Rating action

Scope Ratings GmbH (Scope) has today affirmed Finland’s long-term issuer and senior unsecured debt ratings in local- and foreign-currency at AA+. The agency has also affirmed the short-term issuer ratings at S-1+ in local- and foreign-currency. All Outlooks are Stable.

The affirmation of Finland’s AA+ ratings reflects the following drivers:

1. Finland’s wealthy and modern economy, underpinned by macro-economic stability, a highly educated workforce, strong digital infrastructure, and high investments in strategic economic sectors and green technologies, supports resilience to external shocks;
    
2. The government’s ample net financial asset position, high government debt affordability compared with rated peers and excellent market access; and
    
3. High institutional quality, with Finland ranking among the best countries globally, accompanied by a commitment and good record of proactively implementing reforms to address key challenges.

The ratings are constrained by structural fiscal pressures driving a sustained increase in the country’s debt-to-GDP ratio, which Scope considers a key credit challenge. Scope expects the government to remain committed to its reform momentum and implement additional fiscal consolidation measures in case of increases in public debt beyond current forecasts. Other rating challenges include the moderate medium-term growth potential compared with peers, and structural financial stability vulnerabilities including a concentrated banking sector reliant on wholesale funding.

For the updated rating report, please click here.

Key rating drivers

Wealthy and modern economy, resilient to external shocks

Finland’s credit ratings are supported by the country’s high per capita GDP of about EUR 49,200 (115% of the euro area average), stable-macro-economic environment, including low inflation at 1.6%, a highly skilled workforce, and continued public investment supporting its leading role in digitalisation, renewable energy and green technology.

The economy proved resilient during the Covid-19 pandemic, recovering quickly from a comparatively mild recession, and during the initial impact from Russia’s full-scale invasion of Ukraine. This is despite Finland’s significant trade linkages with Russia until 2021 when the country still accounted for 12% of Finnish goods imports and 5% of exports.

However, the sharp rise in interest rates following the energy crisis caused economic output to decline by 1.2% in 2023 and by 0.5% in 2024, reflecting slow growth in Finland’s largest trading partners and the impact of higher interest rates on households and companies, particularly in the construction sector. Finland’s economy is only gradually emerging from the recession as the global economic outlook remains uncertain, dampening export growth.

Scope expects the economy to grow by 1.4% in 2025 and 1.7% in 2026 before converging to 1.2%, in line with its medium-term potential. The recovery in private consumption has been slow as consumers remain cautious, though purchasing power is improving, and demand for labour has been weak, especially in the construction sector. Investment and consumption are expected to strengthen in 2025 as inflation remains under control and interest rates continue to fall. Still, given the uncertain geopolitical environment, including the risk of US tariffs, downside risks to the outlook remain.

Finally, supporting Finland’s resilience, the country’s energy self-sufficiency is driven by its nuclear, wind and hydropower capacity, with 42% of total energy consumption coming from renewables (second highest in the EU) and almost all of Finland’s electricity demand covered by domestic production¹. The country is already a leader in key energy technologies including batteries and heat pumps and has one of the most ambitious emission reduction targets globally. Finland’s leading role in digitalisation is reflected by the European Commission’s Digital Economy and Society Index (DESI)² ranking Finland as the EU country with the highest share of enterprises making use of AI, Cloud and Data analytics, and the greatest availability of digital public services for businesses.

Net financial asset position, high government debt affordability and excellent market access

The government’s ample net financial asset position (58.3% of GDP) stemming from its public pension scheme is an important element of resilience for Finland’s government finances. Most of these assets are earmarked to fund pension expenditures, resulting in the Finnish government being the wealthiest among euro area sovereigns. As of Q3 2024, the earnings-related pension assets totalled EUR 270bn (98% of GDP) of which approximately 37% relate to the public sector and the remainder to private sector investment assets.

Finland’s general government debt stood at around 82% of GDP at the end of 2024. While debt has been rising, the interest burden remains moderate, and below the peer average, with interest expenditure at 2.3% of government revenue and at 1.2% of GDP. 10-year government bond yields remained stable at about 2.8% in February 2025 in line with the previous year, but still up significantly from 0% at the beginning of 2022. Scope expects the interest expenditure to gradually rise to about 2.7% of government revenue by 2029, which remains slightly below peers such as Austria (around 2.9%). While Finland has a long average debt maturity of 7.8 years, average fixing of debt is shorter at 5 years, due to the past use of interest rate swaps. In line with the updated strategy for central government debt management³, the average fixing of the central government debt is being moderately lengthened by no longer entering into new interest rate swaps as of March 2024.

Government debt holdings are supported by excellent market access and an ample, stable and well diversified investor base, by region and investor type. The Bank of Finland holds around 23% of the government debt and the Finnish Treasury operates a prudent liquidity management holding a sizeable cash buffer, which could cover around 21% of this year’s expected central government gross borrowing requirements. These favourable factors help mitigate risks related to structurally higher annual funding needs, expected at 14-15% of GDP in the next five years, against about 6-8% before the pandemic and around 10% of GDP for Finland’s peer Austria (AA+/Stable).

High institutional quality, good record of effective policymaking to address key challenges, including fiscal pressures

Finland ranks above the 95th percentile in five out of six World Bank governance indicators including for the rule of law, control of corruption, voice and accountability, regulatory quality and government effectiveness. The country’s strong governance reflects a business-friendly environment and strengthens macroeconomic stability.

Finnish authorities have proved resolute in implementing structural reforms in recent years, strengthening the sustainability of the welfare system, addressing labour market rigidities, and by shifting the country’s foreign policy traditionally guided by the principle of neutrality towards full NATO membership. The landmark healthcare reform entered into effect in 2023, streamlining the structure of the healthcare system from the previous highly fragmented municipal sector to newly created county governments. This improves the central government’s ability to steer the system and could contain costs in an area driving structural imbalances in Finland’s government finances.

The government continues to implement a fiscal consolidation programme to stabilise the debt-to-GDP ratio and reduce the general government deficit^4,5. The initial plan in 2023 outlined a EUR 6bn (2% of GDP) consolidation package, with EUR 4bn coming from spending cuts—mainly in social benefits, health and social services, and public administration—and EUR 2bn expected from higher employment through improved labour supply incentives. The subsequently weaker-than-expected economic recovery, increased pressure from health and social services, while increased defence spending led to a projected worsening of the fiscal balance in 2024. In spring 2024, the government therefore expanded its consolidation efforts by an additional EUR 3bn, bringing the total target to EUR 9bn (3% of GDP) by 2027. Key measures include cuts to unemployment benefits, a freeze on certain social benefit indexations, reductions in social and health care services, and efficiency improvements in public administration. Additionally, tax increases, such as a 1.5pp hike in the standard VAT rate and adjustments to pension income taxation, were introduced to further strengthen public finances. Despite these efforts, uncertainties remain regarding the impact of employment measures, the elevated initial deficits of wellbeing services counties, and the overall effectiveness of the consolidation strategy in achieving the government's debt stabilisation goals.

The centre-right coalition government is led by Prime Minister Petteri Orpo from the National Coalition Party, in partnership with the far-right Finns Party, the Swedish People’s Party and the Christian Democrats. Consolidating Finland’s public finances remains a core objective of the government, and this priority is also recognised by the main political opposition, the Social Democratic Party of Finland. Scope therefore expects the current and future governments to remain committed to reducing public debt and introduce further revenue-raising measures or spending cuts if the fiscal outlook deteriorates.

Rating challenges: rising fiscal pressures, modest growth potential and private sector vulnerabilities to rising interest rates

Rising public debt is a key challenge for Finland’s sovereign rating as the public debt-to-GDP ratio has increased to record levels of around 82.3% in 2024. Scope expects the fiscal deficit to remain elevated this year at 3.5% of GDP before falling below 3% in 2026 and gradually declining thereafter. The debt-to-GDP ratio is expected to rise to around 87% by the end of the current government’s term in 2027, and to stabilise thereafter. This is significantly above the pre-Covid level of 65% in 2019. Scope notes that this trajectory assumes average growth of around 1.5% over the 2025-29 period, and no additional shock to Finland’s growth or fiscal outlook. A deviation from this baseline, and an inability to stabilise the debt-to-GDP ratio would be credit negative.

Scope notes that the escalation of the Russia-Ukraine war has changed the security environment for Finland given its 1,300km shared border with Russia. Scope considers as very unlikely an escalation in geopolitical risks to the point of threatening Finland’s macroeconomic stability thanks to the country’s strong ties to Western allies, further reinforced by its NATO accession. However, still-higher security and defence expenditure, which constitute around 2.4% of GDP (above NATO’s 2% target), may be needed given recent geopolitical developments and the government already plans to raise defence spending to around 3.3% of GDP by 2032.

Second, the economy has a modest medium-term growth potential, constrained by a declining working-age population, weak productivity dynamics and labour market rigidities. Total factor productivity has remained stagnant over the past 15 years and Finland’s medium-term growth potential of 1.2% remains below other Nordic economies and most highly rated peers. Despite these challenges, factors such as rising immigration and investments in green and digital sectors could provide a modest boost to long-term growth. In addition, while the old-age dependency ratio is higher than in peer countries, it is set to grow at a slower rate, mostly due to immigration as recent updates to population forecasts by Statistics Finland confirm. Instead of the population peaking in 2034 as previously forecast, it is now expected to exceed 6 million in 2041 from currently 5.6 million.

Finally, Finland’s private sector is also exposed to structural financial stability vulnerabilities. While the domestic banking sector is well capitalised, it is also one of the largest in Europe relative to the size of the economy, being concentrated and highly reliant on financing from international financial markets. The sector is also sensitive to disruptions in Nordic real estate markets, as about 75% of Finnish banks’ loans collateralised by commercial real estate are loans to the other Nordic countries⁶. While households and corporates face lower debt than in other Nordic economies, the high share of variable-rate borrowing (92% as of end-2024) has weighed on debt service capacity.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

Downside scenarios for the ratings and/or Outlooks are (individually or collectively):

1. the fiscal outlook weakened, resulting in a sustained increase in government debt;
    
2. the medium-term economic growth outlook deteriorated significantly;
    
3. financial stability risks were to crystallise, with damage to the financial and non-financial private sector balance sheets, significantly weakening the economic and fiscal outlooks; and/or
    
4. geopolitical risks were to escalate significantly, threatening macroeconomic stability.

Upside scenarios for the long-term ratings are (individually or collectively):

1. the fiscal outlook improved notably, resulting in a sustained debt reduction; and/or
    
2. the country’s economic growth outlook improved significantly.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s Sovereign Quantitative Model (SQM) provides a first indicative credit rating of ‘aa-’ for Finland. This ‘aa-’ first indicative rating receives a one-notch uplift from the SQM’s reserve-currency adjustment and no negative adjustment from the political-risk adjustment. This results in a final SQM indicative credit rating of ‘aa’ for Finland. On this basis, the final SQM quantitative rating of ‘aa’ is reviewed by the Qualitative Scorecard (QS) and can be adjusted by up to three notches depending on Finland’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states identified by the SQM.

Scope identified the following QS relative credit strengths of Finland: i) fiscal policy framework; ii) environmental factors; and iii) social factors. Conversely, Scope identified the following QS relative credit weakness for Finland: i) long-term debt trajectory. On aggregate, the QS generates a one-notch positive adjustment affecting Finland’s credit rating, resulting in the final AA+ long-term ratings. A rating committee has discussed and confirmed these results.

Factoring of Environment, Social and Governance (ESG)

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

With respect to environmental factors, Finland receives high scores in most SQM indicators. These include carbon emissions per unit of GDP, the ecological footprint of consumption compared with available biocapacity, and the second highest ranking of the ND-GAIN index implying a low vulnerability and high readiness to adapt to climate change. Finland has however a relatively weak mark on emissions per capita. Scope assesses Finland’s QS adjustment for ‘environmental factors as ‘strong’. Finland aims to become carbon neutral by 2035, one of the most ambitious emissions reduction targets globally. The Climate Change Act enforced in July 2022 has set targets to reduce emissions by 60%, 80% and at least 90% compared to 1990 levels for 2030, 2040 and 2050, respectively, which will require significant policy efforts and economic transformations. The 2024 Annual Climate Report⁷ indicates that the 2030 emission reduction targets are in reach. However, a significant effort is needed to strengthen the land use sector’s net carbon sink. Finland benefits from ample, diversified and sustainable energy sources. Still, further efforts in improving energy efficiency would support the achievement of emission reduction targets and reduce import dependency on fossil fuels, which still account for about 30% of the energy mix.

Regarding social criteria, in the SQM model Finland receives high scores on income inequality and labour force participation, and a weak mark on the old-age dependency ratio. The complementary QS assessment of ‘social factors’ is assessed at ‘strong’. Finland benefits from an advanced social safety net and a high-quality education system, reflected in one of the lowest income inequality levels among European countries, as well as a share of people at risk of poverty and social exclusion well below the EU average (16% versus 21%). Finland ranks first in the 2024 Sustainable Development Report⁸, which assesses countries’ progress towards achieving the UN’s 2030 goals. Social risks relate to the country’s adverse demographic trends. Finland has the third highest old-age dependency ratio in the euro area, at 37.8% in 2024, up from 22.2% in 2000.

In the SQM, Finland has outstanding scores in the World Bank’s Worldwide Governance Indicators and receives no negative adjustment for political risk. In the QS, Scope assesses Finland’s ‘governance factors’ as ‘neutral’ versus its sovereign peer group. Finland benefits from outstanding institutional quality. Scope expects a continuation of a proactive stance to structural reform as illustrated by the government’s ambitious reform plans for the labour market and in the healthcare sector. Finland has been directly exposed to geopolitical risks since the escalation of the Russia-Ukraine war given its 1,300 km long border with Russia. The country’s international ties to European and other Western allies, underpinned by the recent accession to NATO, strongly limit security risks.

Rating committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. Investor presentation, January 2025 
2. Digital Economy and Society Index 2024 
3. Medium-term strategy for debt management in central government on-budget finances 2024-2028 
4. Ministry of Finance, Economic Survey Winter 2024 
5. Economic Policy Council Report 2024 
6. Bank of Finland Bulletin, Geopolitical tensions and a standstill property market are casting a shadow over financial stability, May 2024 
7. 2024 Annual Climate Report 
8. 2024 Sustainable Development Report 

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks (Sovereign Quantitative Model Version 4.0) is available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation   YES
With access to internal documents                                NO
With access to management                                         YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Eiko Sievert, Senior Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 15 March 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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