Estonia: Risk Assessment

Country Risk Rating

A3 Changes in generally good but somewhat volatile political and economic environment can affect corporate payment behavior. A basically secure business environment can nonetheless give rise to occasional difficulties for companies. Corporate default probability is quite acceptable on average.

Business Climate Rating

A2 The business environment is good. When available, corporate financial information is reliable. Debt collection is reasonably efficient. Institutions generally perform efficiently. Intercompany transactions usually run smoothly in the relatively stable environment rated A2.


  • Balanced public accounts and low level of debt
  • Membership of the Eurozone
  • Close trading, financial, and cultural links with Scandinavia
  • Virtual energy self-sufficiency thanks to oil shale
  • Growth of high added value sectors (electronics, computer services)
  • Extremely favorable business climate
  • Digitization of administrative procedures


  • Shrinking working population
  • Labor costs (social contributions = 33%) rising faster than productivity
  • Lack of land links with the rest of the European Union
  • Banks dependent on their foreign parent companies for capital
  • Electronic sector dependent on imports by a single Swedish company
  • Slower level of development in eastern Russian-speaking regions

Current Trends

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Dynamic consumption

As in 2015, household consumption (50% of GDP) will be the main driving force for growth in 2016. Even if households will probably be facing higher inflation resulting, in part, from higher taxes on fuels, alcohol and tobacco, they will benefit from the lifting of the income tax threshold, increased family allowances and pensions, a further increase in the minimum wage and, overall, higher wages resulting from the fall in unemployment and in the working population. The Russian recession and counter-sanctions will continue to have a negative impact on the Russian market, and indirectly on the Finnish and Latvian economies. Nevertheless, exports will pick up a little. Those of dairy products, fish, alcohol and chemicals, of which the Russian were very fond, have found alternative outlets such as the United States, helped by the depreciation of the euro. Unprocessed wood and wooden parts for housing construction, furniture and bedding have found buyers in the United Kingdom, Denmark and Sweden. The Swedish company Ericsson continues to buy Estonian telecommunications equipment. The loss of Russian and Finnish tourists has largely been offset by an increase in British, German, Lithuanian, Norwegian and Asian tourists. On the other hand, however, road and railway transport is suffering from the reduction in shipments of capital goods into Russia, which, moreover, is favoring its own ports. A slight upturn in investment is also likely thanks to stronger external demand, which accounts for 70% of industrial output, and concerns among companies to increase productivity given rising labor costs. Finally, infrastructure spending is going to increase thanks to European 2014-2020 program funds.

Excellent public and external accounts

Despite augmented current expenditures, increased defense spending and the construction of an electronic fence along the eastern border, the public accounts will remain very close to equilibrium, easily satisfying the rule of structural equilibrium. The counterpart to this comfortable budgetary situation is the maintenance of public debt at a low level, and more than covered by reserves. The trade deficit (5.5% of GDP in 2014) and the repatriation of dividends by Swedish, Finnish and Dutch investors, strongly represented in the retail, property, finance and industrial sectors, are more than made up for by the surplus (8% of GDP) from services, in particular computing, technological and forwarding. Foreign direct investment (6% of GDP) and European structural funds are offset by the large-scale portfolio investments made by Estonian pension funds. Foreign debt stands at around 80% of GDP, excluding intra-group debts linked with foreign direct investment. Almost half of this relates to bank liabilities, mainly in the form of deposits made by Swedish banks with their local subsidiaries. As the public element is small, the balance is therefore made up by the non-financial private sector. In addition, the debt is more than offset by the foreign assets of the pension funds.

A sizeable Russian minority, but energy independence

Since the elections (by proportional representation) of March 2015, Taavi Roivas has been leading a coalition government of the liberal Reform Party, the conservative Union of Pro Patria - Res Publica and the Social-Democratic Party, with 59 out of the 101 seats in Parliament. The government has been paying particularly close attention to the Russian-Ukrainian crisis and matters of defense. One quarter of the population is Russian-speaking, and their political representation, the Centre Party, is the second largest party. Whilst young people are taught in Estonian, older generations only speak it imperfectly or not at all and this has prevented some of them from obtaining Estonian citizenship. The country is relatively independent in matters of energy supplies thanks to its oil shale deposits, which has made Estonia the world’s leading producer and supplies a large proportion of its electricity needs. In addition, while Russian gas only supplies 10% of the country’s energy needs, it has recently been connected to the Lithuanian gas terminal at Klaïpeda which covers almost 30% of its consumption. The business climate is excellent. The level of digitization in the country is highly advanced.


Coface (09/2016)