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National Debt Rose in 2025, but Costs Fell – What Does This Mean for Public Finances?
During 2025, Sweden's national debt increased by 93 billion SEK, reaching 1,244 billion SEK by the end of the year, equivalent to 19 percent of GDP. Despite this increase, the state's cost of servicing the debt fell to 13 billion SEK, or 0.2 percent of GDP. The primary explanation for the lower cost is the strengthening of the Swedish krona against other currencies, which made it cheaper for the state to manage the portion of the debt borrowed in foreign currencies.
Why Does This Development Matter for Public Finances?
An increase in debt means the state continues to finance its expenditures through borrowing rather than revenues. Normally, a larger debt leads to higher interest costs, but this year, currency exchange rate developments have benefited public finances. When the krona strengthens, it becomes cheaper to repay loans taken in foreign currencies, which has lowered the state's total interest cost despite the growth in debt.
The lower cost of the national debt means that pressure on the state budget can be contained as long as borrowing costs remain low. If interest rates on the national debt rise in the future, or if the strength of the krona wanes, the situation could change. However, for 2025, the stronger krona and the low interest rate environment mean the state can continue to borrow at a relatively low cost.
How Can This Development Be Interpreted?
- The increased national debt is not necessarily alarming as long as the debt-to-GDP ratio remains low and the cost of the debt is kept down. Sweden remains at a level considered sustainable from a public finance perspective.
- Low interest costs reduce the need for rapid measures in the state budget, giving the state greater maneuvering room during economic fluctuations.
- The fact that the state has been able to raise substantial loans, including a €2 billion euro-denominated loan, on favorable terms with strong demand indicates continued investor confidence in the Swedish economy. This creates conditions for the long-term financing of public commitments.
- At the same time, it is important to be aware that the stronger krona may be a temporary aid. If the currency weakens or the interest rate environment changes, the state's costs could rise again.
- Since the state has run a deficit for two consecutive years and the debt has grown, it may eventually become necessary to balance the budget to prevent the debt level from continuing to rise.
What to Watch Going Forward
- If the krona remains strong and interest rates stay low, the state can continue to finance deficits at a low cost. However, changing market conditions can quickly affect the cost picture.
- The National Debt Office (Riksgälden) has begun reducing the so-called real debt according to new guidelines, which could affect the borrowing strategy and the cost outlook in the future.
- The development of the state's budget balance will be decisive for the long-term debt trajectory. A continued deficit means the debt will keep growing even if the cost remains low.
Sweden's national debt
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