OECD recommends Finland strengthen public finances and boost sustainable economic growth

The OECD sees vast potential for clean economic growth in Finland. However, structural reforms will be required to realise this potential. Among other things, the OECD recommends that Finland boost higher education, attract high-skilled immigrants and improve incentives for investments. Further adjustments to public finances are necessary due to rising defence spending.

On Friday 23 May, the Organisation for Economic Co-operation and Development (OECD) published its latest survey of the Finnish economy and opportunities for economic development.

This time, the survey focused on:

• raising the higher education attainment rate;
• attracting high-skilled immigrants;
• promoting the clean transition.

Economic growth in an uncertain international environment

According to the OECD, the Finnish economy has demonstrated its ability to recover from the crisis that started with Russia's invasion of Ukraine, but Finland must continue efforts to maintain its long-term prosperity.

The OECD found that Finland is slowly recovering from a deep recession, but the international economic environment has become increasingly uncertain and fragmented. Finland’s productivity growth has weakened, and downside risks dominate the economy.

The OECD estimates that the Finnish economy will grow 0.7 per cent this year and 1.1 per cent next year, supported by declining interest rates and rising purchasing power. However, geopolitical challenges will be greater and may have a greater than forecast impact over the near-term.

According to the report, Finland has good opportunities for strong clean economic growth if it can leverage cheap energy and engineering excellence.

Rising defence spending puts pressure on public finances

The OECD urges Finland to continue fiscal consolidation efforts due to rising defence spending. This higher defence spending will hamper efforts to reduce the general government deficit and stabilise public debt. The OECD considers it important that Finland improve the efficiency of public spending and reduce state aid.

The organisation proposes that the central government strengthen its financial steering of wellbeing services counties that are at risk of insolvency.

The report recommends reducing labour market mismatches, in other words, improving matching between jobs and jobseekers. It is also important to increase the level of competence and boost investments.

Tuition fees for second higher education degrees

The OECD recommends that the resources of higher education should be focused on students studying for their first degree. Finland’s higher education attainment rate was the highest of OECD countries in the year 2000, but in 2023 Finland had fallen to 30th place.

The organisation recommends imposing tuition fees for second and further degrees at the same level. At the same time, shorter post-graduate qualifications and micro-credentials oriented towards the labour market should be developed alongside degree programmes. 

Finland should allow the specialisation of smaller higher education institutions and develop the funding of higher education institutions to incentivise institutions to collaborate in teaching. Greater use could be made of digital education options. These types of reforms would improve the effectiveness of funds allocated to higher education.

Increased business funding of higher education research, which is low in Finland compared to other OECD countries, would be beneficial.  

High-skilled foreign workers

According to the report, Finland needs highly trained foreign workers  to address skill shortages and the challenges of an ageing population. A lack of language proficiency is an obstacle to the attraction and integration of foreign talent.

The OECD recommends expanding the Talent Boost programme and developing its evaluation framework. Flexible language policies on the part of companies would make coming to Finland easier. 

Finland attracts foreign students, but they lack professional networks and internship opportunities, which hampers their ability to find employment.

Finland falling short of emissions target

The OECD estimates that Finland will not meet its 2035 net zero emissions target.

Reducing emissions from soil would be the fastest and cheapest way to speed up progress. To this end, the OECD proposes implementing the forest growth package and reducing soil emissions through subsidies, private funding and regulation.

Stronger investment incentives for clean growth 

The clean industrial transition is well underway, but investments in low-emissions electricity remain uncertain. The report recommends that Finland should streamline permitting processes, promote the smart grid and energy storage, and enhance infrastructure security. 

The development of the hydrogen industry is being hindered by uncertainty about renewable energy and demand, which is holding back the use of green hydrogen in industry.

The OECD recommends government-backed seed funding to boost private investments in the clean transition. The report recommends strengthening incentives to invest in low-emission industrial processes. Measures to achieve this include public-private partnerships, guarantees, tax incentives and the use of EU funding.

Land-use changes create pressure on biodiversity and call for increased adaptation measures. The OECD recommends that Finland should legislate biodiversity goals and put biodiversity and adaptation on a more level footing with economic development.

Economic Survey based on expert analyses

The report is based on financial analyses by experts working at the OECD. The experts met with public authorities, research institutes, labour market organisations and many other groups.

The OECD’s Economic and Development Review Committee reviews member economies about every two years. The goal is to identify policy areas where measures could be taken to boost economic output potential.  

Inquiries:
Sari Sontag, Senior Ministerial Adviser, tel. +358 295 530 181, sari.sontag(at)gov.fi