Meeting a rapidly growing deficit Central Government Borrowing - PowerPoint PPT Presentation

Meeting a rapidly growing deficit Central Government Borrowing – Forecast and Analysis 2020:2 19 May 2020

Recession in Sweden and rest of the world The crisis leads to large budget deficit in 2020 Increased issuance in all debt instruments

The pandemic is the starting point for the forecast Cumulative confirmed cases of Covid-19 • Closed borders • Social distancing • Assumption: gradual phase-out after summer Source: Johns Hopkins dashboard (as of 13/5- 20)

Recession in Sweden and rest of the world Lowest GDP growth of post-war era • Sharp and deep fall in economic activity Annual percentage change 15 • Effects of the crisis very 10 unevenly distributed 5 • Major consequences for the labour market 0 -5 -10 1946 1966 1986 2006 Outcome Forecast Sources: The Swedish National Debt Office and Statistics Sweden

Crisis leads to large deficit Central government budget balance SEK billion Percent of GDP 200 6 4 100 2 0 0 -2 -100 -4 -200 -6 -8 -300 -10 -400 -12 -500 -14 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 SEK (left hand axis) Percent of GDP (right hand axis) Sources: Swedish National Debt Office, Macrobond, Statistics Sweden and the Swedish National Financial Management Authority

Crisis measures account for half of the revision • Yes, central government finances Changes in 2020 budget balance compared with previous forecast are cyclically sensitive 0 • But, fiscal policy measures play a -50 bigger role in this year’s deficit -100 Measures SEK -213 bn -150 • Measures with the largest impact -200 on this year’s budget balance: -250 • Short-time work allowance Macroeconomy -300 • Support for loss of turnover SEK -128 bn -350 • Reduction in employer’s contributions -400 • Grants to local authorities Total SEK -388 bn

Risks for larger deficits tip the scales GDP level, forecast and alternative scenarios • The pandemic is the most Index = 100 Q4 2019 important factor for 105 macroeconomic 103 developments 101 99 97 • Uncertainty regarding 95 fiscal policy measures 93 91 • Final effect of measures 89 already implemented? 87 85 • Extent of measures yet to 2018 2019 2020 2021 come? Forecast Alternative 1 (worse) Alternative 2 (better) Sources: Swedish National Debt Office and Statistics Sweden

Sharp increase in total borrowing requirement Gross borrowing requirement SEK billion 700 600 500 400 300 200 100 0 -100 -200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Net borrowing req. Redemptions Other Total borrowing req. Source: Swedish National Debt Office Note: Net borrowing requirement is budget balance with opposite sign

Borrowing in all debt instruments increases • Raised auction Issuance volumes Miljarder kronor SEK billion volumes for both 500 T-bills and bonds 400 • New 25-year bond 300 • Green bond as a complement 200 • Foreign currency 100 borrowing rises 0 • Flexibility in cash 2009 2012 2015 2018 2021 management Nominal government bonds Inflation-linked bonds T-bills Foreign currency bonds Green bonds Source: Swedish National Debt Office Note: Foreign currency bonds exclude on-lending to the Riksbank

Green bond to complement regular issuance • One issue in 2020 1. Evaluation and selection • Proceeds linked to defined of expenditures green budget expenditures • Preparations under way – framework, selection of 2. Issuance expenditures, etc. • Selection of green expenditures determines scope for size of 3. Reporting issuance • Conservative assumption of Process for green bond issuance volume of at least SEK 10 billion – could be up to twice that amount

Well-prepared to cope with great uncertainty SEK AAA Highest credit rating Various funding channels € $ Tre 22% Low debt Well-established issuer krono

Swedish government debt rises from low level Government debt development SEK billion Per cent of GDP 2 500 100 2 250 90 2 000 80 1 750 70 1 500 60 1 250 50 1 000 40 750 30 500 20 250 10 0 0 Central govt. debt Maastricht debt Central govt. debt, % Maastricht debt, % Source: Swedish National Debt Office and Statistics Sweden

Recession in Sweden and rest of the world The crisis leads to large budget deficit in 2020 Increased issuance in all debt instruments