IMF praises Finland’s handling of Covid crisis, recommends return to state spending framework

The International Monetary Fund (IMF) has commended Finland for what the organisation calls a quick and decisive response to the Covid-19 crisis.

A delegation from the IMF led by Wojciech Maliszewski is currently visiting Finland to evaluate the country’s economic recovery during the pandemic and offer outlooks on medium and long-term growth.

Maliszewski presented the delegation’s assessment of the Finnish economy in Helsinki on Friday morning.

“Finland’s economy has performed exceptionally well during the pandemic,” he said in an interview with Yle. According to the IMF, Finland saw one of the mildest economic recessions in Europe in 2020.

In a summary (siirryt toiseen palveluun) of its preliminary findings on the state of the economy, the IMF delegation said that Finland’s effective strategy to contain the pandemic, coupled with appropriate fiscal policy, enabled it to experience a relatively low decrease in economic activity.

According to the financial institution, Finland’s fiscal deficit in relation to its GDP is projected to remain one percent higher over the medium term than it was before the pandemic in 2022.

IMF attributes this economic recovery to higher domestic demand and increases in discretionary spending.

Economic risks still remain

Despite the projected growth; however, IMF recommends that Finland return to a medium-term spending framework to ensure fiscal savings, decrease public debt and mitigate economic risks related to the pandemic.

Maliszewski suggests there is no immediate cause for concern.

“We are not worried about the dangers of debt in the near future. Finland still has some leeway if more economic support is needed to deal with the pandemic,” he stated.

IMF also recommends that Finland make use of a spending review to broaden the tax base and enhance the efficiency of public spending, which would aid it in achieving its ambitious climate targets and increase the credibility of fiscal policy.

In the budget for 2022, the government had announced it would exceed spending limits imposed in 2019 at the start of this parliamentary term. The IMF wants a return to those rules, but not for a few years.

“It would be good for credibility if the country returns to pre-pandemic expenditure frameworks in 2025 or 2026,” Maliszewski added, noting that Finland should aim to shift public debt towards a downward trend.

According to IMF estimates, Finland’s public debt is expected to reach over 70 percent of its GDP by the end of 2021, while the GDP is projected to grow at around 3¼ percent in 2021 and 2¾ percent in 2022.

The institution has modified its definition of debt sustainability due to the global rise in public debt during the pandemic.

More details on the IMF delegation’s assessment of Finland’s economy can be found here.