The intensified downturn in the economy will hit central government finances more than previously expected, The Swedish National Debt Office warns.

Sweden's central government finances are likely to plunge due to lower tax revenues, increased unemployment and larger on-lending in the wake of the financial crisis.

“The downturn will have a greater impact on the budget balance next year than we expected in March”, the Swedish National Debt Office, which is the government's financial manager, wrote in a statement on Friday.

According to the agancy’s new estimate, the budget deficit will be 198 billion kronor (€19 billion) this year and 72 billion kronor in 2010. This is an increase of 63 billion kronor this year and 7 billion kronor next year, compared with the latest forecast.

Tax revenue is expected to be 19 billion kronor lower compared with the previous forecast, while expenditure for unemployment will increase by 5 billion kronor. The Debt Office has also reduced its assumption on new fiscal policy measures in 2010 from 40 billion kronor to 25 billion kronor.

More than half of this year's deficit is due to increased on-lending. 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 8.0 billion kronor to recession-hit Latvia.

"The budget deficits in combination with large bond maturities lead to an increase in central government borrowing, in particular in foreign currency bonds", the agancy writes.