The budgetary framework up to 2001
The Finnish government has today decided on the budgetary framework for the next four years. This framework will confirm that the central government debt-to-GDP ratio will decline by the end of the electoral term (1999), as prescribed in the government's programme manifesto of the spring 1995.
Specifying overall expenditure ceilings for each year in 1998-2001 the framework is the Lipponen government's fiscal policy guideline in 1998-1999. Furthermore, it provides a benchmark for the public finances beyond the electoral term. The decided expenditure ceilings for the years 1998-2001 are FIM 191 billion, FIM 192 billion, FIM 190 billion, and FIM 191 billion respectively.
The current budgetary framework continues the consolidation programme of the central government finances launched in 1995. The consolidation programme consists of discretionary expenditure cuts totalling FIM 22 billion during 1995-1999 as well as the continuation of the spending cuts of the former government. The bulk of the discretionary expenditure cuts are implemented in 1996-97.
Since the last autumn, the Finnish economy is experiencing a phase of an accelerating growth. According to preliminary estimates, total output increased by 3,2 per cent in 1996, with the second half of the year showing a far more rapid rate of expansion than the first. Rapid economic growth is expected to continue throughout 1997 at the 4,6 per cent rate. The medium-term projection suggests that the growth slows down from 1998 onwards with the GDP growth rate between 3,8-2,8 per cent in 1998-2001.
In the medium-term the central government revenues will grow roughly in line with the GDP. The central government borrowing requirement-to-GDP ratio will decrease from 4.6 per cent in 1997 to 0,5 per cent in 2001. The general government deficit (EMU concept) will decrease to 1,9 per cent of GDP in 1997 and improve further in 1998.
Central government debt will be at around 69 per cent of GDP in 1999 and decrease further to around 65 per cent in 2001. General government debt-to-GDP ratio (EMU concept) is estimated to be on a decending track at around 58 per cent at the end of 1997. It seems now that the 60 per cent upper bound ratio prescribed by the Maastricht treaty is not pierced.