The deterioration is offset by lower interest payments, mainly due to premiums on the sale prices of coming bond issues. Adjusted for these premiums, the borrowing requirement will amount to SEK 35 billion. Beginning in March, the issue volume of nominal Treasury bonds will increase to SEK 5 billion per auction.
The central government net borrowing requirement in 2003
The Debt Office's forecast of the borrowing requirement in 2003 indicates that the central government will run a payments deficit of SEK 26 billion. In principle, this is unchanged since the previous assessment in October. In spite of this, underlying components show deterioration in government finances. However, this deterioration is offset by lower interest payments, mainly due to estimated premiums on the sale prices of coming bond issues.
The primary surplus (the central government budget surplus excluding interest on government debt) has been revised downward by SEK 15 billion compared to the October forecast and is now estimated at SEK 13 billion. The main reason is that incoming tax payments are expected to be lower. This is partly due to smaller back tax and supplementary tax payments in February than expected.
Offsetting the decline in the primary surplus is an expected decrease of SEK 14 billion in interest payments on the central government debt. This decline is mostly temporary and will lead to higher interest payments in future years. One explanation is lower prevailing interest rates, and another is that the Debt Office has begun to issue its future 10-year benchmark loan 1041 (6.75%, May 2014) earlier than estimated. Since this loan has a higher coupon interest rate and a longer maturity than the existing benchmark loan, the difference between market price and nominal value will be larger. This difference is called a premium and is counted as interest income to the government. Large premiums thus lead to lower interest payments.
The current forecast of the borrowing requirement is uncertain. In addition to uncertainty about revenues from divestments of state-owned properties and reductions in cash expenditures aimed at keeping the central government budget below the expenditure ceiling, interest payments are more difficult to estimate than usual. The Debt Office is weighing the possibility of introducing a new bond issue with a longer maturity than 10 years. Such a loan would carry a coupon interest rate at the level of the market interest rate. This would lead to lower premiums and thus higher interest payments than according to the existing forecast.
Funding
The funding requirement in bonds and foreign currencies is expected to be SEK 140 billion, which is SEK 10 billion more than in the October forecast. Issue volumes of nominal Treasury bonds will be increased by half a billion kronor to SEK 5 billion per auction, beginning on March 12. Altogether, nominal Treasury bond borrowing in 2003 is expected to be SEK 114 billion.
A new bond loan with a maturity of longer than 10 years may be considered at a later date. The demand for such a loan and any changes in market conditions in case of a Yes vote in the September 14, 2003 referendum on Swedish euro currency union membership are uncertainty factors.
In light of good demand the Debt Office estimates, as earlier, that it can issue inflation-linked bonds at an annual pace of approximately SEK 15 billion. The auctions will occur in the four outstanding coupon loans, preferably in the three longest-running.
The Debt Office will amortise the foreign currency debt at an annual pace of SEK 25 billion. This implies that foreign currency borrowing due to roll-overs of maturing loans will be an estimated SEK 21 billion. Half of this borrowing is projected to occur by means of direct foreign currency borrowing.
If Sweden votes Yes to currency union membership, there are arguments for cutting back the pace of amortisation on the foreign currency debt. This implies that foreign currency borrowing would need to increase.
The Debt Office expects to carry out interest rate swaps at an annual pace of about SEK 25 billion.
The central government debt
Starting in 2003, the central government debt is being measured in a new, more accurate way. According to the new measure, central government debt was SEK 1,204 billion at the close of 2002. In 2003 there are no known effects influencing the debt other than the central government borrowing requirement. The central government debt is thus projected to increase by SEK 26 billion, amounting to SEK 1,230 billion at the close of 2003.
For more information, please contact:
Erik Thedéen, Deputy Director General,
tel +46-8-613 46 46
Lars Hörngren, in regard to the borrowing requirement and central government debt, tel +46-8-613 47 36
Thomas Olofsson, in regard to funding,
tel +46-8-613 47 82
See also the report Central Government Borrowing Forecast and Analysis, 2003:1, which can be downloaded from the Debt Office's web site, www.rgk.se.
A press conference to present the above report is being held at 11 a.m. today, Wednesday, February 19, 2003, at the Swedish National Debt Office, Norrlandsgatan 15, 8th floor, Stockholm.