Central government finances are becoming increasingly strong in the light of sound growth, a fast increase in employment and income from privatisation. In 2007, we estimate a budget surplus (a negative borrowing requirement) of SEK 138 billion, which would be the largest surplus ever. This is an improvement of SEK 26 billion compared with our February forecast. The difference is primarily due to larger tax revenue than expected.
Next year, tax cuts and some slowdown in economic activity will lead to a reduction of the surplus to SEK 118 billion. These forecasts include sales income of SEK 50 billion per year. The expected sales income means that the uncertainty of the forecast is greater than usual.
Central government debt decreases to SEK 1,124 billion at the end of 2007 and to SEK 1,006 billion at the end of 2008. This corresponds to around 37 and 32 per cent respectively of GDP. Central government financial net lending, which is not affected by sales income, is expected to total around SEK 64 billion in 2007 and SEK 73 billion in 2008. This means just over 2 per cent of GDP for both years.
Reduced borrowing
The larger budget surplus means that borrowing will be reduced in most instruments. The issue volume in nominal government bonds will decrease to SEK 1.5 billion per auction from 27 June. As far as we can now judge, we will be able to maintain this issue volume during 2008.
Slightly over half of the bond borrowing will take place in the ten-year maturity. In addition, we expect to make a few issues in the two- and fourteen-year segments and the remaining issues in the five-year maturity. A new ten-year bond maturing on 12 March 2019 will be introduced as planned on 21 November 2007.
T-bill borrowing is expected to decrease by SEK 32 billion in 2007 compared with 2006. We expect to make swaps corresponding to around SEK 30 billion and SEK 40 billion in 2007 and 2008 respectively. We will probably have to change our policy for T-bill borrowing. Information will be provided in the next forecast published in October.
The large budget surpluses will lead to inflation-linked debt, which is at present in line with the target, increasing over time as a proportion of the total debt, even if we refrain from issues. It may therefore be difficult to borrow on the inflation-linked market at the present rate. Pending a dialogue with dealers and investors, we expect to borrow at an annual rate of around SEK 5 billion a year.
Since the turn of the year, the Debt Office has amortised the foreign currency debt at an annual rate of SEK 40 billion a year. Foreign currency borrowing is expected to total the equivalent of SEK 14 billion and SEK 12 billion in 2007 and 2008.
Further information about the borrowing requirement can be obtained from:
Håkan Carlsson, Analyst, +46 8 613 47 33
Håkan Carlsson, Analyst, +46 8 613 47 33
Further information about funding can be obtained from:
Thomas Olofsson, Head of Funding, +46 8 613 47 82
Thomas Olofsson, Head of Funding, +46 8 613 47 82
The report Central Government Borrowing - Forecast and Analysis 2007:2 can be downloaded from the attached link.
