Deficit in central government budget as economy slows

Deficit in central government budget as economy slows

The slowdown in the economy is becoming increasingly evident, and withdrawals of capital investments from tax accounts weigh on the budget balance. Altogether, the central government budget shifts to a deficit this year. The Debt Office’s plan to increase bond borrowing remains unchanged.

Today, the Swedish National Debt Office is publishing its new forecast for economic development, the budget balance, and central government borrowing up to and including 2021.

“The overall picture consists of low growth both globally and in Sweden, which we have taken into account in our borrowing plan. Towards the end of next year, the situation appears somewhat brighter and the Swedish economy grows somewhat more rapidly again,” says Debt Office Director General Hans Lindblad.

Withdrawals from tax accounts expected to weigh on budget balance in 2020 and 2021

This year, the slowdown in the Swedish economy entails somewhat slower growth in tax income for the central government than in the previous year. At the same time, the interest rate situation is expected to contribute to a net outflow of capital investments from tax accounts during the forecast period.

“Investments in tax accounts are an expensive form of borrowing for the central government and have contributed to a decrease in the supply of government bonds. After the Riksbank raised its policy rate in December, there have been fewer incentives to use deposits in tax accounts as a form of investment and we are now seeing withdrawals being made instead,” says Director General Hans Lindblad.

The Debt Office’s overall assessment is that the central government budget balance will, after four years of a surplus, show a deficit of SEK 14 billion both this year and the next. This is a slightly smaller deficit for both years compared with the previous forecast.

Sweden’s economy and central government finances
Previous forecast in parentheses	2019	2020	2021
GDP (%)	1.2 (1.3)	1.0 (1.1)	1.8 (1.6)
Unemployment (% of labour force)	6.8 (6.7)	7.2 (7.1)	7.4 (7.2)
Budget balance (SEK billion)	112 (113)	-14 (-17)	-14 (-27)
Central government net lending (% of GDP)	1.0 (0.8)	0.7 (0.5)	0.3 (0.2)
Central government debt (% of GDP)	22 (22)	21 (21)	21 (21)

Plan for increased bond borrowing remains