2

Central government debt management

The general principles of central government debt management are determined by the Ministry of Finance. The State Treasury is a central administrative agency operating under the Ministry of Finance and implements all debt management operations under the guidelines prepared by the Ministry.

The guidelines set out e.g. the general principles and objectives of debt management, instruments used in debt management and risk limits as well as other restrictions that have to be observed. The State Treasury is authorised to raise funds, provided that the nominal value of the central government debt does not exceed EUR 125 billion until further notice and that, at the time of borrowing, the value of short-term debt of maximum term of 12 months does not exceed EUR 18 billion of the total debt.

The State Treasury is also authorised to take out short-term loans when necessary in order to safeguard the central government’s liquidity, as well as to enter into derivative contracts required when managing the risks under conditions determined by the Ministry of Finance and under its direction.

The State Treasury reports regularly on debt management to the Ministry of Finance. The government submits financial statements to Parliament annually, including an overview of the condition of the national economy and the productivity of the Ministry of Finance’s administrative sector.

Constitution of Finland Zoom Constitution of Finland

Objective of debt management

The objective of Finland’s central government debt management is to fulfil the State’s financial requirements and to keep the long-term costs of servicing the debt as low as possible in relation to risks resulting from the debt, in such a way that the risks are acceptable in terms of national risk-bearing capacity.

The costs of servicing the debt are primarily determined by the euro area interest rates. The cost of borrowing is mainly controlled by managing the debt interest rate risk position, and by implementing central government borrowing as cost-effectively as possible.

Funding

The purpose of the Finnish central government’s funding is to fulfil the government’s financing needs in such a way that Finland’s ability to discharge its financial commitments cost-effectively under all circumstances is secured, and the risks associated with financial operations are controlled. Funding is implemented primarily through short-term Treasury bills and long-term benchmark bonds.

In the long term, the aim is to secure the availability of funding by identifying accessible sources and by maintaining the preparedness for their exploitation. Funding is carried out in such a way that the central government is not burdened by significant funding concentrations in terms of the redemption profile or funding source.

Debt management framework

The central government debt management is based on a benchmark portfolio. Broadly speaking, a reference portfolio for debt management defines an accurate target for operative interest rate risk management. It also enables the State Treasury to quantify the profitability of its debt management operations.

With regard to actual debt portfolio management, the State Treasury may, within authorised limits, deviate from the benchmark portfolio interest rate risk exposure. The deviation is interpreted as the State Treasury’s interest rate risk position. The difference between the relative costs of the actual debt portfolio and the benchmark portfolio is the result of the State Treasury’s debt management.

Risk management

Risk management is an integral part of sound debt management. The objective of risk management is to avoid unexpected losses and safeguard the continuation of operations. The government’s objective is to manage all risks in a systematic manner.