SWEDEN: Parliament Commits To 5% NATO Target; Shouldn't Impact Issuance Plans

As committed in previous announcements, the Swedish Parliament has agreed to increase defence spending in line with NATO's new 3.5% GDP target. Additionally, "if NATO were to agree on an additional target of 1.5 percent of GDP for broader defense and security-related investments, the parties agree that Sweden should also achieve this". At first glance, this shouldn't imply any meaningful deviations from National Debt Office's (NDO) latest borrowing plan assumptions. 

• The National Debt Office pencilled in defence spending increases of almost SEK30bln in 2025 and approximately SEK15bln in 2026 in its May borrowing report. This was based on an assumption of a 3.5% NATO target.
• Although the additional 1.5% of "defense and security-related investments" could add upside risks to these assumptions, we note that Parliament agreed that "the deviation for military and civilian defense may result in increased indebtedness of a maximum of SEK 300 billion".
  • "Of this, a maximum of SEK 50 billion may be used for investments in physical infrastructure and storage of food, medicines and fuel as part of civil defense"
  • "The Ukraine aid is not included in the ceiling of SEK 300 billion".
  • "The debt ratio should remain unchanged at 35 percent of GDP".
  • "Public sector net lending must be in balance by 2035. This requires that financing measures be gradually introduced".
  • "No later than the end of 2030, a new assessment of the security policy situation will be made, and a path for returning to balanced financial savings in the public sector by 2035 will be presented".
• A reminder that Swedish issuance has been relatively heavy ahead of the Summer period. In addition to launching the new 2.50% Oct-36 SGB 1067 (SEK18bln issued in total since June 4), the NDO also sold E2bln of the new 2.00% Jun-28 SGB EUR benchmark.