Strategy

The Finnish government’s borrowing strategy is based on benchmark bonds dominated in euros. The government issues one or several new serial bonds every year, which, at the time of issuance, immediately achieve the size, liquidity on the secondary markets and sufficiently wide investor base required of the benchmark bond. Once the serial bonds have achieved benchmark bond status, the government’s primary dealer banks quote bid and ask prices for them.

For the initial issuance of benchmark bonds, the government uses so-called syndicated bond issues. This ensures that a new loan has a broad investor base and fosters price stability in the secondary market. The stock of outstanding benchmark bonds can be increased at a later date, through State Treasury auctions.

In addition to benchmark bonds, the government can also issue long-term debt instruments in currencies other than the euro. Under the framework of the Euro Medium Term Note programme, bonds can be issued in different currencies. The EMTN programme serves as an alternative form of funding augmenting the benchmark bond strategy.

Treasury bills provide the government with a flexible, short-term financing channel. One year is the maximum maturity period for Treasury bills. The State Treasury issues Treasury bills in auctions and, depending on investor demand and liquidity requirements, also on other occasions.

In cash management, the key task is maintaining and securing the government’s liquidity management. Depending on the situation at the time, the State Treasury can invest its cash funds or take out short-term loans from the financial markets.

 

  • Regulatory setting and division of functions

    Under the Constitution of Finland, the Government may borrow funds based on the consent of the Parliament. The consent must indicate the maximum level of the new borrowing or debt. The Parliament has authorised the Government to raise funds, provided that the nominal value of central government debt does not exceed EUR 125 billion and that at the time of borrowing the value of short-term debt may constitute at most EUR 18 billion of the total debt.

    The Parliament has further authorised the Government to borrow short-term loans at its discretion to safeguard State liquidity and to enter into derivative contracts required in connection with managing the risks of the central government debt.

    The Ministry of Finance as a part of the Government has authorised the State Treasury to implement the central government borrowing in accordance with the parliamentary consent and to enter into derivative contracts required in connection with managing the risks of the central government debt in accordance with the further guidelines of the Ministry of Finance.

    The Ministry of Finance provides the State Treasury with guidelines on debt management and oversees their implementation. The guidelines set out general principles and objectives of debt management, debt instruments, risk limits and other restrictions. The State Treasury reports regularly on debt management to the Ministry of Finance.

    Parliamentary Resolution on Amending the Council of State Borrowing Authority 810/2014
    (Available only in Finnish and Swedish)

  • History of government borrowing

    The Finnish government has been issuing bonds since the mid-19th century. It has borrowed in order to finance infrastructure investments important to economic development, supported central bank currency reserves and enabled an active fiscal policy.

    Aside from during wartime, Finland has traditionally avoided high levels of indebtedness. An exception is the economic recession of the early 1990s, when the government debt rose rapidly. The government debt began to grow again following the financial crisis which began in 2008.

    Current borrowing practices were inherited from the 1980s, when the government began to issue Treasury bills and serial bonds. In 1992, the government established its primary dealer system to improve the liquidity of its bonds. After Finland’s accession to the Economic and Monetary Union in 1999, the government debt was denominated almost entirely in euros. At the same time, responsibility for operative debt management was transferred from the Ministry of Finance to the State Treasury.

, Updated 27.5.2019 at 09:40