Rating action

Scope Ratings GmbH (Scope) has today affirmed Finland’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at AA+ and changed the Outlook to Negative, from Stable. The agency has also affirmed the short-term issuer ratings at S-1+ in both local and foreign currency, with Stable Outlooks.

The outlook change on Finland’s credit ratings reflects:

1. The weak fiscal outlook including continued high fiscal deficits and a sustained increase in the debt-to-GDP ratio, following an already sharp rise over recent years, despite significant fiscal consolidation efforts with limited scope for further spending cuts and/or tax increases to sustainably improve the debt ratio over the medium-term.
    
2. A weak economic recovery following the Covid-19 pandemic and a modest growth outlook over the medium term reflecting a challenging external environment and long-term demographic pressures.

For the latest rating report, please click here.

Key rating drivers

Weak fiscal outlook including continued high fiscal deficits and a sustained increase in debt-to-GDP, despite significant fiscal consolidation efforts.

Scope expects Finland’s general government deficit to decline gradually from 4.4% of GDP in 2024 to 4.2% in 2025 and to remain elevated at 3.6% of GDP in 2026, only declining below the EU threshold of 3% by 2030. While Finland has avoided being placed under the European Union’s Excessive Deficit Procedure (EDP) to date^a, the country’s structural deficit, including higher defence expenditures, and growing debt burden continue to raise concerns about the country’s long-term fiscal outlook.

The government has already implemented significant fiscal consolidation measures to address the challenging outlook. In spring 2024, previous consolidation efforts were expanded by an additional EUR 3bn, bringing the total target to EUR 9bn (3% of GDP) by 2027. Key measures included cuts to unemployment benefits, a freeze on certain social benefit indexations, changes to tasks in social and health care services, and efficiency improvements in public administration. Additionally, tax increases, such as adjustments to pension income taxation and a 1.5pp hike in the standard VAT (adopted in September 2024) were introduced to further support public finances. This places Finland’s VAT rate as the second highest in Europe at 25.5%.

However, during its mid-term budget review², Finland’s government adjusted its path of fiscal consolidation toward growth-orientated tax cuts. The timing of the stimulus is questionable, as also noted by Finland’s Economic Policy Council³, given the uncertain scale of the macroeconomic boost during an already expected improving cyclical outlook in 2026. The tax cuts will largely be effective from 2026/2027 and include a reduction in corporate tax, lowering the top marginal rate for income tax, and targeted income tax relief focused on lower- and middle-income earners. The combination of the tax cuts, some tax increases and new spending cuts will likely increase the deficit by around EUR 1bn in 2026 and EUR 2bn in 2027.

Despite the fiscal consolidation measures, public debt continues to rise posing a key challenge for Finland’s sovereign rating. The public debt-to-GDP ratio has increased to record levels of around 82% in 2024, up nearly 17pps since 2019, marking the sharpest increase in the euro area. A central objective of Prime Minister Orpo’s government⁴ was to reverse the trend on Finland’s indebtedness and stabilise the debt-to-GDP ratio as a basis for establishing a lasting downward path (over several parliamentary terms), with the long-term objective of reaching Nordic public debt levels. While estimates from the Ministry of Finance⁵ forecast a stabilisation of the debt-to-GDP ratio in 2026/2027, this is expected to be only temporary and supported by a planned one-off transfer from the State Pension Fund of about EUR 1bn.

Looking ahead, Scope expects continued upward pressure on the debt ratio given high spending pressures and limited scope for further revenue-raising measures before the next parliamentary elections in 2027. The debt-to-GDP ratio is expected to rise to around 89% by the end of the current government term in 2027 and remain on an upward trajectory, reaching around 93% by 2030. This is significantly above the pre-Covid level of 65% in 2019. Scope notes that this trajectory assumes no additional shock to Finland’s growth or fiscal outlook. Moreover, as noted by the National Audit Office, Finland’s narrowing fiscal space weakens the ability of public finances to respond to future economic crises⁶. This adverse trajectory and the government’s limited ability to reverse it underpins Scope’s decision to assign the Negative Outlook.

Modest economic growth outlook and high vulnerability to trade/tariff shocks

Finland experienced a weak recovery in the years following the COVID-19 pandemic, facing new external shocks before the domestic economy could adapt and strengthen after previous crises⁷. Persistent structural headwinds including muted investments, sluggish productivity growth and the implications of an ageing population have limited Finland’s economic momentum. The added combination of global supply chain disruptions and rising geopolitical tensions resulted in economic output in Q1 2025 being about 1% above pre-pandemic levels, placing it well below the euro area average (+6.3%).

The conclusion of several trade agreements between the US and its trading partners, including the EU, should reduce some near-term trade policy uncertainty. This will allow supply chains to adapt to new realities and removes a key constraint on near-term capital investment plans for firms. Still, the sharp rise in US import tariffs will have a negative impact on Finland’s economy, weakening economic growth by around 0.5 to 1pps over coming years. Trade policy uncertainty is also likely to persist given volatile US policymaking.

Scope expects the economy to grow by 0.9% in 2025 and 1.4% in 2026 before converging to 1.2%, in line with its medium-term potential. While consumers are expected to remain cautious in 2025, private consumption should gradually rise in subsequent years and drive economic growth. This reflects a gradual improvement in confidence as households’ disposable income increases, the interest burden of indebted households declines, and demand in Finland’s exports strengthens. Still, average growth over the forecast horizon until 2030 is projected at around 1.2% per year, implying no notable catch up to past trend growth following three years of effective stagnation.

Rating strengths: wealthy economy, high net financial assets, and high institutional quality

Finland’s credit ratings are supported by the country’s high per capita GDP of about EUR 49,200 (114% of the euro area average), stable-macro-economic environment, including low inflation near the 2.0% target, a highly skilled workforce, and continued public investment supporting its leading role in digitalisation, renewable energy and green technology. Despite the slow recovery since the Covid-19 pandemic, the economy proved resilient during the 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.

The government’s ample net financial asset position (56.3% 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 Q1 2025, the earnings-related pension assets totalled EUR 273bn (98% of GDP) of which approximately 37% relate to the public sector and the remainder to private sector investment assets.

Finally, 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.

Rating-change drivers

The Negative Outlook represents the opinion that risks for the ratings are skewed to the downside over the next 12 to 18 months.

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

1. the fiscal outlook improves notably, resulting in a sustained improvement of the debt-to-GDP trajectory; and/or
    
2. the country’s economic growth outlook improves significantly.

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

1. the fiscal outlook continues to weaken, resulting in a sustained increase in government debt;
    
2. the economic outlook weakens, for example, due to a domestic or external economic shock, lowering economic growth and/or the country’s medium-term growth potential;
    
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.

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 Report [8] 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 22%). Finland ranks first in the 2025 Sustainable Development Report⁹, 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 mitigate security risks.

a. This reflects the application of the EU’s defence-related escape clause¹, which allows member states to temporarily deviate from the net expenditure path over the period 2025-28 when facing exceptional security-related expenditures – such as Finland’s planned increase in defence spending to 3% of GDP by 2029.

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. European Commission, Report from the Commission: Spain, Latvia, Austria, Finland, June 2025 
2. Ministry of Finance, General Government Fiscal Plan for 2026-2029, May 2025
3. Economic Policy Council, Opinion General Government Fiscal Plan for 2026-2029, May 2025 
4. Programme of Prime Minister Petteri Orpo’s Government, June 2023 
5. Ministry of Finance, Economic Survey Summer 2025, June 2025
6. National Audit Office of Finland, Fiscal policy monitoring assessment on the management of general government finances, June 2025 
7. Bank of Finland, New obstacles to Finland’s economic recovery, June 2025 
8. Ministry of the Environment, Annual Climate Report 2024, October 2024 
9. Sustainable Development Report 2025

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 is (Sovereign Quantitative Model Version 4.0), 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, Executive 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 21 February 2025.

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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