14 November 2011
Ministry of Finance
Guidelines for central government debt management in 2012
The Government has decided the guidelines for central government debt management. In these guidelines, the Government puts increased focus on robustness and the refinancing risk in debt management. Borrowing in long maturities will therefore increase. In the coming years the central government debt is expected to decline from about SEK 1 100 billion to about SEK 850 billion in 2015, but there is considerable uncertainty.
Uncertainty about international economic developments is greater than ever before. The Government therefore considers it desirable to exercise greater vigilance over the refinancing risks in the central government debt, that is to say, the risks that emerge when the state rolls over its loans. Its aim is to increase borrowing in long maturities so that more loans than before fall due at a later date.
- Thanks to its strong starting position, Sweden will have stronger government finances than most countries even if international developments worsen. This gives the Debt Office favourable conditions for continuing to finance the central government debt at a low cost, says Peter Norman, Minister for Financial Markets.
The Government has decided on the following changes in the guidelines
- A benchmark of SEK 60 billion will be introduced for maturities in nominal krona bonds exceeding twelve years. How rapidly this new benchmark will be reached has to be weighed against what demand there is for long bonds and what it will cost and what risk is associated with borrowing in other maturities. The benchmark replaces the current ceiling of SEK 65 billion. There is currently SEK 40 billion outstanding in nominal bonds with a maturity exceeding twelve years.
- The Government will also increase flexibility in the control of the maturity of the nominal krona debt shorter than twelve years and the inflation-linked krona debt. The changes are being made to reduce costs and increase the Debt Office's options for handling unforeseen swings in the government borrowing requirement.
- The Debt Office's mandate for positions in Swedish kronor will be lowered from SEK 50 to SEK 15 billion. The mandate will thus return to its level before the financial crisis of 2008/2009.
In the light of the Government's increased focus on robust management of the central government debt, the Debt Office will be given a remit to review how the guidelines can to a greater extent take the refinancing risks in debt management into account. Its findings are to be presented in next year's guidelines proposal.
Guidelines for the composition of the debt
Foreign currency debt: 15 per cent
Inflation-linked debt: 25 per cent
Nominal krona debt: 60 per cent (residual)
Guidelines on maturities for the debt
Foreign currency debt: interest rate refixing period of 0.125 years
Inflation-linked debt: interest rate refixing period of 7-10 years
Nominal krona debt:
- instruments with a maturity of up to twelve years: interest rate refixing period of 2.7-3.2 years
- instruments with a maturity exceeding twelve years: benchmark of SEK 60 billion
The central government debt is expected to decline
Towards the end of 2011, the unconsolidated debt is expected to come to SEK 1 100 billion and then decline to SEK 835 billion towards the end of 2015. Thus the government debt to GDP ratio is estimated to fall from 32 to 21 per cent.
When the debt ratio peaked in the middle of the 1990s, it had reached 77 per cent, which is about the same as the current average for EU countries' consolidated general government gross debt (80 per cent at the end of 2010). Swedish government finances are thus strong in both a historical and an international perspective. This is reflected in the historically low interest rates on Swedish government securities, both in kronor and in foreign currencies.
The overall goal of central government debt policy is to minimise the cost of the central government debt in the long run while taking the risk involved in its management into account. The Government controls the expected cost and risk primarily by deciding guidelines for composition and maturity. The Government decides on the guidelines after receiving proposals from the Debt Office. The Debt Office is responsible for the operational management of the central government debt within the framework of these guidelines.
On 31 October 2011, the unconsolidated central government debt amounted to SEK 1 012 billion.
Press Secretary to Peter Norman
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