Transcript of a Conference Call for the Presentation of the 2013 Article IV Consultations with Sweden and Norway and the Presentation of the Nordic Regional Report

September 5, 2013

Washington, D.C.
Thursday, September 5, 2013

MR. SILVESTRE: Good morning, Washington. Good afternoon, Stockholm. Good afternoon, Oslo. My name is Bruno Silvestre. I’m the Senior Officer of the Communications Department of the IMF, and I’d like to welcome you to this conference call for the presentation of the 2013 Article IV Consultations with Sweden and Norway and the presentation of the Nordic Regional Report.

With me this morning are Helge Berger, the IMF Mission Chief for Sweden, and Thomas Dorsey, the IMF Mission Chief for Norway. Both Helge and Tom are also heading the team that put together and produced the Nordic Regional Report unveiled today. Before I give the floor and the microphone to Helge and Tom for some opening remarks, let me remind you of a few things.

First, the publication of the staff reports and the Nordic report, which were posted online last night, is embargoed until 10 a.m. Washington time, that is 55 minutes from now. Number two, before asking your question please introduce yourself and the media that you represent. Everything that you hear during this conference call is on the record and you can indeed quote both Tom and Helge. And finally, the transcript of this conference call will be made available on the IMF Website in a few hours. With that I will give the floor to Helge.

MR. BERGER: Thank you and welcome, everybody. This is Helge Berger. I’d like to only use two minutes of our time to talk about what we’re representing today.

One item on the list is the Nordic Regional Report. That sounds a little bit strange, but it’s a very innovative approach that the Fund is taking to improve what we call our surveillance of individual countries. You’re probably all familiar with the fact that the IMF for many years has visited all the Nordic countries, indeed every country that has membership, for an annual or biannual checkup where we look at long lists of policy issues and come up with recommendations. What the Nordic Regional Report does is take an intermediate level, higher altitude look, at these countries so we can understand what certain countries share in terms of common policy challenges. And for the Nordic countries, which is Norway and Sweden which also have their Article IVs at this time around, but also Denmark and Finland, what we’ve found is that they have a large and very common financial sector. And so the report has been looking at what that means for these countries, what kind of risks there may be, and what the policies are both at the national level and at the common level to deal with such common and shared risks.

Now, you had access to the Nordic Report and to the individual country reports for Sweden and Norway and rather than repeating what is in there, we thought we’d open it up for questions and we’re happy to talk about these things.

QUESTIONER: Good morning. I have a question about Sweden. If government should adopt a marginal expansionary budget, for example taking measures in favor of retirees, is that appropriate for you in a country where youth unemployment has been the main economic issue?

MR. BERGER: Thank you. Yes, we understand that there has been an announcement, but I don’t think we have the budget accomplished yet. So it’s a bit early for us to talk about it, but some general considerations, if you might.

Looking forward, fiscal policy in Sweden will have to balance two things: On the one hand, we seem to have a firming up of the growth outlook. Recent high frequency days there has been on the positive side, confirming what I think the consensus forecast is for Sweden, which is an increase in growth from this year where we get about 1 to 1.5 percent to next year where it will be in the range of 2 or 2.5 percent. So if you look at this, then there’s a reason for fiscal policy to take into account that firming up, which would mean that a return, a very gradual return to the surplus would be on the table.

However, there’s a second consideration that needs to be taken into account, which is the fact that unemployment continues to be heavy and our understanding is that the government is indeed contemplating additional support measures on the labor market, which will help with lowering unemployment, especially the structural part of unemployment.

So there’s a balance to be struck, and we’re looking forward to the budget details to get a better understanding of where the budget is headed. So that, and a better understanding of where the growth will be going next year, will help us to make a good evaluation of fiscal policy in Sweden.

QUESTIONER: Just to talk about the figures, if you think back just one year and a half ago, the government was saying that they would have a fiscal surplus in 2014. Now it seems to be at 1.5 percent of GDP and a deficit. Is that a bad path, is it something that needs to be corrected or does the economic environment warrant that Sweden may be more ambitious?

MR. BERGER: Again, I think this depends on what the outlook is for growth. So if we do have a firming up of growth next year which, based on the forecast, will be the case, then indeed a gradual move from an expansionary fiscal stance, which this year is a moderate stance but nevertheless a supportive fiscal stance overall, to consolidation is in order. However, that path should be gradual and depending on where the budget will come out in the end. Better we have a gradual consolidation by moving from an expansionary fiscal stance to a neutral stance or to a small surplus in structural terms. The difference is larger in terms of the signs than it is in terms of the numbers.

So I think like with other economies in Europe, we would hope that Sweden consolidates its fiscal policy at a gradual pace. Where exactly that pace should be in the end depends on what the forecast will show. And, again, I’d like to see the budget and the budget details to see the structure of the budget as well as the level of the spending over revenues to form a better judgment about whether this is appropriate or not.

MR. DORSEY: Let me talk briefly about our Norway report. Our main focus of our consultation with Norwegian authorities was in the near term the elevated house prices and the risks that presents, and also cross-border banking issues, which were covered more substantially in the Nordic Regional Report.

For the longer term, our focus has been on the competitiveness impacts, the long-run future of the government pension fund global and the fiscal rule.

We had a good conversation and conference at the end of our mission in May, but if anybody has any more questions after accessing the report, we’d be happy to address them.

QUESTIONER: Yes, I have a question on Norway. Do you see any political risk involved with the elections next week? For example, we have the Progress Party, which wants to spend more in an economy where you’ve been saying that spending too much would be very risky. So is there any political risk?

MR. DORSEY: There certainly is a greater than usual possibility of change in economic policies with elections coming up next week, but I think it would be premature to speculate about what the policies of whatever coalition emerges out of that are going to be.

Our view, independent of the elections, is that for the longer run it is not too soon for Norway to be planning for an era where the employment associated with oil and gas starts to decline. Oil has, of course, already peaked and the main line of the economy has now become sort of increasingly focused on oil and gas, which was something that was not originally anticipated. If and when this unwinds, there is a risk -- that the economy has become too oil and gas focused -- that there will be competitiveness problems, employment problems, not next year, not the year after, but in the medium and long term that could be exacerbated if too much is spent out of the government pension fund global.

MR. BERGER: If there are no questions, let me just add one point on Sweden, which I think is important and may be of interest. As you know, there has been a decision made or at least announced that the FSA will be in charge of macro prudential policies in Sweden. If you have read the Swedish staff report that the Fund has put out this morning, then you will have seen that this was one of the suggestions that the Fund has made. We were very eager for macroprudential policies to be organized and focused in one hand, the hands of one decision maker, and whether that was the Riksbank or another entity was of secondary importance. So having the FSA established firmly as the coordinator of macroprudential policies is indeed something we do welcome fully.

We would recommend that now care is taken, that the FSA does have the resources at hand and the expertise necessary to conduct this function, which will likely mean, given that the Riksbank does have considerable experience in this area, that there’s a need for further collaboration with the Riksbank. There may also be a need for adding resources to the FSA’s budget so that these tasks can be conducted accordingly.

Other than that, I think at our end we’re fine. The reports are out there for you to peruse.

MR. SILVESTRE: Well, this will conclude our conference call. Thank you very much for participating, and we’ll talk to you next year. Thank you.

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