Estonian Economy
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-Volume 7, No.7/8 July-August/2003 Estonian Economy ESTONIAN ECONOMIC POLICY.............................2 the Economist Group Estonia can achieve the present average EU level in 30-35 years, while it may MAJOR ECONOMIC INDICATORS..........................3 take Poland 60 years and Romania as much as 80 years GDP ..........................................................................................3 to achieve it. Harmonization of tax laws will become a PRICES.......................................................................................3 very complicated and lengthy process in the EU, FOREIGN TRADE......................................................................4 because the countries' needs differ a great deal. As a FISCAL POLICY...................................................................4 result, Estonia can now design its tax reform in peace LABOUR MARKET.....................................................................5 and should simply ignore other countries' complaints in DEVELOPMENT BY SECTO RS ..................................6 that respect. IT ...............................................................................................6 Estonia has improved its ranking in the world BANKING..................................................................................6 economic freedom index covering 123 countries of INSURANCE..........................................................................7 the world, climbing from last year's 41st to 16th INDUSTRY.................................................................................7 place ahead of such countries as Germany, Norway, FOOD INDUSTRY......................................................................9 Sweden and Japan, and ranking highest among ENERGY ....................................................................................9 CONSTRUCTIONS...................................................................10 East European states. Estonia earned a rating of 7.5 REAL ESTATE..........................................................................11 on a zero to 10 scale in the index compiled by the Cato COMMUNICATIONS................................................................11 Institute, the Canadian Fraser Institute and more than TRANSPORT.............................................................................11 50 other research institutes, placing narrowly behind AGRICULTURE........................................................................12 Austria, Denmark and Iceland with a score of 7.6. The TOURISM.................................................................................13 index was based on data of year 2001. FOREIGN ECONOMIC RELATIONS.................. 13 Citing weak external demand, the International Economist Group - Estonia will gain by all means Monetary Fund (IMF) has lowered its forecast of by accession to the European Union economic growth for Estonia this year to 4.5 In the opinion of one of the world's leading economic percent and raised the growth forecast for 2004 to analysis centers, the Economist Group, Estonia will gain 5.5 percent. In its previous estimate released in April, by all means by accession to the European Union, the IMF expected the Estonian economy to grow 4.9 despite problems facing the EU. Nened Pacek, director percent this year and 5.2 percent in 2004. The IMF said of Central Eastern Europe in the Economist Group, that while Estonia's economic growth and the inflation said at a conference in Tallinn that the Economist has outlook remain positive, external demand is weaker than thoroughly studied the positive and negative factors expected. Economic growth is likely to accelerate in of accession and is convinced that Estonia has 2004 as a result of anticipated improvement in the Euro much more to win than to lose from the accession. zone demand environment, increased inflow of EU Pacek said that in substance Estonia has no funds and an anticipated positive outcome of the alternative to accession, as the country's further referendum on EU membership, the IMF said. economic welfare depends on foreign investments and 90 percent of major international firms welcome EU According to the Statistical Office 59.8 percent of enlargment as a continued stimulus for investment. Estonia's gross domestic product (GDP) was Pacek said that the experience of EU enlargement so far created in the North Estonian region or Tallinn and shows that some countries have achieved considerable the metropolitan Harju County in 2000. The South post-accession economic growth although accession Estonian region comprising the counties of Jogeva, itself does not give a guarantee of prosperity. "The most Polva, Tartu, Valga, Viljandi and Voru accountedfor important factor is domestic economic policy - reforms, 16.6 percent of GDP in 2000. a strong government free of corruption, a favorable business environment and reliable budgetary policy," he The steering committee of the Phare aid program said. "Estonia has acted very well in this sphere so far. Thursday approved 20 projects of Estonia's national In the opinion of the Economist Group Estonia has Phare program on whose basis the European Union achieved the best business environment in the whole of is going to allocate 368 million kroons. Estonia is Central Eastern European region." In the opinion of cofinancing the projects in the sum of 125 million ESTONIAN ECONOMY is compiled from materials issued by Bank of Estonia, Statistical Office of Estonia, Estonian Ministry of Finance and from local news services. Review is issued by the Press and Information Department, Ministry of Foreign Affairs ISLANDI VÄLJAK 1,TALLINN, 15049 ESTONIA Tel: +372 631 7615 (Liis Variksaar) Fax: +372 631 7617 To subscribe please contact: [email protected], http://www.vm.ee Jaanuar, 2001 kroons. The Phare steering committee in Brussels approved 20 projects of the second part of Estonia's Estonian businesses launched a pro-EU campaign national Phare program in 2003 in the sum of 23.5 in second half of August A campaign in favor of million euros, the Finance Ministry reported. Among the Estonia's accession to the European Union organized by approved projects are strengthening of the border the Chamber of Commerce and Industry was launched infrastructure in the east, development and in television, print and outdoor media in the week implementation of an anti-drug state strategy, energy starting Aug. 18. efficiency investments of local governments, development of a hydrographic network and establishment of an electronic information system of structural funds. ESTONIAN ECONOMIC POLICY Finance Ministry was ready to add to the budget if According to recommendations released by the additional revenues or sources of funding could be International Monetary Fund (IMF), Estonia found. Finance Minister Tonis Palts forecasts that the should seek to achieve a budgetary surplus to the extra expenditure could total between 300 million and tune of two percent of GDP this year and postpone 400 million kroons. some of the taxation reforms planned by the ruling coalition. The IMF said that the coalition's tax policy Bank of Estonia Vice-President Marten Ross said initiatives for 2004 and beyond, such as the increase in that for its budgetary revenue Estonia should not parent benefits and tax reform, may easily undermine too much rely on dividend payments which depend the government's goal of bringing the budget into on the development of financial markets and trade balance. "While we commend the government for cycles. "Considering the current situation of the wanting to lower the income tax and are sympathetic to economy -above all the high current account shortfall - the government's policy initiatives to stem the fall in as well as its development in the near future it is population, we urge the government to postpone some important to ensure a budgetary policy that supports a of the measures to ensure that they are consistent with a balanced economy, which means surplus in this year balanced budget. In particular, we are concerned that and at least balance the next year," Ross said. without an overall spending cap, the cost of parents' benefits might substantially exceed projections," the The board chairman of the Estonian Chamber of concluding statement of the IMF mission says. Commerce and Industry, Toomas Luman, says the "terminator-style" practices of the Tax Board are In connection with its merger with the Customs Board, increasing unemployment by forcing the owners of planned to take place next spring,the Estonian Tax Board small companies to close down business. "The large would lose 150 jobs, bringing an economy of 14 million companies generally can handle the foolish accusations kroons (EUR 895,000). The merging of the two and won't go out of business," Luman said. "But the instituions will take place in two stages starting with trend in the counties is truly dismal -- the number of June 1, 2004 after Estonia's likely accession to the small entrepreneurs is decreasing because the laws are European Union, which will bring significant getting more and more complex and the Tax Board changes particularly in the customs sphere. The more and more aggressive," he said. The Tax Board's second stage of the merger will be completed in 2005. attitude, that every entrepreneur is a potential tax evader, is something that shouldn't be permitted in a The Estonian State Audit Office will launch an situation where 10 percent of the people ever get the audit of the activities of