Fiscal policy monitoring assessment of the management of government finances, spring 2019

In the spring 2019 report, the National Audit Office assesses compliance with the central government spending limits and the EU Stability and Growth Pact in 2018. The report also contains an assessment of the contents of the General Government Fiscal Plan published in the spring of 2019 and whether the recent forecasts of the Ministry of Finance are realistic. The monitoring of fiscal policy promotes transparency and intelligibility of fiscal rules as well as stable and sustainable general government finances.

The NAOF did not find any material deficiencies in the contents of the General Government Fiscal Plan in relation to the applicable regulatory requirements. Some elements of the plan have been further elaborated since the previous plan. In the future, attention should be paid to improving the reporting on the interest rate sensitivity of key indicators of general government finances, as well as to the consistent monitoring of the Government objectives as part of the plan. It should also be ensured that the Government’s economic policy objectives are as clear as possible.

According to the NAOF’s assessment, the central government spending limits were followed in drafting of the 2018 budget. The spending limits framework should be further improved; for example, the definition of ‘financial investments’ should be clarified. To ensure the effectiveness of the spending limits procedure, it is important that the framework also supports reforms and enables the funding of investment needs and the flexible reallocation of appropriations within the framework.

According to the NAOF’s assessment, Finland complied with rules of the preventive arm and the corrective arm of the EU’s Stability and Growth Pact in 2018. The general government structural balance amounted to -0.8% in relation to GDP, which is slightly weaker compared with the previous year. Nevertheless, the structural balance rule was followed, when taking into account the flexibility factors granted by the Commission. In 2018, there was a deviation from the expenditure benchmark, but this was not significant in terms of the compliance with the rules. The reference values of both the debt and deficit criteria were followed in 2018. It is forecast that Finland will comply with the rules of the Stability and Growth Pact also in 2019. According to the NAOF’s estimate, the structural balance will amount to -0.7% in relation to GDP in 2019.