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Large surplus in 2019 and lower deficit in 2020

Despite increasingly slower growth in the Swedish economy, the central government budget continues to show a large surplus this year as a result of the Riksbank`s decision to pay back some of the loans taken to strengthen the foreign currency reserve. Next year, the Debt Office estimates a smaller budget deficit than previously expected. This means that central government borrowing will not need to be increased as was planned.

This is presented in the Swedish National Debt Office`s latest forecast, published today, for the economic development, central government budget balance and borrowing requirement over the next two years.

"The slowdown in the economy affects central government finances mainly through lower tax income, but we are still seeing a stronger budget balance than in the previous forecast. This is primarily due to the Riksbank paying back loans but also to slightly lower expenditure and fewer withdrawals from tax accounts. The government debt thereby continues to decrease from a low level," says Debt Office Director General Hans Lindblad.

Stronger budget balance despite dampened growth in the economy

In its forecast, the Debt Office estimates a budget surplus of SEK 121 billion for this year and a deficit of SEK 19 billion for 2020. This entails an upward revision of the budget balance by a total of SEK 80 billion compared with the forecast in February. The change this year is mainly due to the Riksbank`s decision to reduce the foreign currency reserve by paying back loans to the Debt Office, which was not known in the previous forecast. The change for next year is due to the Debt Office now expecting a lower outflow of capital invested in tax accounts.

Sweden`s economy and central government finances
Previous forecast in parentheses  2018 2019 2020
GDP (%) 2.4 (2.3) 1.8 (1.6)  1.4 (1.6)
Unemployment (% of workforce) 6.3 6.5 (6.5) 6.7 (6.7)
Budget balance (SEK billion) 80 121 (40) -19 (-30)
Central government net lending (% of GDP) 1.5 0.9 (0.8) 0.5 (0.5)
Central government debt (% of GDP) 26 22 (23) 21 (23)

The Swedish economy is experiencing a slowdown in which the housing market is dampening both consumption and investment. The labour market is also slackening, leading to an increase in unemployment for both years. Altogether, the Debt Office expects GDP growth of 1.8 per cent for 2019 and 1.6 per cent for 2020.

Limited room for liquidity in household saving

The saving rate is high from an international perspective, but a large part of the savings is tied up in collective pension savings, real savings and amortisation. When adjusted for these three factors, the saving rate decreases from 16.7 per cent to 2.5 per cent of disposable income.

"The high saving rate is often interpreted as a stabilising factor in the economy. But when adjusting for amortisation on mortgages, for example, a clearer indication is given of the amount of savings that households can actual use in the short term. The savings deserve to be analysed further from a stability perspective," says Director General Hans Lindblad.

Increase in issuance volume is postponed and government debt decreases

The improved budget outlook means that the planned increase in the issuance volume of government bonds is pushed forward. The borrowing thereby remains at SEK 30 billion on an annual basis in 2020 as well, as shown in the table below. This is equivalent to SEK 1.5 billion per auction. The increase in borrowing in treasury bills is also postponed.

Borrowing in inflation-linked bonds remains unchanged, but foreign currency borrowing declines sharply as a result of the Riksbank`s decision to reduce the foreign currency reserve.

Central government borrowing, SEK billion
Previous forecast in parentheses  2018 2019 2020  
Government bonds 32 30 (30) 30 (40)  
Inflation-linked bonds 9 9 (9) 9 (9)  
T-bills (outstanding stock at year-end) 20 20 (20) 30 (40)  
Foreign currency bonds 88 19 (90)        

      59 (56)
- of which on-lending to the Riksbank 88 19 (90)  

59 (56)

Central Government Borrowing - Forecast and Analysis 2019:2

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Source: Riksgälden via GlobeNewswire