Quarterly Review 3/2017

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 will show strong growth in 2017 and 2018 compared with previous years. According to the forecast of the Ministry of Finance, Finland’s GDP will grow by 2.9% this year and by 2.1% next year. Economic activity will be driven by both domestic and foreign demand. In particular, improving global demand and business cost competitiveness will boost growth prospects for exports. The current account is still expected to show rather small deficits in relation to GDP both this and next year.

The inflation forecast for the current year is 0.9%; it is expected to accelerate moderately next year. The unemployment rate will continue to decrease close to 8 per cent in 2018 while the employment rate will rise to around 70%.*

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 have stabilized and will fall in the next few years. At the end of 2017, the public debt is expected to stand at 62.5 per cent in relation to GDP. In comparison, the central government debt will be clearly smaller; it is forecast to be 47.7% in relation to GDP.

Finland’s relatively strong public finances and modern economy, among many other things, are reflected in Finland’s high credit ratings. Recently on 15 September the credit rating agency S&P Global Ratings affirmed Finland’s long-term sovereign credit rating at AA+. Overall 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, July to September 2017

On 30 August, the Republic of Finland issued a new 10-year euro-denominated benchmark bond due 15 September 2027. This is in accordance with the strategy of issuing two new euro benchmark bonds annually. More than 90 investors participated in the transaction, with the order book growing to approximately EUR 11 billion. The issue size was EUR 3 billion. The bond carries a coupon of 0.5% and was priced at 24 basis points below the euro mid swap level.

Following the introduction of a new euro benchmark bond, the Republic of Finland issued a new 3-year USD-denominated bond in September. The bond was issued under the EMTN programme, with an issue size of USD 1 billion. More than 60 investors participated in the transaction, and the final order book amounted to USD 1.5 billion.

Near term outlook for the period of October to December 2017 and beyond

The government’s second supplementary budget proposal for 2017, dated 21 September, increased the tax revenue estimate and thus lowered the central government net borrowing requirement by approximately EUR 1 billion to EUR 4.5 billion. With redemptions, the gross funding requirement is EUR 21.6 billion. Consequently the foreseen long-term funding for the year would be slightly reduced to an estimated range of 14 to 15 billion euros. At the end of September, approximately 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 expected 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.

The timing of the Treasury bill issuance is subject to the liquidity position and refinancing needs of the central government. The daily tapping window will be reopened in the last quarter of 2017. Treasury bills are issued in EUR and USD with monthly maturity dates.

The next Quarterly Review will be published on 22 December 2017.

For further information, please contact Teppo Koivisto, Director of Finance, tel. +358 295 50 2550 or Anu Sammallahti, Treasury Front Office, tel. +358 295 50 2575, or e-mail firstname.surname@statetreasury.fi.

*Ministry of Finance: Economic Survey, Autumn 2017.

, Updated 13.5.2019 at 16:34