Questions and answers regarding debt

We often receive questions about Sweden’s central government debt and state finances. Here are answers to some of them.

Questions and answers about 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 has varied between around SEK 1,100-1,400 billion over the last ten years. However, the central government debt in relation to GDP has fallen from more than 70 per cent at the end of 1997 to 34 per cent at the end of 2015. This means that central government debt in relation to our aggregate incomes in Sweden has fallen. 

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.