The size of Estonia's liquidity reserve fund in market value shrank by nearly €2.4 million in the span of half a year. The Ministry of Finance explained this with the cash flow management of those keeping their money in the State Treasury.
As of June 30, the size of the Ministry of Finance's liquid reserve fund in market value stood at €1,668,226,299; since the start of 2022, it has decreased by €2,349,756. According to Siiri Suutre, a communications adviser at the ministry, this has fallen as a result of the cash flow management of both the state and those keeping their money in the State Treasury.
"State institutions and social security funds who keep their money in the State Treasury, state-established foundations and the Pension Center must be able to make payments within the limits of their budget or their cash balance at all times," the ministry explained to ERR.
To ensure smooth operations, the State Treasury has accounts at bigger banks, where the majority of inflows and outflows are intrabank. According to Suutre, the number of interbank bank transfers is minimal.
Accounting for the highest shares of investments were Luminor Bank AS with 20 percent, OP Corporate Bank PLC's Estonian branch with 19 percent, AS SEB Pank and Swedbank AS with 18 percent each, and the Bank of Estonia with 6 percent.
The Ministry of Finance's quarterly report, which was published on August 4, notes that the percentage of deposits stood at 0 percent, i.e. the money essentially just stood in those bank accounts.
Suutre explained that based on the functions of the liquidity reserve, earning returns isn't the biggest priority.
"The allocations of the liquidity reserve are short-term to ensure the adequate servicing of state budget expenditures," she said. "In a negative interest environment, it wasn't possible to earn positive interests on deposits or the balances of settlement accounts."
The liquidity reserve's quarterly report indicated that the reserve's annualized year to date (YTD) return stood at 1.03 percent.
"Since the European Central Bank (ECB) increased their interest rates at the end of July, the interest rates of settlement accounts are 0 percent," the ministry said.
The Estonian government's liquidity reserve is tasked with acting as a financial buffer for the state's daily cash flow management to deal with normal mismatches of cash inflows and outflows within a month, as well as maintaining an additional risk buffer to deal with unanticipated fluctuations in cash flows.
The Estonian state has three sovereign debt instruments totaling €500 million reaching maturity this year. All bonds were subscribed to in order to ensure liquidity. As of 2022, the balance of government loans and loan guarantees stood at €72.4 million.
Editor: Aili Vahtla