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Sweden to Raise Borrowing as Higher Unemployment Erodes Revenue

Sweden to Raise Borrowing as Higher Unemployment Erodes Revenue
Shipping containers stand beneath gantry cranes aboard the Edith Maersk during loading and unloading operations at the Port of Gothenburg in Gothenburg, Sweden. Sweden needs to continue to inject energy into the economy as the export-reliant nation struggles with “significant uncertainty” abroad, Finance Minister Anders Borg said last month. Photographer: Erik Abel/Bloomberg

Sweden’s debt office will have to raise its estimated borrowing need this year as the largest Nordic economy struggles with a recession in the euro area.

The agency may raise its borrowing requirement for this year to between 170 billion kronor ($26 billion) and 184 billion kronor from 165 billion kronor in February, according to estimates by Swedbank AB, Nordea Bank AB and SEB AB. For 2014, the estimates range from 69 billion kronor to 73 billion kronor, up from a February forecast of 63 billion kronor.

“The economic recovery is going slowly and unemployment is higher than forecast,” said Knut Hallberg, an analyst at Swedbank AB in Stockholm. “That will have a slight effect on the debt office’s new forecast for tax income and expenses.”

Sweden needs to continue to inject energy into the economy as the export-reliant nation struggles with “significant uncertainty” abroad, Finance Minister Anders Borg said last month. The Nordic country exports about half of its output.

The nominal bond sales target will stay unchanged at 74 billion kronor in 2013 and 84 billion kronor in 2014, according to Danske Bank A/S, Nordea and Swedbank. SEB predicts the debt office will raise issuance by 3 billion kronor to 4 billion kronor in both 2013 and 2014.

The debt office will release new targets on June 18.

Negative Direction

The agency has “consistently had to revise its forecast in a negative direction,” said Mats Hyden, chief analyst at Nordea Bank. “They will keep their forecast for nominal government bonds unchanged and they will meet the increased borrowing requirement through treasury bills and possibly also by issuing somewhat more inflation-linked bonds.”

The government in April predicted it will have to borrow more money to fund a widening budget deficit as it boosted spending to stimulate demand. The government predicts the economy will grow 1.2 percent this year and 2.2 percent in 2014.

A sluggish recovery means the government of Prime Minister Fredrik Reinfeldt won’t be able to balance the budget until 2015 as the shortfall reaches 1.6 percent of gross domestic product this year and narrow to 1 percent in 2014, it said.

Nordea Joker

“There are a few signs that public finances could end up a bit worse after all,” said Olle Holmgren, an analyst at SEB AB in Stockholm. “The joker is Nordea” which is “something that could change” the debt office forecasts, he said.

The government has said it wants to divest its remaining 13.44 percent stake in Nordea, which according to Hallberg at Swedbank is valued at about 43 billion kronor.

The debt office is unlikely to announce any plans to increase issuance of nominal bonds maturing in 12 years or more, said Michael Bostroem, chief analyst at Danske Bank in Stockholm.

“There’s nothing when it comes to demand for very long rate risk that is different today than it was in February.” The government last year told the debt office it raise long-term debt sales to 70 billion kronor from 53 billion kronor.

The ruling four-party coalition said in April that it will add about 3 billion kronor to education and infrastructure spending this year to lower unemployment. Sweden’s total debt burden, including borrowing by municipalities, will reach 42 percent of GDP this year, the government predicted in April. Debt will ease to 41.8 percent of GDP next year and 39.5 percent in 2015, it said. Debt by that measure was 38.2 percent in 2012.

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