Larger budget surplus leads to lower bond issuance

21 February 2018 - Press release

Continued strong growth of the Swedish economy contributes to the central government budget showing a surplus of SEK 80 billion this year and SEK 45 billion next year, according to the Debt Office’s new forecast. The Debt Office is therefore reducing borrowing in government bonds to the lowest auction volume since 2007.

– Good economic growth and continued capital investments in tax accounts lead to a stronger budget balance and a further decrease in the central government borrowing requirement. The Debt Office therefore reduces the issue volume of government bonds for the fifth time in two years and, by doing so, reaches a level where further reductions would not be appropriate under current circumstances, says Director General Hans Lindblad.

Growth in Sweden is expected to remain high this year but to slow down in 2019. Exports gain pace at the same time as both household consumption and investments make substantial contributions to GDP growth. One important explanation of the slower growth next year is a slowdown of housing investments, which decrease after several years of high growth. The forecast for GDP growth is 2.7 per cent in 2018 and 1.7 per cent in 2019.

Higher budget surplus in 2018, but lower in 2019

The budget surplus is expected to be SEK 80 billion in 2018. This is an upward revision of SEK 33 billion from the previous forecast. The main reason for the difference is that the Debt Office expects a greater inflow to tax accounts in 2018 that does not relate to taxes or fees. This inflow is to be regarded as pure capital investments. Also, a slightly stronger economy contributes to greater growth of households' capital income and corporate profits. The budget surplus in 2019 will be lower as the Debt Office expects an outflow from tax accounts.

Budget balance and central government debt (SEK billion)

Previous forecast in brackets                 

2018

2019

Budget balance (net borrowing requirement with opposite sign)

80 (47)

45 (55)

Central government debt

1,247 (1,249)

1,151 (1,192)

Central government debt as a share of GDP

26 (26)

23 (24)

Lowest auction volume since 2007

The issue volume of government bonds is reduced from SEK 2 billion to 1.5 billion per auction as of March 2018. The annual borrowing rate decreases from SEK 40 billion to SEK 30 billion. The Debt Office makes the assessment that a further reduction is not appropriate since it would risk worsening market liquidity so much that investors might leave the market. For central government this would result in poorer borrowing preparedness and higher funding costs. Borrowing in other types of debt is left unchanged.

The central government debt decreases by SEK 177 billion during the forecast period while the aggregate budget surplus for these years is SEK 125 billion. In the short term the decrease in central government debt is slower than the strengthening of the budget balance since the Debt Office still has a considerable cash surplus from 2017 that is not deducted from the debt measure. In the longer term the cash surplus shrinks as outstanding bonds mature, and then the central government debt decreases more quickly, which happens in 2019.

Borrowing (SEK billion)

Previous forecast in brackets                 

2018

2019

Government bonds

32 (40)

30 (40)

Inflation-linked bonds

9 (9)

9 (9)

T-bills

20 (20)

20 (20)

Foreign currency bonds

105 (102)

61 (63)

      Of which on-lending to the Riksbank

105 (102)

61 (63)

Central government borrowing – forecast and analysis 2018:1

Contact

Robert Sennerdal, Press Secretary, +46 8 613 46 94