Contingent liabilities

For one of the State’s contingent liabilities to crystallise requires particular circumstances to occur (e.g., a State guarantee to be called, a capital call by an International Financial Institution). The State Treasury continually monitors the State’s contingent liabilities, such as guarantees granted and callable capital of International Financial Institutions, to assess the probability of crystallisation of any of the liabilities at any point in time. This is for cash management purposes. Typically, having crystallised, liabilities must be paid out within 2 to 30 days.

Graph 1: Contingent liabilities of the State
*Data from 30.09.2021, GDP forecast for 2021 by Ministry of Finance of Estonia.

Contingent liabilities can be divided as follows:

  • Guarantees granted by the State on the basis of the State Budget Act

-In the Annual Budget, Parliament sets the maximum amount of loans and guarantees the Government may grant that year. The Government may grant a loan or a guarantee to a public institution, a local government, a state-owned enterprise or a state foundation. All loans and state guarantees to foreign institutions and other states must be approved by Parliament. (See also On-lending and guarantees management).  

-In 2011, the State granted a guarantee in respect of bonds obligations of the European Financial Stability Facility (EFSF) of up to EUR 1 994.86 million, whereby the State guarantees a part of each bond issue proportional to its capital key.

  • Guarantee or other collateral granted by the State on the basis of another Act

-The State guarantees student loans granted by local banks.

-The State guarantees the activities of state-owned foundation KredEx and limited company KredEx Credit Insurance Ltd to a maximum EUR 3.5 billion. 

-The Government provides insurance for specific international art exhibitions up to a maximum amount approved by Parliament in the Annual Budget. In 2021, the maximum amount for this type of contingent liabilities is EUR 211 million (in 2020 the maximum amount was EUR 192 million).

  • Callable capital of International Financial Institutions

The State is a member of several International Financial Institutions (IFIs) including

- the European Investment Bank (EIB),

- the Nordic Investment Bank (NIB),

- the European Bank of Reconstruction and Development (EBRD),

- the Council of Europe Development Bank (CEB), and

- the European Stability Mechanism (ESM).

The capital of these IFIs normally consists of paid-in capital and callable capital. The State is obliged to pay in the callable capital at the request of the respective IFI. The total amount of callable capital obligations to IFIs is EUR 1.5 billion, of which the callable capital of ESM is EUR 1 153 million and the callable capital of EIB was EUR 157.6 million.

In respect of the International Monetary Fund (IMF), Estonia had originally issued a (non-interest bearing) bond to the IMF when the State became a member of the IMF in 1992 in the amount of Estonia’s IMF quota. The bond was cancelled when the Bank of Estonia assumed the callable capital obligation according to a decision of the Parliament at the beginning of 2012. The State does not therefore currently have a callable capital obligation to the IMF.

Last updated: 4 November 2021