Slowing growth and lower net lending in the general government sector

18 March 2019 | News

The Swedish National Financial Management Authority’s (ESV) forecast shows that growth is slowing down this year. Net lending in the general government sector will decline from 0.7 per cent of GDP last year to 0.2 per cent this year. This is mainly due to tax cuts and expenditure measures but also slower growth in several tax bases. To a large degree the reduction in overall net lending is caused by lower net lending in the local government sector.

The Swedish economic boom has passed its peak and GDP growth will be significantly lower this year than last year. This is mostly a result of investments increasing at a slower pace.

The increase in tax revenue will be slower this year than last year. This is primarily due to significant tax cuts and lower household capital gains revenue. The growth rate of several tax bases is also dampened by the economic slowdown. The tax cuts amount to SEK 18 billion.  It is mainly tax on labour that has been reduced through, among other things, an increase of the earned income tax credit and basic allowance for pensions.  

Expenditure will also increase more slowly this year compared to last year, but they will continue to increase more than revenues. Expenditure on the central government budget for migration and integration continue to decline and the total expenditure measures are smaller this year than last year. The 2019 budget contains new measures in, for example, the areas of defence, justice and health and medical care. At the same time cuts have been made in the labour market area as well as the area of environmental and nature conservation. The margin to the expenditure ceiling is adequate.

Net lending in the general government sector will decline from 0.7 per cent of GDP last year to 0.2 per cent this year. To a large degree this is caused by lower net lending in the local government sector. Structural net lending is in line with the new surplus target that takes effect in 2019.

The Riksbank has decided to reduce its foreign exchange reserve, therefore it will not refinance three currency loans at the Swedish National Debt Office due to mature in 2019. The decision means that the budget balance will improve and that the central government debt and Maastricht debt will decline by about SEK 70 billion. However, this does not affect net lending.

The forecast is based on the 2019 central government budget approved by parliament. The forecast does not take into account the agreement between the Social Democratic Party, the Centre Party, the Liberals and the Green Party.

 

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