NEWS / Foreign Exchange

Sweden: swelling budget surplus

• May increase pressure on, primarily, the two-year bond supply if it continues

The Swedish government budget again showed a surprisingly large surplus in April: SEK 30bn versus an expected SEK 15 bn. The reasons are three-fold: (i) Bigger-than-expected dividends from corporations and the Riksbank - in total SEK 8bn more than expected, (ii) SEK 4bn more than expected in tax revenues; and (iii) A temporary SEK 4bn deposit from PPM. Adjusting for the fact that SEK 5bn of the dividends are a pre-payment belonging to May and that the PPM deposit is temporary, the under-lying improvement is SEK 7bn - still far better than RGK??™s forecast. Note that the improvement has nothing to do with revenues stemming from the sale of TeliaSonera??™s shares. These revenues will show up in May and hence RGK raises its forecast by SEK 18bn to a surplus of SEK 57bn. RGK has distributed the remaining sales revenues to the months of September and December.

Overall, today??™s figures show that government finances continue to develop very strongly. During the February-April period the outcome has been SEK 11bn better than RGK forecasted in its February report. The chart on the right shows the accumulated budget balance so far this year, compared to the outcomes over the past three years.

The consequences for bond supply are that the pressure to scale down on auction volumes probably increases further when budget figures continue to surprise positively. We do expect RGK to be ready to make such an adjustment as soon as June as there may be some uncertainty regarding the remaining SEK 32bn in government property sales??™ revenues that RGK has counted on in its forecast. Besides, RGK has already previously announced that it will issue about half of the supply in 10-year bonds, only a few issues in the two- and 14-year segments, and the remainder in the five-year segment. Hence, our previous opinion that two-year supply will decrease on a relative basis is still valid.