Large savings achieved in foreign currency debt management and retail borrowing during 2003

Press release 10 February 2004

The Swedish National Debt Office's active management of foreign currency debt yielded a gain of more than SEK 900 million, and borrowing from private individuals lowered the cost of central government debt by SEK 260 million. These are some of the results that the Debt Office presents in its Annual Report for 2003, which it submitted to the Swedish Government today.

The central government borrowing requirement was SEK 46 billion in 2003. This was the first time since 1997 that the Swedish state has had a budget deficit. Government debt rose by SEK 25 billion to SEK 1,229 billion but remained at about 50 per cent of Sweden's Gross Domestic Product. The reason why the debt increased less than the budget deficit was that a stronger Swedish krona reduced foreign currency debt in SEK terms.

During 2003, the Debt Office amortised the equivalent of SEK 25 billion of the foreign currency debt. As a share of total central government debt, foreign currency debt declined from 31 per cent in 2002 to 27 per cent. Lower foreign currency debt reduces risk in government debt management.

The demand for inflation-linked bonds was strong. The outstanding volume of such bonds rose by SEK 18 billion. Inflation-linked borrowing accounted for 14 per cent of central government debt. A larger share of inflation-linked bonds diversifies the risks in the debt portfolio. To date, inflation-linked bonds have also been cheaper for the Swedish state than nominal bonds. The saving during 2003 was around SEK 1.5 billion. Since the Debt Office began issuing such bonds in 1994, the state has saved an estimated SEK 10 billion.

Active management of foreign currency debt, which is based on the Debt Office buying and selling currencies and interest-related instruments in the international markets, yielded a gain of more than SEK 900 million during 2003. During the year, the Debt Office also closed a large strategic foreign currency position that it had taken in the belief that the US dollar would weaken against the euro. Due to the sharp decline in the value of the dollar, the Debt Office realised gains totalling SEK 4.5 billion, which resulted in lower interest costs.

Retail borrowing in the form of Lottery Bonds and National Debt Savings (RiksgäldsSpar) continued to yield savings during 2003. Such borrowing, mainly from households, lowered central government borrowing costs by SEK 260 million, compared to borrowing from large investors. Over the past five years, the Debt Office has saved SEK 1.3 billion in this way. Meanwhile private individuals have obtained a good return on their money.

Every year, the Swedish state receives and disburses payments totalling more than SEK 4,000 billion. Among the tasks of the Debt Office is to ensure that these payments are managed efficiently. During 2003, the Debt Office signed new framework agreements for state payments with three banks. The biggest change is that the banks are being paid by fees per service utilised instead of in the form of a "float", in which a bank was paid by having access to money for a day without being charged interest. In the long term, the new system will lead to more efficient and cheaper management of state payments, since costs will be visible and independent of current interest rates.

The Debt Office's state guarantee commitments amounted to SEK 164 billion at the end of 2003. These commitments increased by SEK 5,8 billion during the year. The Debt Office has made a provision of SEK 3,4 billion for future expected losses on guarantees outstanding. The Debt Office's commitments are dominated by a small number of large guarantees. Since none of these large guarantee recipients had problems during 2003, indemnification costs were small.

For further information, please contact:

Erik Thedéen, Deputy Director General tel: +46 8-613 46 46
Marja Lång, Head of Communications and Public Affairs tel: +46 8-613 46 54