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Public Debt Rose but Costs Fell: What Does the 2025 Paradox Mean?
During 2025, Sweden's public debt increased by 93 billion SEK, reaching a total of 1,244 billion SEK by the end of the year. Consequently, the debt-to-GDP ratio rose from 18 to 19 percent. This marks a continuation of two years of budget deficits, necessitating increased borrowing by the state to cover expenditures.
Lower Interest Costs Despite Higher Debt
Notably, the cost of servicing interest on the public debt decreased to 13 billion SEK, equivalent to 0.2 percent of GDP. The primary explanation is the strengthening of the Swedish krona against foreign currencies, which reduced the cost of the debt portion exposed to other currencies. Simultaneously, Riksgälden (the Swedish National Debt Office) issued new government bonds and secured loans in euros to meet the increased borrowing needs, including a three-year euro bond of 2 billion euros at an interest rate of 2.097 percent.
Why Does This Development Matter for Public Finances and Taxpayers?
- The state can currently finance deficits at a lower interest cost, reducing the pressure to quickly raise taxes or cut spending.
- Lower interest costs free up resources in the state budget, potentially creating room for other investments or future tax adjustments.
- Strong demand for Swedish government securities, particularly from foreign investors, indicates that the market retains confidence in Sweden's economy and the state's ability to manage its debt.
How Should You Think About This as a Citizen or Saver?
- Lower interest costs on public debt are positive for public finances. This means a smaller share of tax revenue goes toward interest payments, giving the state greater room for maneuver.
- The government bond yield, now at 2.48%, serves as a crucial benchmark for various loans in society and can influence costs for other actors.
- The state's ability to borrow in different currencies and on different markets can mitigate the risk of sharply rising costs should market conditions change.
Key Aspects to Monitor Going Forward
- Public debt has continued to grow in absolute terms, meaning the state's borrowing needs remain high even though interest costs are currently low.
- The low interest cost is partly due to the strong krona. If the krona weakens again, costs could rise, particularly for currency-denominated loans.
- Public debt has an average maturity of 3.5 to 6 years, meaning a large portion of the debt needs refinancing within a few years. If interest rate conditions change, the state's costs could increase in the future.
The development in 2025 demonstrates that the size of public debt and its cost do not always move in tandem. For public finances and taxpayers, it is crucial to monitor both the debt amount and interest costs, as changes in exchange rates and interest rate environments can impact future budgetary space.
Sweden's national debt
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