Prime Minister Petteri Orpo (NCP) and Minister of Finance Riikka Purra (PS) attended a plenary session in parliament on 23 May 2024. Finland has narrowly avoided the excessive debt procedure of the EU, with the European Commission ruling that the country is likely to breach its budget deficit rules only temporarily. (Heikki Saukkomaa – Lehtikuva)

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FINLAND has avoided the excessive deficit procedure even though it is expected to breach the debt rules of the European Union in 2024, reports Helsingin Sanomat.

The European Commission revealed last week that it has decided not to initiate the procedure against the country because it expects the country to breach the three-per-cent limit on budget deficit only temporarily. Finland, its forecast indicates, will have a deficit equalling 3.4 per cent of the gross domestic product in 2024.

Without the measures the government decided on in April, the breach would not have been minor and temporary. The additional cost savings made at the framework session were therefore decisive,” analysed Minister of Finance Riikka Purra (PS).

To achieve this, we made difficult decisions in April. Now we can be pleased that we have avoided the excessive deficit procedure this time at least.”

The procedure was initiated against seven other member states: Belgium, France, Italy, Hungary, Malta, Poland and Slovakia. Triggering the procedure – either by having a budget deficit of over 3 per cent or by having a government debt level of over 60 per cent of gross domestic product – obligates a member state to commit to a fiscal adjustment programme devised by the European Commission.

The European Commission ruled on Finland based on both its own forecast and an earlier forecast by the Finnish Ministry of Finance.

The Ministry of Finance last week updated its forecast to estimate that the budget deficit will widen to 3.7 per cent in 2024 and contract to 3.1 per cent in 2025. The debt ratio of the public economy, it added, will continue to balloon despite the likely resumption of growth toward the end of the year and the large-scale adjustments carried out by the government of Prime Minister Petteri Orpo (NCP).

The total debt burden of the central government, municipalities and well-being services counties is forecast to climb over 80 per cent of GDP in 2024.

“A lot will now depend on the change in the economic situation. Will it come early enough, will it be strong enough, will it consolidate the public economy with its entire weight? We are moving forward on a knife’s edge,” the ministry wrote in a dramatically phrased forecast.

The Ministry of Finance identified both positive and negative developments.

With the recession residing and economic growth resuming, the budget deficit should narrow in the years to come. The fiscal adjustments will similarly start strengthening the economy, and the employment situation will improve in the coming years as a consequence of immigration and policy measures.

On the other hand, tax revenue is expected to fall short of previous projections, widening the budget deficit. The expenditures of both municipalities and well-being services counties are soaring faster than expected, with the latest data from the counties a particular concern for the Ministry of Finance.

Also debt servicing costs remain higher than previously.

The Ministry of Finance said last week that the national economy experienced modest growth earlier this year, adding that the growth will pick up toward the end of the year as slowing inflation, falling interest rates and growing consumer confidence prompt households to loosen their purse strings. The Finnish economy is not expected to expand from last year in 2024, however.

Finnish exports, meanwhile, will receive a boost as the global economy improves, and investments will increase.

Aleksi Teivainen – HT

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