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The national debt is rising but interest costs are falling – what does this mean for public finances?
Sweden’s national debt continued to grow during 2025, reaching 1,244 billion SEK at the end of the year, an increase of 93 billion compared to the previous year. The state deficit was the primary reason for the debt rising for the second consecutive year. Despite the increasing debt, the state’s interest costs decreased to 13 billion SEK, representing 0.2 percent of GDP. This reduction was primarily due to the strengthening of the Swedish krona, which lowered the cost of the currency-exposed portion of the debt.
Why does this matter?
There is a paradox in the state borrowing more while still paying less in interest. It is important to note that the lower interest cost is not due to a lasting improvement in the state’s economy, but is an effect of the exchange rate. If the krona weakens in the future, costs could rise again. At the same time, the continued deficits mean that the national debt continues to rise, which in the long run could limit the government budget’s room for maneuver.
- The debt-to-GDP ratio rose from 18 to 19 percent.
- The national debt was financed through an increased supply of government bonds, with strong interest from foreign investors.
- The Swedish National Debt Office kept the maturity of the debt within target values, which contributes to stability but also means that a large portion of the debt must be renegotiated within a few years.
How can the development be interpreted and what does it mean going forward?
For public finances, the current situation means that the state temporarily has lower interest costs despite increased borrowing. Since the deficits continue to drive up the debt, the total debt burden on the state increases. It is also important to be aware that the favorable effect of a strong krona can change quickly if the currency situation reverses. Lower interest costs today do not necessarily mean that the debt is less risky in the long run.
- The current relief in interest costs is temporary and can change if the krona weakens or interest rates rise.
- The deficits are a long-term risk for public finances, as they drive the debt upward regardless of the current cost situation.
- It is important to interpret lower interest costs as a consequence of exchange rate movements, not as a sign that the state’s economy has become stronger.
For those following the national debt, it is central to distinguish between actual borrowing and the temporary effects of exchange rates. A lower interest cost can provide some breathing room in the state budget, but the underlying imbalance remains and can quickly become more noticeable if external conditions change.
Sweden's national debt
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