Guan’s blog


The other debt ceiling

05 Aug 2011

It turns out that Denmark is the only other country in the world to have a fixed, numerical debt limit on the government’s debt. I had never heard of this and decided to check this out.

Article 43 of the Danish constitution states that

Ingen skat kan pålægges, forandres eller ophæves uden ved lov; ej heller kan noget mandskab udskrives eller noget statslån optages uden ifølge lov.

No taxes shall be imposed, altered, or repealed except by statute; nor shall any man be conscripted or any public loan be raised except by statute.

The current borrowing authority is very simple:
§ 1. Finansministeren kan optage lån inden for et samlet gældsmaksimum på 2.000 mia. kr.

The Minister of Finance may borrow within a combined maximum debt of 2,000 billion kroner.

2,000 billion kr. is about 115% of GDP in 2010. Total government debt (gross of the government’s deposit at Danmarks Nationalbank, which is how the debt ceiling is applied) is currently 762.6 billion kr., so 38% of the debt ceiling has been used. The highest it’s been in modern times was 808.3 billion kr. at the end of June 1997. (Net debt is currently 22% of GDP and was 53% of GDP in 1997.)

The debt ceiling was last raised in October 2010. Before that it stood at 950 billion kr. since 1993. When the bill was introduced, the Minister of Finance estimated that if the debt ceiling were not raised, we would reach 83% utilization by 2011.

The debt ceiling was first introduced in 1993 as a way of simplifying and combining all the laws authorizing public debt, instead of the previous method of passing laws that authorized new debt issue. It was also the first time that authority for domestic and foreign borrowing was combined. When the bill was passed in December 1993, 76.6% of the debt ceiling was used.

Before 1993, the Minister of Finance would regularly receive authority to borrow certain amounts of money, without an overall debt ceiling. The earliest such authorization I could find is from 1984, when he was authorized to issue 75 billion kr. in domestic bonds. At the same time, previous domestic borrowing authority from 1982 was cancelled. This law from 1993 allows him to borrow 50 billion kr. abroad.