Strong economic recovery reduces central government borrowing requirement
The Swedish economy is recovering increasingly faster after last year's drop resulting from the pandemic. The higher economic growth leads to increased income from taxes for the central government and thereby a stronger budget balance, lower borrowing requirement, and lower debt. The Debt Office is reducing its borrowing and intends to introduce a new 50-year government bond.
“So far this year, the Swedish economy has resisted the pandemic well, and an even more rapid recovery is expected ahead when the spread of infection subsides and restrictions are eased, which strengthens central government finances. There are however differences in the rate of recovery, and some sectors and businesses are still being hit hard by the pandemic,” says Hans Lindblad, Director General of the Debt Office.
In the central government borrowing report presented by the Debt Office today, GDP is expected to be back to its pre-crisis level by around mid-year and grow by 3.5 per cent this year. This is just over one percentage point higher than in the previous forecast from February. Next year, GDP is expected to grow by 3.7 per cent. The impact of the pandemic on the labour market, however, will be more prolonged, and unemployment remains at a higher level than prior to the crisis.
Central government budget balance is strengthened
The Debt Office now expects the central government budget balance to be close to balanced this year, with a surplus next year of SEK 65 billion that is twice as large as in the previous forecast. The upward revision is due to the positive effects of the higher growth outweighing the extra spending for new pandemic-related support measures from the Government. The Riksbank’s repayment of foreign currency loans raised on its behalf by the Debt Office also contributes to the budget balance approaching a surplus again.
| Forecast for Swedish economy and central government finances | |||
| Previous forecast (Feb 2021) in parentheses | 2020 outcome | 2021 | 2022 |
| GDP growth (%) | -2.8 | 3.5 (2.4) | 3.7 (4.0) |
| Unemployment (% of labour force) | 8.3 | 8.7 (8.6) | 7.7 (7.5) |
| Budget balance (SEK billion) | -221 | -4 (-63) | 65 (30) |
| Central government net lending (SEK billion) | -167 | -103 (-140) | -31 (-47) |
| Central government net lending (% of GDP) | -3.4 | -2.0 (-2.7) | -0.6 (-0.9) |
| Central government debt (SEK billion) | 1,280 | 1,283 (1,348) | 1,221 (1,324) |
| Central government debt (% of GDP) | 26 | 25 (26) | 22 (25) |
| Maastricht debt (% of GDP) | 40 | 39 (40) | 36 (38) |
Reduced borrowing and new 50-year government bond
The upward revision of the budget balance entails a lower central government borrowing requirement. The Debt Office is therefore reducing the borrowing in both treasury bills and nominal government bonds.
The Debt Office intends to issue a 50-year government bond, which will extend the government bond curve and the term to maturity of the debt. The plan is to introduce the new bond in mid-June through what is known as a syndication, providing the market conditions are suitable. The planned issuance volume is SEK 10 billion. The Debt Office’s overall assessment is that the long bond can reduce the risk in the central government debt, at a low cost from a historical perspective.
| Central government borrowing, SEK billion | |||
| Previous forecast (Feb 2021) in parentheses | 2020 outcome | 2021 | 2022 |
| Nominal government bonds | 100 | 85 (96) | 70 (90) |
| Inflation-linked bonds | 13 | 21 (21) | 21 (21) |
| Green bonds | 20 | 0 (0) | 0 (0) |
| Treasury bills (stock at year-end) | 173 | 138 (185) | 183 (225) |
| Foreign currency bonds | 43 | 17 (17) | 17 (17) |
| – on behalf of the Riksbank | 43 | 0 (0) | 0 (0) |
| – for the central government | 0 | 17 (17) | 17 (17) |
Central government debt as proportion of GDP already goes down this year
The central government debt amounts to SEK 1,283 billion at the end of 2021, to then decrease to SEK 1,221 billion next year. As a share of GDP, the debt will already decrease this year – from 26 per cent till 25 per cent. Next year, the debt as a share of GDP is expected to be down to 22 per cent.
The debt for the entire public sector according to the Maastricht measure is expected to decrease from 40 per cent of GDP at the end of 2020 to 39 per cent in 2021 and 36 per cent in 2022. It is also this measure that is used in the fiscal policy framework for the so-called debt anchor, which entails that the debt is to amount to 35 per cent of GDP (±5 percentage points).
The report Central Government Borrowing – Forecast and Analysis 2021:2 is attached below.
The report will be presented at a digital press conference today, 27 May, at 10:00 a.m. CEST.
Link to live stream of the press conference: https://www.riksgalden.se/presstraff27maj
Journalists will be able to send in questions via the website menti.com, to be answered during the press conference. The code required will be presented in a slide during the live broadcast. For further information or interview inquiries, contact the Debt Office’s press function by phone: +46 (0) 8 613 47 01 or e-mail: press@riksgalden.se.
The preliminary publishing date for Central Government Borrowing – Forecast and Analysis 2021:3 is 27 October 2021.
The Debt Office is the Swedish government’s financial manager. Our mandate includes central government borrowing and debt management. The objective is to do this at the lowest possible cost while avoiding excessive risk. In the report Central Government Borrowing – Forecast and Analysis, published three times a year, forecasts are presented for the macroeconomic development and central government budget balance for the next two years. On the basis of these forecasts, the Debt Office calculates how much the government needs to borrow and sets up a plan for borrowing that is also included in the report.
Attachment
