Government Debt and Interest Costs

In 2005, the central-government debt decreased by DKK 77.1 billon to DKK 417.8 billion as a result of a government budget surplus. Since 1995, government debt as a ratio of GDP has diminished by 50 per cent and stood at 27 per cent at end-2005. The government's interest costs fell by DKK 4.1 billion to DKK 20.7 billion in 2005 due to a significant reduction of the debt and lower market interest rates.

2.1 GOVERNMENT DEBT AND INTEREST COSTS

The central-government debt is compiled as the domestic and foreign debt less the balance of the central government's account with Danmarks Nationalbank and the assets of the Social Pension Fund (SPF), the Financing Fund for increased distributions from the Danish National Research Foundation (the Financing Fund), and the High-Technology Foundation. The debt is compiled at nominal value, cf. Box 2.1.

At end-2005, the central-government debt compiled at nominal value was DKK 417.8 billion, equivalent to around DKK 77,000 per capita. The central-government debt fell by DKK 77.1 billion compared with 2004, cf. Table 2.1.1.

Central-government debt as a ratio of GDP has been declining since 1995 and was 27 per cent at end-2005, cf. Chart 2.1.1.

The central-government debt compiled at market value can provide supplementary information on the debt. The market value of the central-government debt was DKK 446.0 billion at end-2005, equivalent to a decline of DKK 79.0 billion from 2004, cf. Table 2.1.2.

In 2005, interest costs totalled DKK 20.7 billion, cf. Table 2.1.3, down by DKK 4.1 billion from 2004. Interest costs on the central-government debt as a ratio of GDP was 1.3 per cent in 2005, cf. Chart 2.1.1.

The level of interest rates has been falling in recent years, as has the government debt. Both factors contribute to reducing interest costs. Decomposition of the decline in interest costs in to interest rate and debt changes shows that the decrease in interest costs in recent years is primarily attributable to the lower interest rates, cf. Chart 2.1.2.

2.2 THE GROSS GENERAL-GOVERNMENT DEBT (EMU DEBT)

The gross general-government debt comprises the EMU debt of the central and local governments. The central government's EMU debt accounts for most of the debt.

The gross general-government debt is compiled in accordance with the EU Treaty. The debt is compiled on a gross basis, but the general-government sector may consolidate the debt with claims on itself. This e.g. means that the portfolio of government securities of the Social Pension Fund (SPF) is deducted from the debt. SPF's portfolio of non-government bonds and the balance of the central government's account with Danmarks Nationalbank cannot be deducted.

The European Commission and the Ecofin Council monitor the development in the budgetary situation of the member states in order to assess whether budgetary discipline is maintained. This evaluation is based on the criteria set out in the EU Treaty and in the Stability and Growth Pact. According to the EU Treaty, as a general rule the general-government deficit may not exceed 3 per cent of GDP, and the general-government debt as a general rule may not exceed 60 per cent of GDP. A central obligation of the Stability and Growth Pact is that the member states must aim at budgetary positions "close to balance or in surplus" in the medium term.

At end-2005, the gross general-government debt is estimated at approximately DKK 550 billion or 36 per cent of GDP, cf. Table 2.2.1.

Denmark has had general-government surpluses virtually every year since 1997 and has seen positive development compared with the euro area. The general-government surpluses have contributed to reducing Danish EMU debt to 36 per cent of GDP, while EMU debt in the euro area has been stable at around 70 per cent, cf. Chart 2.2.1.