This report is the third in a series of OECD country reviews that help countries assess their public governance and public management arrangements from a comprehensive and international comparative perspective. These reviews seek to help governments identify how they can better deliver on their objectives, as well as their preparedness to meet current and future challenges.

Since the restoration of independence in 1991, the government of Estonia has met the challenge of establishing a fully functional, stable, modern state. In this time, it has undergone a radical transformation from a centralised, planned economy and insular state to one of broad economic openness, solid democratic institutions, and integration with international political and economic institutions such as the EU.

Since the restoration of independence in 1991, and prior to the global financial and economic crisis, Estonia enjoyed one of the most dynamic periods of economic growth among both transition and OECD countries. Critical to this success was Estonia’s transformation from a centrally planned economy to a liberal market economy. The stewardship of the government has resulted in budget surpluses, a reasonable level of openness, and a high level of economic and political stability – an important factor for investors. As a result, the Estonian government, supported by the public administration, was a key orchestrator of economic development.

Since re-independence in 1991, and prior to the global financial and economic crisis, Estonia enjoyed one of the most dynamic periods of economic growth among transition and OECD countries. Today, Estonia faces the impact of the crisis together with other challenges threatening fiscal sustainability, including demographic decline and regional disparities. Many positive developments – including longer life spans, rising standards of living and European integration – will also raise new challenges. Over time, Estonia will need to continue to take advantage of its small size to remain strategically agile and to make the most of its national assets. This requires a public administration that is fit-for-purpose in terms of implementing the government’s policy agenda, but that can also provide high quality analysis and advice, ensuring that longer term needs and perspectives are taken into account, and that can work as a single government in the service of citizens and business.

A country’s public governance arrangements are a determining factor in the successful implementation of government programmes and reforms. Examining these arrangements both helps to frame the context in which the government and public administration operate and to identify the challenges faced by the public administration in implementing the government’s agenda. Understanding the governance context also helps to determine how information flows can be enhanced among actors, both inside and outside the public sector, in order to improve co-ordination and collaboration, as well as co-delivery of services. In order to successfully implement reforms, the Estonian public administration must strike the right balance between the daily business of delivering policies, programmes and services, and carrying out its strategic function of anticipating needs, prioritising responses, and preparing and improving itself to meet those needs more efficiently and effectively, based on a full understanding of its strengths and weaknesses.

Estonia’s governance structure combines strong vertical silos and formal, legalistic arrangements with many personal and informal networks. Moving to a single government approach is a long-term process founded on political commitment and leadership that transcends party lines and individual electoral terms. In Estonia, both the formal and informal will need to be addressed in order to promote informal co-ordination and co-operation, while some processes and networks will need to become more institutionalised in order to improve sustainability of working methods and information management. In addition, mechanisms to strengthen co-ordination and co-operation in both the political and administrative spheres are needed. A whole-of-government approach also applies to the management of the public administration itself where greater flexibility of staff and structures and improved co-ordination can help promote staff mobility and a whole-of-government understanding of tasks and roles.

Estonia’s public administration functions on the basis of multiple strategic plans, many of which do not become operational. Given that 2013 marks the end of the current strategy planning period, Estonia’s ministries and agencies have the opportunity to re-assess how they go about their planning and prioritisation, identify ways to build greater cross-sectoral collaboration, and better integrate strategic and budgetary planning. To this end, Estonia is looking to strengthen the links between strategic planning and budget frameworks, and intends to develop its performance budgeting processes as a means to improve capacity for decision making, prioritisation and accountability. Further enhancing its evidence-based decisionmaking capacity and building citizen engagement practices could strengthen Estonia’s anticipative, innovative and adaptive capacity.

Estonia faces a series of inter-connected challenges to delivering high-quality public services. At the central level, the government has begun to consolidate “back-office” operations for county governments, and to experiment with rationalising “frontoffice” activity by merging all local State representation into one physical working environment. At the local level, however, the lack of standards and performance measures, and the mismatch between fiscal capacity and devolved responsibilities put pressure on local government service capacity. Estonia needs to take an integrated and innovative perspective in developing solutions to meet service delivery challenges. This would entail tailoring service delivery requirements to population needs, matching service sets to municipal capacity, building scale, and linking action at the municipal level with a broader vision for territorial development and regional policy. Given the many elements involved, the central/sub-national relationship will need to be strengthened through greater institutional co-ordination and collaboration.

Estonia places high societal value on education. Yet, there are concerns that more needs to be done to ensure that its education system sustains high quality and equity, and that what students learn is relevant to the country’s evolving social and economic needs. If Estonia is to build upon the existing strengths of its education system, it will need to work as a single government, with greater co-operation among and across levels of government. Central- and local-level policy makers will need a common vision that considers not only the school network and modernising curricula but also national and regional strategic objectives and stakeholder perspectives. Successful education system reform will require greater co-operation among municipalities, and greater cross-sectoral co-ordination and co-operation at the central level. It also calls for the delivery of education to be adapted to the capacity needs of local government and the expressed needs and preferences of local populations.

OECD countries are rapidly ageing, and Estonia is not an exception. Estonia’s elderly are one of the poorest and most vulnerable segments of the population, as health and social care expenditures are lower and reported health problems among the aged higher than in other European countries. In light of increasing needs, poor health and social outcomes for the elderly, and limited financial means to reinforce inputs, Estonia needs to change the way in which it delivers care to the elderly population, in particular by working as a single government – across levels of government, among municipalities and care providers, and across sectors – in order to reduce the fragmentation of resources, capacity, and knowledge about elderly needs. Such a joined-up approach is necessary to find a sustainable response to Estonian social, cultural and economic circumstances and to meet the goal of equality of access to services for all citizens across the country.

In March 2010, the Government of the Republic of Estonia commissioned a major review of the Estonian public administration, which was undertaken by the OECD. The objectives of this review were to examine how a single government approach could be fostered within the public administration in order to improve public service delivery and promote a better-performing government, which is forward looking and well prepared to meet current and future challenges.