Country Risk Rating

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. - Source: Coface

Business Climate Rating

The business environment is very good. Corporate financial information is available and reliable. Debt collection is efficient. Institutional quality is very good. Intercompany transactions run smoothly in environments rated A1.


  • Membership in the Eurozone (2011), OECD (2010) and NATO
  • Diversified energy sources, half of them domestic thanks to oil shales
  • Close commercial, financial and cultural links with Scandinavia and Finland
  • Development of high value-added sectors (electronics, IT services)
  • Flexibility of economic policy
  • Traditionally low indebtedness


  • Small, open economy sensitive to external shocks
  • Before the war started, Russia was one of the biggest trading partners of Estonia
  • Declining labor force and shortage of skilled labor
  • Lack of land links with the rest of the EU
  • Income inequalities and persistent poverty, especially in the predominantly Russian-speaking eastern regions
  • Need for stronger anti-money laundering measures highlighted by the IMF

Current Trends


2022 was a turbulent year for the Estonian economy. When Russia attacked Ukraine, several EU sanctions against Russia and Russian counter-sanctions came into force, and Estonia had to change its foreign trade links. Russia was the 5th-largest export partner of Estonia, with a share of 6.4%. On the import side, Russia reached No. 1 with 11.6% of all imports in 2021. Natural gas comprised about 7% of the Estonian energy mix and was one of the primary commodities imported from Russia. From March 2022, Estonia stopped all gas imports from Russia and replaced them with the more expensive liquefied natural gas (LNG) from the Klaipeda terminal in Lithuania. Estonia finished construction on the quay at Paldiski, which was originally intended for an FSRU (a floating storage and regasification unit) that Estonia shared with Finland. The FSRU will be installed in Finland, but Estonia now has the infrastructure to build its own LNG terminal.

Energy imports from Lithuania and possibly heavier imports from Finland, together with the existing oil shale (in 2018, 72% of domestically produced energy came from local oil shales and 76% of Estonian electricity generation), will make Estonia very energy-independent from Russia. The change in the energy and, in general, the trade relationships away from Russia and Belarus comes at a high price. Consumer inflation shot up sharply, peaking at 24.8% in August 2022, the highest level since 1996. In 2023, prices could still increase because of the adaption process, but these monthly increases will be lower than last year. Therefore, the inflation rate should decrease. This will also impact the purchasing power of households and corporations. While private consumption (50% of GDP in 2021) remained surprisingly robust over 2022, private investments (32% of GDP) fell sharply. This development should continue for at least the first half of the year. Companies are still adapting to the higher interest rate level. The ECB increased its key interest rates by 250 basis points last year to 2.5% (the primary refinancing rate). Further rate hikes to 3.5% or even 4.0% are in the pipeline, including a reduction of the balance sheet. This will tighten the financial scope for corporations. A symptom of the slow emergence of financial problems is an increase in the unemployment rate, which reached 7.7% at the end of 2022, i.e., far above the pre-pandemic level of 5.1%. However, this could also result from the slow integration of Ukrainian refugees (equivalent to 4.8% of the population) into the Estonian labor market. These refugees will support consumption in the private and state sector in 2023. State aid in the form of a gas and electricity price cap will be in effect until the end of March 2023 and will primarily support private households with low incomes. In addition, domestic growth will further benefit from EUR 969 million in grants (about 3.3% of GDP) under the NextGenerationEU stimulus package and the Recovery and Resilience Facility that is mainly allocated towards green initiatives and the digital transition.



After two consecutive years in deficit, the current account switched back to a surplus in 2022, which should even widen in 2023. The main driver for this development is the trade balance in services, whose surplus doubled in 2022. In 2023, further increases are expected thanks to foreign visitors’ return and increased nominal IT service exports. However, the traditional goods trade deficit widened sharply in 2022, as nominal imports increased more than exports (because of the steeper price increases for imports). On the back of lower price pressures, the trade deficit should decrease in 2023, but only slightly. Dividend repatriation by foreign investors will maintain the primary income account in debt. EU grants will continue to balance remittances from foreign workers.

The public deficit increased noticeably in 2022 due to support measures to cope with the high energy price and to expenditure to support Ukrainian refugees. Expenditure should remain high, and, combined with lower tax income, the public deficit should be higher in 2023. Nevertheless, the public debt level remains very low.



Kaja Kallas, the center-liberal Reform party’s leader, is Estonia’s Prime Minister. She came to office in late 2021 after a corruption scandal forced the former Prime Minister and leader of the center-left Center party, Jüri Ratas, to step down. The new government was built as a Grand Coalition of Kallas’ reform party (34 out of 101 seats) and the Centre party (23 seats). The government held until June 2022, when substantial differences over spending and welfare policies in the context of the increasing cost of living for private households and differences over the place of the Russian language in education led to a break-up (the Centre party belongs to the Russian-speaking minority). A new coalition formed out of the Reform party, together with the conservative Christian-democratic Isamaa party (11 seats) and the Social Democratic Party of Estonia (SDE, nine chairs), was voted in by Parliament by 52 votes to 26 in mid-July 2022. Although the two new coalition partners initially had the same welfare demands as the Centre party, the targeted support measures for private households made it into the coalition agreement this time. Aside from fighting strong inflation, the Reform party will particularly prioritize national security in the wake of the war in Ukraine. The conflict has increased tensions between the Estonian majority in population and the Russian minority (24% of the population). For example, the government wants to reduce Russian influence by pushing for the use of the Estonian language at school, also at the border with Russia, the removal of former Soviet monuments, and to ban Russian television. The next general election will take place in early March 2023. According to current polls (end of 2022), the Reform party of PM Kallas is leading due to her hawkish position against Russia, especially since the war started. This brought her a lot of popularity and could result in her re-election. However, the conservative People’s Party of Estonia is catching up and will be the primary driver of the election campaign.


Coface (02/2023)