Quarterly Review 2/2019

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

Outlook for the Finnish economy and public finances

The Ministry of Finance forecasts Finnish GDP to grow by 1.6% in 2019. All main demand items will show rather steady growth. The unemployment rate is expected to stand at 6.6% while the employment rate is forecast to be 72.6%. One of the main economic policy objectives of the new government is to achieve an employment rate of 75%. Inflation will remain subdued and the current account will show a relatively small deficit of 1.5%. Slower growth in world trade is expected to affect Finnish exports in the coming years.

The rather solid growth of the Finnish economy for the past three years has improved the state of general government finances. 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. One of the key targets of the new government programme is balancing Finland’s general government finances by the year 2023 in a situation where the world economy grows at a normal rate.

Both general and central government finances will show relatively small deficits in 2019. The general government deficit will be 0.6% in relation to GDP while central government finances will show a marginally higher deficit. The general government debt-to-GDP ratio started to decline a couple of years ago and has fallen below 60%. According to the forecast of the Ministry of Finance, the debt ratio will shrink to 58.3% at the end of 2019.  In comparison, the central government debt will be clearly smaller: it is forecast to be 44.2% in relation to GDP at the end of this year.

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. S&P and Moody’s have assigned a stable outlook on the rating while Fitch changed the outlook from stable to positive last year, reflecting improved public debt dynamics and better medium-term potential growth prospects. The next pre-announced calendar dates for rating announcements are in July 2019.

Review of Treasury operations by the State Treasury, April to June 2019

The second supplementary budget for the year reduced the borrowing requirement slightly. According to the budget, the gross borrowing requirement for the year 2019 is approximately EUR 15.18 billion. The net borrowing requirement is EUR 1.796 billion. Similar to previous years, approximately 70 per cent of the total borrowing amount will be covered by long-term funding and the rest with short-term Treasury bills.

In the second quarter of the year, the State Treasury arranged two tap auctions of government bonds and one Treasury bill auction.

The first bond auction of the quarter, announced on 3 April and held on 10 April, was a double line auction of the bonds maturing in 2026 and 2047. The auctioned amount totalled EUR 1 000 million. The outstanding amounts of the respective bonds after the auction are EUR 5 500 million for the 2026 line, and EUR 3 000 million for the 2047 line. By reaching this outstanding amount in the auction, the 2047 serial bond gained benchmark bond status. The second bond auction in the quarter, arranged on 5 June, was a tap auction of the new 10-year benchmark bond maturing in 2029. The auction increased the outstanding amount of the bond by EUR 972 million.

The Republic of Finland conducted its second auction of euro-denominated Treasury bills on 22 May. The auction consisted of two maturity lines, a line maturing on 12 August and a line maturing on 12 November, raising a combined amount of EUR 1 480 million. The cut-off yield for both lines was -0.555%. In addition to the quarterly Treasury bill auction, Treasury bills were issued both in euros and US dollars in a sporadic issuance window according to the liquidity needs of the central government. The outstanding amounts of euro- and USD-denominated Treasury bills at the end of June were EUR 3 900 million and USD 2 900 million, respectively.

Near-term outlook for the period of July to September 2019 and beyond

The State Treasury is planning to issue a second new euro benchmark bond in the second half of the year. The maturity is likely to be in the 5-year sector.

As in previous years, bonds may be issued under the EMTN programme to complement the funding in euro benchmark bonds. The option to issue a USD-denominated benchmark-sized bond under the EMTN programme will be considered in the second half of the year, market conditions permitting.

The Republic of Finland will likely conduct a euro benchmark bond tap auction in the third quarter of the year. The timing, frequency and size of the auction can be adjusted subject to the central government’s liquidity position and prevailing secondary market conditions. Details and further information of each auction will be published one week prior to the auction date.

The next auction of euro-denominated Treasury bills will take place on 20 August 2019. The auction will be arranged in the Bloomberg Auction System and is open to the RFTB dealer group. Further information on Treasury bill auctions and a quarterly updated auction calendar will be published on www.treasuryfinland.fi.

In addition to auctions, a sporadic issuance window for dollar- or euro-denominated Treasury bills is possible during the third quarter of the year. The timing of the Treasury bill issuance is subject to the liquidity position and refinancing needs of the central government.

The next Quarterly Review will be published on 30 September 2019.

Further information: Senior Manager Mika Tasa, tel. +358 295 50 2552, firstname.surname@statetreasury.fi

* Ministry of Finance (Economic Survey, Summer 2019)

, Updated 10.7.2019 at 12:37