Finland's continued economic success rests on strengthened fiscal position

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Page 85

In recent years, Finland's economy has performed favorably. Growth, which has outpaced that in the euro area, is expected to surpass 3 percent in 2006; the external current account has remained in surplus; and inflation has remained below the euro area average, thanks to strong productivity growth and wage moderation, increased domestic competition, and low nonfuel import prices. Public finances are in surplus but have weakened because of personal income tax cuts and growing local government expenditures. This weakening, along with the imminent rise in old-age dependency, is clouding the long-term outlook for growth and fiscal sustainability, the IMF said in its annual review.

The IMF Executive Board commended the authorities for Finland's strong economic performance and stressed the need to strengthen the fiscal position and continue to implement reforms to cope with the challenges of an aging population.

While welcoming recent tax cuts, Directors called for further spending restraint. They also welcomed the authorities' efforts to reorganize the provision and financing of public services and suggested measures to limit demand, including more effective implementation of user charges. Directors also...