economic policy, general government finances, central government finances, central government’s balance sheet, off-budget liabilities, guarantee liabilities
The good economic development in recent years has strengthened the general government finances, but at the same time, the risks of general government finances have grown. Direct government liabilities have grown considerably in ten years. In 2008, central government debt amounted to EUR 54 billion, compared to EUR 105 billion at the end of 2018. During the same period, government contingent liabilities have grown strongly and the growth does not appear to be subsiding. Central government guarantees and collateral in effect totalled EUR 57 billion at the end of 2018. The corresponding figure in 2010 was EUR 23 billion. The risk level of guarantee liabilities increases due to their concentration in certain sectors and companies.
In addition to direct liabilities, guarantee liabilities and collateral, central government’s risk position is influenced by implicit liabilities. They are not legally binding on central government, but due to social factors, central government is expected to bear the ultimate responsibility for them. The key implicit liabilities are those pertaining to the banking sector and local government. Finland’s banking sector involves structural factors that increase its sensitivity to disruptions. These are the banking system’s relatively large size, concentration and close links with other Nordic countries. These special features have gained strength in recent years. Local government’s implicit risks have also increased due to the growth in municipalities’ financial liabilities. At the end of 2018, municipalities’ debt was EUR 17 billion, having been EUR 5.5 billion in the early 2000s. In addition, guarantees granted by municipalities have grown significantly.
The growth in government liabilities and modest growth prospects, driven by structural factors in the form of weak productivity development and ageing population, have reduced the leeway for central government in the event of a macroeconomic disruption. Particular attention should thus be given to indebtedness and growth in contingent liabilities and their risk management. There is also a need for structural reforms that support the development of employment and productivity.