IMF sees risks declining

TALLINN - The Executive Board of the International Monetary Fund (IMF) last week approved the 2010 report on Estonia’s economic situation and outlook, reports news agency LETA. The IMF commended Estonia for its current economic and fiscal policies that have enabled the country to join the euro area, Eesti Pank announced on Feb. 2.

“The IMF rightly states that the biggest challenge ahead for Estonia is how to ensure sustainable economic growth, while maintaining conservative fiscal policy. The Fund says in its report that strict control of budget expenditure remains vital regardless of the coming elections. This primarily concerns the recovering of fiscal balance and buffers, which will help increase the country’s reliability. Eesti Pank shares this viewpoint,” commented governor of Eesti Pank, Andres Lipstok.
Minister of Finance Jurgen Ligi said that the IMF’s reference to the March elections is noteworthy. “There are domestic expectations for the political parties to come up with new, exciting and unprecedented initiatives, which have encouraged most parties to make all kinds of promises that contradict with economic and social beliefs. The most dangerous of these initiatives are the ones that entail long-term random and irreversible costs, which may pave the way for Estonia to a severe debt burden and loan difficulties currently so common in Europe,” explained Ligi.

“The IMF forecasts Estonia’s growth to reach 3.6 percent in 2011, the first year of it being in the eurozone, being driven by strong exports; high unemployment persists, though, requiring active labor market measures to be taken. Although the IMF expects a further increase in inflation along with a rise in prices in the global market, it is positive that the core inflation remains subdued,” said Lipstok.

He also noted that the IMF anticipates the risks to the financial sector of Estonia to decline. Continuous vigilance is nevertheless required because of persisting tensions in global financial markets and also because of regulatory changes in the country’s financial sector. However, the banks operating in Estonia have a sufficient level of liquidity and capitalization, owing to full integration with strong Nordic banking groups.

The report, adopted by the IMF Executive Board, is based on discussions with the Fund’s experts in December 2010 concerning the annual Article IV consultation with Estonia, which entailed a two-week period of meetings with Estonia’s public and private sector representatives.