The Debt Office has today submitted its annual proposed guidelines for the overall management of central government debt. We are proposing a new control system for the percentages of the debt, which are now approaching their benchmarks. We also propose that the maturity control shall be based on a maturity measure that covers the whole of central government debt. Furthermore, a new control system for the Debt Office's position-taking is proposed.
The Debt Office proposes that the new control system for percentages shall come into effect on 1 January 2007 for the inflation-linked debt since it is almost at its long-term goal. For foreign currency debt, which is still a fair distance from the long-term goal, we propose that the existing control system with an annual amortisation mandate continue until further notice.
We propose that the benchmark for currency amortisation for 2007 be set at SEK 25 billion and the deviation interval at SEK ±15 billion. Given present forecasts and assessments, it should be possible to apply the new control system for the foreign currency percentage from 2009. Exactly when and how a transition to percentage control of the foreign currency debt should take place should be taken up in a future guideline decision.
We propose that percentages of the debt shall be calculated somewhat different from previously. The object is to get a better picture of the risk characteristics of the central government debt, since the new measure, in addition to the nominal face value of the debt, also includes coupon payments and future inflation compensation.
The new calculation method changes the percentages a bit. In order to avoid changes in our long-term strategy, we propose that the benchmarks for the percentages be changed correspondingly. Rounding off to the nearest multiple of five, this gives a benchmark for the inflation-linked debt of 25 per cent, while the benchmark for the foreign currency debt is proposed to be kept unchanged at 15 per cent. In addition, it is proposed that the benchmark for the nominal krona debt be set at 60 per cent. At the present, the percentage inflation-linked debt is about 24 per cent (using the new measure), while the percentage foreign currency debt is 21 per cent.
The benchmark for the maturity of the central government debt has up to now only included the nominal part of the debt. From 1 January 2007, we propose that a comprehensive maturity measure, that includes the whole of central government debt, shall come into force. It is proposed that the benchmark for the maturity be set at 4.8 years 2007, 4.7 years 2008, and 4.5 years 2009.
Behind these numbers is a gradual shortening in the maturity of the inflation-linked debt, since the Debt Office is not planning to issue any new long-term inflation-linked bonds at the present. This implies no change in our present borrowing policy, but is rather an effect thereof. Another factor is that we intend to shorten the maturity in the foreign currency debt to one and a half months (0.125 year).
Finally, we propose that the Debt Office's mandate for position-taking from next year shall be stated in terms of daily Value-at Risk (VaR), according to the model that has been applied in the Debt Office for several years for control of the active management in foreign currency. The advantage is that the Government obtains a comprehensive picture of the risks that the Debt Office is allowed to take, since all types of positions may be included in this measure. We propose that the risk mandate be set to about the same level that the Debt Office has today, which in VaR-terms corresponds to SEK 600 million.
Central government debt shall by law be managed so that the cost is minimised in the long term at the same time as taking into account the risk inherent in such management. In addition, management shall take place within the constraints imposed by monetary policy. The guidelines for 2007 will be set by the Government at the latest by 15 November.
For addtional information please contact:
Bo Lundgren, Director General: +46 (0)8 613 46 51
Sara Bergström, Deputy Chief Economist: +46 (0)8 613 47 43
Charlotte Lundberg, Head of Debt Management: +46 (0)8 613 46 47
