Covering Swiss Debt by SNB Surplus?

Covering Swiss Debt by SNB Surplus?

30 April 2020

Swiss Finance Minister called for the SNB to use its surplus cash to cover debt in the country caused by the economic recession caused by coronavirus pandemic.

Reduction of Debt

             Swiss Finance Minister Ueli Maurer said that the country’s debt caused by the upcoming recession should be reduced with the Swiss National Bank surplus cash. He shared such thoughts with Swiss newspaper Neue Zürcher Zeitung on Wednesday: “I suggest the Swiss National Bank spends the money from an annual surplus to reduce coronavirus-related debts”. This year new debt of the country is likely to be between CHF30 and CHF50 billion, as recently predicted Maurer. National debt will rise due to the difficult economic situation caused by the lockdown imposed because of the coronavirus in the country, as well as huge financial aid package promised by the federal government to help struggling businesses and employees. According to Swiss finance minister it will not be easy to reduce debt quickly without any drastic cuts of costs in long term perspective of few years. Even debt brake mechanism won’t be enough.

SNB Surplus Cash

             The SNB posted annual profit of CHF48.9 billion (per latest exchange rate – around USD50.2 billion) for 2019. Gains were mainly made from foreign bonds, stocks purchase which were aimed at making Swiss franc exchange rate less overvalued. Strong CHF is hurting the economy and inflation, thus the SNB main goal is to make it less expensive. Under a deal made with the finance ministry, the SNB paid CHF4 billion to the federal government and all 26 cantons.

Expensive Aid Package

             After the pandemic broke out in Switzerland, harsh measures were imposed that hurt many businesses. Government proposed aid package, that in total cost CHF62 billion at first. Later on, on April 3rd, amount set for emergency loans was doubled to the CHF40 billion. Additional loans for start-up were launched, that will cost the country CHF154 million. Companies that are struggling due to the pandemic, are able to defer payments of social insurance temporarily, and this includes self-employed people. These entities that are threatened by bankruptcy can delay declaring their financial woes to the courts for next three months, whereas small companies are given three months’ grace to pay off their debts. Switzerland is planning to fund the imposition of short-time work at many entities.

Worst Situation In 45 Years

             Due to the coronavirus, the Swiss government has revised its economic forecast, and now it is expecting worst slump in for 45 years. On March 16 many businesses were closed – bars, restaurants, cultural spaces, sport facilities. Switzerland is one of the countries affected the most by the pandemic in Europe. As of now there are over 28,000 cases with 1,600 deaths. Cantons closest to the border with Italy, which is the country with the worst pandemic situation in Europe, like Ticino were hit the most by the coronavirus. Ticino has many cross-border workers traveling each day from Italy. Others having bad situation are Vaud, Valais and Geneva.