Financing risk can be divided into liquidity risk and refinancing risk. Liquidity risk refers to short‑term funding risks, essentially the amount of financing the government must cover in the near term relative to its liquid assets and funding capacity. Refinancing risk measures the amount of debt to be refinanced over a period of more than one year.
The State Treasury manages liquidity risk by maintaining funding capacity and a sufficiently large cash buffer at all times. The Ministry’s directive sets a minimum period during which the State must be able to meet its obligations without new borrowing.
Liquidity risk management is based on a cash flow forecast system covering the entire central government sector, through which government accounting entities report their projected income and expenditures to the State Treasury. The State Treasury uses the forecasts to assess cash adequacy and safeguards liquidity mainly by holding cash at the Bank of Finland; other low-risk investments may also be used.
The State Treasury manages refinancing risk by avoiding large concentrations of maturing debt, within the limits set by the Ministry. Diversifying funding by instrument, investor type and geography also reduces source-specific risks and supports bond liquidity and investor demand.