Europe’s debt problems force Swedish gov’t to change duration on loans

Sweden’s Cabinet has called for a shift in the proportion of the country’s sovereign debt consisting of longer term loans, citing Europe’s ongoing fiscal imbalances and broader macro-economic uncertainties as a threat to the country’s economy.

The new policy for the period 2012-2014 means that the country will seek to spread a greater share of its debt over a longer period of time.

“In the light of the considerable uncertainty prevailing because of the fiscal balance problems in some European countries and other countries’ experiences refinancing their debt as it falls due, the government sees reason to spread the maturities on central government debt over a longer period of time,” the Swedish National Debt Office (Riksgälden) writes in a note explaining the decision.

Peter Norman, minister for Financial Markets, added: “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.”

As a result, there will be changes to the composition and duration of the debt issued by the Debt Office starting from next year:

The composition of the debt  
 Foreign currency debt: 15 per cent
 Inflation-linked debt: 25 per cent
 Nominal krona debt: 60 per cent
The maturity of the three types of 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 of over twelve years: benchmark SEK60bn

Source: Riksgälden

The Debt Office also notes that it has been given additional powers to engage in analysis of ongoing conditions affecting the debt market.

“In the light of the guidelines’ increased focus on robustness in debt management, the Debt Office will be given the remit to review how the guidelines can to a greater extent take the refinancing risks in its management into account. Its findings will be reported in next year’s guidelines proposal.”

The Debt Office said that in historical terms Sweden’s overall sovereign debt to GDP ratio is expected to continue falling from about 32% currently to 21% by 2015.

At its peak the ratio stood at 77%, or about the same level as the current EU consolidated debt measure of 80%.

“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. Uncertainty about international economic developments is greater than it was previously. Thanks to its strong starting position, however, Sweden will also have stronger government finances than most other borrowing countries, even in the event of more adverse international developments. This also provides the Debt Office with good conditions for the future financing of the central government debt at a low cost.”

Full details of the new policy guidelines are available here:


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