A nation that stood shoulder to shoulder with Germany during the European debt crisis in defense of austerity is growing increasingly worried about its own debt burden.
Finnish Finance Minister Petteri Orpo says his country must start paying down its record €106 billion ($125 billion) in central government debt before the window of opportunity to get the situation under control disappears, Bloomberg reported.
“We need to start paying down debt before the worst cost burden hits us,” Orpo said in an interview in Turku, on Finland’s southern coast, on Saturday. “In the 2020s, as the population ages and we replace our fleet of Hornet fighter jets, paying off debt may become impossible without very strong growth and a high employment rate. And then we might actually want to be able to borrow some more when the worst of the ageing-related costs hit us.”
Finland has been a net borrower for the past ten years, with central government debt almost doubling since a low in 2008. Over that period, the Nordic nation lived through what policy makers dubbed “a lost decade” as the decimation of key industries—paper and consumer electronics—erased 100,000 jobs.
To be sure, Finland still carries the second-highest rating at Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, and it boasts some of the lowest bond yields in the eurozone, reflecting investor confidence in its capacity to service the debt. But debt levels are considerably higher than those in Denmark, Sweden and Norway.
This year, gross domestic product in Finland is finally set to reach the level it had just before the global financial crisis hit a decade ago, with the finance ministry estimating 2.2% average annual expansion through 2022.
Quarterly economic growth is at a seven-year high and debt relative to GDP is falling. But in absolute terms, debt is growing and policy makers wonder how they’ll tackle the demographic challenge ahead.
The population in Finland, which is due to hold general elections next year, is ageing at almost twice the rate of the average for the European Union, with the share of people aged 65 or over increasing 4.4 percentage points in the decade through 2017, according to the Eurostat.
The curve is so steep that some years ago Finland was the fastest ageing nation in the EU. That’s adding to projected care costs and pension payments, which are borne by a shrinking group of taxpayers and feeding a gaping hole in public finances.
