Finance Ministry expects debt trend to continue
New government’s cost cuts will not stop debt spiral
The Ministry of Finance predicts that Finnish state finances will continue their spiral into debt.
According to a forecast released on Monday, Finnish state debt is set to grow to an amount that is the equivalent of 46.9 per cent of total production by 2013.
Before the recession, which began in 2008, the figure was 29.5 per cent.
If the forecast holds, the Finnish state debt will be EUR 93 billion in 2013.
At the end of May this year the figure was EUR 71 billion.
This amounts to about EUR 13,000 for each Finn.
The Finance Ministry forecast does not take into account the spending cuts that the new government hopes to implement.
The new government plans to cut a total of EUR 2.5 billion in state spending by 2015.
Even if the goal were implemented, Tuomas Sukselainen, the head of the Finance Ministry’s national economy section, says that it would merely slow down the growth in the debt.
A small reduction in the debt as a proportion of total production would require cuts of about six billion.
Finnish indebtedness is nevertheless moderate in comparison with those of other developed economies.
Figures put out by the International Monetary Fund show that indebtedness of developed countries as a proportion of gross production is at an average of 100 per cent.
Finland could also be compared with Sweden, where the country’s Ministry of Finance predicts that from 2011-2013 the country’s state finances will show a surplus of an average of 1.5 per cent with respect to total production.
By 2013 Sweden’s state debt should decline to 22.5 per cent in relation to gross production.
Meanwhile, the Finnish Ministry of Finance forecasts that each year Finnish state finances will show an average annual deficit of EUR 3.6 per cent compared with overall production, with state debt growing at EUR 7-8 billion a year.
States differ from private individuals and companies in that they can keep borrowing more as long their credit rating is in good shape.
However, states with massive debts cannot withstand economic shocks, such as the 2009 recession, as well as a country that has a surplus.
Mikko Spolander, financial secretary at the Ministry of Finance, warns that Finland is running such a high debt that it could lose its ability to withstand shocks from the world economy.
Previously in HS International Edition:
State debt surges after slight decline (22.3.2010)
Finance Ministry: Economic problems add to Finnish debt (22.12.2009)