Finland's general government deficit (meaning the imbalance between revenue and expenditure) will remain high this year and persist after the epidemic, because the support measures deployed due to the coronavirus epidemic and the need to repay the services and care debt accumulated during the epidemic will maintain a high level of public expenditure.
This is explained by the Ministry of Finance in its economic forecast report for Spring 2021, which indicates that although the public deficit "will decrease sharply next year" with the end of support measures and continued rapid economic growth, "a substantial deficit in public finances will persist into the mid-2020s."
“The normal state of post-pandemic public finances will unfortunately mean a gradual erosion, characterised by an ageing population, a muted growth outlook and a chronic general government deficit,” explains Mikko Spolander, Director General of the Economics Department at the Ministry of Finance.
According to the report of the Ministry of Finance, the public deficit will thereafter gradually fall between 2023 and 2025 to approach the pre-epidemic level. A substantial imbalance between public expenditure and revenue will nevertheless remain, even after the coronavirus epidemic has eased. The deficit forecast for the mid-2020s is 1.6% of GDP or 4.6 billion euros.
Public finances are adversely affected by an ageing population that has been increasing public spending for a long time.
According to the revised data reported by Statistics Finland to Eurostat, in 2020 general government deficit was 5.4% relative to gross domestic product (GDP), which exceeds the 3% limit of the European Stability Pact.
Source: Statistics Finland.
Public debt
The report emphasizes that government debt as a share of gross domestic product (GDP) "will also continue to grow."
The public debt-to-GDP ratio will increase from the current level of 70% to over 75% by 2025, meaning that the debt ratio will then be about 16 percentage points higher than in 2019.
The debt ratio is also forecast to continue growing after 2025. The long-term imbalance (sustainability gap) between general government revenue and expenditure amounts to about 3% of GDP, (about EUR 8 billion at the 2025 level).
The report forecasts a boost in economic growth to 2.6% in 2021 supported by a global stimulus as the coronavirus epidemic eases.
Source: Ministry of Finance.
Employment
The government's forecast predicts that, due to massive stimulus packages introduced by the the European Union (EU) and the United States (US), progress in vaccination programmes and a lifting of restrictions, the global economy will recover this year from the recession caused by the pandemic.
However, employment will not exceed the 2019 level until 2023, with the employment rate projected to rise to just over 73%, far from the 75% target set by Prime Minister Sanna Marin's cabinet in the government programme at the beginning of her mandate.
