Finland’s public debt sustainability and fiscal consolidation needs

Abstract

Finland’s public finances have long been in structural deficit, irrespective of the cyclical situation. The continued deficits have led to an increase in the amount of public debt relative to gross domestic product (GDP). As interest rates have now risen significantly, interest payments on public debt are growing as the stock of debt is rolled over and expands further. At the same time, population ageing is adding to the need for health and social services and the related spending. 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. A fiscal correction will require significant spending cuts and tax increases in future parliamentary terms.