Analytics, Budget, Estonia, EU – Baltic States, Financial Services, Funds, Legislation

On Wednesday the audit office published eight audits, which focus on the role of European Union support in the various areas of the functioning of the state of Estonia, and a report that summarizes them all. The annual report of the National Audit Office submitted to the Riigikogu in early November highlighted that the state should prepare for the situation where EU support will decrease in the new budgetary period – according to the Ministry of Finance by about 40% or 1.5 billion euros without considering the impact of Brexit.

According to the ministries, 90% of the activities currently funded with EU support will remain necessary after 2020 as well. The state has functions and activities that have partly been funded with EU support instead of using the state's own revenue. A good example is the development of the road network, which will be financed with EU support to the extent of around 36% from 2014 to 2020. The implementation of the capacity for work reform has also mainly been funded with EU support and it is also used to finance the provision of several labor market services. Approximately 85 to 90% of the funds used to support entrepreneurship and regional development also come from EU funds, it is written in the general audit report.

The ministries hope that the necessary activities will be financed from the state's other revenue after the decrease in EU support. The activities that in the opinion of the ministries will remain necessary in the future are financed with EU support in the amount of 3 billion euros in the current period.

According to the ministries, a significant decrease in the funding of the activities financed from EU support that will remain necessary in the future would concern many functions and goals of the state.

The Ministry of Finance does not consider necessary drawing up a separate strategy for preparing for the decline in EU support because according to the ministry all such issues would be solved in the budget.

The National Audit Office finds that the Ministry of Finance should provide a detailed explanation, schedule and action plan in the state's budgetary strategy for 2019-2022, which would show how the state is preparing for the probable decrease in European Union support and which processes are used. The state's needs, possibilities and cost alternatives in the case of decreasing foreign support must be analyzed and treated in a comprehensive and understandable manner. The Riigikogu should also be included in the planning of the next budgetary period of the European Union in order to set more broad-based priorities.

Estonia has received billions of euros worth of non-refundable foreign aid since its independence was restored. During the 2014-2020 budgetary period the European Union is supporting Estonia from its structural and investment funds to the value of 4.4 billion euros. Approximately 3.5 billion euros of this amount is earmarked for the development of education, enterprise, transport, the information society and the environment as cohesion policy support and around 900 million euros for agriculture and fishery. The overview prepared by the National Audit Office does not touch on agriculture and fishery, since support for these fields is determined on a separate basis that is not linked to the country's GDP or GNI indicators.

In the last 10 years, approximately one half of the public sector investments and about 11% of the state budget expenditure of Estonia have been covered from foreign aid, mostly the support of the European Union.

Estonia will probably have significantly less support funding at its disposal in the budgetary period of the European Union that starts in 2021. The amount of money to be allocated to Estonia is not known yet, but even if the impact of the United Kingdom's withdrawal from the European Union is not taken into account, support funds will decrease by up to 40% or around 1.5 billion euros compared to the current budgetary period according to the initial estimates of the Ministry of Finance.