The central government debt amounted to kr. 294 billion at the end of 2023. Danish central government debt covers the central government’s domestic and foreign debt less the balance on the central government’s account with Danmarks Nationalbank, the assets of the government funds and the cost of purchasing bonds to finance social housing.
Kr. 294 billion perhaps sounds like a lot of money, but in fact it only corresponds to 10.5 per cent of Denmark’s gross domestic product (GDP). This is considered a low level of debt. The low level of debt helps to ensure that Denmark has a good credit rating, which makes it cheaper for the government to borrow money, as domestic and foreign creditors believe that the Danish government is good at repaying its debts.
Why does the Kingdom of Denmark have government debt?
When a central government’s expenditures exceed its revenue, it has to borrow money to finance the deficit. This is done by taking on government debt in the financial markets. The government debt is raised, for example, by issuing government bonds and T-bills, which are bought by investors, who thus lend the government money.
In Denmark, Danmarks Nationalbank manages central government debt
This means that Danmarks Nationalbank, on behalf of the government, finds creditors in the market who are willing to lend money to the Kingdom of Denmark when the government needs it.
Domestic debt
Domestic debt is used to finance domestic expenditures in kroner and consists mainly of fixed-rate nominal bonds, while the remainder comprises T-bills, inflation-linked bonds and interest rate swaps.
Foreign debt
Foreign debt comprises central government loans taken out in foreign currency. As a general rule, foreign debt is not used to finance domestic expenditures, but as a part of the government’s liquidity reserves. However, in extraordinary circumstances, it can also be used to finance domestic expenditure. In addition, the central government can issue foreign debt to influence the size of the foreign exchange reserve. Foreign borrowing consists of short-term foreign bonds in euros and dollars issued through the government’s euro medium-term note (EMTN) programme and short loans called commercial papers (CP).
The central government’s assets
Government assets consist of the money that the government has in its account with Danmarks Nationalbank and in the government’s funds - Innovation Fund Denmark (Danmarks Innovationsfond) and the Fund for Better Working Life and Labour Retention (Fonden for Forebyggelse og Fastholdelse) - as well as the government’s holding of bonds to finance social housing.
The government raises loans from different investors
Central government debt consists of different types of loans which the government has raised from different investors. The loans are taken out, for example, by issuing government bonds which investors buy.
The investors are primarily Danish insurance and pension funds, but also include a number of foreign investors who lend the government money. In addition, a smaller part of the debt is owned by financial institutions such as banks and other types of investors.
Distribution of government bond ownership
Frequently asked questions
It depends on several factors, such the size of debt relative to the gross domestic product (GDP) and what the debt is used for.
At the end of 2023, the Danish government debt was kr. 294 billion, which corresponds to 10.5 per cent of Denmark's GDP. This is a low level of debt compared to many other countries. A low level of debt helps ensure Denmark's good credit rating. This means that creditors are very confident that the Danish government can repay its debts. When creditors have a high degree of trust in the government, they do not have to be paid as much to lend the government money, thus making it cheaper for the government to borrow.
If the debt is used to stimulate the economy or invest in growth opportunities, it may actually be a good idea for the government to issue debt.
There are no political ambitions to pay off the entire central government debt in Denmark. There is no specific date for when the entire Danish national debt must be repaid.
The government debt consists of various types of loans taken out by the government – primarily by issuing government bonds. The loans have different repayment dates (maturity). The government continuously pays off the debt as the loans mature. Since the government is expected to continue to exist, repayments can be made by issuing new debt.
An important difference between an individual who borrows and a government is that the government is expected to continue to exist, while an individual sooner or later will die. Therefore, investors are willing to continuously lend the government money, because the government continuously is present to repay the loans.
Yes. The central government debt level is not the same all the time, as changing economic conditions can influence how much new debt the government needs to take on and how much of the government debt is repaid in a particular year. For example, the government does not usually take on as much debt when the funding requirement is not particularly high.
The funding requirement can be defined as the difference between the payments of taxes, duties etc. received by the government and the disbursements for salaries, income transfers, subsidies etc. made by government over the course of a year.
Funding requirement = government revenue – government expenditures
Investors are willing to lend the Danish government money because it is deemed a low-risk investment. Denmark has the highest credit rating (AAA), which reflects a high probability that the central government can repay its debt. As an investor, you receive interest payments as compensation for the risk you run by lending money. At the same time, Danish government bonds are highly liquid, which means that investors can easily buy or sell them if they wish.
The government has access to a number of financing options to meet its funding requirements:
Government bonds in kroner
The issuance of government bonds in kroner is the government’s primary tool for meeting the need for long-term financing. The government’s on-the-run issues include nominal bonds with maturities between 2 and 30 years as well as inflation-linked bonds. For a number of years, the starting point for central government debt policy has been that issuances are fairly evenly distributed over the year and concentrated on a few maturity segments, primarily 2 and 10-year bonds. The strategy has been chosen to support a liquid and well-functioning market during a period with limited funding requirement.
T-bills in kroner
T-bills are short-term debt instruments (typically 6 months). They provide the government with access to short-term financing, and are part of the central government’s liquidity reserves. T-bills are standardised contracts which are issued in kroner. T-bills are zero-coupon securities, i.e. the interest payments are not coupon-based, but are included in the price at which the T-bills are issued. The programme can be scaled up either through sales at auctions or through tap sales, which are ongoing sales in the secondary market. The programme can be expanded with securities with other maturities.
Commercial papers in dollar and euro
The central government can raise short-term foreign debt via two commercial paper programmes: a European commercial paper (ECP) programme and a US commercial paper (USCP) programme. They may be used both as part of the central government’s liquidity reserves and to facilitate the build-up of the foreign exchange reserve. Unlike T-bills, commercial papers (CPs) are non-standard products with a very high degree of flexibility. The issuances can, for example, be adjusted in terms of value date, maturity (up to 12 months) and currency. The central government can issue CPs up to a total amount of 12 billion USD dollars in each of the central government’s two programmes. Under the USCP programme, CPs can only be issued in dollars, while under the ECP programme, it is possible to issue CPs in several currencies, including dollars and euro. CPs are issued as zero-coupon papers directly to an investor via the central government’s bank counterparties in the programmes. The market for CPs is typically characterised by considerable depth. The CP programmes therefore provide the central government with quick and flexible access to liquidity that can counter even large liquidity shifts.
Government bonds in foreign currency (EMTN programme)
The central government primarily issues bonds denominated in foreign currency for the sake of the foreign exchange reserve, but issuances can also be made to finance the central government’s domestic borrowing requirement. The issuance of foreign bonds thus functions as part of the central government’s liquidity reserves. When the central government borrows funds denominated in foreign currency, the proceeds of the loan are deposited in the foreign exchange reserve, and the balance on the central government’s account is increased by the kroner equivalent. A different type of investor buys government bonds issued in currency. With the euro medium-term note (EMTN) programme, the central government thus achieves a significant diversification of the investor base, both in terms of region and investor type, and it can also be relatively quicker to issue debt in currencies in which the debt market is very deep.
The central government’s account
The government's account is the account at Danmarks Nationalbank where the central government’s liquid funds are placed. The balance on the central government’s account is part of the central government’s liquidity reserves. The balance can fluctuate considerably in the course of a year, primarily due to the central government’s large deposits and payments of, for example, taxes and public salaries. According to Article 123 of the Maastricht Treaty (prohibition of monetary financing), the central government’s account must not be overdrawn at any time. Central government borrowing is therefore planned so that the central government’s account is always in credit.
There are different ways to state the national debt:
Central government debt
Central government debt is stated as the nominal value of the central government's domestic and foreign debt less the balance on the central government’s account with Danmarks Nationalbank, bonds for financing social housing and the assets of the two government funds: Innovation Fund Denmark and the Fund for Better Working Environment and Labour Retention. The central government debt is managed by Danmarks Nationalbank on behalf of the Danish Ministry of Finance.
EMU debt
The gross general government debt (EMU debt) is often used in international comparisons of sovereign debt. EMU debt is the term for the gross public debt in EU member states, calculated in accordance with special common rules.
The statement of EMU debt is higher than central government debt because it includes not only the debt of the central government but also the debt of the regions and the municipalities. Moreover, the central government’s balance with Danmarks Nationalbank and bonds for financing social housing are not offset. In recent years, Denmark’s EMU debt has been significantly below the Stability and Growth Pact’s limit of 60 per cent of GDP. According to the Statistics Denmark’s estimates, the EMU debt was approx. 30 per cent of GDP at the end of 2022, which is low compared to other EU countries.
The Stability and Growth Pact is linked to EMU, and is intended to ensure that member states respect budgetary discipline with regard to public finances. This means that, at normal levels of economic activity, the public budgets of member states must be in surplus or close to zero.
Net public debt
Net public debt comprises all financial assets and liabilities in the central government, regions, municipalities as well as social security funds and government-owned funds. The central government’s assets include the central government’s account with Danmarks Nationalbank, assets in government funds, on-lending to government-owned companies and the central government’s portfolio of equities and other securities. The net public debt is stated at market value and is thus affected by value adjustments of public assets and liabilities. International calculations of net public debt are made by, for example, the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF).