Questions and answers regarding debt

One cannot say whether it is right or wrong to borrow. But it is good to have the opportunity to do so when necessary. Generally speaking, it is not good to borrow in the long term for consumption, but it can be good in the short term in order to stimulate the economy. Loans to investments can be good since they lead to increased revenues in the future.

The central government debt varies over time, but it has remained between SEK 1,100 billion and SEK 1,400 billion over the last ten years. Measured as a proportion of gross domestic product (GDP), the central government debt has decreased from over 70 per cent in the mid-1990s to below 30 per cent. What is known as the Maastricht Debt, which comprises the entire public sector, is at around 40 per cent of GDP. The Debt Office reports the outcome of the central government debt once a month, which can be monitored here.

There are no political ambitions to pay off the entire central government debt in Sweden. Nor is there any future time when the debts have to be paid off. An important difference between an individual who borrows and a government is that the government is expected to continue to exist while an individual sooner or later must die. 

There is no saving objective for the central government but rather for the general government of the public sector: central government, local government and the pension system. The objective is that the saving (net lending) should be 1 per cent of GDP on average per year. 

The interest payments for the central government debt are financed through the central government budget. Loans that expire are paid for by taking out new loans. The Government’s biggest asset is future tax revenues. The most important thing for payment capacity is that the tax revenues are sufficient for all the Government’s obligations, both for expenditure and debts.

Today most people think that Sweden’s government finances are stable. However, during the early the 1990s Sweden’s government finances were very weak and the central government debt increased rapidly. Stability is important. A rapidly increasing central government debt can create a fear that the Government will not be able to pay for its obligations, and this in turn has negative effects on the country’s entire economy. Interest rates increase since the risk increases for lenders.

The statistics are compiled in Statistics Sweden’s financial accounts. Historically, insurance companies, pension institutions, and foreign investors have owned the majority of the securities issued by the Swedish state. Since 2015, the Riksbank has purchased government bonds for monetary policy purposes and thereby become the largest owner. In 2020, the Riksbank held on average around one-third of the central government debt. In pace with the Riksbank purchasing bonds, foreign investors have reduced their ownership. Ownership by insurance companies and pension institutions has been relatively stable and amounts to just over 20 per cent. The banks’ holdings of government securities have stayed at approximately 1–4 per cent over the last four years.