Scope has completed a monitoring review for the Republic of Finland
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for the Republic of Finland (long-term local and foreign-currency issuer and senior unsecured debt ratings: AA+/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 27 March 2023.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
Finland’s AA+ long-term ratings reflect the following credit strengths: i) a wealthy, resilient and modern economy, which benefits from a highly qualified labour force and a strong infrastructure in future economic areas such as digitalisation and the environmental transition; ii) high government debt affordability, with fiscal resilience anchored to the government’s ample net financial asset position and a favourable debt structure; and iii) high institutional quality, with Finland ranking among the best countries globally in terms of regulatory quality and respect for the rule of law, accompanied by a strong track record of implementing structural reforms.
Finland’s economy and public finances proved resilient to the Covid-19 pandemic and the shocks related to Russia’s war in Ukraine. Scope expects the economic outlook to weaken this year with a mild contraction, however, as inflationary pressures remain elevated and financing conditions tighten further. Higher interest rates are also affecting the fiscal outlook, on top of still elevated costs for defense spending, energy support measures and the rollout of the new health and social services organisation, which are set to contribute to a widening fiscal deficit for the government. Scope expects a return to economic growth and gradual fiscal consolidation as of next year, although the debt-to-GDP ratio is set to remain on a slightly upward trajectory. In Scope’s view geopolitical risks for Finland, which shares a 1,300km border with Russia, are strongly mitigated by the country’s strong international alliances, which are moreover set to strengthen further as the country’s application to NATO is likely to go through to full membership this year.
Finland’s ratings are constrained by challenges related to: i) the country’s moderate growth potential, curbed by weak productivity dynamics and labour market rigidities in the context of a declining working-age population; ii) rising fiscal pressures from Finland’s ageing population that weigh on the medium-term trajectory of public finances; and iii) financial stability risks, including those arising from the large size of the Finnish banking sector relative to that of the domestic economy.
The Stable Outlook reflects Scope’s view that risks to Finland’s ratings over the next 12 to 18 months are balanced.
The ratings/Outlooks could be upgraded if, individually or collectively: i) the country’s economic growth outlook improved significantly, and/or ii) the fiscal outlook improved notably via a sustained debt reduction.
Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) the medium-term economic growth outlook deteriorated significantly; ii) the fiscal outlook notably weakened, resulting in a material increase in government debt; iii) financial stresses were to crystallise, with damage to the financial and non-financial private sector balance sheets hampering the economic and fiscal outlook; and/or iv) geopolitical risks were to escalate significantly, threatening macroeconomic stability.
For the updated report accompanying this review, click here.
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Giulia Branz, CFA, Senior Analyst
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