Finland Unveils Budget in Deficit for 17th Year in a Row
(Bloomberg) -- Finland’s coalition government needed just one day to hammer out a budget for next year, with the ruling parties united on a need to halt debt growth even as the Nordic nation runs a shortfall for the 17th consecutive year.
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Finland’s finances will be in deficit by about €12.2 billion ($13.5 billion) next year with total spending set at about €88.8 billion, Prime Minister Petteri Orpo told reporters in Helsinki on Tuesday — a day earlier than expected. The estimates are largely in line with a draft drawn up by the Finance Ministry last month.
Orpo reiterated that his government’s reforms and austerity measures will help balance public finances by 2027, even in the absence of new, major austerity measures. The budget will next be discussed by parliament.
Finland has run consecutive deficits since 2009, and its sovereign debt relative to the size of its economy has more than doubled. Orpo’s coalition is focusing on implementing €9 billion in austerity measures announced since June 2023 in an effort to avoid European Union penalties for breaching its economic rules.
“There is still a significant risk that these measures alone will not be enough and Finland’s debt ratio will continue to rise, leading to further austerity measures already next year,” Danske Bank A/S economist Pasi Kuoppamaki said by phone on Wednesday.
For the government to have a chance to stabilize the debt ratio, it needs to see a turnaround in Finland’s economy on the back of a global recovery, slower inflation, lower interest rates and a pick up in domestic demand, he said.
But ratings companies have already taken note, with Fitch Ratings cutting the outlook on Finland’s AA+ long-term rating to negative from stable last month, citing an “insufficient” plan to narrow the budget deficit.
Danske’s Kuoppamaki sees “a considerable risk” that Finland’s credit ratings will be lowered by other ratings agencies too. That wouldn’t come as “a massive” surprise to the market but would still lead to higher cost of debt, he added.
On Tuesday, asked about plans for further spending cuts and tax increases, Orpo called the existing austerity plans “adequate” and said Finland’s “fiscal policy stance is credible.”
Next year, Finland will cover its projected deficit with new borrowing, which will take the total debt to €181 billion, the government said. The budget also includes an €891 million investment program of which €325 million will be earmarked for 2025. Fingrid Oyj and Gasgrid Finland Oy will both receive funds to ensure they are able to make required grid investments.
Part of the government’s plan to meet its fiscal targets hinges on the global growth, according to comments by Finance Minister Riikka Purra earlier on Tuesday. The Finnish economy posted meager 0.3% growth in the two consecutive quarters so far this year, helped by a pick up in the volume of exports. Many economists still expect a full-year contraction in 2024 ahead of a rebound to growth in 2025.
(Updates with Danske Bank’s economist comments from fifth paragraph)
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