Central government borrowing requirement in 2021 smaller than anticipated
Reduced borrowing requirement does not change the overall economic situation or the longer-term challenges in public finances.
The State Treasury has decided not to withdraw approximately EUR 8 billion of the net borrowing requirement of EUR 11.7 billion entered in the budget proposal for 2021. The decision is based on the strong liquidity position of the central government. In 2021, the central government’s new borrowing amounts to EUR 3.7 billion.
Reduced borrowing requirement does not change the overall economic situation or the longer-term challenges in public finances. Neither will the change have a direct impact on achieving the goal of reversing the upward trend of the general government debt ratio in the mid-2020s. Both the central and the general government debt ratio will continue to grow in the medium term.
There are several reasons for the borrowing requirement being smaller than budgeted. Firstly, the central government cash funds had decreased by approximately EUR 2.5 billion from the end of 2020 to the end of 2021, which means the borrowing requirement will be covered by the debt accumulated in the funds in the previous year. The State Treasury prepared for unexpected expenditure arising from the COVID-19 crisis by increasing central government cash funds in 2020.
Secondly, the estimate of the difference between actual revenue and expenditure in 2021 differs from the budgeted by approximately EUR 5.5 billion. This can be attributed to the so-called deferrable appropriations in the Budget that can be used over a period of several years. For example, multiannual investments and COVID-19 related deferrable appropriations were budgeted for 2021 that are likely to be used, in part, in the coming years.
More detailed information on reasons for the smaller-than-estimated net borrowing will be provided when preliminary data on central government accounts becomes available in February.
Impact on debt and deficit forecasts
As central government net borrowing will remain below budgeted, the central government and overall general government debt ratio will remain around 3.5 percentage points below the level projected by the Ministry of Finance in its autumn economic forecast.
The information currently available on the central government’s net borrowing requirement and the deviation in expenditure and revenue from the budgeted level will be taken into account when preparing the next economic forecast. The Ministry of Finance’s next macroeconomic forecast will be published on 20 December.
Teppo Koivisto, Director of Finance, tel. +358 2955 02550, teppo.koivisto(at)valtiokonttori.fi (government debt management)
Atro Andersson, Senior Specialist, tel. +358 2955 30712, atro.andersson(at)gov.fi (The Budget)
Mikko Spolander, Director General, tel. +358 2955 30006, mikko.spolander(at)gov.fi (macroeconomic forecasts)