UPDATE 1-Swedish budget deficit to balloon amid pandemic spending

* Budget deficit seen at 402 bln SEK ($41.54 bln) in 2020

* Issuance of government debt, T-bill, FX debt to surge

* Increased bond supply also in 2021 (Adds detail, analyst comment, background)

STOCKHOLM, May 19 (Reuters) - Sweden will run a budget deficit of 402 billion crowns ($41.54 billion) this year, the Debt Office said on Tuesday, as a result of a massive spending boost to soften the blow of the coronavirus pandemic.

Sweden has not gone into the kind of total lockdown adopted across much of Europe, but companies have been badly hit, workers sent home and many businesses have closed - temporarily or permanently.

The government has launched measures worth around 240 billion crowns to soften the blow and is offering a package of around 575 billion in loans and guarantees.

“The downturn in the economy and the support measures taken lead to a large deficit in the central government budget and to increased government debt,” the Debt Office said in a statement.

“The Debt Office is meeting the deficit by increasing borrowing in all debt instruments.”

In its previous forecast, the Debt Office expected a deficit of 14 billion crowns this year.

To meet the expected budget deficit, it said it would increase borrowing across the board, nearly doubling the supply of government bonds to 97 billion crowns from its February forecast of 51 billion and boosting T-bill supply to 220 billion crowns at year-end from a previously expected 55 billion.

Borrowing in foreign currency bonds is also expected to double to 105 billion crowns from 59 billion.

“We think the deficit will be a bit bigger and that they have to borrow a little more so they are, on the margin, somewhat cautious,” Lina Fransson, Fixed Income Strategist, at SEB said.

Borrowing also increases substantially next year. ($1 = 9.6766 Swedish crowns)

Reporting by Stockholm Newsroom; Editing by Nick Macfie