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Swedish central government finances are deteriorating. The current financial crisis is dampening economic growth and will make it more difficult to sell state assets. Together this means that the surpluses of recent years are turning into deficits and that central government borrowing is increasing.
We are expecting a budget surplus of SEK 148 billion this year, which is SEK 15 billion lower than our previous forecast. For 2009, we are reducing our forecast for the budget balance by SEK 106 billion and will then have a deficit of SEK 23 billion. Our first forecast for 2010 shows a deficit of SEK 35 billion.
Lower tax income and a stop for sales Central government finances are greatly affected by the economic downturn, mainly in the form of lower tax income. The Swedish economy will probably show zero growth next year in the light of the reduction in global demand. Household consumption will be dampened and corporate profits will fall. The state of the labour market looks considerably worse than it did a few months ago.
Tax income will also be affected by the Government's planned tax cuts, which will come into effect next year.
Due to the financial turbulence, we only estimate SEK 3 billion in sales income in 2009. This income relates to payment for the shares in Beam Spirits & Wine, which were sold in connection with the sale of Vin & Sprit. We do not expect any sales at all in 2010 since it will probably take some time before the situation in the financial markets improves.
Increased borrowing The deterioration in central government finances means that borrowing will increase. The funding requirement will average around SEK 120 billion in 2009 and 2010.
The larger funding requirement will primarily be met by T-bills. The outstanding volume of T-bills is increasing by around SEK 50 billion to an average of around SEK 140 billion during 2010.
Funding in nominal government bonds increases to SEK 74 billion in 2009 and to SEK 84 billion in 2010. We are raising the volume per auction from SEK 2 billion to SEK 3.5 billion from 19 November onwards. The outstanding stock of bonds will increase during 2010 to become as large as it was in 2006.
The main part of the bond funding takes place in the ten-year maturity. The increased funding will also enable us to improve liquidity in the maturities that now have small outstanding volumes.
Funding in inflation-linked bonds is unchanged at SEK 3 billion per year since the inflation-linked share of the total debt already exceeds the target of 25 per cent. We are continuing to offer exchanges of the seven-year inflation-linked bond to longer maturities.
Bond funding in foreign currency is limited to SEK 10 billion per year during 2009 and 2010. This volume will depend on the conditions we can achieve. We carry out the major part of foreign currency funding by swapping bond funding in kronor to foreign currency. The aggregate foreign currency funding is determined by the set target that foreign currency debt shall amount to 15 per cent of the central government debt. Total foreign currency funding will be around SEK 50 billion both in 2009 and 2010.
The development of central government debt Central government debt will be SEK 1,121 billion at the end of 2008. The fact that the debt does not decrease as much as the budget surplus motivates, is due to the Debt Office having extensive short-term investments at present.
We expect the debt to be SEK 1,069 billion at the end of 2009 and SEK 1,104 billion at the end of 2010. This corresponds to around 33 per cent and 32 per cent of GDP respectively.
For more information on central government finances, please contact: Håkan Carlsson, +46 8 613 47 33
For more information on borrowing, please contact: Thomas Olofsson, +46 8 613 47 82
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