Prudent policies, lower public debt help Finland regain fiscal strength

Finland's debt metrics vis-a-vis revenues and GDP have risen quickly during the global crisis, Moody's Investors Service said in its new sovereign credit report on the country. Still, due to prudent and proactive economic policies that had substantially cut public debt before the onset of the crisis, Finland remains in a strong position to regain its fiscal health post-crisis, which is reflected in its Aaa rating with stable outlook.
"Finland's very high economic strength is underpinned by a wealthy population and a resilient economy," said Dietmar Hornung, author of the report. "However, preserving competitiveness is a major challenge for Finland as both the real exchange rate and unit labour costs have recently risen." Finland as a small open economy was hard hit by the global downturn with exports concentrated in metal engineering, electronics and forestry sectors which combined make up for 70% of Finnish exports.
In the report, Moody's notes that one of the economy's main issues is structural unemployment set against shortages of skilled labour. Long-term joblessness and high unemployment among young people are also key concerns. "As the Finnish population is aging faster than other OECD countries, the government is focusing on raising the labour participation and employment rates to compensate for the demographic transition," Hornung explained.
The rating agency further notes that Finland exhibits very high institutional strength, reflecting its strong government effectiveness, social stability and rule of law. As with other Nordic countries and as an EMU member, susceptibility to event risk is very low. The Finnish financial sector weathered the crisis relatively unscathed. Banks' strategies appear to be rather conservative, and the exposure to the Baltic economies remained within limits.