IMF Executive Board Concludes 2013 Article IV Consultation with Sweden

Press Release No. 13/325
September 5, 2013

On August 30, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sweden.1

Sweden recovered quickly from the Great Recession, leading much of the rest of Europe in
2010–11, but the economy has slowed more recently. Sweden faces a difficult external environment with growth decelerating to below 1 percent in 2012 despite continued monetary support and mildly expansionary fiscal policy. While the economy appears to have stabilized, the overall growth trend has been one of moderation, partly reflecting cooling activity abroad and Sweden’s tight trade and financial links with the rest of the Nordic region and the euro area. Meanwhile, the unemployment rate remains elevated, reflecting cyclical and structural weaknesses. Consumer price inflation has eased markedly below the 2-percent target, primarily due to the strong krona amidst safe-haven flows, and the external balance remains strongly in surplus.

Downside risks stem from financial fragilities and regional spillovers. Domestically, household debt is high and rising, reflecting tax incentives, easy access to low-amortization mortgages, and very low interest rates. As a consequence, a sudden and sizeable fall in Swedish property prices could have a knock-on effect on consumption and unemployment, with negative repercussions on banks through non-performing loans and funding costs. Owing to the extensive activity of Sweden’s very large and concentrated banking sector in Denmark, Finland, and Norway, this could have sizeable spillovers across the Nordic region. At the same time, a sudden deterioration of household financial health elsewhere in the region poses a risk to Sweden—as discussed in the Nordic Regional Report. A sudden and severe re-intensification of the euro area crisis could impact banks as well, as would a large reversal of safe-haven flows.

Reforms are under way to address many of these concerns. Financial reforms that have been introduced include measures to increase capital and liquidity buffers and the introduction of loan-to-value caps and a risk-weight floor for mortgages. However, banks remain heavily dependent on wholesale funding and credit to households continues to expand, with mortgage amortization low by international standards. Against this background and given downside risks, the Riksbank boosted borrowed currency reserves to ensure ready access to foreign currency liquidity. While the fiscal framework has served Sweden well and helped reduce general government debt after the banking crisis in the early 1990s, the authorities are examining ways to strengthen the framework to ensure both its countercyclicality and a prudent borrowing capacity adequate for a country with a large financial sector.

Executive Board Assessment

Executive Directors appreciated the additional context provided by the Nordic Regional Report. They commended the Swedish authorities for their sound policy management, including a supportive fiscal and monetary stance and ongoing financial reforms. However, they noted that growth has slowed together with growth in Nordic and other European trading partners, and risks remain tilted to the downside. High household debt and financial fragilities pose important challenges, particularly given the large size of Sweden’s financial sector and significant cross-Nordic linkages.

Directors welcomed the authorities’ focus on the financial stability agenda and commended measures already taken to reduce vulnerabilities. They suggested a comprehensive but gradual strategy to further improve the health of the banking system and household finances, including measures to strengthen banks’ funding and liquidity positions and a phased-in reduction of tax incentives to contain the buildup of household debt. Directors also underscored the need for clear lines of responsibility for macroprudential policy and for further progress toward a robust bank resolution framework, both domestically and in a cross-border context.

Directors concurred that monetary policy should continue to be accommodative, assuming household credit growth remains contained. They underscored that progress on the financial stability agenda would allow monetary policy to focus on macroeconomic goals and would reduce the need for foreign liquidity reserves and fiscal buffers.

Directors supported the moderately expansionary fiscal stance for 2013. They saw room for additional stimulus if downside risks materialize, but emphasized the need to return to the 1 percent structural target when conditions warrant. Directors agreed that the existing fiscal framework has served Sweden well and were encouraged by ongoing efforts to ensure its countercyclicality. Many Directors saw merit in an explicit longer-term anchor for fiscal policy, including a target debt range well below the Maastricht Treaty criterion of 60 percent of GDP. This would ensure adequate room for the government to borrow, given the large financial sector, the expected costs of aging and cyclical budget swings. A number of Directors, however, advised caution in changing a well-functioning framework, and noted that a target debt range would be difficult to determine and could give rise to moral hazard.

Directors recognized Sweden’s consistently high level of competitiveness but encouraged additional reforms to further bolster potential growth. This should include continued strengthening of the labor market by stimulating demand for young and foreign-born workers, and relieving housing bottlenecks by increasing land supply and raising incentives to invest in residential construction.

Sweden: Selected Economic Indicators, 2011–14






2011 2012 2013 2014

Real economy (percent change)





Real GDP

3.7 0.7 1.1 2.3

Domestic Demand

3.2 0.4 1.2 2.2

CPI inflation

3.0 0.9 0.3 1.6

Unemployment rate (percent)

7.8 8.0 8.2 7.8

Gross national saving (percent of GDP)

26.6 25.7 25.2 25.6

Gross domestic investment (percent of GDP)

19.4 18.7 18.3 18.5

Output Gap (percent of potential GDP)

0.8 -0.4 -1.0 -0.7

Public finance (percent of GDP)


Total Revenues

51.2 51.2 51.5 51.4

Total Expenditures

51.2 51.9 53.1 52.3

Net lending

0.0 -0.7 -1.6 -0.9

Structural balance (percent of potential GDP)

-0.1 -0.8 -1.4 -0.8

General government gross debt, official statistics

38.4 38.1 42.3 41.7

Money and credit (year-on-year, percent change, eop)



0.9 5.9 ... ...


6.2 1.9 ... ...

Bank lending to households

6.0 11.7 ... ...

Repo rate (end of period)

1.8 1.0 ... ...

Three-month treasury bill rate (year average)

1.7 1.3 ... ...

Ten-year government bond yield (year average)

2.6 1.6 ... ...

Balance of payments (percent of GDP)


Current account

7.0 6.9 6.9 7.1

Goods and Services balance

5.8 6.3 6.3 6.5

Foreign Direct Investment, net

-3.5 -3.2 -3.1 -3.1

International reserves, changes (billions of USD)

-0.7 -0.5 -15.3 0.0

Reserve cover (months of imports)

2.8 2.8 3.6 3.5

Exchange rate (period average)





Exchange rate regime

Free floating exchange rate

SEK per U.S. dollar (June 20, 2013)


Nominal effective rate (2005=100)

104.2 105.5 ... ...

Real effective rate (2005=100) 1/

91.0 92.3 ... ...

Fund Position (May 31, 2013)





Holdings of currency (percent of quota)


Holdings of SDRs (percent of allocation)


Quota (millions of SDRs)


Social Indicators (reference year)





GDP per capita (2012, constant USD): 55,158; Population (2012, million): 9.5; Main products and exports: Machinery, motor vehicles, paper products, pulp and wood; Key export markets: Germany, Norway, United Kingdom


Sources: Haver Analytics, IMF Institute, Sveriges Riksbank, Sweden Ministry of Finance, and IMF staff calculations.

1/ Based on relative unit labor costs in manufacturing.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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