Finances and State Budget
Money is a means of payment that is stated and approved by the State. The three main functions of money are the function of a means of exchange and payment, the function of preserving value and the function of etalon for value of goods and services. Money circulation can take place as cash transactions, bank transfers, issuing checks and via electronic means of payment. The only legal means of payment in the Republic of Estonia since 1st of January 2011 is Euro.
Eesti Pank is the central bank of the Republic of Estonia and a member of the European System of Central Banks.
The primary objective of Eesti Pank is to contribute to price stability within the euro area. This means keeping the annual consumer price growth in the euro area as a whole slightly below 2%. Price stability is the precondition for a strong economy. A stable price level is maintained with the help of the single monetary policy, which is formulated by all the Eurosystem members, including Eesti Pank. The latter is also responsible for the implementation of the euro area single monetary policy in Estonia.
Besides the price stability objective, Eesti Pank also contributes to achieving other economic policy goals in Estonia and in the euro area.
In addition, Eesti Pank fulfils the traditional functions of a central bank:
- manages currency circulation,
- supports and organises transfers between commercial banks,
- participates in safeguarding financial stability,
- manages the foreign reserves of Estonia,
- prepares financial sector statistics and balance of payments statistics,
- advises the government in economic policy issues of Estonia and of the euro area.
Text made by Central Bank of Estonia
Financial Supervision Authority
National financial supervision is performed by the Financial Supervision Authority. The Financial Supervision Authority performs state supervision over securities market, banks, insurance providers, insurance mediators, investment associations and management companies active in Estonia under activity licenses.
The state budget can be considered the economic plan of the State for the coming year. The Riigikogu has the task of approving the state budget. The state budget is proceeded like a law, and the draft of the state budget can be initiated only by the Government of the Republic. By approving the state budget, the legislative power gives the executive power the consent for spending the relevant funds, thus controlling and delimiting the activities of the government. According to the Estonian practice, the state budget for a specific year and the legal acts necessary for implementing the state budget (for example, the formula for calculating the support funds to be allocated for local budgets, the rate of the child benefit, etc.) are approved as a single law. The state budget is approved for each year. The government is obliged to present the draft of the state budget to the Riigikogu at least three months before the beginning of the budget year (no later than by 1st of October).
If the government wishes to make expenses not stated in the state budget or to increase the expenses stated in the state budget, then an additional state budget has to be approved. An amendment of the state budget is considered to be the situation where the expenses of the state budget are rearranged so that the total amount of revenues and expenses in the state budget doesn’t change.
The preparing of the draft for state budget is co-ordinated by the Ministry of Finance. Every year, together with preparing the draft budget of the relevant area of government, the ministries also prepare the plan of activities and economic development of the relevant area of government and also the investment plan for at least the next three budget years. This is followed by the negotiations of the draft budget between the Ministry of Finance and the relevant ministry or constitutional institution. Any disputes are solved in the Government of the Republic. The final draft of the budget is approved by the Government of the Republic. Together with presenting the draft of the state budget to the Riigikogu, the overview of the economic situation of the country and the main goals of the Government of the Republic and the letter of explanation to the draft of the state budget are also presented to the Riigikogu.
The implementation of the state budget is also organised by the Ministry of Finance. All revenues and expenses are accounted via the State Treasury in a centralised way.