Quarterly Review 1/2018

The State Treasury publishes a quarterly review, which includes information on recent developments in debt management and an outlook for the upcoming quarter of a year.

Outlook for the Finnish economy and public finances

According to Statistics Finland’s preliminary data, the volume of Finland’s GDP grew by 2.7 per cent in 2017, the fastest rate in many years. Bolstered by higher employment, private consumption continued to grow and all types of private investment developed strongly while exports benefited from better price competitiveness and stronger international demand in the main export markets. In 2017, the current account showed a surplus for the first time since 2010.

As regards 2018, the Ministry of Finance expects the economic growth to continue at 2.4 per cent. Exports and private investment will both increase from the previous year. Inflation remains subdued although it will pick up from last year: the change in consumer price index this year is expected to be 1.4 per cent. The unemployment rate will continue to decrease to 8.1 per cent in 2018. Reflecting a brighter economic outlook, the employment rate has greatly increased during the last year and it is expected to increase to over 70 per cent in 2018.

Finland’s general and central government deficits have declined in recent years. The challenge of balancing public finances is compounded by population ageing, which is driving up pension expenditure as well as health care and long-term care costs.

The general government debt-to-GDP ratio started to decline in 2016. According to the initial preliminary data of Statistics Finland, the ratio of debt to GDP was 61.4 per cent at the end of last year. According to the Ministry of Finance, by 2019 the debt ratio will shrink to just under 60 per cent. In comparison, the central government’s debt ratio will be clearly lower: it is forecast to be 46.0 per cent in relation to GDP at the end of 2019.*

Finland’s relatively strong public finances and modern economy, among many other things, are reflected in Finland’s high credit ratings. The central government of Finland has solicited credit ratings from three credit rating agencies: S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. For long-term debt, they are AA+, Aa1 and AA+, respectively. All of the agencies have assigned a stable outlook on the rating.

Review of Treasury operations by the State Treasury, January to March 2018

The budgeted gross borrowing amount for the year 2018 is approximately EUR 18.1 billion, and the net borrowing requirement is EUR 3.1 billion. As communicated earlier, approximately 70 per cent, i.e. approximately EUR 13 billion, of the total budgeted borrowing will be covered by long-term funding.

In the first quarter of the year, the Republic of Finland issued a new euro-denominated benchmark bond in the 15-year maturity sector. The bond is due 15 April 2034. This follows the strategy of issuing in that segment of the yield curve every three years.

The order book for the issue grew to EUR 11.4 billion with over 120 investors participating. The final deal size was EUR 3 billion. Despite the nervous equity market conditions around issuance, demand for bonds with a stable credit outlook proved to be solid with pension funds and insurance companies contributing 22 per cent and central banks and official institutions 19 per cent of the total allocation.

In short-term funding, the Treasury bill window was reopened in January to issue Treasury bills denominated in US dollars for the maturity date 20 June 2018. The outstanding volume of that line is currently USD 3 000 million.

Near-term outlook for the period of April to June 2018 and beyond

A second new euro benchmark bond is expected to be issued in the second half of the year. In addition, one or two bond tap auctions are likely to be conducted during the second quarter of the year. The timing, frequency and size of the auctions can be adjusted subject to the central government’s liquidity position and prevailing secondary market conditions of the Republic of Finland euro benchmark bonds. Details and further information of each auction will be published one week prior to the auction date.

The Republic of Finland continues with its strategy of issuing a USD-denominated benchmark-sized bond annually to complement the euro-denominated issuance. The issue of a USD bond under the EMTN programme is foreseen during the year, the timing being subject to market conditions and the state’s refinancing needs.

Similarly, the timing of the Treasury bill issuance is subject to the liquidity position and refinancing needs of the central government. The daily tapping window is likely to open during the second quarter of the year. Treasury bills are issued in euros and US dollars with monthly maturity dates.

The next Quarterly Review will be published on 29 June 2018.

For further information, please contact Anu Sammallahti, Treasury Front Office, tel. +358 295 50 2575 or e-mail firstname.surname@statetreasury.fi.

*Ministry of Finance: Economic Survey, Winter 2017 and Statistics Finland.

, Updated 13.5.2019 at 16:34