Updated convergence programme of Estonia, 2005-2009 - Main contents

EN

Official Journal of the European Union

C 55/37

On 14 February 2006 the Council examined the updated convergence programme of Estonia, which covers the period 2005 to 2009.

After reaping early benefits from bold reform and stabilisation efforts by the mid-1990s, Estonia in the wake of the 1998 Russian crisis suffered a temporary setback with a slack in growth in 1999. Owing to the comprehensive structural reforms in the financial and enterprise sector which had increased the economy's responsiveness to market forces and its international openness, growth quickly resumed as from 2000. Over the past decade, real annual GDP growth has averaged about 6 %, by far outpacing the EU average of 1,7 %. A high external deficit, at 10,5 % of GDP in 2004, constitutes the major macroeconomic imbalance. Budgetary developments were marked by an overall prudent fiscal stance resulting in healthy fiscal surpluses.

In its opinion of 17 February 2005, the Council endorsed the budgetary strategy presented in the previous update of the convergence programme, covering the period 2004-2008. As regards budgetary implementation in 2005, the general government surplus for 2005 is estimated at 1,1 % of GDP in the Commission services' autumn 2005 forecast, against a target of a balanced budget set in the previous update of the convergence programme. Due to a combination of high growth, improvements in tax collection and lower than planned expenditure, the actual surplus for 2005 will turn out much stronger, at 2-2,5 % of GDP.

The updated programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2).

The macroeconomic scenario underlying the programme envisages that real GDP growth will edge up from 6,5 % in 2005 to 6,6 % in 2006 and level off at 6,3 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on markedly cautious growth assumptions. Based on Commission services' calculations on the basis of the programme according to the commonly agreed methodology, potential GDP growth is projected to remain relatively high but on a slightly declining trend in the medium term. Consequently, the cautious outlook for real GDP growth leads to a negative output gap throughout the programme period, whereas the Commission services' autumn 2005 forecast shows a positive output gap for 2005 and 2006. The programme's inflation projections for 2006 also appear to be on the low side, taking into account the high sensitivity of the inflation rate to oil price developments. The programme's projection for 2007 is in line with the Commission forecast.

The medium-term budgetary framework in Estonia is geared towards maintaining sound public finances in the context of sustainable high growth and rising employment. The programme aims at the general government accounts to remain in balance from 2007, following surpluses of 0,3 % and 0,1 % of GDP in 2005 and 2006 respectively. The primary balance is only insignificantly higher because of a negligible interest burden. The projected general government surplus...