Central government borrowing and debt 2023

Robust Danish economy despite interest rate hikes and financial turmoil 

The Danish economy was strong at the end of 2023, characterised by high employment and significant balance of payments and public finance surpluses. The main scenario in the government’s latest forecast in the Economic Survey continues to be a soft landing for the Danish economy.¹

2023 was another year characterised by significant uncertainty in the financial markets, with continued monetary tightening in the face of persistently high inflation and financial and geopolitical turmoil. Inflation remained high for much of 2023, but slowed significantly towards the end of the year. This led to rising market expectations of imminent monetary easing.

Danish government yields have generally followed the global interest rate trend, with a largely unchanged yield spread to Germany of around 0.2 percentage points at the end of the year. Despite interest rate hikes under monetary policy, interest rates on both Danish 2- and 10-year government bonds remained largely unchanged.

Government debt fell in 2023 to its lowest level in more than 40 years

The central government surplus reduced the national debt by DKK 29 billion to DKK 294 billion in 2023. This means that the national debt has almost halved since the Corona crisis in 2020 and amounted to 10.5 per cent of gross domestic product, GDP, the lowest level since 1977. The decrease was mainly due to domestic debt repayments.

Interest costs fell to record low levels

In 2023, total interest costs on government debt fell to DKK -1.7 billion. The decrease is mainly due to lower debt and buy-back of government bonds at lower prices than the issue price. The average yield on government bonds rose to the highest level in 10 years. Despite rising interest rates, the central government's interest costs remained low, as rising interest rates only slowly feed through to total financing costs.

Government issuance followed the 2023 target

In line with strategy, in 2023 the Danish government issued domestic government bonds worth approximately DKK 62 billion via tap sales and auctions. During 2023, the central government opened a new 10-year government bond, a new green 10-year government bond and a US dollar bond under the central government's EMTN (Euro Medium Term Note) programme. The issuance of inflation-linked bonds continued in 2023, and the strategy remains to build the programme to a total outstanding amount of DKK 40-60 billion.

Surplus on state finances

For the third year in a row, the net cash balance was in surplus.² The central government surplus for 2023 was DKK 28.9 billion, equivalent to 1 per cent of GDP, and should be seen in light of the fact that the Danish economy has entered a new phase of moderate growth as price increases and higher interest rates have affected economic activity. However, activity has been fuelled by a strong pharmaceutical industry, which has also contributed to a significant increase in exports.

Government finances are also healthy from a European perspective. In contrast to comparable countries, the Danish state has had a surplus in public finances since 2020, as opposed to comparable countries that have operated with a deficit in the same years, see Chart 1

Government debt at lowest level in more than 40 years

The central government budget surplus contributed to reducing the national debt by DKK 29 billion to DKK 294 billion by the end of 2023. In nominal terms, government debt has almost halved since the Corona crisis in 2020. Measured in relation to the size of Denmark, the national debt was 10.5 per cent of GDP at the end of 2023, which is the lowest level in more than 40 years, see Chart 2.

Government debt is calculated as the total domestic and foreign debt less the assets managed together with central government debt, see Box 1. The decrease in the national debt in 2023 mainly covers increased amortisation of domestic debt, see Chart 3. A continually increasing share of the central government's gross debt is offset by loans to government on-lending companies to finance major infrastructure projects, e.g. construction of the Fehmarnbelt project. Adjusted for on-lending, the national debt amounted to DKK 101 billion at the end of 2023, corresponding to 4 per cent of GDP.

Government debt policy in light of declining borrowing needs

Since 2011, government surpluses have continuously reduced government debt through lower net government issuance, i.e. a reduction in issuance and/or increased debt repayments. When central government’s borrowing requirement is reduced, the need to issue Danish government securities is also reduced. Central government can also repay the debt. This was the case, for example, in the years leading up to the financial crisis and after the Coronavirus crisis in 2020,³ see Chart 3 and 4. Over the past three years, the surplus on the central government's finances, excluding on-lending, has, in isolation, contributed to a sharp reduction in the central government's gross debt of approximately DKK 200 billion. The balance on the central government’s account was DKK 161.5 billion at the end of 2023, which is largely unchanged compared to year before, see Chart 4.

Despite the declining borrowing requirement, it is important that government issuance is maintained at a certain level in order to maintain a well-functioning and liquid government securities market. Annual issuance around the levels of recent years is deemed to be appropriate and sufficient to ensure good liquidity in the central government securities market.

It is important to maintain a well-functioning and liquid government securities market

Under normal market conditions – and given a responsible fiscal and monetary policy – a well-functioning and liquid government debt market ensures that the central government has continuous access to stable funding at low interest costs. This is essential to ensure countercyclical fiscal manoeuvring room, so that in the event of an acute increase in funding requirements, the central government will be able to issue larger volumes at a limited additional cost. This was the case during the Corona crisis, for example. 

Developing liquid and efficient domestic sovereign debt markets reduces the central government's interest costs by reducing the liquidity premium that investors demand to buy bonds.

The sovereign debt market is an integral part of the broader domestic capital market. Government bonds provide a safe price reference for other domestic bonds, such as mortgage and corporate bonds, allowing investors, including pension funds, to better manage their portfolios and ensure efficient risk allocation. Similarly, a well-functioning domestic capital market helps to ensure cheap financing for both businesses and homeowners, thereby supporting economic growth.

Consolidation of public debt supports the central government securities market

To support the central government securities market, for many years there has been focus on consolidating public borrowing directly in government bonds under government debt. Consolidation has also helped to reduce total public sector interest expenses.

The mid-2000s saw the start of the transition from government guarantees on state-owned companies' debt to on-lending to state-owned companies financed by issuing government securities, see Chart 5. In recent times, the funding behind social housing has also been centralised within central government. The central government has consolidated debt by purchasing debt instruments (on-lending) or government-guaranteed mortgage bonds (social housing) financed by issuing government securities. At the end of 2023, the total outstanding amount of on-lending and government-guaranteed mortgage bonds was DKK 193 and 155 billion respectively, corresponding to 60 per cent of the Danish state's total outstanding amount of government bonds.

Consolidation has been crucial to maintaining issuance at a level that ensures a well-functioning government securities market in a period of low funding requirements, see Chart 6. Maintaining a certain issuance requirement has made it possible to build large, liquid bond series in international benchmark size. In addition, sustained presence on the debt markets has maintained global investor awareness of Danish government securities, which proved particularly valuable when the Corona crisis began and the central government was still able to finance itself on the international debt markets. In the coming years, the outstanding amount of on-lending and government-guaranteed mortgage bonds is expected to increase further and will thus continue to support central government's borrowing needs.

By centralising borrowing with the central government, significant interest savings have been achieved. This is because investors are willing to pay a higher price for safer and more liquid government bonds. The centralisation of borrowing has not resulted in higher administrative costs for the central government.

Denmark's EMU debt is among the lowest in Europe

In 2023, Denmark's EMU debt is expected to end up at 30 per cent of GDP by the end of the year. This means that Denmark's EMU debt remains among the lowest in Europe and well below the 60 per cent of GDP limit set out in the EU's Stability and Growth Pact, see Chart 7.

Denmark's EMU debt is higher than the national debt because the EMU debt is a gross statement of the total public debt, see Box 1. For example, the central government’s account balance and holdings of social housing bonds are not offset in accounting of EMU debt.

Denmark maintains the highest credit rating

For the past 20 years, Denmark has maintained the highest credit rating (AAA) in both domestic and foreign currency from the three largest international credit rating agencies⁴ and is one of only nine countries in the world with such a rating. The high credit rating is primarily a result of a robust and resilient economy, low public debt and a long history of responsible and well-organised fiscal policy.

The high credit rating means that investors demand a low credit risk premium when investing in Danish government bonds. That allows central government to borrow at lower interest rates than less creditworthy countries and thus helps to keep the central government's total financing costs down, see Chart 8.

Government interest costs fell despite rising interest rates

In 2023, the total interest costs on government debt fell from 9.4 to DKK -1.7 billion, equivalent to -0.06 per cent of GDP. The decline is due to a combination of lower debt, less index revaluation⁵ and purchases of government bonds at prices lower than the issue price, see Chart 9. Adjusted for interest income from on-lending, central government interest expenses in 2023 amounted to DKK -3.3 billion, which corresponds to -0.12 per cent of GDP.

The decrease in central government interest costs has occurred despite a rising interest rate level in 2023. With a high average fixed interest rate period on government debt, it takes an average of around 7 years for interest rate increases to impact the central government's interest costs, see also chapter 6 on risk management. This is because the interest rate level only affects the interest expenses on newly issued debt and does not affect the central government's interest expenses on the part of the debt that has already been raised.

Higher government financing costs in 2023

Rising interest rates for much of the year meant that it was generally more expensive for the central government to issue debt in 2023. Both the 2- and 10-year government yields rose from around 2.50 per cent p.a. to 3.20 per cent p.a. towards the end of October, see Chart 10. During the same period, more than 80 per cent of the year's bond issues were made. Towards the end of the year, interest rates fell significantly on the back of increasing market expectations of imminent monetary easing.

Overall, this meant that the average yield to maturity on nominal government bond issues rose to 2.87 per cent p.a., see Table 1. This was an increase of 1.74 percentage points from 2022 and the highest average yield to maturity in the last ten years. On issues in the inflation-indexed bonds, the average effective real interest rate was 0.68 per cent p.a. in 2023.

Government issues in 2023 followed the target for the year

In line with strategy, in 2023 the Danish state issued domestic government bonds for DKK 61.8 billion at market value via tap sales and auctions. Issuance was spread fairly evenly throughout the year, with an overweight in the last quarter when a new green 10-year government bond was opened, see Chart 11. 

As in recent years, demand varied significantly throughout the year, making it challenging to evenly distribute issuance, see Chart 12. Especially in the first half of 2023, the variation was high and generally reflected large fluctuations in the global risk landscape, with increased uncertainty about the state of the US banking sector dominating.

Focus on the 2- and 10-year maturity segments

Government bond issuance in 2023 focused on the 2- and 10-year maturity segments with nominal issuance of DKK 20 and 29 billion, respectively, corresponding to a total of 79 per cent of the year’s issuance. Due to the low level of government debt, the majority of government issuance is focused on a few core securities, which are built up to benchmark size to ensure good liquidity. At the same time, the vast majority of investor demand is in the 2- and 10-year maturity segments, which also serve as important reference points for the Danish capital market.

On 8 February 2023, the central government opened a new 10-year government bond maturing in 2033. At the opening auction, the maximum announced DKK 5 billion was issued, while there were bids for DKK 6.4 billion. The issues were made at an interest rate of 2.57 per cent p.a. In total, DKK 34.5 billion at market value in the new 10-year government bond in 2023 was issued during the year, of which just under DKK 6.5 billion was issued at switch auctions.

Inflation-linked bond issuance continued in 2023

In 2023, the Danish government issued inflation-linked bonds totalling DKK 4.9 billion at market value, bringing the total outstanding amount to a nominal DKK 35.2 billion. The issues were made in the central government's two inflation-indexed government bonds: 0.10 Danish state 2030i and 0.10 Danish state 2034i. The strategy remains to build the programme to a total outstanding amount of DKK 40-60 billion spread across three government securities.

The central government's inflation-indexed loan programme helps to ensure a broad investor base, which contributes to higher and more robust demand for Danish government securities. Inflation-linked bonds offer investors a return that follows the development in Danish consumer prices, see Box 2, and the bonds are therefore attractive to investors who need to hedge their liabilities against inflation, such as the insurance sector and parts of the pension sector. 

Inflation-linked bonds are also attractive to the central government as they help spread the risk of the central government's debt portfolio. This is achieved through two channels: Firstly, inflation-linked bonds dampen fluctuations in government debt as a share of GDP, as inflation-linked debt and GDP falls and rises in line with changes in consumer prices. Secondly, under certain circumstances index-linked bonds can reduce the central government's overall budget risk. The risk management of inflation-linked bonds, including management of the first maturity in the programme, is elaborated on in section 6.

Strong demand for new green 10-year government bond

On 26 September 2023, the central government's new green 10-year government bond was opened using the syndication issuance method⁶. This was the first time a domestic Danish government bond was issued using this issuance method. The method is widely used among other sovereign issuers and can in some cases contribute to a broader investor base, which is one of the objectives of the central government's green loan programme.

Investor interest at the opening was strong and broadly distributed across geographic areas with a total sale of 43 per cent to foreign investors compared to an average of 32 per cent of the total outstanding debt in DKK. The transaction also attracted a wide range of investor types, most of which had a relatively long investment horizon, such as asset managers and pension funds.

Upon syndication, DKK 7.75 billion nominal value was issued at a yield to maturity of 3.053 per cent, which corresponds to a green premium of 1.5 basis points, see box 3. In comparison, the central government's first green bond issue in 2022 was issued with a green premium of ca. 5 basis points at the opening auction. In general, green premiums have been declining in recent times, see Chart 13. This may be partly due to the fact that the supply of green government securities has increased significantly and that some investors are increasingly using sophisticated models to assess issuers' ESG⁷ ratings. The latter means that these investors can also buy non-green bonds from issuers with a high ESG rating.

The new green 10-year government bond was sold later in the year at the central government's ordinary auctions, increasing the outstanding amount to just under DKK 10 billion market value, in line with the strategy.

Short-term loan programmes maintained at a low level

The central government's short-term loan programmes, treasury bills (T-bills) and commercial papers (CP), are an important part of the central government's liquidity resources. Since the Corona crisis in 2020, the outstanding amount in both programmes has been reduced significantly and was maintained at a low level through 2023, see Chart 14.

At the end of 2023, the outstanding amount in T-bills was DKK 12.4 billion. During the year, the issues were sold at an average yield to maturity of 3.03 per cent p.a. In the CP programmes, the outstanding amount at the end of 2023 was DKK 2.75 billion. The strategy remains to maintain market access to the international capital markets via the CP programmes.

Foreign borrowing maintains access to international debt markets

Under the Danish government's EMTN programme (Euro Medium Term Note), a new 2-year dollar bond was issued on 7 November 2023 with proceeds of USD 1.5 billion, equivalent to DKK 10.5 billion. Demand was high, especially from central banks and other official institutions⁸. The loan was taken out at a yield to maturity of 5.02 per cent p.a., corresponding to 9 basis points above a corresponding US government security. This is the best pricing relative to US government bonds that the central government has achieved on a US dollar-denominated issue in recent history.

In order to maintain the best possible access to the largest and most liquid international debt markets, the strategy is to be regularly present in currencies other than DKK, e.g. through the central government's EMTN programme. Government borrowing in foreign currency amounted to approx. 4 per cent of its total debt at year-end 2023.

Issuances are made regularly to ensure that the central government's EMTN programme is a well-functioning source of funding, including that processes are maintained and that international investors and market participants are active investors in Danish government debt denominated in foreign currency. A prerequisite for this is that the central government has a regular presence on these markets.

Borrowing in foreign currency is not used to finance the central government's ongoing financing needs, but only supports the liquidity preparedness of the central government and the foreign exchange reserve. Furthermore, issuing bonds in foreign currency helps to diversify the central government's investor base, which in the long term can lead to lower funding costs as investors in foreign-denominated government debt become active in the domestic government debt market. Therefore, the central government will continue to issue annually in foreign currency.

Foreign ownership in Danish government bonds helps diversify the investor base

A diversified investor base makes the government debt market more resilient to changes in local market conditions. Danish government bonds are owned by a wide range of investors, but the majority are owned by domestic investors. Among others, the Danish insurance and pension sector has a natural need to hedge their long-term liabilities and is therefore the largest investor group with an ownership share of 55 per cent by the end of 2023, especially in the longer maturity segments, see chart 15.

Increased interest in issuance in Danish kroner from foreign investors will increase the central government's access to funding and will thus contribute to liquidity and lower funding costs for the central government. The increased liquidity also favours domestic investors.

Foreign investors have maintained their ownership share of Danish government bonds in 2023 and still account for around 32 per cent by the end of the year, see chart 16. The lower foreign ownership share in the last months of the year should be seen in light of the relatively high ownership share of 41 per cent of the two series maturing in November 2023.

Danish government bonds are attractive to foreign investors as a result of a high additional gain from currency hedging to the euro and dollar and the spread to German government bonds.

Supporting the secondary market

The central government actively supports the secondary market to ensure good liquidity⁹ and thereby minimise the central government's financing costs. Good liquidity reduces the liquidity premium that investors demand for buying the bonds. It is therefore less expensive for the central government to issue debt when the bonds have good liquidity.

The secondary market is supported both through buy-backs and tap sales, but also through switch auctions, where the central government's primary dealers and investors have the opportunity to buy liquid on-the-run securities against selling off-the-run securities, see Chart 17. Buy-backs can contribute to levelling out the central government's repayment profile and take into account the outstanding amount of the central government's off-the-run securities. A prerequisite for the central government's activities in the secondary market is that trades can be made at fair market prices. This implies that there is a reasonable correlation between the prices of government securities bought and sold.

Negative net government issuance in 2023

During 2023, the central government issued DKK 75.2 billion at auctions, tap and switches, while buy-backs was worth DKK 38.3 billion with maturities later than 2023 and redemption and buy-backs for DKK 70.0 billion with maturity within the year. This resulted in a net issuance of DKK 33.1 billion, see Chart 18. This contributes to the fact that the Danish national debt, as mentioned in the previous section, was reduced over the year.

Trading costs decreased over the year

Liquid markets are typically associated with relatively low trading costs. The cost of trading Danish government bonds can be measured, for example, by the spread between bid and ask prices on the interdealer platform MTS Denmark¹⁰.

In 2023, the spread narrowed in both the 2- and 10-year segments, ending the year at around 1 basis points., see Chart 19. Within the year, there were significant fluctuations due to changes in the global risk landscape. For example, the turmoil in the US banking sector in particular in the spring led to a sharp increase in spreads in both the 2- and 10-year segments. Tensions then gradually normalised after a quick intervention by the US authorities. The development in the Danish government debt market is in line with what has been observed in other comparable government bond markets.

Risk management of government debt can be divided into three main categories: market risk, refinancing risk and liquidity risk. Market risk is mainly related to risks associated with changes in interest rates, as the central government debt has limited currency and credit risks. Scenario calculations, interest rate simulations and the total duration of the central government debt are used to illustrate the market risks of the central government debt. This ensures that the total interest costs on government debt are resilient to significant interest rate changes.

To manage refinancing risk, the focus is on an even repayment profile for government debt, supplemented by monitoring the size of the short-term refinancing scope. This smooths out the refinancing of existing debt over the years. Furthermore, it ensures that the central government has sufficient liquidity to cover financial obligations, including unexpected expenses or lack of market access.

Central government has maintained low interest rate risk

For 2023, the average duration¹¹ for the year came in at 12.1 years, which is within the expected duration band of 11.75 ± 1 years. This is an increase compared to previous years, see Chart 20. The increase is primarily due to a high balance on the central government account, which is recognised on the asset side in the duration calculation. Thus, the increasing duration does not reflect changes in the maturity profile or risk strategy for government debt.

The central government's duration calculated without the account continues to develop steadily in 2023, reaching an annual average of around 8.4 years for 2023. This locks in a large part of the central government's interest payments on average 8.4 years into the future, which contributes to robustness against interest rate fluctuations.

Continued low expected interest costs in the base scenario

Over the next 6 years, interest costs excluding capital losses and index revaluations are expected to beat a low level of around DKK 1-3.5 billion in a neutral base scenario with a balanced primary public balance and where the forward rate structure is realised, see Chart 21.

Danish government interest rates have been rising throughout 2023, with a decline towards year-end, see Chart 10. Despite rising interest rates, central government's interest costs are expected to increase to a limited extent and then decrease marginally. This development should be seen in light of the maturity profile of government debt, where the majority of the total debt has a fixed interest rate. The higher interest rate level will impact coupon payments as existing debt needs to be refinanced. The central government's high account balances will also contribute significant interest income, which pulls down interest costs. In practice, the central government's interest costs are highly dependent on its financing needs, which is why Chart 21 should be understood as a stylised base scenario. 

Debt profile is robust against EBA interest rate increase scenarios

Central government's interest costs for 2024 are expected to fall by just over DKK 2 billion in the scenario from the European Banking Authority, EBA, where the yield curve is shifted upwards in parallel by 2 percentage points, see Chart 22. This is because a higher short-term interest rate has an immediate effect on central government's high account balances, while the scope of new issues for a single year is limited due to the steady amortisation profile of central government debt.

Overall, a steep yield curve where short-term interest rates fall while long-term interest rates rise will lead to an expected increase in the central government's interest costs for 2024 corresponding to just over DKK 1.2 billion, see Chart 22. In such a scenario, a lower short-term interest rate would mean lower income on government account balances, which would favour higher interest costs. Rising long-term interest rates also mean that new issues for 2024 are issued at higher interest rates.

The central government is a net recipient of the short-term interest rate

The amount of government assets that earn interest at a short-term rate exceeds the amount of liabilities that earn interest at a short-term rate, see Chart 23. This is due to the central government's high account balances, which are subject to variable interest rates.

Government account balances contribute significantly to fluctuations in the interest costs of government debt when interest rates change, see Chart 22. Through 2023, there has been an increase in the volume of interest rate swaps via which the central government receives the fixed interest rate and pays the variable interest rate. Since the central government pays a variable interest rate in this type of interest rate swap, the increased swap size reduces the exposure to short-term interest rates. Consequently, interest rate swaps can be used to increase the stability of the central government's interest costs.

There will often be a trade-off between stabilising interest costs while aspiring to reduce fluctuations in market value. In a scenario where the central government exclusively issued a 30-year bond, central government debt would achieve high interest rate stability but potentially large market value fluctuations. The opposite would be the case if the central government only issued T-bills. However, since the central government has more floating-rate assets than liabilities, interest rate swaps can initially increase interest rate stability while reducing market value risk. Stability is a result of a better match between government debt assets and liabilities.

Government debt refinancing and liquidity risk

Government debt refinancing risk is the risk of having to issue debt at extraordinarily high interest rates or, in extreme cases, not being able to access the loan market. Through 2023, the short-term refinancing volume has remained relatively stable at just under DKK 100 billion, corresponding to approximately 17 per cent of gross debt, see Chart 24. For a given month, the short-term refinancing volume calculates the amount of existing debt that needs to be refinanced within the next 12 months.

In addition to the low short-term refinancing volume, the central government debt's even repayment profile contributes to the stability of the refinancing volume over time and thus the refinancing risk. 

Liquidity risk for government debt covers the risk of not being able to meet financial obligations due to a lack of market access or insufficient deposits in the central government's account. In day-to-day liquidity management, projections of deposits in the central government's account are monitored to ensure that the central government has liquidity to cover expected payments and a buffer to cover unexpected liquidity drains.

Purchases of inflation-linked bonds maturing in 2023 reduced the central government's index risk in 2023

In 2023, Debt Management actively reduced the outstanding amount in the index-linked bond DGBi 0.10 per cent 2023 to reduce the risk of having to pay a high final coupon and principal in the event of a positive inflation shock, see Chart 25. As the remaining maturity of the central government's inflation-indexed bonds is reduced, the risk of major fluctuations in the indexation due to surprisingly high or low inflation figures increases¹². This made the central government's inflation-linked bond maturing in 2023 sensitive to the consumer price index for August and September. Furthermore, as inflation-linked bonds are often used by investors to hedge their long-term liabilities, there will be a natural demand for the central government to buy the paper. Buying totalling almost DKK 11 billion was spread evenly over 2023.

By consolidating public debt, the central government can reduce total public financing costs, as it can issue debt at a lower interest rate than, for example, individual state-owned companies. This is mainly because the central government can build up larger bond series and ensure good liquidity, which increases the liquidity premium that investors are willing to pay. In practice, consolidation is achieved by the central government providing on-lending to state-owned companies, see Box 4. On-lending is financed as part of the central government's total debt issuance. In addition, in some cases state guarantees are granted, which also helps to reduce the financing costs of state-owned companies.

During 2023, new on-lending was granted for a total of DKK 68 billion, bringing the on-lending volume to 32 per cent of total outstanding domestic government debt. This corresponds to an increase of 22 per cent compared to 2022, where A/S Femern Landanlæg and Femern Bælt A/S together now account for 16 per cent of all on-lending. At the end of 2023, the central government managed government loan guarantees for DKK 7.7 billion, which is a decrease of 22 per cent compared to 2022. See Table 2 for an overview of government on-lending. 

Establishment of the Danish Export and Investment Fund, EIFO

On 1 April 2023, Denmark's Green Investment Fund, EKF Denmark's Export Credit and the Danish Growth Fund were merged under the Danish Export and Investment Fund, EIFO. This means that EIFO manages approximately DKK 71.8 billion annually under the on-lending framework at Danmarks Nationalbank.

Since 2018, the Danish government has been buying mortgage bonds to finance subsidised construction, such as social housing. The bonds are purchased at the central government interest rate, which ensures that the financing of social housing is done on the same terms as the central government. The purchases have contributed to further consolidation of public debt, which reduces public interest expenses and contributes to the maintenance of a well-functioning government debt market, as central government can maintain a higher issuance volume of Danish government bonds.

During 2023, the central government purchased bonds to finance subsidised construction for DKK 7.3 billion, excluding the year's maturities. This is a decrease of 68 per cent compared to the previous year. The large decrease is due to a significant reduction in purchases from DKK 28 billion in 2022 to DKK 13.9 billion in 2023. The current holding represents 26 per cent of the total outstanding government bonds.

In 2024, the central government is expected to buy bonds to finance subsidised construction for approx. DKK 13 billion, and will have a maturity of DKK 7.1 billion, see Chart 26.

On behalf of the Danish state, Danmarks Nationalbank manages the administration of the funds in Innovation Fund Denmark and Fund for Better Working Environment and Labour Retention. The assets of the two funds are offset in the calculation of central government debt and are managed together with the central government's other financial assets and liabilities under the central government debt area.

On 2 May 2023, the Den Sociale Pensionsfond (social pension fund) was closed by law after having no funds since 2021, and the fund is no longer included in central government accounts.

Innovation Fund Denmark

The assets in Innovation Fund Denmark totalled DKK 12.3 billion at the end of 2023, see Table 5. Of these, 99.8 per cent of the assets are invested in Danish government bonds, while the remaining percentage is held in the central government's account. In 2023, DKK 400 million was transferred to the Ministry of Higher Education and Science, mainly for new initiatives that promote growth and job creation through knowledge. The transfers were mainly financed through the sale of government bonds and, to a lesser extent, through interest income in the fund, see Table 4.

Fund for Better Working Environment and Labour Retention

The assets in the Fund for Better Working Environment and Labour Retention totalled DKK 0.71 billion at the end of 2023. This is an increase of 2.5 per cent from the previous year, which mainly stems from interest income from both investment in Danish government bonds and investment of funds in the central government's account. For most of 2023, the assets have been invested in government bonds maturing in the same year. By the end of 2023, all funds were placed in the central government's account at Danmarks Nationalbank. The fund only invests in Danish government bonds and there were no transfers from the fund in 2023.