Quarterly Review 2/2017

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

A clear recovery has begun in the Finnish economy. According to the latest forecast of the Ministry of Finance, the Finnish economy will grow by 2.4 per cent this year. Growth is expected to continue also in 2018 and 2019, although at a slightly slower pace. Economic growth is also more diversified than before as growth is accelerating in all demand items and all major sectors, including manufacturing.

Finnish exports will pick up; export volume is expected to grow by almost 5 per cent this year. Private consumption will continue to increase, with growth in private investment exceeding 4 per cent this year. Investment is shifting from construction to productive investment in manufacturing. The unemployment rate will decrease to 8.5 per cent and inflation is expected to come in at 1.0 per cent in 2017.*

Finland’s general government deficit has declined in recent years. The deficit is gradually shrinking but will persist in the coming years. 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 and central government debt-to-GDP ratios are stabilizing. At the end of 2017, the public debt is expected to stand at 63.8 per cent in relation to GDP. The central government debt was EUR 102.4 billion at the end of 2016, i.e. 47.8 per cent in relation to GDP. This ratio is expected to rise slightly before stabilizing at 48.6 per cent in 2018.

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.

Review of Treasury operations by the State Treasury, April to June 2017

On 26 April, Finland conducted a twin-line tap auction of the new 5-year euro benchmark bond due 15 April 2022 and the new 30-year serial bond due 15 April 2047. These bonds were initially launched in February this year. The total auctioned amount was EUR 1.5 billion. The outstanding amount of the 2022 bond grew by EUR 1 000 million to EUR 4 000 million in total. The bond maturing in 2047 grew by EUR 500 million, bringing the total outstanding amount to EUR 2 000 million after the auction. The bid-to-cover ratios for the auction were 1.5 for the shorter and 1.9 for the longer issue.

In terms of short-term funding, the issuance of USD-denominated Treasury bills was initiated in April for an October maturity and reopened again at the end of June for a line maturing in January 2018. The outstanding volumes of the two lines are currently USD 3 200 million and 2 500 million, respectively.

Near term outlook for the period of July to September 2017 and beyond

The first supplementary budget proposal for 2017 by the government, dated 24 May, lowered the central government net borrowing requirement slightly to EUR 5.5 billion. With redemptions, the gross funding requirement is EUR 22.6 billion. This would leave the foreseen long-term funding for the year unchanged at a previous estimated range of 16 to 17 billion euros. At the end of June, approximately 44 per cent of the estimated long-term funding for the year has been completed.

A second new 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 will be subject to market conditions.

As communicated earlier, in addition to a new bond issue, tap auctions of existing euro benchmark bond lines are expected in the latter half of 2017. 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 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 funding needs.

Regarding the short-term funding, the timing of the Treasury bill issuance continues to be subject to the liquidity position and funding 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 29 September 2017.

For further information, please contact Teppo Koivisto, Director of Finance, tel. +358 295 50 2550 or Mika Tasa, Treasury Front Office, tel. +358 295 50 2552, or e-mail firstname.surname@statetreasury.fi.

*Ministry of Finance: Economic Survey, Summer 2017.

, Updated 13.5.2019 at 16:33