Finland's Aaa rating and stable outlook reflect a track record of successive governments' achievements in fiscal reform as well as the consistency and proactive nature of their macro-economic policy frameworks.
Finland is the only government in the European Union that has never breached any of the Maastricht fiscal criteria. It is also currently the only Aaa-rated euro area country with a stable rating outlook.
Moody's points out that Finland's general government deficit climbed to 2.3 per cent of GDP in 2012 from 1.1 per cent of GDP in 2011. The increase occurred as the economy re-entered recession, as did those of many countries in the single currency area. Finland's economic slump has continued into 2013, as its most important economic sectors such as forestry, paper and pulp continue to face structural demand challenges on a global scale.
Established in mid-2011when the six-party coalition was formed, Finland's policy framework aims to eliminate the 'sustainability gap' in public finances. The gap relates to the additional spending pressures that arise from an ageing population and from a shrinking labour force. Eliminating the gap will necessarily involve improving underlying conditions as needed to restore growth, especially via gains in competitiveness, even as key sectors are struggling.
The government also participates in the EU's "Fiscal Compact", which commits it to move towards a 0.5 per cent of GDP structural deficit on a general government basis. That being said, the renewed recession in 2012, a widening government deficit and a slight rise in the unemployment rate led to a higher debt-to-GDP ratio than expected last year. With near-zero growth also foreseen for 2013, achieving the government's 2015 goals will be extremely challenging and subject to considerable downside risks.
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