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Estonian govt planning to reduce mandatory liquidity buffer by EUR 320 mln

  • 2018-07-05
  • LETA/TBT Staff

TALLINN – The government is planning to reduce the reference level of Estonia's liquidity buffer by approximately 318 million euros, while Estonia's liquidity buffer at the beginning of 2018 fell approximately 250 million euros below the reference level.

According to the government's draft regulation concerning the principles of administration of the state's cash flow and management of the stabilization reserve, the perspective of the possible reduction of income from tax revenue, which is the basis of the calculation of the reference level, would be reduced from the current nine months to six months and as a result of that, the mandatory reference level would decrease by approximately 318 million euros.

While as of June, the volume of the reference level was 1.18 billion euros, then the new reference level would be approximately 865 million euros this year and 888 million euros next year.

However, in April the volume of Estonia's liquidity reserve had fallen to approximately 500 million euros, and 400 million euros in the form of assumed overdrafts were added to this in the context of the buffer, therefore remaining approximately 250 million euros lower than the reference level. The volume of the liquidity reserve and loan limits increased in May, with which the liquidity buffer also grew to the reference level.

As of the end of May, the state's liquidity reserve totaled 648 million euros. The volume of credit limit contracts signed with banks at the same time was 515 million euros. The liquidity reserve balance and the volume of unused loan contracts from March to May was lower than the reference level value due to the seasonality of the state's cash flow. According to the forecast, the volume of the liquidity reserve will start growing from June, it is said in the letter of explanation accompanying the draft.

In recent years, the liquidity reserve and liquidity buffer have constantly decreased, for example the liquidity reserve was approximately 1.2 billion euros and the liquidity buffer over 1.9 billion euros at the beginning of 2015. At the same time, the reference level was approximately 950 million euros.

According to the letter of explanation, the need for a liquidity buffer has decreased in relation to Estonia joining the euro area and improved capability of forecasting the cash flow of the state's group. The risks of the economic environment have decreased and opportunities for raising loan money with a reasonable price have improved.

The amendments will enable the treasury to save money as in order to fulfill the reference level, the state in addition to maintaining the liquidity reserve must also sign loan agreements to a sufficient extent, for which they must pay fees to the banks. The possible saving in 2018-2022 is 1.7 million euros.