Treasury Today Country Profiles in association with Citi


Map/flag of Estonia

Since Russian troops left the country in 1994, Estonia has pursued free market economic policies and taken strides in order to make its voice heard on the international stage. The country has anchored itself to the Western world both politically and economically, joining the European Union in 2004 and the Eurozone in 2011.

Key facts

Official country name:
Republic of Estonia
euro (EUR)
Capital city and financial centre:
Other major cities:
Tartu, Pärnu, Narva
Time zone:
1,257,921 (July 2014 est)
Population growth rate:
-0.68% (2014 est)
GDP per capita (USD equivalent):
$26,600 (2014 est)
GDP real growth rate:
1.9% (2014 est)
Government type:
parliamentary republic
Head of state:
President Toomas Hendrik Ilves
Political leader:
Prime Minister Taavi Rõivas
Top export partners:
Finland, Sweden, Latvia, Russia, Germany, Lithuania
Top import partners:
Finland, Lithuania, Latvia, Germany, Sweden, Russia, Poland, China

Economic overview

After centuries of rule by Germany, Denmark, Sweden and finally Russia, the Republic of Estonia has flourished as an independent nation. The Estonian economy boasted growth rates of approximately 8% per year from 2003 to 2007, making it one of the fastest growing in the world. Furthermore, the government’s relatively sound fiscal policies meant public debt was low and the country built a strong trade network with its overseas neighbours, including Finland, Sweden, Russia and Germany.

Estonia’s impressive growth, however, was halted by the financial crisis and a housing market slump which saw the country’s GDP fall 14% in 2009. Although this decline meant that Estonia had one of the five worst performing economies in the world at that point in time, the nation’s proactive reaction to the changing economic conditions was impressive.

New labour laws that implemented wage cuts and rapid employment adjustments were introduced. Other stable economic policies, including a VAT rate increase from 18% to 20%, focusing on economic freedom have enabled high levels of investment and entrepreneurial activity. The economy has been growing steadily since 2010, with 2% GDP growth predicted in 2015. Additionally, unemployment has now stabilised and was at 6.6% in Q1 2015.

Having joined the European Union in 2004, Estonia has one of the highest per capita income levels in Central Europe and the Baltic region. Estonia became a member of the Organisation for Economic Co-operation and Development (OECD) in December 2010 and since 1st January 2011 has been part of the Eurozone.

At the beginning of July 2011, Fitch upgraded the country’s credit rating to A+ with a stable outlook. This credit rating was reaffirmed in May 2014 with Fitch citing the country’s “strong public finances, economic policy framework and governance indicator.” It is the goal of the Estonian government to make Estonia one of the top five countries in the EU for GDP per capita.

The banking sector

Estonia’s banking sector comprises eight licenced banks, as well as several branches of foreign banks and foreign bank offices. It is dominated by the Scandinavian banks with Swedbank, SEB and Danske controlling 77% of bank deposits in the first half of 2014, according to data from the Estonian Financial Supervision Authority (FSA).

Eesti Pank, the central bank of the Republic of Estonia, is a member of the European System of Central Banks and oversees the country’s financial sector. The main functions of Eesti Pank are to participate in the formulation and implementation of monetary policy in the euro area, ensure financial stability, operate reliable settlement systems, regulate cash circulation, maintain and enhance foreign reserves and other financial assets, collect and disclose statistics on the economy and advise the government in order to help support stable economic development.

In 2014, all Estonian banks that participated in the ECB’s stress tests were successful. According to Andres Kurgpõld, member of the Management Board of the Estonian Financial Supervision Authority, “the capital base of the banks is strong and the capacity to absorb potential materialisation of risks in stress situation is high.”

Payments and clearing

System Clearing type Transaction type Value dates Times
TARGET2-Eesti RTGS High-value and urgent payments in EUR Settlement in real time with immediate finality 08:00 EET to 19:00 EET Monday to Friday (closed for national holidays)
STEP21 Pan-European Automated Clearing House (PE-ACH) Low-value, non-urgent, high volume clearing of SEPA Credit Transfer and Direct Debit retail payments. Settlement takes place on a multilateral net basis amongst all direct participants Settlement same day or next day Two processing and three settlement cycles each day (including night time)
  1. At the end of January 2014, ESTA (Settlement System of Ordinary Payments) the multilateral net settlement system for retailed payments ceased to operate. This has been replaced by STEP2, managed by EBA Clearing.

  • Payment cards. The use of payment cards has become increasingly popular in Estonia. It is estimated that 1.45m debit cards and 347,944 credit cards were in circulation at the end of 2013.

  • Credit transfers are widely used in terms of both volume and value – payments from corporates are mainly conducted by credit transfer. On 1st February 2014, SEPA credit transfers replaced all predecessors.

  • Direct debits and standing orders. 1st February 2014 also marked the replacement of the legacy domestic direct debit system with an e-invoicing based standing order service. SEPA direct debits apply for cross-border services.

  • Cheques have always lacked popularity in Estonia. Now, their use for day-to-day transactions has been largely phased out.

Investment options

  • Bank deposits. Time deposits are the most popular short-term investment instrument in Estonia. They cannot be converted into currency before the end of an agreed upon term – from overnight to year long maturities – without a penalty. Demand deposit accounts offer quite low interest rates but this may vary between credit institutions.

  • Commercial paper is available in Estonia and is usually issued with maturities of between three and six months.

  • Money market funds are becoming increasingly popular in the country.

  • Repurchase agreements. There is an active repo market in Estonia.

  • Certificates of deposit. The Bank of Estonia has not issued CDs since 2000.

  • Treasury bills. The Estonian Government tends not to issue Treasury bills, preferring to finance any deficits by borrowing from commercial banks or multilateral agencies.

  • The country operates no foreign exchange controls.

  • In Estonia, undistributed profits are not subject to levies. Instead, corporate income tax at the rate of 20% (2015) is charged on gross dividends. However, tax is calculated as 20/80 of the net dividend. Thus a company not distributing profit is not obliged to pay income tax. Taxable expenses are subject to 20/80 corporate income tax as well.

  • Estonia levies no withholding tax on any payments made to resident companies or dividend payments. Interest has been exempt from withholding tax from 1st January 2014 in most cases. It must be noted, however, that interest payments may be subject to transfer pricing rules and corporate tax. Royalties, unless they meet the EU interest and royalties directive requirements, to non-residents are subject to 10% withholding tax.