Finland’s credit downgrade could mean the country will have to pay an extra 100 million euros in interest payments on the national debt, the Finance Minister Antti Rinne has admitted.
On Friday the ratings agency Standard & Poor’s stripped Finland of its highest possible triple-A credit rating, downgrading the country to AA+ on account of a weak economic outlook.
Speaking to Yle from Washington, where he and other officials are attending a banking conference, Rinne said: “There could be a few dozen million, a hundred million extra on top of interest payments. But … nothing dramatic compared to the scale of the national finances.”
By the end of next year Finland’s national debt will have grown to 102 billion euros, with interest payments estimated at 1.7 billion.
The minister also admitted that the change could increase the costs of borrowing for businesses.
Reforms coming too slowly
Standard & Poor’s said its downgrade was based on the view that the Finnish economy risks long-term stagnation because of an ageing population, a shrinking workforce, weakening external demand, a labour market that is too rigid and the decline of its information technology and forestry sectors.
Another key element of the agency’s reduced rating was the view that Finland’s government has been too slow to implement its promised structural reforms, including to social care and the pensions system.
Also speaking from Washington, Jyrki Katainen, Finland’s former prime minister and interim EU economic affairs commissioner, said the EU Commission has no comment to make about Finland’s downgraded rating.
Katainen also refused to comment on how much his own economic policies during his three years as prime minister were responsible for Friday’s decreased rating. “I don’t want to start speculating. I’m not going to get into that,” he said.
”Finland is suffering the same problems as everywhere else in Europe – negative economic growth and weak international demand for exports. Finland also has its own structural weaknesses such as a changing industrial make-up, and an ageing population,” Katainen said.
Vulnerable economy
The credit scoring agency judged that Finland’s economy is vulnerable due to its dependence on exports. Russia’s weakness is therefore also Finland’s weakness, and the Europe-wide economic slowdown is also a threat to Finland, Standard & Poor’s said.
Katainen, whose NCP party has led the governing coalition since 2011, stressed that a return to form for the economy would take some time. “There are no magic tricks or quick solutions to address the structural problems,” he said.
Prime Minister Alexander Stubb, who took over from Katainen in summer this year, echoed this view when he responded to news of the downgrade on Friday night via the social networking site Twitter. “S&P credit rating news indicate that we still have a lot of work to do in Finland,” Stubb announced.
Wake-up call
Speaking while on a state visit to Canada, President Niinistö said the downgrade could provide “a much-needed wake-up call” for Finland. He also sought to downplay the significance of Finland losing its triple-A rating.
The downgrade did not come as a surprise for Finnish decision makers, as Standard & Poor’s had already lowered its economic growth outlook for the country to negative last spring. Finland’s
Standard & Poor’s rating is expected to stay in place for two years, and the analysts say they don’t expect the situation in Finland to change dramatically during that time.
The agency warns, however, that political support for the reforms that have been agreed on so far, including to social care and the pensions system, must not dissipate.