Denmark Will Borrow More Money to Finance Economic Stimulus
Denmark needs to borrow more than previously expected as postponed tax collection and other stimulus take a heavy toll.
(Bloomberg) -- Denmark needs to borrow more than previously expected as postponed tax collection and other stimulus take a heavy toll on public finances.
The country’s financing need will be 374 billion kroner ($60 billion) this year, compared with a May estimate of 294 billion kroner, the finance ministry said late on Sunday. Economists had expected a reduction because the government’s aid programs have been tapped less than forecast.
“It’s a surprise that the government raises the financing need,” Jan Storup Nielsen, a chief analyst at Nordea Markets in Copenhagen, said by phone. “The government doesn’t seem to take into account that things have progressed better than what was predicted in the initial pessimistic outlook.”
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One of the main reasons for the higher financing need is an early payout of 60 billion kroner held in reserve in so-called vacation funds, the ministry said. The money will be paid to most Danes in October to help simulate consumption.
Denmark was among the first European countries to shut down its economy to halt the spread of Covid-19 and was also among the first to reopen when the number of cases stabilized. The government has announced aid programs worth more than 500 billion kroner to support companies hit by the crisis.
But demand for those programs has fallen way below expectations. In April, almost 250,000 workers were using Denmark’s emergency wage compensation plan. By early August, that number had dropped to just 14,000, according to recent data from the business ministry.
The AAA-rated Nordic country has so far been able to tap markets at historically low interest rates. The government plans to raise 125 billion kroner via bond markets in 2020 and to get 140 billion kroner through short-term debt programs.
Finance Minister Nicolai Wammen will on Aug. 31. present the budget proposal for 2021 and the government’s economic review for 2020. The government plans to set aside 9.2 billion kroner to handle challenges related to Covid-19 and further fiscal stimulus in the 2021 budget, newspaper Borsen reported on Sunday, citing a copy of the proposal. The government also plans a 2021 budget deficit of 0.5% of gross domestic product, Borsen said.
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