Swedbank to Estonia: cut dependence on EU grants

03.11.2010, 14:07

Estonia that is scheduled to adopt the euro in January needs to reduce its dependence on EU funding or risk an economic hangover when aid starts to decline after 2013, says the country's largest lender Swedbank.

International financing, 80-90 percent of which comes from the EU, will rise to 1.1 billion euros next year, or almost a fifth of budget revenue, from 15 percent last year, Swedbank's analyst Elina Allikalt said today in a monthly newsletter. EU funding will rise to 7.5 percent of gross domestic product from 6 percent in the same period, she said.

“The current budgetary period for using this EU financing ends in 2013,” Allikalt said. “Although financing revenues will not be cut off immediately after that, there will probably be a noticeable drop that could leave the budget, public investments, and economy as a whole in a ‘hung over’ mode.”

Estonia also needs very soon to reduce the age-related decline of its workforce, which boosts costs and threatens competitiveness, Allikalt said. Estonia, with the EU’s lowest public debt, has the freedom to focus on such issues, unlike most other EU countries that have to reduce high debt and deficit levels, she said.

Estonia’s public debt will decline to 7.1 percent of GDP this year from 7.2 percent in 2009 and will grow at a slower pace in coming years than forecast in August, Finance Minister Jurgen Ligi said last week.