Estonia’s Credit Rating Affirmed At A1 By Moody’s

Bond credit raters Moody’s Investor Services have affirmed Estonia’s A1 government bond rating and stable outlook.

As reported on this blog, Fitch had already upped Estonia’s rating to A+, so this is more good news.

The rating was based on factors including the Estonian government’s budgetary rigour and financial strength during the continuing crises of the 2008-10 downturn and the Eurozone (Estonia joined the Euro in January 2011) the low level of public debt, healthy banks and Estonia’s ability to withstand external shocks.

The rating could change over time of course, with both up- and downgrades possible. If Estonia had a long-term track record of steady growth (GDP has of course been growing since the downturn) and a strengthening and diversification of its economic base (recovery has largely been export driven) an upgrade might be on the cards, according to Moody’s.

Conversely, if an intensification of the Eurozone crisis had a negative impact on the public debt situation, or if foreign bank owners (the bulk of the successful banks in Estonia are Scandinavian owned) wavered on their commitments, which could have a similar effect, a downgrade could result.

In Any event, A1 it is! More information from Moody’s is here.


The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on for a copy of this methodology.

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Estonia Vs Slovenia

An item first published on this blog on 6th July, 2012.

An interesting and detailed post here, from the redoubtable Edward Hugh, about one of the two other CEE countries, apart from Estonia, that have acceded to the Eurozone, namely Slovenia (the third country is Slovakia).

Having consistently outperformed Estonia and even ‘older’ Eurozone countries like Portugal, it seems not all is well with Slovenia.

Like Estonia, a small country (with a population of around 2 million) which was formerly a part of Yugoslavia and in fact the first constituent state to gain independence in 1991, Slovenia now seems to be drifting towards joining Spain, Greece, Ireland et al in an IMF or similar bailout, according to the article.

Moreover, in some areas where Estonia has seen an improvement over the last year or so, for example in GDP levels and construction volumes, Slovenia has seen a decline. Unemployment, whilst at a somewhat lower rate than Estonia’s (over eight per cent in Slovenia as compared with a little over 11 per cent in Estonia) has been consistently growing in Slovenia since 2008, whereas the trend in Estonia has been for a fall since mid-2010 (though with small recent increases).

Furthermore, Estonia has leapfrogged Slovenia in the credit ratings stakes, at least as Fitch sees it. As reported on this blog, Estonia currently holds a Fitch rating of A+ whereas Slovenia is now rated at A.

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Estonian Finance Minister Jürgen Ligi Firm on Greece

Estonian Minister of Finance Jürgen Ligi has stated that  Greece will not receive any significant concessions on the terms that have been set out in the European Stability Mechanism, according to a report by Ingrid Teesalu on the English language service of the Estonian Public Broadcasting website .

At a meeting in Luxembourg yesterday (Thursday 21st June) Mr. Ligi told ERR radio that “The major objective in the case of Greece is to reduce the debt and deficit level of the country” whilst going on to say that whilst progress had been made, more was needed to be done, the report stated. The next step would be for overseas representatives of those creditors to visit Greece, he went on.

Greece, which has a new goverment after recent elections, is currenly treading the line between meeting its creditors’, incuding the IMF and the EU, demands, whilst keeping in mind the need to placate domestic opinion in seeking to renegotiate some of the bailout terms, according to the report.

Mr. Ligi’s stock has meanwhile been in the ascendancy it seems; according to a report today on the Estonian Press Digest from News2Biz, the Estonian Finance Minister received a glowing endorsement from German newspaper Der Spiegel, recommending that Ligi replace outgoing Euro Group chief, Jean-Claude Juncker of Luxembourg (who is also that country’s incumbent Prime Minister) who has headed up what is in effect the political guiding organisation of the Euro currency since 2005.

Der Spiegel noted Mr. Ligi’s steering through of painful reforms including massive public spending cuts following the 2008-2010 depression, which circumvented the need for either currency devaluation or IMF or other bailout, and helped ensure Estonia’s accession to the Euro Zone in January 2011, as the main rationale in its advocacy of Ligi’s candidature.

Mr. Ligi, of the ruling Reformierakond/IRL coalition government, for his part remained modest, stating that he was flattered by the recommendation and that there was no reason why Mr. Juncker shouldn’t continue in the role.

Mr. Juncker is due to step down from the Euro Group leadership in July.

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Personal Bank Deposits In Estonia Seven Times Greater Than Loans

Deposits in Estonian banks have been steadily increasing, so writes Tõnu Toompark on his blog, Estonian data for February shows a total value of bank deposits of just under 10.5 billion Euros, of which 5.9 billion is held in on request accounts which can be accessed with little or no notice.

Of this total balance, some 4.2 billion euros is held by private individuals, of which 2.1 billion Euros, i.e. about a half, can be readily accessed.

Annual personal loans turnover (constituting home, customer and other loans) peaked in 2007 at the height of the real estate boom, at a level which was the same as the actual balance of deposits (in other words the banks loaned out in 2007 the same amount as they held in deposits – and the total loan balance was more like twice the level that was held in deposits).

However the position by Feburary 2011 was that, in the aftermath of the downturn and severe austerity measures, banks’ much more stringent criteria for granting loans meant that loan turnover had plummeted to a mere 15 per cent of the balance of deposits.

The full article (in Estonian) including graphs plotting changes in loan balance, turnover and the relationship between the two can be viewed here.

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Statistics Office – No Recovery In Estonian Construction in 2010

As noted in an earlier post, the third quarter of 2010 showed no signs of recovery in the construction sector, at least if figures released by the Estonian statistical office are anything to go by.

According to data released by the office today, this has not changed, and in fact there has been a fall in construction value for the fourth quarter. The value of Estonian construction companies’ production in 2010 both in Estonia and other countries totalled 1.3 billion Euros (20.1 billion Kroons), a figure which is some 13 per cent lower than the previous year. The trend towards a fall in the construction sector has unsurprisingly been continuing since the start of the downturn in 2008.

This figure can be separated between new buildings, which constituted 740 million Euros, and other developments and facilities, which accounted for the remaining 542 million Euros (or 12 and 8 billion Kroons respectively). In comparison with 2009, this represented a fall of 17 per cent in new buildings and a fall of 6 per cent in other facilities construction.

The fall in construction activity was particularly due to a fall in the local residential construction market. However, the volume of construction by Estonian companies in the foreign market actually increased by 12%, solely due to new building work. Indeed it seems that foreign construction has been a burgeoning area in recent years, in 2010 making up a total of 11% of building construction volume.

The building registry data also shows that 2010 saw the completion of construction of 2324 new units, some 702 less than 2009. Furthermore, the bulk of newly-constructed units were to be found in apartment blocks, about half of them being two- or three-room apartments. However, since 2008 the proportion of dwellings to be found in apartment buildings has been decreasing, which has hasd the effect of causing the average size of dwelling places to increase. As of 2010 this stood at 102 square metres, the highest figure over the last nine years. Unsurprisingly, Tallinn saw the biggest share of new residential developments, followed by districts bordering Tallinn, and also Tartu county.

Despite the continued fall in the volume of construction noted above, the very fact that new buildings are being put up should lead to optimism in the construction industry, according to the report. Building permission was given for some 2600 dwellings in 2010, an increase of about 25 per cent on the previous year.

A further 815 permissions were granted for the construction of non-residential buildings over the same period, comprising 425 000 square metres of useful space. Most of this was taken up by new shop, office and industrial uses. Nevertheless, there was actually a fall in non-residential permissions, both in terms of floor space and cubic capacity.

In conclusion, and to flesh out our post concerning the third quarter of 2010, it would appear that the fourth quarter of 2010 on its own saw no signs of recovery in the construction sector, and in fact saw a drop on the previous quarter. Whereas the third quarter saw a total construction value of 364.6 million Euros, the fourth quarter saw only a figure of 344 million Euros, in fact a 5 per cent fall on the corresponding quarter for 2009 (the third quarters of 2009 and 2010 respectively recorded similar figures, by contrast).

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No Signs That Euro Adoption In Estonia Has Led To Surge In Property Prices – Yet

The recent adoption of the Euro in Estonia has not led to an immediate rise in residential real estate prices, according to Tõnu Toompark’s blog, (in Estonian). Citing real estate portal’s own index for residential real estate prices, which yesterday settled at a figure of 61.9, a mere 3 per cent lower than the value for the same time last year, Tõnu states that this shows that real estate has been immune to the previously-feared upward pressure on prices, as people ’round up’ figures directly converted from Kroons to Euros.

Both offer prices and number of offers show that nothing significant happened during recent weeks. The total number of offers on real estate has increased slightly, to 18 879 offers on the site, which represents minor changes, says Tõnu.

Put simply, it could be said that apartment prices both in Tallinn and the whole of Estonia are at a somewhat higher level than the previous month and the previous year in general, he writes.

Nevertheless, as Tõnu points out this is rather preliminary and scanty data. Indeed, the adoption of the euro could later result in some more far reaching impact on real estate transactions, and the number of bids and transactions might be more active in a month or two, he says.

The index, which began on 18 February 2008 (i.e. this is the date on which the value of the index is calibrated at 100) measures the week on week change in residential real estate prices in Estonia. The data js  measured  back retrospectively to 1 January 2005, when the index stood at an all time low of 49.9. The all time high came on 7 May, 2007, when it stood at 108. Following the economic downturn of 2008 onwards, the index reached a low point (to date) of 61.4 on two occasions, on 5 September and 27 October, 2010..

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Goodbye Kroon, Hello Euro – Practical Info On Estonia’s New Currency

The introduction of the Euro to Estonia on 1 January took place quite smoothly and with no major mishaps. Cash machines were closed from midday on 31 December, 2010 until the stroke of the new year 12 hours later, which may have left visitors and those unprepared for the new currency at a loose end for cash, but debit and credit cards could still be used to make transactions in the outgoing currency.

According to the European Central Bank site, Estonian Kroons could in fact be used as legal tender in cash transactions until 15 January. Retail outlets however gave change in Euros in such cases, and payment in Kroons seems to have been the exception almost from the beginning, as people use up all the spare cash they had at home.

All is  not lost if you should find some forgotten Kroons in a biscuit tin under the bed however; until 30 June 2011, all banks that offer cash services (i.e. all the highstreet banks) will exchange Kroons (both notes and coins) for Euros, and at a limited number of branches this service will continue to the end of 2011. Should a year not prove enough time to rid yourself of the former currency, the National Bank (Eesti Pank) will continue to accept Kroon notes and coins in exhange for euros indefinitely, according to the ECB site.

The Estonian Kroon (EEK), introduced on 20 June, 1992 to replace the Soviet Rouble, had been pegged to the Euro since 27 June, 2004 after Estonia’s accession to the EU. The rate of exchange was 1 EUR : 15.64664 EEK – this rate remained constant despite the threat of devaluation during the recent economic crisis, and remains the basis on which Kroons will be exchanged for Euros.

We hope to keep you updated in the near future about further effects of the Euro (for example concerning company share capital) so please be sure to check the blog regularly!

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