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Finland-Balance of Payments





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Finland's external balance reflected the country's status as a late-industrializing economy needing large infusions of foreign capital as recently as the 1970s. The resulting foreign debt peaked at the end of 1977 at about 20 percent of GDP. Over the following decade, the Finns reduced their debt, which stood at about 16 percent of GDP in 1987. Even at this lower level, however, debt service required payments amounting to over 2 percent of GDP, a permanent drag on the balance of payments.

Although the country ran trade deficits up until the 1970s, Finland's trade performance was generally satisfactory during the 1980s, despite developments in world markets that posed special challenges, such as the need to shift exports rapidly from Eastern to Western markets after the collapse of oil prices in the mid-1980s. The balance of trade showed a surplus after 1980, which rose to about US$1.6 billion by 1986 as a result of strong foreign demand for Finnish goods (see table 20, Appendix A). The services account, however, showed growing deficits during the decade, which reached more than US$2.2 billion in 1986. The deficit on services grew out of increased Finnish tourist expenditures abroad, the decline in shipping earnings, and the continued service payments on the national debt. The transfers account likewise showed a deficit, mainly the result of Finland's growing official foreign aid to the Third World. Thus, despite the strong performance of Finland's export sector, the country had generated a deficit on the current account that reached almost US$900 million in 1986.

Over the long term, Finland's ability to continue to finance current account deficits and to service the national debt was limited primarily by the country's ability to maintain export earnings. Some analysts pointed out that after 1984, Finland's surpluses were in fact earned in exchanges with the Soviet Union (producing a surplus on a blocked account), while hard-currency trade was in deficit. Many observers noted, however, that Finland's debt was low by OECD standards, and they suggested that the country's external imbalances could be sustained for many years.

Data as of December 1988











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