Increased government debt in 2020 amid pandemic

News 19 February 2021

The Swedish National Debt Office today submitted its basis for evaluation of debt management in 2020 to the Government. The year was dominated by the pandemic, which led to a large budget deficit and a rapid increase in central government borrowing. The Debt Office also issued a green bond for the first time.

The basis for evaluation report, which is submitted every year in February, describes how the Debt Office managed the central government debt and borrowing within the Government’s guidelines. It also presents the results of an annual confidence survey and the cost of the debt.

The year in brief

• The outbreak of the coronavirus and the restrictions implemented led to a sharp decrease in activity in the Swedish economy. To mitigate the negative impact on the economy, the government introduced several support measures. Expenditure for these and lower income from taxes led to a central government budget deficit.
• The turn from a budget surplus to a deficit meant a larger borrowing requirement and growing debt. However, the central government debt did not increase as much as was initially foreseen, ending up at 26 percent of GDP. This remains a low level both historically and from an international perspective.
• The fixed-income market suffered turbulence at the beginning of the coronavirus outbreak, but the situation stabilised relatively quickly. In a questionnaire survey conducted at the end of 2020, market participants perceived liquidity in the market for government bonds to be unchanged or slightly better than the year before.
• The Debt Office met the growing borrowing requirement in accordance with the stated borrowing policy. It first increased short-term borrowing and then gradually adapted its bond issuance. When the budget outcome was stronger than expected, mainly short-term borrowing was adjusted downwards.
• The Debt Office issued a green bond for the first time and introduced a new 25-year government bond. Both bonds were received well, with demand markedly exceeding the supply. There was significant interest from both Swedish and international investors.
• The term to maturity of the central government debt was within the general steering interval and the currency exposure was kept unchanged in accordance with the Government’s guidelines.
• The cost of the central government debt was SEK 6 billion, corresponding to 0.1 per cent of GDP. This is a reduction from 2019 mainly due to foreign currency effects.
• The Debt Office continued to use the opportunity to take positions in the krona to lower the cost of the central government debt. The position that started being built up in 2018 was increased during 2020 and showed an unrealised gain at the end of the year.
• Market participants’ confidence in the Debt Office’s strategies and actions strengthened in 2020, mainly among international investors. The survey results showed a broad upswing in the included factors, with higher ratings for communication and consistent actions.

See the full report here: Central Government Debt Management – Basis for Evaluation 2020, pdf  (only in Swedish)

An English version will soon be published.

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