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

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

Sep 02, 2023 346 likes •497 views

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

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Meeting a rapidly growing deficit

Central Government Borrowing – Forecast and Analysis 2020:2 19 May 2020

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SLIDE 2

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

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The pandemic is the starting point for the forecast

Cumulative confirmed cases of Covid-19

Source: Johns Hopkins dashboard (as of 13/5- 20)

  • Closed borders
  • Social distancing
  • Assumption:

gradual phase-out after summer

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SLIDE 4

Recession in Sweden and rest of the world

  • Sharp and deep fall in

economic activity

  • Effects of the crisis very

unevenly distributed

  • Major consequences for the

labour market

Sources: The Swedish National Debt Office and Statistics Sweden

  • 10
  • 5

5 10 15 1946 1966 1986 2006 Outcome Forecast Annual percentage change

Lowest GDP growth of post-war era

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SLIDE 5

Crisis leads to large deficit

Sources: Swedish National Debt Office, Macrobond, Statistics Sweden and the Swedish National Financial Management Authority

  • 14
  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6

  • 500
  • 400
  • 300
  • 200
  • 100

100 200 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 SEK (left hand axis) Percent of GDP (right hand axis) SEK billion Percent of GDP

Central government budget balance

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SLIDE 6
  • 400
  • 350
  • 300
  • 250
  • 200
  • 150
  • 100
  • 50

Crisis measures account for half of the revision

  • Yes, central government finances

are cyclically sensitive

  • But, fiscal policy measures play a

bigger role in this year’s deficit

  • Measures with the largest impact
  • n this year’s budget balance:
  • Short-time work allowance
  • Support for loss of turnover
  • Reduction in employer’s

contributions

  • Grants to local authorities

Measures SEK -213 bn Macroeconomy SEK -128 bn

Changes in 2020 budget balance compared with previous forecast

Total SEK -388 bn

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Risks for larger deficits tip the scales

  • The pandemic is the most

important factor for macroeconomic developments

  • Uncertainty regarding

fiscal policy measures

  • Final effect of measures

already implemented?

  • Extent of measures yet to

come?

Sources: Swedish National Debt Office and Statistics Sweden 85 87 89 91 93 95 97 99 101 103 105 2018 2019 2020 2021 Forecast Alternative 1 (worse) Alternative 2 (better)

Index = 100 Q4 2019

GDP level, forecast and alternative scenarios

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Sharp increase in total borrowing requirement

Source: Swedish National Debt Office Note: Net borrowing requirement is budget balance with opposite sign

  • 200
  • 100

100 200 300 400 500 600 700 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. SEK billion

Gross borrowing requirement

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Borrowing in all debt instruments increases

  • Raised auction

volumes for both T-bills and bonds

  • New 25-year bond
  • Green bond as a

complement

  • Foreign currency

borrowing rises

  • Flexibility in cash

management

Source: Swedish National Debt Office Note: Foreign currency bonds exclude on-lending to the Riksbank

Miljarder kronor

100 200 300 400 500 2009 2012 2015 2018 2021 Nominal government bonds Inflation-linked bonds T-bills Foreign currency bonds Green bonds SEK billion

Issuance volumes

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Green bond to complement regular issuance

Process for green bond

  • One issue in 2020
  • Proceeds linked to defined

green budget expenditures

  • Preparations under way –

framework, selection of expenditures, etc.

  • Selection of green expenditures

determines scope for size of issuance

  • Conservative assumption of

issuance volume of at least SEK 10 billion – could be up to twice that amount

  • 1. Evaluation

and selection

  • f expenditures
  • 2. Issuance
  • 3. Reporting
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SLIDE 11

Well-prepared to cope with great uncertainty

22% AAA

SEK € $ Highest credit rating Low debt Various funding channels

Tre krono

Well-established issuer

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Swedish government debt rises from low level

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

Government debt development

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