Broken line represents OECD’s forecast  14  90  94  98  02  06  10  Source: OECD  BIS Review 56/2010  Sweden’s central government debt and gross public debt Percentage of GDP 90  90 Central government debt  80  80  Gross public debt  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0 50  55  60  65  70  75  80  85  90  95  00  05  10  Sources: Swedish National Debt Office and OECD  General government net lending in Sweden, the euro area and the United Kingdom Per cent of GDP 10  10 Sweden Euro area United Kingdom  5  5  0  0  -5  -5  -10  -10  -15  -15 90  92  94  96  98  00  02  04  06  08  10  Note. Red broken line represents the Riksbanks’s forecast, blue and yellow broken lines represent OECD’s forecast.
The OECD estimates that potential GDP in the OECD area will decline by around 4 per cent as a result of the crisis. All in all, this means that public finances in the OECD area require a structural strengthening of around 5–6 per cent of GDP over the coming years. At the same time, several factors indicate that interest rates will rise, which will lead to increased interest expenditure and thus put even greater pressure on public finances. Monetary policy is expected to become less expansionary in the years immediately ahead, which means that short-term interest rates will rise. The large general government deficits and thus rising borrowing requirements will probably lead to higher government bond rates. In addition, there is the premium that the market participants require as compensation for the risk that the debt may become unsustainable. Meanwhile, stricter financial regulations will probably also lead to higher interest rates. In the past, there have been periods when the debts of the public sector as a percentage of GDP have been reduced as a result of high inflation. But as experiences of the harmful effects of inflation have led to more or less explicit inflation targets for central bank activities  2  2  See Reinhart and Rogoff (2009). BIS Review 56/2010  and as interest rates tend to adapt very quickly to inflation expectations, it is not probable that higher inflation will reduce public-sector debt as a percentage of GDP.