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Finland's loan interest payments quadruple

The state's loan interest payments will quadruple next year compared to 2022.

Pukuun pukeutunut anonyymi henkilö kävelee kadulla.
Interest payments on state debt will amount to nearly 570 euros per person in Finland next year. Image: Henrietta Hassinen / Yle
Yle News

This week the European Central Bank (ECB) raised interest rates to the highest level since the launch of the euro.

In Finland, the central government is facing increasingly higher interest rates on its new loans. The state's borrowing costs are quadrupuling. This week, the state signed on to a 3.75 percent interest rate on a roughly one-billion-euro loan taken for eight months.

Interest rates on short-term loans haven't been this high for 15 years, according to Anu Sammallahti of the State Treasury.

The change has been rapid. This year's state budget estimated an average interest rate of just over one percent. In next year's budget, the assumption is an interest rate of up to 3.6 percent.

That means interest payments on central government debt in 2024 will amount to nearly 570 euros per person in Finland — four times higher than last year.

While these interest payments are not at a worrying level, they are significant enough to eat into public spending in other areas, according to Päivi Puonti, who heads forecasting at business think tank Etla.

Benefits carry over

While the ECB's interest rates have risen rapidly, the impact on the state's finances will take slower to materialise. That's because the state's 153 billion-euro debt portfolio consists of numerous loan tranches taken at different times and for different durations.

Finland will continue to benefit from the era of zero interest rates for some time still. For example, a three-billion-euro loan taken three years ago carrying zero interest won't mature until 2030.

Finland's rising debt levels have so far not worried investors and credit rating agencies. Fitch has maintained Finland's AA+ rating, the second-highest level.

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