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Public Debt Rose but Costs Fell – What Does This Mean for Sweden's Economy?
Sweden's public debt increased by 93 billion kronor in 2025, reaching 1,244 billion kronor by the end of the year. The debt-to-GDP ratio rose from 18 to 19 percent, indicating that the state continued to borrow to cover budget deficits. Despite the increased debt, the state's interest costs decreased to 13 billion kronor, equivalent to 0.2 percent of GDP. It is unusual for debt to rise while the cost of servicing it falls, but this was made possible thanks to a strengthened Swedish krona.
Why Does This Development Matter for Public Finances and Taxpayers?
The state's ability to borrow more without interest costs rising at the same rate provides some economic breathing room. With lower interest expenses, resources that would otherwise have gone toward debt servicing are freed up and can instead be used within the state budget. For the state's economy, this also means that the budget deficits that have occurred for two consecutive years do not have as significant an impact on annual expenditures as they otherwise would have.
The stronger krona has been a key factor behind the lower interest costs. Since part of the public debt is denominated in foreign currencies, it becomes cheaper to pay interest when the krona strengthens against other currencies. At the same time, Riksgälden (the Swedish National Debt Office) has continued to issue government bonds, both in Swedish kronor and in euros, indicating sustained investor interest in Swedish government securities.
How Do These Changes Affect the State's Economy?
- A lower cost of public debt reduces pressure on the state budget and creates more room for other expenditures.
- The state has been able to finance its deficits at a lower interest rate than expected, which can be interpreted as a sign of stable public finances and continued confidence in the Swedish economy.
- The stronger krona, which has lowered the state's interest costs, also makes imported goods cheaper for households, though this is a side effect and does not directly affect the state's borrowing.
- The government bond rate, now set at 2.48%, serves as a reference rate for calculating certain fees and taxes. However, it does not automatically affect households' mortgage rates, as banks' own margins and market conditions also play a significant role.
What Should Be Kept in Mind Going Forward?
- Deficits in the state budget continue to grow, meaning public debt is increasing for the second year in a row. If the krona weakens again, interest costs could rise.
- The fact that debt costs are falling while debt is growing is largely due to the exchange rate – a factor that is difficult to predict and can change rapidly.
- Even though the government bond rate is low right now, it is only one of several factors influencing the state's actual interest costs.
The developments in 2025 show that public finances can be resilient even when debt grows, as long as borrowing conditions are favorable and the krona remains strong. However, it is important to be aware that these conditions can change quickly, especially if the currency market turns.
Sweden's national debt
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