Estonia's stabilization fund increases €1.7 million on quarter

Money (photo is illustrative).
Money (photo is illustrative). Source: Willfried Wende / Unsplash

Estonia's Stabilization Reserve Fund increased by €1.7 million during the second quarter (Q2) of 2023, to €428.6 million at the end of June.

No contributions have been made to the reserve so far in 2023. In 2022, €900,000 was added, most of which was a distribution of Bank of Estonia's (Eesti Pank) profits from 2021, the Ministry of Finance said in a press statement.

By the end of the second quarter, 69.9 percent of reserve funds have been predominantly invested in EU government bonds with very low credit risk, and central bank account balances. A further 27.9 percent has been invested in credit institution bonds, and 2.2 percent in corporate bonds.

Belgium, France and Austria accounted for the largest shares of the holdings, with 14.9 percent, 10.5 percent and 8.1 percent respectively.

Bonds account for 99.6 percent of investments and the balance of accounts 0.4 percent. In order to ensure the preservation of the funds in the reserve, 72.1 percent of the total volume consists of investments in the highest-rated issuers and the central bank.

Eurozone bond yields rose in the second quarter as the European Central Bank continued to raise base interest rates. The profitability on reserve assets for the second quarter of 2023 was 1.56 percent, while the yield on the standard portfolio for the same period was 1.28 percent.

The year-to-date rate of return on the reserve base was 2.19 percent to the end of June 2023, compared with 2.09 percent for the standard portfolio.

First established in 1997, the Stabilization Reserve Fund can be used in crisis situations with the approval of the Riigikogu. It was established with an initial volume of 701.6 million Estonian kroons, or €44.8 million. The reserve has been used to cover the debts of the bankrupt Estonian Maapank as well as to mitigate risks generated by the 2009 economic crisis.

In April 2020, the Riigikogu greenlit the gradual and needs-based use of reserve funds for the mitigation of economic damage caused by the COVID-19 crisis.

The State Budget Act provides that the stabilization reserve is made up of a part of Bank of Estonia profits, the public cash flow surplus of the previous economic year following a Riigikogu decision, income from reserve management, state budget appropriations as well as other funds as provided for by law.


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Editor: Michael Cole

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