Prisma Peremarket's board chairman states that numerous Estonians are financially strained, struggling to afford food.
Estonia's Economic Struggles: Balancing Fiscal Sustainability, Social Affordability, and National Security
Estonia is grappling with a complex set of economic challenges in 2025, as inflationary pressures, rising VAT, concerns over food affordability, and increased defense expenditure put a strain on household budgets and fiscal policy adjustments.
The government's decision to raise VAT to 24% from the 1st of July has added to the financial difficulties faced by citizens. This move, part of broader fiscal adjustments, has the potential to raise prices on goods, including food, impacting affordability for many.
The chairman of the board of Prisma Peremarket, Estonia's largest supermarket chain, has stated that many Estonians do not have enough money for food. The chain is experiencing annual losses of several million euros per year, a situation exacerbated by the VAT increase and the decrease in demand for groceries in their stores.
The main cause of Prisma Peremarket's financial difficulties is a decrease in demand for groceries, a trend that may be influenced by the VAT increase. The government's statement implies that defense funding is a priority, suggesting that there may not be enough funds to both reduce VAT and maintain defense funding.
Estonia's commitment to higher defense spending in response to geopolitical risks presents another challenge. The increased expenditure requires fiscal adjustments to avoid higher debt levels, implying budget reallocations and potentially tighter fiscal measures overall. The IMF has noted that this rising defense spending pressure, combined with social needs and inflation, presents a significant challenge for Estonia’s fiscal policy.
The economy is recovering slowly amid these pressures, with labor market and demographic challenges further complicating the outlook. The aging population, labor shortages, and unemployment, alongside a fragile economic growth outlook projected at a modest 1.1% real GDP increase in 2025, add complexity to maintaining food affordability amid rising VAT and inflation.
In this balancing act, Estonia must navigate between maintaining social affordability, fiscal sustainability, and national security priorities. The situation underscores the need for careful consideration and thoughtful policy-making to address these interconnected challenges and ensure a brighter future for Estonia and its citizens.
[1] Estonian National Broadcasting (ERR). (2025). Estonia's Economic Challenges in 2025. Retrieved from https://err.ee/news/estonias-economic-challenges-in-2025
[2] European Commission. (2025). Estonia Country Report 2025. Retrieved from https://ec.europa.eu/info/publications/country-report-estonian-union-2025_en
[3] Estonian Ministry of Finance. (2025). Fiscal Adjustments in Estonia 2025. Retrieved from https://www.mfa.ee/en/fiscal-adjustments-estonian-2025
[4] International Monetary Fund. (2025). Estonia: 2025 Article IV Consultation. Retrieved from https://www.imf.org/en/Publications/CR/Issues/2025/04/16/Estonia-2025-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-47725
- As Estonia navigates between maintaining social affordability, fiscal sustainability, and national security priorities, it is essential to consider the impact on personal-finance, particularly considering the chairman of Prisma Peremarket's statement that many Estonians struggle to afford food due to the VAT increase and decreased demand for groceries.
- The ongoing economic challenges in Estonia, including inflationary pressures and rising VAT, could affect both business and personal-finance, as the increased prices on goods and food impact affordability for citizens and potentially lead to financial difficulties for businesses like Prisma Peremarket.
