National Debt

National Debt Grew but Became Cheaper – Stronger Krona Provides Unexpected Relief to State Budget

Sweden's national debt increased by 93 billion kronor during 2025, reaching 1,244 billion kronor by the end of the year, equivalent to 19 percent of GDP. The increase is due to the state running a deficit for the second consecutive year, necessitating additional borrowing. At the same time, the cost of financing the debt fell to 13 billion kronor, or 0.2 percent of GDP. The primary reason for this lower cost is the strengthening of the Swedish krona during the year.

Why Does This Development Matter for Public Finances and Taxpayers?

An increase in national debt means the state needs to borrow more money to cover the gap between expenditures and revenues. Typically, a larger debt leads to higher interest costs, which can eventually impact the state budget and create a need for either tax increases or spending cuts. However, the situation developed differently in 2025: despite the increased debt, interest costs decreased significantly.

• The lower interest cost means the state can currently finance its deficit at an unusually low cost. This reduces the risk that rising interest expenses will quickly crowd out other expenditures or necessitate tax hikes.
• The stronger krona has acted as a buffer. Since part of the debt is denominated in foreign currencies and linked to foreign interest rates, the exchange rate affects how expensive it is for the state to pay interest and principal. When the krona strengthens, these costs become lower when calculated in Swedish kronor.
• Strong foreign interest in Swedish government bonds has contributed to keeping borrowing costs down, as competition to purchase these securities can push interest rates lower.

What Does This Development Mean in the Short and Long Term?

Currently, the state's increased debt has not led to any noticeable rise in interest costs. This provides some breathing room for the state budget: resources can be allocated to purposes other than interest and principal repayments, reducing the need for immediate tax hikes or major spending cuts. At the same time, there are several factors to keep in mind:

• Deficits continue to grow for the second year in a row. If this trend persists, the debt may continue to increase, making public finances more sensitive to changes in interest rates or exchange rates in the long run.
• The low interest cost is largely due to the exchange rate, a factor that can change rapidly. If the krona weakens again, interest costs could rise.
• A higher debt means that future generations will bear a larger share of the cost of today's deficits, even though the financing cost is currently low.

For those following public finances, it is important to note both the short-term relief and the long-term risks. A continued low interest cost provides room for political priorities, but growing deficits and debt mean the situation could change quickly if conditions in the currency or interest rate markets shift.