OREANDA-NEWS. December 01, 2011. The Executive Board of the International Monetary Fund (IMF) approved of the 2011 report on Estonia's economic situation and outlook, acknowledging Estonia's current economic and fiscal policies, reported the press-centre of Bank of Estonia.

The IMF notes that Estonia's prudent economic policy and conservative fiscal policy have contributed to the country's rapid recovery from the recent recession and to the smooth adoption of the euro.

However, the IMF calls for vigilance regarding the possible materialisation of risks that emanate from unfavourable external developments and continuous tensions on the financial markets. It is vital for Estonia to facilitate sustainable growth, to strengthen the fiscal framework and to maintain the stability of the financial sector.

"We agree with the IMF that the unstable external environment increases risks to the growth outlook and that we should be prepared for a slowdown in growth next year. The Fund rightly notes that Estonia's main challenge lies in ensuring sustainable growth, while maintaining conservative fiscal policy. The IMF also stresses the importance of further curbing budget expenditure and preserving fiscal buffers, and Eesti Pank shares this view," said Governor of Eesti Pank Andres Lipstok.

According to the IMF, the Estonian banking system has coped well with the global financial crisis and Estonian banks have scant direct and indirect exposure to the euro area sovereign debt. Nevertheless, safeguarding financial stability is a priority for Estonia in light of the current turmoil on global financial markets, requiring continued improvements in cross-border supervision and cooperation. "Both the prevention and resolution of crises need cross-border cooperation. We are of the same opinion with the IMF that safeguarding financial stability in Estonia requires joint action with the supervision authorities, central banks and governments of the home countries of the banks operating in Estonia. This is the focus of our efforts," Lipstok said.

The report adopted by the IMF Executive Board is based on discussions carried out with the Fund's experts in October 2011 concerning the annual Article IV consultation with Estonia, which entailed a nearly two-week period of meetings with Estonia's public and private sector representatives.