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���������ֳ�-London-30 May 2014: ���������ֳ� has affirmed Estonia's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'A+'. The Outlooks are Stable. The Country Ceiling has been affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1'.

KEY RATING DRIVERS
Estonia's ratings are underpinned by its strong public finances, economic policy framework and governance indicators. Euro membership reduces substantially the risk of balance-of-payments crises.

Public finances are a key credit strength. Estonia's government debt-to-GDP ratio of 10% is by far the lowest in the European Union, and is well below the 'A+' median. Around a quarter of the overall debt stock is accounted for by European Financial Stability Facility (EFSF) guarantees.

The general government deficit remained broadly unchanged in 2013, at 0.2% of GDP. ���������ֳ� expects this to widen in 2014 due to a lower tax take, before edging down in 2015 to 0.7%. The Estonian authorities plan to finance these deficits by running down its liquid asset position rather than issue debt. The debt ratio is expected to remain stable this year and edge down to 9.6% next year.

Estonia's external debt sustainability has improved substantially over the past four years. Net external debt fell back to just over 1% of GDP in 2013, down from 47% in 2009. This sharp reduction is related to a reduction in banking sector reserve requirements following euro accession.

As a small, open economy, Estonia is vulnerable to adverse shocks affecting its main trading partners. An area of uncertainty is the extent to which current geo-political tensions will affect economic prospects in Russia, an important trading partner.

Economic growth slowed down sharply in 2013, with real GDP expanding by just 0.8% (down from 3.9% in 2012). The slowdown reflects a combination of lower domestic investment and exports. Preliminary data for 1Q14 shows a further weakening in economic activity. ���������ֳ� expects economic growth to pick up over the course of this year, averaging 1.7%. An acceleration in GDP growth to 3.1% is expected in 2015.

The recession in 2008-2009 temporarily reversed the process of convergence in real incomes per head with the eurozone. Income per capita is only slightly above two-thirds of the eurozone average.

Current demographic trends are a rating weakness, with both the total and the working-age population shrinking. In the short term, this creates pressures in the labour market, potentially boosting already high wage growth. In the longer term, decreases in the working-age population compared with the overall one would bring about a further deterioration in the dependency ratio.

Banks in Estonia are continuing to improve their asset quality by mainly writing off non-performing loans from their balance sheets. The share of non-performing loans in the corporate sector has fallen below 2% of the loan portfolio.

RATING SENSITIVITIES
The Stable Outlook reflects ���������ֳ�'s assessment that upside and downside risks to the rating are currently broadly balanced. However, future developments that could, individually or collectively, result in a positive rating action include:
-Economic growth picking up in line with the economy's potential growth rate without creating or exacerbating significant imbalances.
-Faster and sustained income convergence with eurozone peers; implementation of policy measures addressing Estonia's low productivity growth and skills mismatches in the labour market

Future developments that could, individually or collectively, lead to a negative rating action include:
-Severe economic or financial shocks affecting Estonia's main trading partners spilling over to the domestic economy
-Further sharp rises in wages unaccompanied by productivity improvements leading to a deterioration in the economy's competitiveness and a widening current account deficit.

KEY ASSUMPTIONS
The ratings and Outlooks are sensitive to a number of assumptions:

-���������ֳ� assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key macroeconomic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term. It also assumes that the risk of fragmentation of the eurozone remains low.

-���������ֳ� assumes that there will be no material escalation in developments between Russia and Ukraine that would lead to a significant external shock to Estonia's economy.

Contact:
Primary Analyst
Alex Muscatelli
Director
+44 20 3530 1695
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Paul Rawkins
Senior Director
+44 20 3530 1046

Committee Chairperson
Douglas Renwick
Senior Director
+44 20 3530 1045

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

Additional information is available on

Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at .

Applicable Criteria and Related Research:



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