Other main points in the proposal, which largely represents a continuation of the Government guidelines now in force, are that:
The benchmark for average duration of the nominal krona and foreign currency debt should be unchanged at 2.7 years. Inflation-linked borrowing should consist of securities with long maturity.
The rule that borrowing should aim at ensuring that a maximum of 25 per cent of the debt will fall due within twelve months is superfluous and should be removed. A uniform maturity profile is a self-evident element of sound debt management. In addition, there are better ways of monitoring risks in central government debt than by regulating short-term maturities.
In the analysis that underlies the proposal, the Debt Office devotes special interest to the choice of maturity. We discuss how Sweden's coming demographic shift, with an increased proportion of older people in the population, should affect central government debt management over the next few years. The Debt Office observes that the most important adjustment to the strains that will begin one or two decades from now will be to reduce the size of the central government debt over the next few years. In the longer term, it may perhaps also be suitable to lengthen the average maturity of this debt in order to decrease its risks, in preparation for a period when government fiscal risks will otherwise be increasing.
As the basis for its analysis, the Debt Office has also developed a new risk measure known as Cost-at-Risk. This measure indicates that given the current debt structure and size, there is a 5 per cent risk that the costs of central government debt will be in the range of SEK 16 billion larger than expected. Given longer average maturity, the risk of large cost increases would decline, but expected costs would rise at the same time.
Risk balancing is ultimately a political responsibility, but in the judgement of the Debt Office, the analyses in this year's proposed guidelines do not provide a basis for proposing a lengthening of average maturity. If the debt ratio (central government debt as a percentage of Gross Domestic Product) should not decline during the next five to ten years at a pace consistent with the government's budget policy targets, however, there may be reason to reduce the risks of sharply increase costs, for example by lengthening the average maturity of the debt.
Since mid-2002, the Debt Office has carried out its exchanges between kronor and foreign currencies directly in the foreign exchange market, not via the Riksbank (Swedish central bank). The Debt Office believes that this new system has worked well. In its handling of the exchanges, the Debt Office has fulfilled Government requirements of predictability and transparency. There are no speculations about market effects of these currency exchanges. The Debt Office has been able to take advantage of the increased flexibility that the new system nevertheless provides, in order to improve the efficiency of its currency exchange operations.
By law, Swedish central government debt must be managed in such a way as to minimise long-term costs, while taking into account the risks inherent in such management and the constraints imposed by monetary policy. The Government will adopt its guidelines for 2004 by mid-November.
For further information, please contact:
Thomas Franzén, Director General,
tel: +46 8 613 46 51
Lars Hörngren, Chief Economist,
tel: +46 8 613 47 36
The entire proposed guidelines may be downloaded in English or Swedish from the web site of the Swedish National Debt Office, www.rgk.se, or may be ordered from the Debt Office by phoning +46 8 613 46 55.