1. A Brief Presentation of the Economic Development in Finland
Director for Performance Audit Hannu Rajamäki
National Audit Office of Finland
Vilnius 10 June 2011

2. “The officials in the Finnish Ministry of Finance are constantly worried about Finland running into debt. Using their graphs and calculations, they know exactly how to make citizens quake with fear at the terrible consequences of becoming too heavily indebted. Listening to their gloomy predictions, you might imagine that the out-of-control debt spiral has been a particularly difficult problem in Finland for a long time. But it is not quite like that – at least not yet.
In reality, Finland is a country that has constantly avoided becoming too heavily indebted. …”
Dr. Sixten Korkman,
CEO, the Research Institute of the Finnish Economy, 2011

3. Recent economic development in Finland

4. crisis in Finland
- Finnish financial sector was insulated from the crisis
Banking sector was in good condition
Household debt increased but less than in many other countries
Long-term housing price development relatively moderate (however, EU Commission warns about relative overpricing of real estate)
In contrast the global recession hit real economy hard
Worldwide collapse in trade
Composition of Finnish exports (capital goods, ICT)
Exports declined by 20,5 % in 2009
In 2009 GDP declined by 8 %
Biggest drop since 1918

5. GDP growth and level 1990-2012 --- --- ---
SOURCE: Statistics Finland, forecasts Ministry of Finance

6. Export led drop, indexed (2000=100)
SOURCE: Statistics Finland

7. Fiscal stimulus in Finland
In response to the severe economic crisis the government implemented a vast array of fiscal stimulus measures
According to the Ministry of Finance the stimulus measures amount to 1,8 % of GDP in 2009 and 1,6 % in 2010 (in 2011 the expected effect of those measures will be 0,5 %)
Stimulus among the highest in the euro area as a share of economic activity
Stimulus measures include both tax cuts and increased spending

8. Estimated stimulus measures in 2009

9. Effects of fiscal stimulus
Effects of various stimulus measures remains to be analyzed
In general, it seems that fiscal stimulus has been appropriate
Has supported employment and domestic demand
Due to sharp decline in GDP and significant fiscal stimulus public fiscal stance has weakened considerably
Fiscal consolidation is a key challenge in the coming years

10. Unemployment rate and employment rate 1990-2010* *
SOURCE: Statistics Finland, forecasts Ministry of Finance

11. Financial stability map for Finland
Macroeconomy
Banks’ sustainability
Housing prices
dec 2009
dec 2010
may 2011
Risk premia
Indebtedness
Source: Bank of Finland

12. Fiscal stance, % of GDP
SOURCE: Statistics Finland, forecasts Ministry of Finance

13. Slaloming in a crowded funding environment
the year 2010 a year of rebounding economic activity but shadowed by serious public debt crisis in Europe
the 2009 recession was one of the deepest ever in Finnish economic history
Finland’s strong public finances deteroriated sharply in 2009
in 2010 Finnish general government debt to 3,2 % GDP
first steps were taken towards stabilisation of public finances
in 2011 the policy of fiscal austerity will continue; general government finances are improving (deficit about 1,3 % GDP)
public debt will continue to rise: the figure will top EUR 100 billion in 2012 (52 % GDP)
in spite of recent development in the government deficit and an increase in public debt the sovereign credit ratings on the Republic of Finland are stable (long-term / AAA / Standard & Poor’s)
elections in April --- new parliament; new government ???

14. Central Government Debt of Finland, years 1995 – 2010%
€ billions

15. Finland: Interest spreads to Germany
10 year
5 year
months: 4/ 2010 – 4/2011

16. NAOF:s audit activities 2010 - 2011
Annual financial audits:
Ministry of Finance
State Treasury
Annual audit of State’s Financial Statement
Fiscal Policy, sustainability
budget deficit, borrowing and lending operations
reports on central government lending
Annual follow-up of the Central Government’s Debt Management Strategy and Operations
annual update of debt management strategy
risk management reports (monthly)
discussion with MoF / Money Market dep.
discussions with State Treasury, Director of Finance and Deputy Director of Finance, Manager of Risk Management
Performance Audits
none 2010
no audit plans for 2011 (except European Financial Stability Facility / System)