Quarterly Review 3/2019

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

Finnish GDP forecasts have recently been revised slightly downwards, mainly reflecting weaker global economic conditions. According to the latest forecast of the Ministry of Finance, released in June 2019, Finnish GDP will grow by 1.6% in 2019. According to the forecast, all main demand items will show rather steady growth this year. The next forecast will be published in October.

The unemployment rate trend in August 2019 stood at 6.7% while the trend of the employment rate was 72.5%. One of the main economic policy objectives of the current government is to achieve an employment rate of 75%. Inflation has remained subdued and was 1.1% in August, while the current account showed a deficit in the second quarter of this year.

The rather solid growth of the Finnish economy for the past three years has improved the state of 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 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. The central government debt will be clearly smaller.*

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. There are no new pre-announced calendar dates for the last months of this year, the dates for rating announcements in 2020 will be released at the turn of the year.

Review of Treasury operations by the State Treasury, July to September 2019

In line with the strategy of issuing two new euro benchmark bonds annually, the Republic of Finland issued a new 5-year euro-denominated benchmark bond on 28 August. More than 80 investors participated in the transaction, with the order book growing to over EUR 13 billion. The issue size was EUR 3 billion. The bond carries a coupon of 0 per cent and was priced at 20 basis points below the euro mid-swap curve for a re-offer yield of -0.734%.

The Republic of Finland conducted an auction of euro-denominated Treasury bills on Tuesday 20 August. The auction consisted of two maturity lines, raising a combined amount of EUR 1 370 million. The cut-off yields for the lines maturing on 12 November 2019 and on 12 February 2020 were -0.640% and -0.700%, respectively. The total amounts of bills currently outstanding sum up to EUR 3 898 million and USD 2 900 million in respective currency.

Near-term outlook for the period of October to December 2019 and beyond

According to the second supplementary budget for 2019, the gross funding requirement for the year is EUR 15.2 billion. This means that the foreseen long-term funding for the year is approximately EUR 10 billion. At the end of September, about 80 per cent of the estimated long-term funding for the year has been completed.

To complete the long-term funding requirement for the year, one or two tap auctions of existing euro benchmark bond lines are likely to be arranged in the last quarter of the year. The timing, frequency and size of the auctions can be adjusted subject to the central government liquidity position and prevailing secondary market conditions of the Republic of Finland euro benchmark bonds. Details and further information of each auction is 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 explored during the remainder of the year, the timing being subject to conducive market conditions and refinancing needs of the central government.

The next auction of euro-denominated Treasury bills will take place on 20 November 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 likely during the last 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 20 December 2019.

Further information: Teppo Koivisto, Director of Finance, tel. +358 295 50 2550, or Anu Sammallahti, Treasury Front Office, tel. +358 295 50 2575, firstname.surname(at)statetreasury.fi

* Ministry of Finance (Economic Survey, Summer 2019).

, Updated 30.9.2019 at 08:44