In its end-of-visit statement for the 2026 Article IV Consultation, an International Monetary Fund mission said Estonia’s large fiscal stimulus had supported the recovery, but the current fiscal stance is now too expansionary as the war in the Middle East pushes up energy prices and inflation risks. The mission projected growth of 2 percent in 2026 and 2.1 percent in 2027, with headline inflation rising to 4.3 percent in 2026 before easing to 3.4 percent in 2027, and said policy should focus on stabilizing public debt through a balanced mix of spending restraint and revenue measures rather than further broad-based energy support. The statement said the 2026 budget loosens policy materially through the universal income tax allowance and higher capital and defense spending, widening deficits beyond 2026 and putting debt on an unsustainable path under current policies. Staff recommended starting in 2027 a gradual annual structural adjustment of 0.5 percentage points until the deficit reaches 1 percent of GDP, which would keep debt below 40 percent of GDP over the medium term and preserve a 20 to 25 percentage point buffer below the European Union’s 60 percent of GDP reference value. The mission also urged tighter control of wage and benefit spending, a broader tax base, continued vigilance over banks’ real estate and funding risks, and reforms to labour allocation, capital markets and electricity supply.
International Monetary Fund2026-06-09
International Monetary Fund mission warns Estonia's fiscal stance is too expansionary and recommends 0.5 percentage point annual consolidation from 2027
The IMF’s 2026 Article IV mission said Estonia’s large fiscal stimulus supported recovery but that the current stance is now too expansionary as energy prices and inflation risks rise. It warned the 2026 budget materially loosens policy and puts debt on an unsustainable path, and recommended from 2027 a gradual annual structural adjustment of 0.5 percentage points to reduce the deficit to 1 percent of GDP, keep debt below 40 percent and maintain a buffer to the EU’s 60 percent reference value, alongside tighter wage and benefit control, a broader tax base and continued financial sector vigilance.