Quarterly Review 2/2018

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 the recent economic forecast of the Ministry of Finance, the strong growth of the Finnish economy will continue in 2018. The volume of Finland’s GDP will increase by 2.9 per cent this year as economic activity remains strong across the board. The order books of domestic enterprises are strong and private investment will grow rapidly. Export growth is expected to continue in 2018. The employment rate will increase to over 70 per cent and inflation will remain subdued at 1.1 per cent.

Reflecting the bright economic situation and earlier fiscal policy measures, the state of public finances is rapidly improving. The general government deficit will fall and debt-to-GDP ratio will decline in the coming years. However, Finland’s ageing population poses a challenge for the public finances in the long run.

The general government debt-to-GDP ratio started to decline in 2016. According to the Ministry of Finance, the ratio will decrease to 60 per cent in relation to GDP at the end of this year and will fall even further next year. In comparison, the central government’s debt ratio will be clearly lower: it is forecasted to be 46.3 per cent in relation to GDP at the end of 2018. General government deficit is expected to be 0.7 per cent relative to GDP this year while central government deficit will stand at 1.7 per cent.*

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, April to June 2018

On 24 April, Finland conducted a tap auction of the latest 10-year euro benchmark bond due 15 September 2027. The bid amount was EUR 1 626, and a total auctioned amount of EUR 1 001 million brought the outstanding amount of this bond to EUR 5 001 million. A second tap auction in the quarter took place on 12 June when the new 15-year line, initially issued in February 2018, was tapped for EUR 986 million. The bond, which is maturing on 15 April 2034, now has an outstanding amount of EUR 3 986 million. The bid-to-cover ratio for this auction was 1.3.

In terms of short-term funding, the window for issuance of USD-denominated Treasury bills was opened in April for a September maturity. The total issuance was USD 2 500 million. In June, T-bills maturing in November were issued for USD 1 100 million and EUR 150 million, which brought the total outstanding amount of bills to USD 3 600 million and EUR 315 million.

Near-term outlook for the period of July to September 2018 and beyond

The first supplementary budget proposal for 2018 by the government, dated 31 May, lowers the central government net borrowing requirement by EUR 1.3 billion to EUR 1.8 billion. With redemptions, the gross funding requirement for the year is EUR 16.8 billion. This means that the foreseen long-term funding for the year is in the a range of 11 to 12 billion euros.

A second euro benchmark bond for the year is foreseen to be issued in the third quarter. The maturity is likely to be 10 years and the timing is subject to market conditions.

As communicated earlier, in addition to a new bond issue, tap auctions of existing bond lines are expected in the latter half of 2018. 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 are published one week prior to the auction date.

In addition to euro benchmark bonds, Finland can also issue long-term debt instruments in currencies other than the euro. The option to issue a USD-denominated benchmark-sized bond under the EMTN programme will be considered in the second half of the year, the timing being subject to market conditions and the state’s refinancing needs.

Regarding short-term funding, the timing of the Treasury bill issuance continues to be subject to the liquidity position and refinancing needs of the central government. The daily tapping window is likely to reopen in the second half of the year. Treasury bills are issued in euros and US dollars with monthly maturity dates.

The next Quarterly Review will be published on 28 September 2018.

For further information, please contact Mika Arola, Deputy Director, tel. +358 295 50 2604 or Mika Tasa, Treasury Front Office, tel. +358 295 50 2552, or e-mail firstname.surname@statetreasury.fi.

*Ministry of Finance, Economic Survey, Summer 2018.

, Updated 13.5.2019 at 16:35