Finland's government has set a target to balance the public finances by 2023, but this seems unlikely, the International Monetary Fund said Tuesday.
In the concluding statement of the 2019 Article IV mission, staff said that if potential growth hovers around 1.25 percent over the medium term, even just the committed spending would imply that the government would have to borrow about 1 percent of GDP in 2023. This suggests that the new coalition government will miss its own target.
"Further, there are significant risks to this outlook: the economy might not recover as well as assumed, and spending on "one-off" expenditures might be hard to switch off," the IMF said.
According to IMF, the government will need to take corrective actions to meet its medium-term target, which would likely require about 0.5 percent of GDP in net savings.
The lender forecast economic growth of around 1.25 percent this year and 1.5 percent in 2020, which was a sharp contrast to the past three years that registered 2.5 percent growth on average.
The government has embraced a wide range of worthy goals. "Achieving them is not impossible, but will likely require compromise and caution, keeping fiscal sustainability and financial stability in mind," the lender observed.