The National Debt Office (Riksgälden), which is the government’s financial manager, said the widening deficit was a direct result of increased lending in the wake of the global financial crisis.
This lending was notably to crisis-stricken Iceland and to Sweden’s central bank, the Riksbank, so it can help Swedish banks heavily exposed to the beleaguered Baltic countries.
The budget deficit was expected to swell to 198 billion kronor ($26 billion) this year, the National Debt Office said.
This was a big increase from its March forecast of 135 billion kronor.
For 2010, the deficit is expected to shrink back down to 72 billion kronor, it said, although that figure is also higher than the 65 billion announced in March.
In 2008, Sweden had a budget surplus of 135 billion kronor.
“The intensified downturn in the economy is gradually affecting central government finances,” the Debt Office said in a statement.
“The Debt Office will lend the equivalent of 100 billion kronor in foreign currency to the Riksbank and 7 billion kronor to Iceland … The forecast for 2010 includes a loan of 8 billion kronor to Latvia,” it said.
It added that it expected the Swedish economy to contract by 4 percent in 2009, much steeper than the 2 percent forecast in March, but maintained its prediction the economy would bounce back with growth of 2 percent in 2010.