Central government to take out EUR 17.8 billion in new debt in 2025

The central government is taking out more debt this year than budgeted. The key underlying reason is the growth of cash collateral requirements over the course of the year.

Government borrowing will exceed the nominal net borrowing need of EUR 14.3 billion budgeted for 2025 (including the third supplementary budget) by EUR 3.5 billion. Nominal net borrowing includes the difference between the Budget's revenue and expenditure as well as estimated negative issue premiums. The central government’s new borrowing in 2025 will amount to an estimated EUR 17.8 billion.

It is normal for the central government’s actual borrowing to differ from the amount budgeted. This year, the need for borrowing has been particularly impacted by items relating to debt management. Detailed information on the reasons for the difference between budgeted and realised borrowing will be available when the final central government accounts are completed.

Borrowing impacted by growth of cash collateral requirements

One key reason the central government needs to take out more debt than budgeted this year is that the cash collateral requirements relating to interest rate and currency derivatives have grown by EUR 3.3 billion compared to the end of 2024. 

The central government’s derivative contracts include collateral arrangements to reduce credit risk. It has been necessary to increase the amount of cash collateral, because interest rate changes, particularly the growth of the difference between long- and short-term interest rates (i.e. a steeper yield curve), have increased the collateral requirements for interest rate derivatives. The appreciation of the euro against the US dollar has also increased collateral requirements related to currency derivates. 

Cash collateral posted by the central government is returned upon the expiry of each contract at the latest. In other words, it is an interest-bearing receivable for the central government. The impact of cash collateral requirements on the need for borrowing will decrease moving forward, because the central government ceased entering into new interest rate derivatives contracts in 2024. The contracts already entered into will continue to impact the amount of cash collateral requirements until the expiry of the contracts. Changes to collateral requirements are not included in the Budget and, therefore, are not included in the budgeted net borrowing need.

Borrowing also impacted by negative issue premiums

When the central government auctions previously issued fixed-interest benchmark bonds with nominal interest rates that are lower than current market interest rates, the central government receives less capital than the nominal amount of the bond. This is called a negative issue premium. In this situation, the central government has to take out more nominal debt to get the required euro-denominated debt. However, a nominal interest rate is paid on the debt that is lower than the market rate.

The third supplementary budget of the year included about one billion euros of negative issue premiums. Since then, approximately EUR 0.4 billion in additional negative issue premiums has accrued.  

Inquiries: 
Marja Paavonen, Director, Head of Unit, tel. +358 295 530 187, marja.paavonen(at)gov.fi (Budget)
Sakari Lehtiö, Director, Head of Unit, tel. +358 295 530 439, sakari.lehtio(at)gov.fi (central government financial policy)
Jussi Tuulisaari, Deputy Director, tel. +358 295 503 819, jussi.tuulisaari(at)valtiokonttori.fi (government debt servicing)