Central banks have responded to new inflation environment by gearing up for monetary policy tapering. From the Finnish perspective, this is a gradual shift back to normal market conditions and investor behaviour. We have never taken our investor base for granted.

Inflation has accelerated while the global economy continued its rapid recovery in 2021. Finland has not been an exception as inflation has also been driven by the widespread increase in energy prices and supply chain disturbances all around the world. Despite general expectations that energy price pressures will ease in 2022, the uncertainty remains around longer-term inflation outlook.

Central banks have responded to new inflation environment by gearing up for monetary policy tapering. In other words, central banks are gradually winding down their monetary stimulus by reducing the rate at which they have accumulated new assets on their balance sheets under policies of quantitative easing (QE). The European Central Bank announced in December that it will reduce its bond purchases step-by-step over the coming quarters of 2022. If a big investor who has been supporting the euro government bond market since 2015 is gradually winding down its bond investor role, does it have an impact on government bond issuance?

From our perspective, tapering is a gradual shift back to normal market conditions and investor behaviour.

As the issuer for the Republic of Finland we would not be (too) concerned. In all our thinking we have always emphasised the fact that central bank bond support will cease one day. From our perspective, tapering is a gradual shift back to normal market conditions and investor behaviour. Therefore, we have never taken our investor base granted. On the contrary, during the QE we have continued active investor dialogue to ensure that our debt will be efficiently diversified by investor type, geography and by maturities.

This will ensure that a potential transition back to normality will be smooth for the Republic of Finland, as our stable AA+ rating will continue attract wide variety of investors in coming years.

Finland ranks first in international sustainable development comparison

For the first time in 2021, Finland was ranked number one in an international comparison of sustainable development. The comparison provided by the United Nations assesses countries’ progress on implementing the 2030 Agenda for Sustainable Development and its Sustainable Development Goals. Naturally, our emphasis has been on promoting the national and global commitment of the Finnish government to tackle climate change and support environmental and social development. Furthermore, sustainability issues have rapidly fed through to capital markets and us, the sovereign issuers, need to take these new elements into account in our daily operational lives.

In the modern world, investors are increasingly interested in investing their money not just for financial return, but also for positive social and environmental impact. Therefore, as part of their investment decisions, institutional investors are paying growing attention to environmental, social and governance (ESG) criteria, which are very often based on the Sustainable Development Goals (SDGs) defined by the UN. Investors are demanding more granular ESG information from the issuers to be able to improve their own credit risk analyses and make better-informed investment valuations and allocation.

Sovereign bond issuance reflects broad government policy initiatives which have a wide and far-reaching scope also from the sustainable development perspective. Therefore, it is important for sovereign issuers to be proactive and transparent in providing information for investors on legislative initiatives and tax or other fiscal measures introduced by the government to promote environmental, social and governance issues.

To fulfil this investor demand and to fill potential ESG information gaps, we have launched a new ESG website, where one of the key building blocks has been feedback received from institutional investors and PD banks. The designated website covers themes that concern sustainable and ESG investing and guides investors to sources of information, such as the government programme, the budget review, statistics and indexes.

Issuance strategy

The key function of the State Treasury is to safeguard the liquidity and funding for the central government. In 2021, the Republic of Finland successfully fulfilled its EUR 27.8 billion issuance programme. The State Treasury decided not to raise approximately EUR 8 billion of the net borrowing requirement of EUR 11.7 billion entered in the budget proposal for 2021 due to the strong liquidity position of the central government.

For 2022, the scale of our financing programme is similar compared to last year. The overall gross borrowing requirement, including short-term funding, will be EUR 28.7 billion. The net borrowing is expected to be EUR 7 billion.

Keeping our bonds attractive and creditworthy to investors remains our long-term goal. We believe that Finland’s strong credit outlook and commitment to sound governance and sustainable development will support our bonds and serve all our investors well in the coming years.

Teppo Koivisto is Director of Finance and Head of the Finance Division at the State Treasury of Finland. He is in charge of the central government debt management function, which includes funding, liquidity management, investor relations, strategy, and interest rate risk positioning of the government debt.