Finland’s crisis-hit public finances need strengthening

Abstract

In recent years, Finland’s public finances have drifted from one crisis to the next. The pandemic, Russia’s war in Ukraine, the energy crisis and high inflation, along with continued low economic growth, have caused radical changes in the economic environment. What stands out in particular is the change in Finland’s debt trajectory since before the outbreak of the pandemic. In 2023, Finland’s public finances will be running a deficit for the fifteenth consecutive year. The debt-to-GDP ratio does not yet differ from that of other euro area countries with lower-than-average public debt, but projections point towards a concerning trend. The debt trend is similar to that seen in the most indebted countries of the euro area, where the scars of the global financial crisis and the European sovereign debt crisis run deep. The pandemic persists while Russia’s war in Ukraine and the energy crisis sow uncertainty in the economy and in fiscal policy as the parliamentary term draws to an end. The crises have demonstrated the continued need of sufficient fiscal space in the public finances.