greece, Portugal (licensed to practise) and Slovakia (professionally active). Density of nurses: data
refer to practising nurses (EU recognised qualification) in most countries except France and Slovakia (professionally active) and
Greece (hospital only). **‘Available hospital beds’ covers somatic care, not psychiatric care. ***The EU median is used for patents.
Source:
Eurostat database; European Patent Office; ****European Centre for Disease Prevention and Control (ECDC) for 2023.
plan (RRP), Estonia is investing EUR 72 million to
address health-related challenges. This is
complemented by EUR 1.4 million under the
cohesion policy funds for 2021-2027 (
211
).
Spending on disease prevention is close to
the EU average, yet preventable mortality
remains high.
In 2022, spending on prevention
accounted for 5.7% of
Estonia’s
total health
expenditure, close to the EU average of 5.5%. The
rate of preventable mortality is among the highest
in the EU, linked to a high prevalence of
behavioural risk factors. These include tobacco
smoking/vaping, dietary risks, alcohol consumption
and low levels of physical activity. Estonia has
introduced several policies to address these
challenges, including its national health plan for
2020-2030. It aims at increasing life expectancy
by promoting healthy choices and addressing risk
factors.
The “Estonia 2035" strategy
focuses on
innovation, a sustainable economy, and an
inclusive society. In 2019, amendments to
Estonia’s
Tobacco Act banned displays of tobacco
products, flavoured e-cigarette liquids and remote
tobacco sales.
Access to healthcare is limited, as Estonia’s
health system is under resourced.
In 2024, the
proportion of the Estonian population reporting
unmet needs for medical care remained among
the highest in the EU (8.5% vs an EU average of
2.5%) (see Annex 11). Long waiting times are the
main reason for these unmet needs, with lower
income groups affected the most. Access to
(
211
) The EU cohesion policy data reflect the status as of
13 May 2024.
healthcare is particularly low in rural areas (see
Annex 17). A range of measures under the RRP
and the cohesion policy aim to improve the
accessibility of the health system. The Estonian
RRP envisages investments to: (i) improve health
infrastructure (construction of a county hospital
and health centre in Vijandi); (ii) implement
organisational reforms; (iii) strengthen primary
healthcare; and (iv) support the health workforce.
A Hospital Network Development Roadmap has
been prepared, with a view to enhancing the
Estonian healthcare system. Furthermore, with the
help of the cohesion policy funds, Estonia
improves healthcare by setting up multidisciplinary
healthcare centres and offering complex services
via multiprofessional teams and investing in
integrated care. Estonia also participates in the
Joint Action CIRCE-JA(
212
) funded by EU4Health
aimed at transferring good practices in primary
care between EU countries.
Shortages of health staff limit the
availability of care.
Estonia faces persistent
shortages in its health workforce. In 2022, Estonia
had fewer doctors (3.5 per 1 000 population) and
nurses (6.7 per 1 000 population) than the EU
average (4.2 and 7.6 respectively). The number of
new medical graduates in Estonia plateaued
between 2010 and 2022 and remained
significantly below the EU average. A high
proportion of doctors and nurses are aged 55 and
over, raising concerns about the long-term
accessibility of health services. There is an acute
shortage of family doctors and medical staff,
particularly outside the major cities of Tallinn and
(
212
) https://circeja.nfz.gov.pl/
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Tartu. Working conditions are a major deterrent to
entering the profession, particularly low pay. The
government has taken steps to address these
challenges, including by increasing the minimum
hourly wages of doctors and nurses as of
1 April 2023. The Hospital Network Development
Roadmap includes measures to train the workforce
on teamwork, task shifting between specialists and
using digital solutions. The government has also
approved a Strategic Framework for addressing
health workforce shortages as part of the Estonian
RRP. The RRP also includes measures to improve
the reimbursement system for doctors, nurses and
pharmacists as well as to incentivise health staff
to work in remote areas. It is also addressing the
low graduation levels of nurses by increasing
admissions to nursing training by 5%. Estonia
participates in the Joint Action HEROES (
213
) funded
by EU4Health, aimed at sharing expertise among
EU countries on health workforce planning.
The Estonian health system’s potential to
drive innovation and foster industrial
development in the EU medical sector
remains largely untapped.
Estonia is among the
EU countries with the lowest levels of public
spending on health research and development.
This is reflected in the low number of European
patents granted: 4 in 2023 in the combined areas
of pharmaceuticals, biotechnologies and medical
devices (vs an EU median of 29 (
214
)). Clinical trial
activity in Estonia is also limited (
215
) (see Annex
4).
Estonia aims to scale up the digitalisation of
its health system, with support from EU
programmes.
The shares of people accessing
their personal health records online and using
online health services (excluding phone) instead of
in-person consultations are well above the EU
average, despite a slight drop between 2022 and
2024. However, there is still room for
improvement. Measures to boost the digital
transformation of
Estonia’s
health sector set out in
its RRP include updating the governance
framework for e-health and coordinating the
development of e-health services. Legislative
amendments are also planned to improve access
to specialised care in primary care settings by
(
213
) JA HEROES | Health workforce planning project
(https://healthworkforce.eu/the-project/).
214
( ) European Patent Office,
Data to download | epo.org.
(
215
) EMA (2024),
Monitoring the European clinical trials
environment,
p. 9.
expanding e-consultation to include remote
consultations with specialists. 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.
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health
HORIZONTAL
ANNEX 15: SUSTAINABLE DEVELOPMENT GOALS
This Annex assesses Estonia’s progress on
the Sustainable Development Goals (SDGs)
along the dimensions of competitiveness,
sustainability,
social
fairness
and
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
poverty, fight inequalities and tackle climate
change and the environmental crisis, while
ensuring that no one is left behind. The EU and its
Member States are committed to this historic
global framework agreement and to playing an
active role in maximising progress on the SDGs.
The graph below is based on the EU SDG indicator
set developed to monitor progress on the SDGs in
the EU.
Estonia is performing well and improving on
one SDG on
competitiveness
(Quality
education, SDG 4) but the country still needs
to catch up with the EU average on SDG 9
(Industry, innovation and infrastructure).
Graph A15.1:
Progress towards the SDGs in Estonia
Furthermore, Estonia is falling behind and
needs to catch up with the EU average on
SDG 8 (Decent work and economic growth).
The country is performing well and improving on
adult learning (SDG 4; participation in learning in
the past four weeks is up from 19.6% of the
active population aged 25-64 in 2019 to 23.3% in
2024; EU average of 13.3%). While gross domestic
expenditure on R&D (SDG 9) increased from 1.4%
of GDP in 2018 to 1.8% in 2023, it is still below
the EU average of 2.2%. The share of buses and
trains in passenger transport (SGD 9) fell from
19.8% of inland passenger-km in 2017 to 14.4%
in 2022, to below the EU average of 16.6%. The
share of households with high-speed internet
connection (SDG 9) increased from 57.4% of
households in 2019 to 76.9% in 2023 (the EU
average: 78.8%). The Estonian recovery and
resilience plan (RRP) includes significant reforms
and investments to boost innovation and digital
transition in businesses. However, there is still
room for improvement in addressing the
For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable
development in the European Union’;
for
details on extensive country-specific data on the short-term progress of Member States:
Key findings
Sustainable development
indicators - Eurostat (europa.eu).
A high status does not mean that a country is close to reaching a specific SDG, but signals that it
is doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past
five years. The calculation does not take into account any target values, as most EU policy targets are only valid for the aggregate
EU level. Depending on data availability for each goal, not all 17 SDGs are shown for each country.
Source:
Eurostat, latest update of 28 April 2025. Data refer mainly to the period 2018-2023 or 2019-2024. Data on SDGs may
vary across the report and its annexes due to different cut-off dates.
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remaining challenges.
While Estonia performs well and is improving
on several of the SDGs related to
sustainability
(SDGs 2, 6, 7 and 15), the
country needs to catch up with the EU
average on SDGs 9, 12, 13 and 14.
Furthermore, Estonia performs well but is
moving away from SDG 11 (Sustainable
cities and communities).
The area under organic
farming (SDG 2) increased from 20.0% of utilised
agricultural area in 2017 to 23.4% in 2022 (the
EU average: 10.5). The country is also performing
well and has made progress on most of the
affordable and clean energy indicators (SDG 7),
including on the share of renewable energy in
gross final energy consumption, from 30.0% in
2018 to 41.0% in 2023 (EU average 24.6%).
However, while Estonia’s material footprint
(SDG 12) decreased from 30.6 tonnes per
inhabitant in 2018 to 29.9 in 2023, it is still above
the EU average of 14.2 tonnes per inhabitant.
Similarly, while the country’s air
emissions
intensity of fine particulate matter from industry
(SDG 9) has fallen from 0.37 grams per euro in
2017 to 0.14 in 2022, it is still above the EU
average of 0.06 grams per euro. On the other
hand, population living in households suffering
from noise (SDG 11) increased from 8.6% of
population in 2018 to 9.6% in 2023 (EU average:
18.2%).
Estonia is moving away from and still needs
to catch up on three SDG indicators (1, 3 and
8) related to
social fairness.
But the country
is improving on SDG 5 (Gender equality) and
performs well and is also improving on three
other
fairness-related
SDG indicators (4,
7and 10).
Estonia is moving away from the SDGs
and needs to catch up with the EU average on
poverty reduction (SDG 1), including on people at
risk of poverty or social exclusion (up from 23.6%
of the population in 2018 to 24.2% in 2023; EU
average: 21.3%). While there is an improvement
on the self-reported unmet needs for medical care
(SDG 3), falling from 16.4% of the population
aged 16 or over in 2018 to 12.9% in 2023, this is
still above the EU average of 2.4%. The in-work
at-risk-of-poverty rate (SDG 8) increased from
9.3% of the population aged 18 or over in 2018 to
10.3% in 2023 (EU average: 8.3%). Furthermore,
Estonia still needs to catch up on some gender
equality indicators (SDG 5). The average gross
hourly earnings of women went from being 21.8%
lower than men in 2018 to 16.9% lower in 2023
but this is still above the EU average of 12.0%.
However, compared to 2019, tertiary educational
attainment (SDG 4) increased from 40.6% of the
population aged 25 to 34 to 42.7% in 2024 (EU
average: 44.2%). Similarly, EU/non-EU citizenship
gap for employment rate (SDG 10) decreased
from 6.8 pp difference (% of population aged 20
to 64) in 2018 to 6.6 pp difference in 2024 (EU
average: 12.5). 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 SDG indicator
related to
macroeconomic stability
(SDG 8).
But the preforms well and is improving on
SDG 17 (Partnerships for the goals).
Real GDP
per capita (SDG 8) has declined (contracted from
EUR 21 650 in 2019 to EUR 21 020 in 2024) and
remains below the EU average of EUR 33 530.(
216
)
The general government gross debt (SDG 17) grew
from 9.0% of the GDP in 2019 to 23.6% of the
GDP in 2024, but it remains below the EU average
of 81.0%. The general government total
expenditure on law courts (SDG 16) has also
increased from EUR 58.2 per capita in 2018 to
EUR 81.3 in 2023 but remains below the EU
average of EUR 121.7.
As the SDGs form an overarching framework, any
links to relevant SDGs are either explained or
depicted with icons in the other annexes.
(
216
) Adjusted for inflation using a chain-linked methodology and
with 2020 serving as the reference point.
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ANNEX 16: CSR PROGRESS AND EU FUNDS IMPLEMENTATION
Estonia faces structural challenges in a wide
range of policy areas, as identified in the
country-specific recommendations (CSRs)
addressed to the country as part of the
European Semester.
They refer, among other
things, to the accessibility and affordability of
healthcare and long-term care, research and
innovation, access to finance for SMEs, labour
productivity and skills, energy efficiency,
investment into renewable energy and storage,
bio-based innovation, sustainable transport,
increasing social protection including broader
coverage of unemployment benefits.
The Commission has assessed the 2019-2024
CSRs considering the policy action taken by
Estonia to date and the commitments in its
recovery and resilience plan (RRP).
At this
stage, Estonia has made
at least ‘some progress’
on 91% of the CSRs (
217
)
, and ‘limited progress’ on
9% (Table A16.2).
EU funding instruments provide considerable
resources
to
Estonia
by
supporting
investments and structural reforms to
increase competitiveness, environmental
sustainability and social fairness, while
helping to address challenges identified in
the CSRs.
In addition to the EUR 953 million
funding from the Recovery and Resilience Facility
(RRF) in 2021-2026, EU cohesion policy funds (
218
)
are providing EUR 3.4 billion to Estonia (amounting
to EUR 5.2 billion with national co-financing) for
2021-2027 (
219
) to boost regional competitiveness
and growth. Support from these instruments
combined represents around 11.3% of 2024 GDP
(
220
). The contribution of these instruments to
different policy objectives is outlined in Graphs
A16.1 and A16.2. This substantial support comes
on top of financing provided to Estonia under the
(
217
) 11% of the 2019-2024 CSRs have been fully implemented,
15% substantially implemented, and some progress has
been made on 65%.
(
218
) In 2021-2027, cohesion policy funds include the European
Regional Development Fund, the Cohesion Fund, the
European Social Fund Plus and the Just Transition Fund. The
information on cohesion policy included in this annex is
based on the adopted programme with the cut-off date of 5
May 2025.
(
219
) European territorial cooperation (ETC) programmes are
excluded from the figure.
(
220
) RRF funding includes both grants and loans, where
applicable. GDP figures are based on Eurostat data for 2024.
2014-2020 multiannual financial framework,
which financed projects until 2023 and has had
significant benefits for the economy and Estonian
society. Project selection under the 2021-2027
cohesion policy programme is advanced, while
implementation of selected projects has also
gained
momentum,
enabling
substantial
investment.
The Estonian RRP contains 28 investments
and 17 reforms to stimulate sustainable
growth, enhance social fairness and support
the green and digital transitions of the
economy.
Implementation is well on its way with
66% of the funds disbursed. At present, Estonia
has fulfilled 49% of the milestones and targets in
its RRP (
221
). Efforts are needed to ensure
completion of all RRP measures by 31 August
2026. Public investment is hampered by the
difficulties of investing in outlying and Eastern
border regions where skills may be lacking, and
the limited availability of private finance makes
public investment all the more important.
Estonia also receives funding from several
other EU instruments,
including those listed in
table A16.1. Most notably, the common
agricultural policy (CAP) provides Estonia with an
EU contribution of EUR 1.4 billion under the CAP
strategic plan for 2023-2027 (
222
). Furthermore,
operations amounting to EUR 101.3 million (
223
)
have been signed under the InvestEU instrument
backed by the EU guarantee, improving access to
financing for riskier operations in Estonia.
(
221
) As of mid-May 2025, Estonia has submitted 3 payment
requests.
(
222
)
An overview of Estonia’s formally approved strategy to
implement the EU’s common agricultural policy nationally
can be found at:
https://agriculture.ec.europa.eu/cap-my-
country/cap-strategic-plans/estonia_en
(
223
) Data reflect the situation on 31.12.2024.
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Graph A16.1:
Distribution of RRF funding in Estonia by
policy field
Green transition
Digital transformation
Smart, sustainable and
inclusive growth
Social & territorial cohesion
Health & resilience
Next generation
forecasted skills demand on the labour market.
Adults with low education or skill level are able to
continue their studies in non-stationary formal
education. It is estimated that nearly 62 000
adults will participate in non-formal learning
supporting upskilling and reskilling.
Other
funds
are
contributing
to
competitiveness in Estonia, for instance
through open calls.
The Connecting Europe
Facility has financed strategic investments in rail
transport such as the Rail Baltica, the development
of alternative fuel infrastructure in the air and
maritime sectors, the integration of the energy
market including the synchronisation of the Baltic
States with the EU’s electricity system and in 5G
connectivity along transport corridors, along Via
Baltica. Horizon Europe has supported research
and innovation, from scientific breakthroughs to
scaling up innovations, with Climate, Energy and
Mobility as top priorities in Estonia. The Technical
Support Instrument (TSI) in Estonia is focused on
the development of a national strategy for critical
entities and enhancing capabilities for managing
crisis and on promoting the uptake of strategic
public procurement.
Estonia’s RRP also contains ambitious
measures
to
improve
the
business
environment and competitiveness.
As part of
the measures covered by payment requests
submitted over the past year, Estonia supported
the digitalisation of companies, focusing on small
and medium-sized enterprises as well as training
programmes to reinforce the digital skills of ICT
experts and managers. In addition, Estonia took
steps to improve the competitiveness of Estonian
companies in the foreign markets.
Estonia
adopted a new legislation that streamlines
planning, permitting and environmental impact
assessment processes for wind energy projects. To
help Estonia implement its RRP, in 2024 the TSI
assisted with measures to strengthen the skills
governance system.
EU funds are playing a significant role in
promoting environmental sustainability and
green transition in Estonia during the current
seven-year EU budget (multiannual financial
framework).
The JTF is instrumental in
supporting: (i) efforts to phase out oil shale in the
energy sector, essential for reducing greenhouse
gas emissions in Estonia; and (ii) the creation of
job opportunities in the mining region of Ida-
Virumaa. Cohesion policy funds also make a
(1) Each RRP measure helps achieve the aims of two of the
six policy pillars of the RRF. The primary contribution is shown
in the outer circle, while the secondary contribution is shown
in the inner circle. Each circle represents 100% of the RRF
funds. Therefore, the total contribution to all pillars displayed
on this chart amounts to 200% of the RRF funds allocated.
Source:
European Commission.
Graph A16.2:
Distribution of cohesion policy funding
across policy objectives in Estonia
Smarter Europe
Greener Europe
Connected Europe
Social Europe
Europe closer to citizens
JTF specific objective
Source:
European Commission
Cohesion policy funds aim to increase the
productivity and competitiveness of Estonian
firms and improve the business environment.
For example, the European Regional Development
Fund (ERDF) and the Just Transition Fund (JTF) will
provide support to over 12 000 businesses,
focusing on boosting innovation and ERDF will
enable nearly 800 businesses to invest in new
skills relevant for smart specialisation, industrial
transition and entrepreneurship. ESF+ allocates
EUR 132 million to better match vocational and
higher education with labour market needs, with a
focus on labour market gaps and including digital
skills. Alongside furthering digital skills, ESF+
actions focus on key competencies, future skills,
science, technology, engineering and mathematics.
Interventions also include EUR 82.2 million in
support of high-quality flexible non-formal
upskilling and reskilling that takes into account the
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substantial contribution to improving energy
efficiency, improving separate waste collection
and promoting clean transport. For example, the
funds are supporting the electrification of 450 km
of TEN-T railway track and solutions for clean
urban transport. The CAP strategic plan allocates
40% of its rural development budget (EUR 174
million) to environmental and climate objectives,
and 28% of its direct payments budget (EUR 279
million) to eco-schemes. This support is focused on
carbon sequestration, biodiversity and valuable
grasslands, and increasing knowledge about
sustainable production.
Estonia’s RRP, including the REPowerEU
chapter, has a comprehensive set of reforms
and investments for the green transition.
A
Green technologies Development Programme has
been set up by Estonia to support the development
and uptake of green technologies by businesses.
Works have been progressing towards expanding
the electricity network and increasing its capacity
by 160 megawatts. Moreover, Estonia has been
supporting the increase in production capacity of
biomethane thus accelerating the integration of
renewable energy in the system.
Promoting fairness, social cohesion and
improving access to basic services are
among the key priorities of EU funding in
Estonia.
For instance, the ERDF supports the
integration of healthcare and social services
through the setting-up of integrated service and
wellbeing centres. In addition, ESF+ supports the
development of a comprehensive long-term care
system that prevents, reduces and helps address
care needs, promotes independent living and
livelihoods, and supports carers. Over EUR 43
million are dedicated to measures that improve
access to long-term care. It is estimated that 70%
of participating care givers will benefit from a
reduced care burden. ESF+ also supports active
inclusion with a view to promoting equal
opportunities, non-discrimination and active
participation, and improving employability, in
particular for disadvantaged groups. Over
EUR 33.5 million will be spent on addressing child
poverty. Interventions for children and young
people focus on improving access services,
supporting integrated active inclusion measures
and preventing risk-taking behaviour through the
involvement of local communities and civil society.
Estonia’s RRP contains several reforms and
investments related to fairness and social
policies.
Reforms aiming at reducing the gender
pay gap include the roll out of a digital tool
supporting employers to implement the principle
of equal pay. Furthermore, reforms in the health
sector are bearing fruit: a new reimbursement
system has been established for nurses to
incentivise them to work in remote areas covering
advanced practice nurses, in primary health care
and hospitals. This is complemented by a further
increase of the admissions to nursing training. To
help Estonia implement its RRP, in 2024 the TSI
assisted with measures to improve the primary
health system.
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Table A16.1:
Selected EU funds with adopted allocations - summary data (million EUR)
Instrument/policy
RRF grants (including the RepowerEU allocation)
RRF loans
Allocation 2021-2026
953.2
0
Disbursed since 2021 (1)
627.1
0
Disbursed since 2021 (3)
(covering total payments to the
Member State on commitments
originating from both 2014-
2020 and 2021-2027
programming periods)
2 107.7
1 095.8
587.2
282.1
142.6
50.7
Instrument/policy
Allocation 2014-2020 (2)
Allocation 2021-2027
Cohesion policy (total)
European Regional Development Fund (ERDF)
Cohesion Fund (CF)
European Social Fund (ESF, ESF+)
Just Transition Fund (JTF)
Fisheries
European Maritime, Fisheries and Aquaculture Fund (EMFAF)
and the European Maritime and Fisheries Fund (EMFF)
Migration and home affairs
Migration, border management and internal security - AMIF,
BMVI and ISF (4)
The common agricultural policy under the CAP strategic
plan (5)
Total under the CAP strategic plan
European Agricultural Guarantee Fund (EAGF)
European Fund for Agricultural Development (EAFRD)
3 702.1
2 051.2
1 061.5
589.3
3 369.3
1 701.6
779.7
534.2
353.9
97.4
101.0
68.7
Allocation 2023-2027
1 448.7
1 008.6
440.1
91.4
34.0
Disbursements under the
CAP Strategic Plan (6)
434.1
391.3
42.8
(1) The cut-off date for data on disbursements under the RRF is 31 May 2025.
(2) Cohesion policy 2014-2020 allocations include REACT-EU appropriations committed in 2021-2022.
(3) These amounts relate only to disbursements made from 2021 onwards and do not include payments made to the Member
State before 2021. Hence the figures do not comprise the totality of payments corresponding to the 2014-2020 allocation. The
cut-off date for data on disbursements under EMFAF and EMFF is 29 April 2025. The cut-off date for data on disbursements
under cohesion policy funds, AMIF, BMVI and ISF is 5 May 2025.
(4) AMIF - Asylum, Migration and Integration Fund; BMVI- Border Management and Visa Instrument; ISF - Internal Security Fund.
(5) Expenditure outside the CAP strategic plan is not included.
(6) The cut-off date for data on EARDF disbursements is 5 May 2025. The information on EAGF disbursements is based on the
Member State declarations until March 2025. Disbursements for the Direct Payments (EAGF) started in 2024.
Source:
European Commission
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Table A16.2:
Estonia
2019 CSR 1
Ensure that the nominal growth rate of net primary government expenditure does
not exceed 4.1% in 2020, corresponding to an annual structural adjustment of
0.6% of GDP.
Ensure effective supervision and the enforcement of the anti-money laundering
framework.
2019 CSR 2
Address skills shortages and foster innovation by improving the capacity and
labour market relevance of the education and training system.
Improve the adequacy of the social safety net and access to affordable and
integrated social services.
Take measures to reduce the gender pay gap, including by improving wage
transparency.
2019 CSR 3
Focus investment-related economic policy on sustainable transport and energy
infrastructure, including interconnections, on fostering research and innovation,
and on resource and energy efficiency, taking into account regional disparities.
2020 CSR 1
In line with the general escape clause, take all necessary measures to effectively
address the pandemic, sustain the economy and support the ensuing recovery.
When economic conditions allow, pursue fiscal policies aimed at achieving prudent
medium-term fiscal positions and ensuring debt sustainability, while enhancing
investment.
Improve the accessibility and resilience of the health system, including by
addressing the shortages of health workers, strengthening primary care and
ensuring the supply of critical medical products.
2020 CSR2
Strengthen the adequacy of the social safety net, including by broadening the
coverage of unemployment benefits.
2020 CSR 3
Front-load mature public investment projects
and promote private investment to foster the economic recovery.
Focus investment on the green and digital transition, in particular on digitalisation
of companies,
research and innovation,
clean and efficient production and use of energy,
resource efficiency, and
sustainable transport, contributing to a progressive decarbonisation of the
economy.
Support the innovation capacity of small and medium-sized enterprises,
and ensure sufficient access to finance.
2020 CSR 4
Step up the efforts to ensure effective supervision and enforcement of the anti-
money laundering framework.
Assessment in May 2025
Substantial progress
Not relevant anymore
SDG 8, 16
Relevant SDGs
Substantial progress
Some progress
Some progress
Some progress
Some progress
Some progress
SDG 8, 16
SDG 4
SDG 1, 2, 10
SDG 8, 10
Some progress
SDG 7, 9, 10, 11, 13
Some progress
Not relevant anymore
SDG 8, 16
Some progress
SDG 3
Some progress
Some progress
Some progress
Some progress
Substantial progress
Some progress
Some progress
Some progress
Limited progress
Limited progress
Substantial progress
Some progress
Substantial progress
Substantial progress
SDG 8, 16
SDG 8, 16
SDG 8, 9
SDG 9
SDG 9
SDG 7, 9, 13
SDG 6, 7, 12, 15
SDG 11
SDG 8, 9
SDG 8, 9
SDG 1, 2, 10
(Continued on the next page)
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Table (continued)
2021 CSR 1
In 2022, maintain a supportive fiscal stance, including the impulse provided by the
Recovery and Resilience Facility, and preserve nationally financed investment.
When economic conditions allow, pursue a fiscal policy aimed at achieving prudent
medium-term fiscal positions and ensuring fiscal sustainability in the medium term.
At the same time, enhance investment to boost growth potential.
Pay particular attention to the composition of public finances, on both the revenue
and expenditure sides of the budget, and to the quality of budgetary measures in
order to ensure a sustainable and inclusive recovery. Prioritise sustainable and
growth-enhancing investment, in particular investment supporting the green and
digital transition.
Give priority to fiscal structural reforms that will help provide financing for public
policy priorities and contribute to the long-term sustainability of public finances,
including, where relevant, by strengthening the coverage, adequacy and
sustainability of health and social protection systems for all.
2022 CSR 1
In 2023, ensure that the growth of nationally financed primary current expenditure
is in line with an overall neutral policy stance, taking into account continued
temporary and targeted support to households and firms most vulnerable to
energy price hikes and to people fleeing Ukraine. Stand ready to adjust current
spending to the evolving situation.
Expand public investment for the green and digital transitions, and for energy
security taking into account the REPowerEU initiative, including by making use of
the Recovery and Resilience Facility and other Union funds.
For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent
medium-term fiscal positions.
2022 CSR 2
Proceed with the implementation of its recovery and resilience plan, in line with the
RRP implementation is monitored by assessing RRP payment requests
milestones and targets included in the Council Implementing Decision of 29
and analysing reports published twice a year on the achievement of the
milestones and targets. These are to be reflected in the country reports.
October 2021.
Submit the 2021-2027 cohesion policy programming documents with a view to
finalising their negotiations with the Commission and subsequently starting their
implementation.
2022 CSR 3
Strengthen social protection, including by extending the coverage of
unemployment benefits, in particular to those with short work spells and in non-
standard forms of work.
Improve the affordability and quality of long-term care, in particular by ensuring its
sustainable funding and integrating health and social services.
2022 CSR 4
Reduce overall reliance on fossil fuels and diversify imports of fossil fuels
by accelerating the deployment of renewables, including through further
streamlining of permitting procedures
ensuring sufficient capacity of interconnection
and strengthening the domestic electricity grid.
Increase energy efficiency, including of buildings, to reduce energy consumption.
Intensify efforts to improve the sustainability of the transport system, including
through electrification of the rail network and by increasing incentives to
encourage sustainable and less polluting transport, including the renewal of the
road vehicle stock.
Progress on the cohesion policy programming documents is monitored
under the EU cohesion policy.
Some progress
Some progress
SDG 1, 2, 10
Not relevant anymore
Not relevant anymore
SDG 8, 16
Not relevant anymore
SDG 8, 16
Not relevant anymore
SDG 8, 16
Not relevant anymore
SDG 8, 16
Not relevant anymore
Not relevant anymore
SDG 8, 16
Not relevant anymore
SDG 8, 16
Not relevant anymore
SDG 8, 16
Some progress
Some progress
Some progress
Some progress
Substantial progress
Some progress
Some progress
SDG 3
SDG 7, 9, 13
SDG 7, 8, 9, 13
SDG 7, 9, 13
SDG 7, 9, 13
SDG 7
Some progress
SDG 11
(Continued on the next page)
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Table (continued)
2023 CSR 1
Wind down the emergency energy support measures in force, using the related
savings to reduce the government deficit, as soon as possible in 2023 and 2024.
Should renewed energy price increases necessitate new or continued support
measures, ensure that such support measures are targeted at protecting
vulnerable households and firms, are fiscally affordable and preserve incentives
for energy savings.
Ensure prudent fiscal policy, in particular by limiting the nominal increase in
nationally financed net primary expenditure in 2024 to not more than 4,9%.
Preserve nationally financed public investment and ensure the effective absorption
of grants under the Facility and of other Union funds, in particular to foster the
green and digital transitions.
For the period beyond 2024, continue to pursue a medium-term fiscal strategy of
gradual and sustainable consolidation, combined with investments and reforms
conducive to higher sustainable growth, in order to achieve a prudent medium-
term fiscal position.
2023 CSR 2
Proceed with the steady implementation of its recovery and resilience plan
including its REPowerEU chapter. Proceed with the swift implementation of
cohesion policy programmes, in close complementarity and synergy with the
recovery and resilience plan.
2023 CSR 3
Strengthen social protection, including to address old-age poverty, and by
extending the coverage of unemployment benefits, in particular for those with short
work spells and in non-standard forms of work.
Improve access to and the affordability of healthcare and
long-term care, in particular by ensuring their sustainable funding.
2023 CSR 4
Reduce overall reliance on fossil fuels,
accelerate the deployment of renewable energy
strengthening the domestic electricity grid capacity.
sources,
including
by
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.
Some progress
Some progress
Limited progress
Some progress
Some progress
Some progress
Some progress
SDG 7,9,13
SDG 7,9,13
SDG 1,2,10
SDG 3
SDG 3
Substantial progress
Full implementation
SDG 8,16
Full implementation
SDG 8,16
Substantial progress
SDG 8,16
Full implementation
SDG 8,16
Ensure sufficient capacity of electricity interconnections to increase the security of
supply and continue the synchronisation with the Union electricity grid.
Strengthen energy efficiency through new financing and support measures to meet
the targets of the long-term renovation strategy.
Continue efforts to increase the share of sustainable transport by electrifying the
rail network and through taxation that incentivises the gradual renewal of the
vehicle stock towards zero or low-emission vehicles.
Step up policy efforts aimed at the provision and acquisition of skills and
competences needed for the green transition.
2024 CSR 1
Submit the medium-term fiscal-structural plan in a timely manner.
In line with the requirements of the reformed Stability and Growth Pact, limit the
growth in net expenditure in 2025 to a rate consistent with, inter alia, reducing the
general government deficit below the 3% of GDP Treaty reference value and
keeping the general government debt at a prudent level over the medium term.
Broaden the tax base and
improve access to and financing of healthcare and
long-term care.
Substantial progress
SDG 7,9,13
Some progress
SDG 7
Some progress
SDG 8, 10, 11, 12
Some progress
Some progress
Full implementation
SDG 4
SDG 8, 16
Full implementation
SDG 8, 16
Some progress
Limited progress
Some progress
SDG 8, 10, 12
SDG 3
SDG 3
(Continued on the next page)
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Table (continued)
2024 CSR 2
Continue with the swift and effective implementation of the recovery and resilience
plan, including the REPowerEU chapter, ensuring completion of reforms and
investments by August 2026. Accelerate the implementation of the cohesion policy
programme. In the context of the mid-term review, continue focusing on the
agreed priorities, taking action to better address the needs in the long-term care
sector, while considering the opportunities provided by the Strategic Technologies
for Europe Platform initiative to improve competitiveness.
2024 CSR 3
Strengthen social protection, inter alia to address old-age poverty and by
extending the coverage of unemployment benefits, in particular to those with short
work spells and in non-standard forms of work.
2024 CSR 4
Reduce the share of oil shale in the energy mix and raise resource productivity
through bio-based innovation.
Improve labour productivity and skills supply through reskilling and upskilling, and
by better attracting and retaining talent.
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. Progress with the cohesion
policy is monitored in the context of the Cohesion Policy of the
European Union.
Some progress
Some progress
Some progress
Some progress
Some progress
SDG 1, 2, 10
SDG 6, 12, 15
SDG 4
Source:
European Commission
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ANNEX 17: COMPETITIVE REGIONS
While Estonia scores well on quality of
government and ease of doing business, it
remains important for the country to boost
productivity and entrepreneurship outside
the main economic centres to address
disparities in regional development.
Estonia’s regional outlook continues to be
characterised by significant disparities
between its capital region
Põhja-Eesti
and the rest of the country.
In 2023, GDP per
head (purchasing power standard (PPS) in Põhja-
Eesti stood at 105% of the EU average. In the
remaining four NUTS 3 regions, GDP per head
ranged from 51% in Kesk-Eesti to 63% in Lõuna-
Eesti (Map A17.1).
Map A17.1:
GDP per head (in purchasing power
standard PPS), NUTS 3, 2023
100).
A deeper analysis of the index’s
components
reveals that Estonia outperformed the EU average
in the
basic
pillar, which includes factors such as
transport infrastructure and population health, and
in the advanced pillar, related to innovation
outputs and inputs. However, Estonia lagged
behind the EU average in the efficiency pillar,
which evaluates factors linked to labour market
efficiency and human capital.
Entrepreneurial activity and innovation are
highly concentrated in two counties, although
other regions also have competitive
advantages.
71% of companies are registered in
Harju (Põhja-Eesti) and Tartu (in Lõuna-Eesti)
counties and they produce 68% of Estonian goods
and 84% of services exports. While the relative
ease of doing business in Estonia provides
favourable conditions, particularly for starting a
business (
224
), and there are cases of businesses
successfully scaling up, larger tech-based
companies are generally concentrated in Tallinn
and the second biggest city of Tartu in the south
of the country. Innovation activity is also
concentrated in these two cities, clustering around
major universities. These cities host various
innovation ecosystems and clusters in areas such
as health and medicine, defence (dual-use
technologies), ICT, logistics and aviation. These
cities hold the biggest potential for creating and
scaling up tech-based companies. The county of
Ida-Viru (Kirde-Eesti) is transitioning out of an
economy relying largely on oil shale mining and
energy production. The existing industrial base
provides opportunities for developing new
industries. However, this transition also presents
economic and labour market challenges (see
Annex 11). The existence of a university branch in
the city of Kohtla-Järve that is already geared
towards a just transition both in terms of
education and applied research can help ensure
that skills development matches future needs. The
higher GDP and gross value added in Põhja-Eesti is
largely based on service-sector exports. The
economies of Lääne-Eesti, Kesk-Eesti and Lõuna-
Eesti (except Tartu County) are largely based on
forestry, agriculture, wood and food processing,
which have less added value
Source:
Eurostat
Competitiveness
In 2022, Estonia’s score in the EU Regional
Competitiveness Index exceeded the EU
average with a score of 106.5 (EU average =
(
224
) World Bank ease of doing business ranking.
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Table A17.1:
Selection of indicators at regional (NUTS 3)
level in Estonia
GDP per
head (PPS)
Real GDP
per head
growth
Productivity
Real
Productivity
Real
- GDP per productivity - GDP per productivity
person
growth
hour
growth (per
employed (per person worked
hour
(PPS)
employed)
(PPS)
worked)
Index
EU-27 = 100
2023
European Union
(27 MS)
Estonia
Põhja-Eesti
Lääne-Eesti
Kesk-Eesti
Kirde-Eesti
Lõuna-Eesti
100
80
105
52
51
56
63
Average
Average
Average
Index
Index
annual
annual
annual
EU-27 = 100
EU-27 = 100
% change
% change
% change
2014-2023
1.6
1.8
0.8
1.9
2.8
2.4
3.4
2023
100
78
90
59
63
69
65
2014-2023
0.6
0.8
0.1
1.4
2.1
1.8
1.8
2022
100
70
80
52
58
71
60
2013-2022
0.9
1.8
0.9
1.8
3.7
4.9
2.7
European Quality of Government Index (
226
)
exceeds the EU average but trust in regional and
local authorities has decreased, which could be
due to regional disparities and underfunding (see
Annex 6). Even though the administrative reform
of 2017 reduced the number of municipalities
from 213 to 79, many of them remain relatively
small. Local planning processes can act as barriers
to investments, where they are lengthy. Estonia
has launched changes to planning legislation to
speed up and streamline planning processes. Quick
adoption of relevant legislation could boost
economic development and attract new
investment, especially at local level.
In some areas such as water management,
fragmented public service provision raises
issues of financial sustainability.
The
fragmentation of the water management sector
(
227
) and the limited size of the many service
providers hinder the industry’s financial capacity to
operate, maintain and renew existing assets.
Estonia currently lacks a sustainable funding
strategy for the long-term operation and
maintenance of infrastructure that provides
drinking water and wastewater treatment services
but work on this has started (
228
). The road map for
water sector services reform is expected to be
completed by June 2025.
Significant socio-economic disparities persist
between urban and rural areas.
The weaker
performance of rural areas is further exacerbated
by low levels or lack of human capital and access
to services. The share of the working-age
population with a tertiary education is at its lowest
in rural regions, underperforming urban areas by
approximately 15 percentage points. In addition, in
comparison to rural areas, as well as towns and
suburbs, urban areas have lower rates of young
people not in employment, education, or training,
as well as those who have prematurely left
education or training (Table A17.2) (see also Annex
10).
(
226
)
European Quality of Government Index 2024 | University of
Gothenburg
(
227
) 135 water companies were operating in Estonia at the start of
2024, of which 90 were water companies designated by
municipalities and approx. 45 were various non-profit
organizations that meet the characteristics of a water company.
Source: Inception report on the implementation of the action
plan towards sustainable water services, 2023.
(
228
) OECD Study
‘Towards Sustainable Water Services in Estonia’, 2022.
Source:
Eurostat and JRC
The significant disparities in GDP per capita
across Estonia’s NUTS 3 regions are linked to
substantial gaps in labour productivity.
In
2022, productivity measured as GDP per hour
worked in purchasing power standard was below
the EU average (100) in all Estonian regions. It
ranged from 52% of the EU average in Lääne-
Eesti to 71% in Kirde-Eesti and 80% in the capital
region, Põhja-Eesti. Labour productivity in every
Estonian region was also below the average for
the EU’s transition regions, which stood at 93% of
the EU average. Increasing productivity across the
board, especially outside the better-performing
capital area, remains one of Estonia's key
challenges for the coming years.
Additional bottlenecks that hinder Estonia’s
competitiveness
are
low
resource
productivity, knowledge gaps in technology-
intensive business and low clarity in
government priorities and policies
(
225
).
Strengthening long-term strategic planning by
adapting to changing economic reality, with fully
integrating the green and digital transition,
increasing resource efficiency, and with stronger
focus on strategic new sectors like defence, could
help bring the economy back to growth.
While Estonia ranks well as regards the
quality of government, the capacity of
municipalities can vary, and local planning
processes can take time.
The quality of
government in Estonia, as measured by the
(
225
)
Eesti majanduse olukord ja väljavaated: konkurentsivõime
eksperdikogu raport Riigikogule, June 2024
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3035169_0104.png
Table A17.2:
Socio-demographic indicators by degree of
urbanisation, 2024
Cities
Population with high educational attainment
(% of population aged 25-64)
Early leavers from education and training
(% of population aged 18-24)
NEET: Neither in employment nor in education
or training (% of population 15-34)
At-risk-of-poverty or social exclusion
(% of total population)
Housing cost overburden
(% of total population)
Towns and
Rural areas
suburbs
36.9
11.8
24.7
10.1
10.3
34.4
14.2
22.6
12.5
7.9
49.3
9.7
20.9
9.3
8.4
due to influx of refugees from Ukraine, there are
significant regional disparities. The population in
the capital region grew substantially by 12%,
whereas Kirde-Eesti experienced a sharp decline of
12%. In contrast, population declines in the
remaining NUTS 3 regions were relatively modest,
at less than 2% (
229
).
Housing cost overburden used to be highest
in urbanised areas of the country (
230
).
However, due to increases in 2023 and 2024,
approximately 10% of the population in towns and
suburbs and around 8% in cities and rural areas
live in households burdened by housing costs.
The relatively low population density in rural
areas translates into more challenges in
physical access to basic services, which may
be exacerbated by the trend of depopulation.
Access to healthcare infrastructure in Estonia is at
its lowest in rural areas, where only 13% of the
population lives within a 10-minute drive of a
hospital (
231
). This is well below the average for
rural areas in transition regions in the EU (34.6%)
and below the average for rural areas in the EU's
less developed regions (15.8%). While travel time
is not is not the main reason for the relatively high
unmet needs for healthcare in Estonia (see also
Annex 14), it is a more significant factor than in
most other Member States. Similarly, access to
primary school facilities is significantly lower in
rural areas, with only 21% of rural residents
having access to a primary school within a 15-
minute walk compared to an average of 63% in
urbanised areas (
232
). More remote municipalities
have started to close and downsize smaller
schools, partly as depopulation reduces demand
and therefore the viability of schools.
Source:
Eurostat
Graph A17.1:
GDP per capita in 2010-2022 in capital
region (Harjumaa) and counties at EUs external border
(% of Estonian average)
160
120
80
40
0
Harju
maakond
Ida-Viru
maakond
2010
Põlva
maakond
2015
2018
Tartu
maakond
2022
Võru
maakond
Source:
Statistics Estonia
The change in the GDP per capita in 2010-
2022 in counties on the EUs external border
shows convergence towards the national
average.
However, close monitoring of
developments on the impact of the Russian war of
aggression in Ukraine on border regions is still
warranted. In some border counties such as Põlva
and Võru, GDP per capita remains well below the
national average and the convergence has been
relatively slow (Graph A17.1).
(
229
) Average annual change per 1 000 residents.
(
230
) The housing cost overburden rate is the percentage of the
population living in households where the total housing costs (‘net’
of housing allowances) represent more than 40% of disposable
income (‘net’ of housing allowances).
(
231
) This figure is not based on the official definition of degree of
urbanisation.
(
232
) This figure is not based on the official definition of degree of
urbanisation.
Social fairness
Like its Baltic neighbours, Estonia is
experiencing depopulation in non-capital
regions.
While the country’s overall population
grew by 4.3% between 2014 and 2023, mainly
103
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3035169_0105.png
Sustainability
The county of Ida-Viru faces the additional
challenges of phasing out production of
energy from oil shale and dealing with the
consequences of the transition as well as the
Russian war of aggression in Ukraine.
Nevertheless, the use of oil shale in energy
production is decreasing again after the world
energy crises. In 2023, Estonia’s average
greenhouse gas (GHG) emissions per capita of
10.5 tonnes of CO
2
equivalent were well above the
EU average of 7.1 tonnes and 7.7 tonnes in
transition regions. The energy production using oil
shale, which contributed substantially to the
country's GHG emissions (
233
), is fully concentrated
in the county of Ida-Viru on the eastern border.
The Just Transition Fund investments are starting
to mitigate the impact of the energy transition and
will create up to 1 000 jobs. They are also helping
reduce CO
2
emissions.
Untapped potential in solar and wind power
in the Estonia's NUTS 3 regions is relatively
high.
In 2023, the share of renewable energy in
the country's gross final energy consumption was
38.5%, and there is potential for a more extensive
uptake of renewable energy sources. In addition to
coastal areas, which already exploit wind energy to
an extent, there is untapped potential in inland
NUTS 3 regions (
234
). Exploiting the potential and
increasing the supply of renewable energy could
benefit not only Estonia, but economic cohesion in
the EU.
Access to alternative fuel infrastructure (
235
)
is relatively limited in Estonia.
In 2022, the
average number of electric vehicle charging points
within a 10
km drive from people’s homes was 30,
which is below the average for EU transition
regions (89) and far from the EU average (287). In
addition, infrastructure for charging electric
vehicles is concentrated in the capital region of
Põhja-Eesti where the number of charging points
(
233
) JRC regional emissions data (EDGAR database)
(
234
)
JRC data: 9th Report on economic, social and territorial cohesion,
Map 4.5.
(
235
) Indicators of access to alternative fuel infrastructure are based on
calculations by DG REGIO and the JRC, using data from the
European Alternative Fuels Observatory (EAFO), Eurostat, TomTom
and Eco-Movement.
within 10 km is 58. In all remaining NUTS 3
regions this number is below 10.
104