INTOSAI Working Group on Public Debt

Mexico City 14.-15.6.2010

Hannu Rajamäki, NAOF

31.5.2010

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Economic Survey of Finland 2010, Summary

The worldwide recession hit Finland harder than most other OECD countries. (2009 GNP: - 7,8 %; EU - 4%, USA - 2,6%)

Export volumes fell by almost a third from their 2008 peakThe well supervised and prudent financial sector has weathered the crisis wellA significant fiscal stimulus and monetary loosening by the ECB have cushioned the downturnRecovery has been slow

- potentially dampened by deteriorating competitiveness due to an appreciating exchange rate, large industry–level bargained wage increases and slowing productivity growth

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The crisis has worsened the fiscal outlook, calling for a clear consolidation strategy supported by a stronger fiscal framework.

The decline in potential output due to the crisis and the permanent nature of many of the stimulus measures have further undermined long–term fiscal sustainability that was already set to weaken by rapid ageing.

The fiscal framework, including a central government expenditure ceiling and multiple targets, was severely tested in the recession and has been partially suspended. According to OECD and also to NAOF to restore sustainability Finland should show the same resolve as after the 1990s crisis:

- a fiscal consolidation plan should be announced as soon as possible - include measures to increase the duration of working lives, - contain expenditures and raise taxes on consumption and property. - fast–growing municipal expenditures need to be restrained - the municipalities’ declining productivity can be enhanced by more ambitious mergers and structural reforms among local governments

Economic Survey of Finland 2010, Summary

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Finland, Public sector’s EMU-deficit (-) and -debt, % of GNP

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Central Government Debt, Finland

Source: State Treasury of Finland

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Year %/GDP Eur Foreign-currency Total

2010 43,9* 68 768 - 68 768

2009 37,2 64 281 - 64 281

2008 29,4 54 382 - 54 382

2007 31,2 56 068 - 56 068

2006 35,3 58 859 45 58 904

2005 38,2 60 000 44 60 044

2004 41,9 63 745 43 63 788

2003 43,4 62 079 1 241 63 320

 1978-2010 (milj.€)

Central Government Debt, Finland

Source: State Treasury of Finland

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Finland’s Interest Rate Spreads to Germany

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Interest Rate Sensitivity

Year

Source: State Treasury of Finland