The European Commission issued recommendations to member states Wednesday, advising them on how to promote sustainable and inclusive growth.
In addition to the recommendations, covering the next 12-18 months, the commission recommends ending the excessive deficit procedure for Spain, and adopting a number of documents related to the Stability and Growth Pact, which were noted in a press release.
Some of the commission's recommendations relate to areas which have been in the news lately in any case, including the freeze on research and development (R&D) spend, money laundering and shortcomings in the rail transport infrastructure.
Some of the commission's main recommendations for Estonia are:
- Ensure nominal growth rate of net primary government expenditure not exceed 4.9 percent in 2019, corresponding to an annual structural adjustment of 0.3 percent of GDP in 2019. The commission said a risk of significant deviation from that requirement in 2019 was present.
- For 2020, in view of Estonia's projected output gap of 2.7 percent of GDP and with projected GDP growth below to the estimated potential growth rate, the nominal growth rate of net primary government expenditure should not exceed 4.1 percent, in line with the structural adjustment of 0.6% of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact.
- Overall, the Council was of the opinion that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact.
- Preventing money laundering. While the Estonian government introduced additional measures and guidelines on how to further strengthen the prevention in this area, a legislative initiative aiming at increasing the capacities of the anti-money laundering supervision has not yet been adopted by the Estonian Parliament. Attention should be paid to the effective implementation of these measures, once adopted.
- Working on social exclusion and income inequality, which remain high, particularly among older people, the commission said. For instance around 42 percent of those aged 65 and above were at risk of poverty and social exclusion in 2017, compared with the EU average of 15 percent. The social safety net thus remains weak in Estonia, the commission said.
- The proportion of people with unmet medical needs remains one of the highest in the EU (11.7 percent) indicating problems with the accessibility and effectiveness of the health care system, according to the commission. Thus affordable and good quality social and health care services in an integrated way and developing a comprehensive long-term care framework is required, in the commission's opinion.
- The gender pay gap at 25.6 percent in 2017 needs work, as it is one of the widest in the union, and has in fact increased recently, according to the commission. Flexibility in parental leave and a benefit system with a view to facilitating parents' return to the labour market was needed.
- Better pay transparency could help to better understand the reasons behind this high gender wage gap, the commission said.
- Improving the transport system, including the relatively underdeveloped rail system, is necessary to help boost Estonia's economy.
- Synchronization of Estonia's electricity system with the continental European network is key to ensuring security of electricity supply in the entire Baltic region, the commissions aid.
- Improved levels of investment in R&D, especially from the private sector, as Estonia's productivity has been lagging behind. While in 2017 public expenditure on R&D was slightly below the EU average, business investment was only 0.61 percent of GDP — about half the EU average. There is a low proportion of companies, in particular among small and medium-sized enterprises, reporting research and innovation activities.
- Better prioritization of research topics in areas of relevance for the economy would help, the commission felt. The Estonian authorities have designed and implemented several measures to address the shortcomings in the research and innovation system but their impact remains limited to date.
- Other recommendations included addressing skills shortages and mismatches, including the aging of teachers and the low attractiveness of that progression. upskilling and reskilling of the workforce is not occurring fast enough to keep up with labor market trends, and the slowness of insolvency proceedings and recovery rates.
The full, original report is here.
Editor: Andrew Whyte