Press release 28 September 2018
As commissioned by the Government, the Swedish National Debt Office has considered whether to wind up borrowing in lottery bonds after a pause in issuance since 2016. The Debt Office’s assessment is that lottery bonds can no longer contribute to the objective of reducing the cost of central government debt.
The report on lottery bonds is presented in the Debt Office’s proposed guidelines for debt management, which are submitted to the Ministry of Finance today.
“Resuming the issuance of lottery bonds would involve considerable costs and a long start-up period,” says Debt Office Director General Hans Lindblad. “We also consider it unfeasible to build up the customer base needed to make lottery bonds profitable.”
Lottery bonds are one of the debt instruments used in the management of central government debt for the past hundred years. However, in response to low interest rates and insufficient profitability, the Debt Office stopped issuing lottery bonds for the time being in 2016.
As the Debt Office sees no prospects for resuming the sale of lottery bonds, the remaining outstanding bonds will mature at the end of 2021. All outstanding lottery bonds will run to maturity, and prize draws will occur as planned.
Common benchmark for maturity of krona debt proposed
In the debt management guidelines, the Debt Office proposes merging the steering of the inflation-linked and nominal krona debt. The basis for the proposal is that a common benchmark for the maturity of between 4 and 6.5 years would provide a better overview of the risk level of the krona debt.
Use of tax accounts for capital investments should be restricted
In the guidelines, the Debt Office also presents a report on how the large central government cash surplus can be restored to a normal historical level. This surplus will gradually decrease when large bond loans mature in the next few years. Nevertheless, the Debt Office is taking appropriate measures for accelerating the decrease, such as using liquid funds to refinance loans to the Riksbank.
A contributing factor to the large cash surplus is companies and private individuals using tax accounts for capital investments through making excess deposits in order to receive a higher interest rate than those offered by banks. Even though the interest rate on tax accounts was reduced from 0.56 per cent to 0 per cent on 1 January, 2017, the practice of making excess deposits in tax accounts has continued, mainly on the part of companies.
“The fact that tax accounts are being used for capital investments is a problem because it becomes an expensive form of borrowing for central government and leads to a reduction in the supply of government bonds. In addition, the outcome of the budget balance is then misleading because tax income appears larger than it is. Therefore, ways to restrict the possibility of using tax accounts for capital investments should be explored,” says Hans Lindblad.
Read the full report: Central government borrowing – proposed guidelines 2019–2022, PDF
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