Despite an increased borrowing requirement next year, starting in September 2003 the Debt Office plans to reduce its issues of nominal bonds from SEK 5 billion to SEK 4 billion per auction. Issues were increased in order to lengthen the average maturity of the debt portfolio. This adjustment will soon be completed and the share of short-term borrowing in the portfolio can increase.
The central government borrowing requirement
The Debt Office's revised forecast of the borrowing requirement in 2003 indicates a deficit in central government payments of SEK 27 billion, in principle unchanged from the previous forecast. Due to a lower borrowing requirement than expected since February, the full-year forecast is the same, despite the fact that the Debt Office now assumes that there will be no revenues from divestments of state-owned property.
The forecast for 2004, which is now being reported for the first time, indicates a borrowing requirement of SEK 41 billion. Adjusted for nonrecurring effects, central government finances will improve by SEK 10 billion compared to 2003, mainly due to growing tax bases. This forecast is based on an economic upturn during 2004. At present, the outlook is unusually uncertain, with a risk that the recovery will be delayed. It is therefore more likely that the borrowing requirement will be larger than the forecast than that it will be smaller.
The primary surplus is estimated at SEK 6 billion, or SEK 8 billion less than in 2003. Tax revenues increase when the economy grows. Disbursements in the social insurance system also rise automatically along with nominal growth. Among other factors behind the decline in the primary surplus is a smaller amount of maturing mortgage bonds that the state took over from the National Pension Funds as part of the Swedish pension reform. Interest payments on the central government debt will increase by SEK 6 billion to SEK 47 billion. The increase is mainly due to smaller premiums on bond issues. Premiums are counted as interest income. Interest payments will thus approach a more normal level, viewed in relation to the size of the debt and interest rates.
Funding
The Debt Office plans to reduce its issues of nominal bonds from SEK 5 billion to SEK 4 billion per auction starting in September, despite the rising net borrowing requirement. The background is that these issues were raised in order to ensure that the average maturity of central government debt again approached its target. This adjustment will soon be completed, and the allocation of borrowing between bonds and other instruments can thus be normalised.
The Debt Office's bond issues consist mainly of loans with maturities of two, five and ten years. The Debt Office expects to issue a new five-year loan early in 2004. Early in the autumn of 2004, the Debt Office plans a new ten-year loan. The Debt Office has also discussed issuing a new long-term bond maturing in 2020, the same year as inflation-linked loan 3102. Such a long-term loan would lengthen the Swedish yield curve and give investors better opportunities to match long-term obligations. The Debt Office will hold off on a decision about such a loan, among other things due to uncertain market conditions related to the Swedish referendum in September concerning EMU (euro zone) membership.
The Debt Office expects to continue issuing inflation-linked bonds at a pace of about SEK 15 billion per year both in 2003 and 2004. There are signs that many investors are demanding a larger share of inflation-linked bonds in their portfolios. If market conditions are favourable, issues during 2004 may be larger.
At present, the Debt Office is amortising foreign currency debt at an annual pace of SEK 25 billion. Its borrowing plan is based on the same pace of amortisation during 2004. In case of a Yes vote in the referendum on currency union membership, there may be reason to choose a slower pace of amortisation as early as this autumn. Foreign currency debt in euro will be merged with the krona debt when the Swedish krona is converted to euro. This will sharply reduce the foreign currency debt. During the transition period until 2006, it will consequently be less urgent to amortise the foreign currency debt in order to reduce the risks in government debt. A Yes vote may thus mean that foreign currency borrowing will increase in relation to existing plans.
For further information, please contact:
Erik Thedéen, Deputy Director General,
tel +46 8-613 46 46
Lars Hörngren (concerning the borrowing requirement),
tel. +46 8-613 47 36 or +46 8-613 47 40
Thomas Olofsson (concerning funding),
tel. +46 8-613 47 82.
A press conference will be held today at 10.00 a.m. at the Swedish National Debt Office, Norrlandsgatan 15, 8th floor, Stockholm.
See also the report Central Government Borrowing Forecast and Analysis, 2003:2 which can be downloaded from the Debt Office´s web site, www.rgk.se