A recent Organisation for Economic Co-operation and Development (OECD) survey found Estonia’s economy continued to perform well, however, there were problems arising from income inequality, the private sector’s lack of technical adaptability, and the low productivity and carbon intensity of the energy sector.
The report pointed out positively Estonia’s expertise in IT and digitized government services. This state digital development is not necessarily reflected in productivity, however, where Estonia remains below the OECD average. Digitization has yet to reach areas outside IT and related fields, and computer literacy among the elderly must be improved, the reports says.
“The Estonian economy is performing well, with impressive social and economic achievements since independence,” said OECD Deputy Secretary-General Ulrik Vestergaard Knudsen, launching the survey in Tallinn alongside finance minister Martin Helme. “The time is now right to address an aging population, climate change and social disparities, and to use Estonia’s considerable digital strengths to boost productivity and incomes.”
The report shows that Estonia has narrowed the income gap with advanced economies, with rising wages prompting many emigrants to return. The level of education provided in Estonia is high, which has also been confirmed by the 2018 PISA study.
The benefits of growth, however, need to be more equitably distributed across regions, genders, people with different education levels and urban and rural areas. Inequalities in income, health outcomes and other areas are large in those dimensions. The gender pay gap remains particularly large in Estonia, the only OECD member state in which the situation in this area is even worse is South Korea.
With Estonia’s population aging, like many other OECD countries, the survey warns that a proposal to change pension legislation to enable the early withdrawal of savings from the second pillar of the pension fund should be reconsidered as it threatens economic stability and the adequacy of future retirement income. Taking measures to raise the low levels of return on pension funds by improving their governance and transparency, would be a better course of action to ensure the sustainability of the pension system and reduce the risks of old-age poverty.
The report also criticizes Estonia’s dependence on oil shale production, which makes it both carbon-intensive and vulnerable to international oil price fluctuations. Shifting to cleaner sources of energy, being careful to address social concerns at the same time, would benefit the economy as well as the environment.
The survey projects GDP growth to dip to 2.2% in 2020 and 2021 from 3.2% in 2019, in line with slowing growth globally. (ERR/Business World Magazine)