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Stabilisation Reserve Fund

The State has another financial reserve called the Stabilisation Reserve Fund. The Stabilisation Reserve Fund was formed in 1997 and its initial size was EUR 45.2 million. The Stabilisation Reserve Fund has been used twice – during 1998 and 1999 EUR 17 million for funding the claims from a bankrupt bank (Eesti Maapank), and in 2009 EUR 224 million for funding the State’s budget during the financial crisis.

The State Budget Act requires that the share of profits received from Eesti Pank (central bank) be transferred to the Stabilisation Reserve Fund each year, that investment returns are retained in the Fund and that other transfers to the Fund may be mandated by Parliament.

The Parliament decides when to deploy the Fund. It may only be used for:

  • the reduction of economic risks;
  • the prevention or mitigation of socio-economic crises;
  • the resolution or prevention of an emergency situation, a state of emergency, a state of war or other extraordinary situation or a crisis with material effect, or performance of the obligations provided for in a collective self-defense agreement;
  • the resolution and prevention of a financial crisis that may cause difficulties related to liquidity or solvency for financial institutions or significant disruptions in the payment and settlement systems.

The return of the Stabilisation Reserve Fund is measured against a benchmark, with the range of eligible assets and the principles of financial risk management of the Fund being defined by the Government. The benchmark for the Stabilisation Reserve Fund is derived from the interest rate of AA- to AAA-rated Eurozone government bonds and short-term deposits, so that with 95% probability during the next twelve months the return of the benchmark is at least 0% (i.e., that the assets do not lose nominal value). In the current negative interest rate environment, the benchmark comprises Eurozone government bonds with a maturity less than a year and money market instruments. The interest rate risk of the Stabilisation Reserve Fund is measured on a Value-at-Risk basis. An overview of the Stabilisation Reserve Funds’ investment principles and financial risk management can be found here.
 

Graph 4: Size and return of the Stabilisation Reserve Fund
* Data from 30.06.2019

                           

Graph 5: Return of the Stabilisation Reserve Fund compared to its benchmark since 2002

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Last updated: 1 August 2019