
Rating agency Fitch Fitch has maintained the long-term credit rating of Estonia at A+ with a sustainable forecast. Inflation in Estonia will increase to 4.8% in 2025, and the economy will grow by
1.2%. Headquarters Fitch Ratings in New York. Photo: Brendan Brendan Mcdermid
Ratings agency Fitch has maintained the long-term credit rating of Estonia at A+ with a stable forecast. The agency estimates that inflation in Estonia will increase to 4.8% in 2025, while the
economy will grow by 1.2%.
The rating is supported by strong government governance and institutional strength, membership in the European Union and the Eurozone, and also continued low debt load and net creditor position, the Ministry of Finance reported.
Fitch estimates that in 2024 the Estonian economy will finish the year with recession at 0.8%. The agency calls the weak economic growth causes the consequences of the pandemic COVID-19 and Russia’s war in Ukraine. Fitch predicts economic growth will recover in 2025 to 1.2 percent, and in 2026 to accelerate to 2.3 percent.
Factors impeding economic growth include increasing prices for raw materials, decreasing share of the global export market and high dependence on the wood industry. To stabilize the debt load and increase expenditures for defense the measures are provided to increase revenues until 2026 through the introduction of a tax on the defense.security. It is also planned to reduce administrative spending by 1% of GDP by the end of 2028 year.
Fitch Fitch forecasts that the budget deficit in 2024 is 3% of GDP, down to 2.6% in 2026 year. The main risks to the budget position are the geopolitical situation, uncertainty of external demand and recovery of economic growth. It is expected that Estonia will continue to adhere to the EU budget and the course of reforms that encourage growth of the economy.
Fitch forecasts that government debt will rise to 26% of GDP by the end of 2026 year. But this is substantially below the median level of countries with similar rating, which is 55.1%.
Inflation, according to the agency’s forecasts, will rise to 4.8% in 2025 year, and will reduce to 3% in 2026 year. The banking sector in Estonia is well capitalized, liquid and profitable, while the proportion of problematic loans remains low.
Fitch noted that the decline in the rating could be caused by significant growth in debt to GDP, due to budgetary pressure or deteriorating prospects for economic growth. The Agency also points out the risks to mid-term economic growth because of decreased competitiveness. Additional riskfactorsaregeopoliticalthreats,whichcouldaffecteconomicgrowthandbudgetarypolicies.
A higherratingispossiblewithastrongbudgetpolicy,whichwillleadtoasustainablereductionofthedebtburdeninthemedium term,andalsowithacceleratedeconomicgrowth,theministry said.