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Finland’s public finances will continue to be considerably in deficit in the immediate years ahead. A framework for reducing government debt ratios is provided by the EU’s new fiscal rules. Turning Finland’s debt ratio onto a declining path will require sustained fiscal consolidation measures for some time to come.

Bringing Finland’s public finances onto a different path has proven more challenging than expected. The Government is planning major cuts in public expenditure, but the level of public spending in the immediate years ahead will nevertheless still exceed public revenues.

In recent years, Finland’s public finances have shifted from one crisis to the next. The debt ratio has grown almost without interruption since the global financial crisis. Halting the accumulation of further debt in the immediate years ahead would aim to give sufficient room for manoeuvre in future crises and for coming generations.

Post-COVID, the even more indebted public finances will need to be balanced as the economy grows. There will also be a need for structural reforms and a review of the fiscal framework.

Debt will not be halted even when the economy begins to grow again. Moreover, the sustainability gap is now larger. A post-crisis change of direction in the public finances is required.

Fiscal buffers should be accumulated when the economic situation is relatively bright. This would help to reduce the sustainability gap in the public finances and improve readiness for future recessions.

Rainy-day buffers ought to be strengthened during years of solid growth, so that fiscal space is available for tackling future recessions and other unwelcome surprises.

Population ageing will push up public expenditure at the same time as the contraction in the working-age population reins in economic growth. The sustainability will remain around 3% of GDP.

A halt in further growth of the debt ratio looks possible in the medium term. However, the sustainability of the public finances remains unresolved.

According to the Bank of Finland’s assessment of the country’s public finances, the growth in public debt is a cause for concern. Finland’s long-term outlook for growth is weak, and expenditure is increasing apace.