Estonia - Proceedings related to fiscal surveillance: Letter on relevant factors for 126(3) reports - 2026

Suur-Ameerika 1 / 10122 Tallinn / Estonia / +372 611 3558 / [email protected]

www.rahandusministeerium.ee / Reg. code: 70000272

Mr Maarten Verwey

European Commission

[email protected]

Estonia - Proceedings related to

fiscal surveillance: Letter on

relevant factors for 126(3) reports -

2026

Dear Mr Verwey,

I am writing you in response to the letter on relevant factors in relation to upcoming

Commission report under Article 126 (3) of the Treaty relating to the fiscal surveillance of

Estonia.

As you referenced in your letter, Estonia does plan to breach the 3% deficit limit this year.

According to the latest forecast of the Ministry of Finance, the deficit will reach a level of

4,3% of GDP in 2026. The growth of net expenditures will exceed the maximum growth rate

set by the Medium-Term Fiscal Structural Plan but remain in line with the deviation allowed

by the national escape clause activated by the Council on 8 July 2025.

Estonian government has taken a range of actions in response to the Russia’s unjust war

against of Ukraine and to deteriorating security situation overall. According to the data of the

Classification of the Functions of Government (COFOG), share of the defence spending has

more than doubled in last few years, increasing from 2,0% of GDP in 2021 to 4,2% of GDP

in 2025. In 2026 5% of GDP will be spent on the defence. In addition to purchasing vast

amounts of ammunition, the actual investment of defence will increase to 1,9% of GDP.

Moreover, the budget execution and current projections are in line with the Draft Budgetary

Plan for 2026, which was deemed compliant by the Commission with the relevant Council

recommendations, considering the flexibility provided by the national escape clause.

Higher deficit will lead to higher level of public debt and that is acknowledged by the

government, so while the security situation poses a challenge and keeps impacting the

budgetary situation, the government is determined to keep the public finances in order. Estonia

is committed to following our European obligations and complying with the domestic fiscal

rules and will start accommodating the increased level of defence spending into the regular

budget gradually already before the end of the national escape clause.

Your ref. 08.05.2026

Our ref. 11.05.2026 No 11-3.1/2034-2

2

Yours sincerely,

Märten Ross

Adviser to Ministry