The Finnish government currently has a debt of around 137 billion euros, and this number is likely to increase. The national debt has grown rapidly in recent years and grew even more strongly at the beginning of this year.
The Ministry of Finance will start preparing next year’s budget this week.
Like many countries, Finland’s debt increased significantly during the Covid crisis. Then, when Russia invaded Ukraine, the state borrowed more funding for defense purposes.
Last spring, the Ministry of Finance estimated that it would spend around 700 million euros on interest expenses alone. However, due to the rise in interest rates, the state seems to be paying about 1.2 billion euros for them this year.
However, opinions differ among experts and business leaders as to what is Finland’s biggest economic threat.
Aki KangasharjuEconomist and managing director of the think tank of the Institute for Economic Research (Etla) said that there has been a misconception about low interest rates in Finland for too long.
"Above all this [situation] proves that it was ridiculous populism to claim even a year ago that we had entered a new era where debt is irrelevant," he said.
“We need to start saving”
Jenni Pรครคkkรถnenthe financial adviser of the Ministry of Finance, admitted that interest rates have recently fluctuated more than usual.
"The most important thing for decision-makers is that the era of zero interest is over and that the debt will pay off again," Pรครคkkรถnen said and added that Finland’s growing debt should be curbed so that interest costs do not consume too much public funds.
Etlan Kangasharju stated that the prime minister Sanna MarinThe SDP government took on almost 10 billion euros in debt for future investments and said the spending was supposed to be temporary, but it turned out to be permanent.
"It is good that more teachers were hired in vocational schools, but we cannot give every ministry this much extra money because at some point we have to start saving." Kangasharju said.
However, the head of the think tank added that he does not want to declare a state of emergency during this or the next government.
"But if the spending levels of recent years continue for a few more state administrations, then a debt crisis situation is certainly possible," he said.
The LNG shutdown would affect Finland
Meanwhile, Risto MurtoCEO of the pension insurance company Varma, said that he does not think that the rise in interest rates would pose a big threat, because when interest rates rise, so does inflation, which helps to eat up debt.
In addition, he said, an increase in interest rates will have less impact than if Europe’s liquefied natural gas (LNG) supply is cut.
Unlike other EU countries, Finland is not dependent on Russian LNG. However, if the gas cuts cause the countries of Central Europe to drift into recession, the reverberations will soon be felt in the Finnish economy.
"If the gas supply is completely shut down and the economies of Germany and Italy are in recession, it will inevitably affect Finland as well," he explained.
The Finnish economy has experienced a unique period in recent years. When interest rates were below zero, the state has sometimes even received money as a loan.
"The interest that the government pays on its debt is still exceptionally low. It is particularly low given our inflation rate," Murto said.
Durability gap
Another threat to Finland’s economy is the country’s aging population, and in the future, according to Murto, taxpayers’ funds to pay the national debt will be less and less.
"It’s a structural problem, a bit like Italy, which has a similar demographic. It is difficult to get rid of this debt," he explained.
The situation is known as the sustainability gap, where public coffers are financed more and more with debt, while spending increases as the population ages.
Etlan Kangasharju said he thinks about the attitude "we don’t have to do anything about it now, we’ll deal with it later," is strange and adds that Finland should deal with its debt now, before the crisis hits.
Source: The Nordic Page