The National Audit Office presented an overview of the use and preservation of state assets in 2013-14 to the Parliament on Monday. The auditors said that the state's indecisiveness has led to a developmental standstill.
Although the National Audit Office does not criticize the government's accountancy and finds the state's financial affairs to be sound, it does say that not all of the developmental aims have been met.
"Despite the fact that we are able to manage our finances, there is an array of problems and risks that have accumulated over the years and have not found a solution due to general indecisiveness," said Auditor General Alar Karis. "So our message is that one should not mistake a standstill, resulting from indecision, for slow progress."
"With a small, open economy and a laissez-faire economic policy, the danger of using the force-majeure excuse and the external influences argument to justify one's own lack of ideas, the inconvenience to reform and the unwillingness to change, increases considerably," he said.
Estonia has, for example, is still lagging behind the EU average in many indexes. The implementation of competitiveness plan "Estonia 2020" has been arduous, said head auditor Tarmo Olgo.
In Olgo's opinion, the plan should be regularly reviewed in the Parliament and the government should report on its implementation. "The reporting should not be vacuous and a mere formality but offer clear answers to questions on why the planned progress has not been achieved and what can be done differently," he said.
Karis added: "Even our partners in Latvia and Lithuania have picked up the pace. We have not analyzed and are therefore not sure why they are doing so well now, when we initially set off in the same course much faster."
According to Eurostat, the GDP per capita in Purchasing Power Standards (PPS) in Estonia was 72.8 percent of the EU average in 2013. In Lithuania it was 74 percent. Although Latvia still lagged behind with 67 percent, it has shown double the increase of Estonia in this indicator during the last five years. Lithuania's PPS growth has been even faster, 9.8 percent, compared to Estonia's 4.1 percent. At the same time, the household final consumption expenditure (HFCE) in Latvia and Lithuania was smaller than in Estonia.
In terms of productivity, Estonia has grown by only 4.4 percent in five years, compared to the EU average, whereas Latvia boasts an 11.9 percent increase. Lithuania has a whopping 12.7 percent growth rate.
Labor productivity has only increased by 0.4 percent in Estonia since 2010, compared to 6.2 and 6.5 in Latvia and Lithuania, respectively.
Labor productivity growth, however, is a key prerequisite for the growth of individual and national revenues.
"If we look ahead, we see that the decreasing population base make it increasingly difficult for businesses to grow, develop and create added value. Without all this, the state revenues will dry up," Karis said.
Although the social security system will swallow up most of the revenue growth in the future, access to medical assistance will worsen nevertheless, and the pensions will increase in a slower base than people's expenses. The state has to change the pension scheme in order to secure financial sustainability in the context of an aging population. The same applies to the health care system, which has undergone only cosmetic changes, the report said.
Another key failing that hinders further development is the unfinished administrative reform. The audit said the situation at the local level is desolate as a result: inhabitants fail to receive quality services due to the low administrative capacity of the local governments.
Head auditor Airi Mikli said the failed reform still has some positive implications. For instance, polls now show that 70 percent of people want it pushed through. The reworked draft plan of the reform should be ready by the end on 2015.