Continued surplus in Swedish budget despite lower growth

25 October 2011 - Press release

The Swedish central government budget continues to show a surplus, despite a weakened economic recovery. According to the new Debt Office forecast, the surpluses will be SEK 69 billion in 2011, SEK 25 billion in 2012 and SEK 29 billion in 2013. The weaker economic development has an effect on central government finances mainly through lower growth in tax revenues next year. Central government borrowing will therefore increase slightly compared with the previous forecast.

Recovery in the Swedish economy has slowed down, partly as a result of the problems in the euro zone. Weakening demand globally is being passed on to Sweden and worsening the outlook for the economy in the coming years.

Despite the slowdown, Swedish central government finances continue to be stable. This is due to relatively low expenditure pressure, a prudent fiscal policy and some continued increase in important tax bases, such as consumption and gross wages.

Lower surplus in 2011 and 2012

The budget surplus for 2011 is SEK 30 billion lower than in the previous forecast made in May. This is mainly due to lower tax revenues and the fact that we no longer expect further sales of central government shareholdings.

The forecast for 2012 has been reduced by SEK 43 billion, given that the weaker economic development will lead to lower growth in tax revenues and increased expenditure on unemployment. In addition, we no longer expect any income from sales of state-owned assets.

Towards the end of the forecast period the economy will again grow somewhat faster and the budget surplus in 2013 will increase in comparison with 2012. We expect that fiscal policy reforms totalling SEK 15 billion will be implemented in 2013.

Central government debt falls below 30 per cent of GDP

The budget surpluses mean that central government debt will continue to shrink. It is expected to be SEK 1,086 billion at the close of 2011, SEK 1,061 billion at the close of 2012 and SEK 1,032 billion at the close of 2013. This corresponds to 31, 30 and 28 per cent of GDP.

Slightly increased borrowing

Central government borrowing will increase compared with the previous forecast, due to the lower budget surpluses in 2011 and 2012. As before, the Debt Office will concentrate borrowing to nominal government bonds.

The issue volume of nominal government bonds will increase to SEK 35 billion in 2012 compared with SEK 22 billion in the May forecast. In 2013 we plan to borrow SEK 33 billion through nominal government bonds.

Next year borrowing in T-bills will also increase, while borrowing in inflation-linked bonds will be unchanged compared with the May forecast. Apart from on-lending to the Riksbank we do not expect to issue any foreign currency bonds in the next two years.

Risk of a deeper crisis

The Debt Office forecast is based on a relatively limited economic slowdown and orderly, albeit protracted, management of the problems in the euro zone. However, there is an obvious risk that the crisis will deepen and that the economic outlook will be considerably worse.

A sensitivity calculation based on zero growth in 2012 shows that the budget balance would deteriorate by about SEK 50 billion in the absence of further active fiscal policy measures. Up to half of this would then be funded through increased borrowing in bonds. Given such a scenario, bond borrowing would thus still not be greater than what has been normal during the 2000s.

For more information, please contact:

Johan Sandberg, budget forecast, +46 8 613 47 37
Thomas Olofsson, borrowing, +46 8 613 47 82

Central Government Borrowing, Forecast and Analysis 2011:2