Increased borrowing requirement – strong central government finances

23 October 2012 - Press release

Our new forecast for the central government budget shows a deficit of SEK 28 billion this year and SEK 55 billion next year. For 2014 we expect a deficit of SEK 56 billion. This will increase the central government borrowing requirement. We will allocate the increased funding between all our government securities. It means that funding will increase in government bonds, inflation-linked bonds, T-bills and foreign currency borrowing.

Our assessment is that the Swedish economy is on solid ground and is holding up relatively well despite the crisis in the Eurozone. Sweden has strong central government finances, a well-established fiscal framework, its own currency, a competitive export sector and current account surpluses.

However, the weak economy has an impact on central government finances. We estimate that gross domestic product, GDP, will grow by 1 per cent this year, 1.6 per cent next year and 2.2 per cent in 2014. The forecast is essentially unchanged for this year while it is 0.7 percentage points lower for next year compared with our previous forecast.

The economic slowdown affects the budget balance which shows a deficit of 28 billion this year, 55 billion next year and 56 billion in 2014. It is mainly lower tax income that weakens central government finances.

Our forecast is based on an assumption that the government will implement new policy reforms of SEK 25 billion in 2014. There is no assumption about further sales of state-owned assets in the forecast.

The central government debt is expected to be SEK 1 163 billion at the end of 2012 and SEK 1 217 billion at the end of 2013. This corresponds to 32.4 and 32.9 per cent of GDP. The on-lending to the Riksbank amounts to about 3 per cent of GDP over the forecast period. The central government debt is essentially unchanged in relation to GDP between 2011 and 2014. Debt in relation to GDP is among the lowest in the EU.

As a result of the weaker economic outlook we estimate that the borrowing requirement will increase next year. We estimate that borrowing increases by more than 40 billion in 2013 compared with our previous forecast. Redemptions are considerably larger in 2014 than in 2013. Therefore funding increases during 2014 compared to 2013 in spite of a lower net borrowing requirement.

During the past few years we have concentrated funding to government bonds with a view to promote liquidity in the market. Now that the borrowing requirement is higher, we choose to distribute the increased funding over all instruments. Consequently we do not make any larger revision of the issue volume in government bonds.

Borrowing in government bonds amounts to SEK 74 billion next year. That is an increase of SEK 11 billion compared with our forecast in June. During 2014, we plan to issue government bonds for SEK 84 billion.Borrowing in inflation-linked bonds increases to a yearly rate of SEK 9 billion.

Demand is strong for both government and inflation-linked bonds and we hope a larger supply may contribute to improving liquidity further in the domestic bond market.

The T-bill stock has been at a minimum for several years as a result of our giving priority to government bonds when the borrowing requirement was small. Now we see room for increased borrowing in T-bills. We expect the T-bill stock amounts to SEK 135 billion by the end of 2014.

In recent years we have only issued bonds in foreign currency to finance on-lending to the Riksbank. We now plan to borrow the equivalent of SEK 7 billion in 2013 and SEK 27 billion in 2014 in foreign currency bonds besides on-lending to the Riksbank.

For more information, please contact:

Sofia Olsson, budget forecast, +46 8 613 47 30

Thomas Olofsson, borrowing, +46 8 613 47 82

Central Government Borrowing, Forecast and Analysis 2012:3Central Government Borrowing, Forecast and Analysis 2012:3, pdf, (opens in new window)