Quarterly Review 1/2017

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

The Finnish economy has returned to growth. According to Statistics Finland’s preliminary data, the volume of Finland’s GDP grew by 1.4 per cent in 2016. Output growth in 2016 was broad-based, but clearly driven by domestic demand.

According to recent economic forecasts, Finnish GDP will continue to grow in 2017–2018. According to Statistics Finland, output of the national economy was 2.4 per cent higher in January 2017 than one year before. In the near future, growth will be driven by domestic demand and also exports. The Competitiveness Pact agreement reached by the labour market organisations will improve the price competitiveness of Finnish business and industry, bolstering exports and employment in the coming years. The current account will still show relatively small deficits. The employment outlook has improved and the unemployment rate will decline.*

Finland’s general government deficit decreased in 2016 and will come within the 3 per cent of GDP reference value also this year and the next. The central government and local authorities are running a deficit but the earnings-related pension sector is showing a surplus. 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 will continue to rise in the next few years. At the end of 2016, the public debt stood at 63.6 per cent in relation to GDP. The central government debt was EUR 102.4 billion at the end of 2016, i.e. 47.7 per cent in relation to GDP, at the same level as a year earlier.

Public finances and modern economy, among many other things, are reflected in Finland’s rather 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.

Review of Treasury operations by the State Treasury, January to March 2017

In the first quarter of the year, the Republic of Finland issued two new euro-denominated  government bonds in a dual-tranche syndication – the first of its kind in the euro era for Finnish government bonds.

The maturities of the bonds on offer were five and 30 years. The five-year issue was of benchmark size at EUR 3 billion, with an order book of EUR 6.9 billion and 55 investors participating in the deal. The serial bond with the 30-year maturity raised EUR 1.5 billion. The order book grew to EUR 5.5 billion with 78 investors in the final allocation. This demonstrated solid demand especially for the 30-year maturity, with pension funds and insurance companies contributing 40 per cent of the total allocation. The distribution to Finnish investors was 20 per cent of the total issued amount.

The first tap auction of the year was conducted on 29 March. The auctioned amount of the benchmark bond maturing on 15 September 2023 was EUR 1 billion, raising the outstanding stock of the bond to EUR 5 billion in total. The bid-to-cover ratio of the auction was 1.6.

Near term outlook for the period of April to June 2017 and beyond

The budgeted gross borrowing amount for the year 2017 is approximately EUR 22.7 billion, and the net borrowing requirement is EUR 5.6 billion. As communicated earlier, approximately 70 per cent, i.e. approximately EUR 17 billion of the total budgeted borrowing will be covered by long-term funding. With the funding operations in the first quarter, approximately 35 per cent of the estimated long-term funding for the year has been completed.

A second new euro benchmark bond is expected to be issued in the second half of the year. In addition, a second benchmark bond tap auction is 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 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 the 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 30 June 2017.

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 2016.

, Updated 13.5.2019 at 16:33