Swedish central government payments resulted in a surplus of SEK 68 billion in 2011.[1] This is a big improvement compared with 2010 when the budget was practically in balance. The recovery in the Swedish economy continued to be strong in 2011, which generated higher tax income. In addition, the government sold shares in Nordea and Telia Sonera. The Debt Office's latest forecast for 2011 was a surplus of SEK 69 billion.
Despite increased concerns about the debt situation in the world and an expected slowdown in the economy during the second half, Swedish government finances developed strongly in 2011. The budget balance improved by SEK 69 billion compared to 2010. The continued economic recovery affected the budget both through higher tax income and lower unemployment related expenditure. Furthermore, the budget surplus increased as a result of the government selling shares for almost SEK 23 billion during 2011.
Interest payments on central government debt totaled SEK 34 billion, which was SEK 11 billion higher than in 2010. This is mainly explained by higher interest payments on loans in SEK and lower premiums on issued bonds.
Central government debt was SEK 1,108 billion at the end of 2011. That corresponds to 32 per cent of GDP.[2]
Smaller deficit than calculated in December
Central government payments showed a deficit of SEK 90.8 billion in December. The deficit was SEK 10.3 billion smaller than our latest forecast. The difference is mainly explained by the fact that the Legal, Financial and Administrative Services Agency on behalf of the Nuclear Waste Fund temporarily deposited funds that are normally invested in government bonds in an account at the Debt Office. These types of transactions can have large effects on the budget outcome in specific months, but they do not affect the underlying government finances.
Interest payments on central government debt were SEK 10.4 billion in December, which was SEK 1.8 billion higher than calculated. This is explained by larger exchange rate losses.
The outcome for January will be published at 9:30 am on 7 February 2012.
Changes to the accounting of central government debt as of January
As of the January outcome, the Debt Office will implement certain changes for how central government debt is reported. The purpose is to achieve greater consistency and transparency in the accounts. At the present time, the changes mean that the reported debt will become somewhat larger, but this effect will fade over time. The government's actual indebtedness is unaffected. The so-called Maastricht debt and government financial savings are not affected.
The changes apply to the accounting of collateral, which is paid in connection with changes in the market value of swaps and interest rate futures, and of reverse repos in our own government securities.
Payment of collateral
Payment of collateral to the Debt Office concerns protection for the government if the counterparty cannot fulfil its obligations in, for example, its swap agreements with us. If the collateral does not need to be used, it will be repaid at maturity. Payment of collateral to us is thus formally a claim on the government and also reduces our need for other borrowing. This should therefore be considered part of the central government debt.
Outstanding collateral has previously been reported separately from central government debt, but as of the end of January, it will be included in the government debt. The amount of collateral we receive depends on the market value of our interest rate swaps. As interest rate levels have declined sharply in recent years, the market value has also increased and along with it the payment of collateral. At the end of December, collateral corresponded to SEK 36.2 billion.
Reverse repos in own government securities
Reverse repos should be reported in the same way, whether they concern a government security or, for example, a mortgage bond. The accounting is therefore changed in such a way that reverse repos in government securities are no longer netted out in the calculation of central government debt.
The Debt Office sometimes invests temporary cash surpluses in reverse repos in our own government securities. Such a repo means that we invest a surplus with a counterparty while at the same time buying back a government bond or T-bill. When the repo matures, we sell back the government security and at the same time recover the invested amount. Such repos are currently netted against the government's debt, because regular buy-backs of our own government securities reduce the outstanding stock of government securities. The purpose of the reverse repo, however, is to invest a surplus, and not to buy back government securities.
Even though the present accounting method may be considered formally correct, we think reverse repos should be reported in the same way, regardless of the security being repurchased. Likewise, it should be reported in the same way as an investment in so-called deposits, because the purpose is also in this case to invest a cash surplus. For such investments, netting against debts is not permitted in the accounting of central government debt. Therefore, as of the end of January reverse repos in our own government securities will not be netted out in the accounting of central government debt. At the end of December investments in reverse repos corresponded to SEK 15.8 billion.
Trade date accounting
Currently the central government debt is primarily reported on the trade date. This however is not done with complete consistency, as for example debt in liquidity management is reported on the settlement date. Likewise, all debt in the accounting of central government debt remains in the reporting of the debt until the settlement date. Consistent accounting will now be implemented according to the trade date principle. This does not involve any systematic change in the size of central government debt, even if the size on particular days may be different.
Government indebtedness unaffected
It is important to note that the changes to the accounting of central government debt do not mean that the government's indebtedness increases in any respect. It is only the measurement of how large the government debt is that will be different. Received payments of collateral have thus been disclosed openly previously, but outside what is formally defined as central government debt. That this will now be reported as part of central government debt only entails a formal change.
The reported central government debt will become somewhat larger as a result of these changes. The effect of the changes that apply to the accounting of collateral payments is particularly large in the present interest rate situation. When the central government debt is refinanced at lower interest rates, or if in the future the level of interest rates were to become higher, the change will have no significance. On the other hand, the effect of no longer netting out reverse repos in our own government securities will persist, but will be of marginal significance. The assets invested in reverse repos in our own government securities will also remain as assets, even if they are no longer netted out against government debt.
In the reporting of the so-called Maastricht debt, i.e., the official measurement of the indebtedness of the entire public sector, claims in the form of collateral are already included. This measure is thus not affected by our accounting changes. The accounting of the government's financial savings is not affected either.
