## 1sweea2024001

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---

### Inflation outlook and monetary policy
- Inflation projected: "2.6 percent in 2024 and reach target by mid-2025."
- Risks: balanced overall, with upside from still elevated core inflation, slower adjustment in inflation expectations, or global supply-side disruptions; downside from faster disinflation due to weaker growth.
- Monetary stance: assessed as "appropriately restrictive" and should remain in place during the first half of 2024 to ensure inflation returns to target.
- Riksbank guidance:
  - Remain ready to adjust monetary policy settings if risks materialize on either side.
  - Continue clear, forward-looking communication to keep inflation expectations anchored.
- Recent actions:
  - Policy rate increased from 0.0 to 4.0 (end-2023).
  - Asset sales (QT) initiated April 2023, accelerated June 2023 and further in February 2024.
- Staff analysis on transmission:
  - A 100bps hike in the policy rate results in a 0.7 percent decline (peak effect) on GDP after 4 quarters, while headline inflation falls by some 0.2 pp over 3–4 quarters.
  - Ex-ante real policy rate based on 1-year inflation expectations is between 1½–2 percent, above staff’s neutral rate estimates (¼–¾ percent).
- Operational recommendation: Maintain restrictive stance some time; policy rate should remain the main instrument with QT playing a limited role; adopt meeting-by-meeting data-dependent approach and increase frequency of monetary policy meetings.

### Financial stability and macroprudential policy
- Macroprudential stance: "settings should remain tight amid elevated systemic risks."
- Main systemic risk sources:
  - Elevated levels of debt.
  - High financial sector exposure to both RRE and CRE risks.
- Banking system resilience:
  - Banking system described as strong; able to weather severe shocks but close monitoring is crucial.
  - Bank profitability up, supported by higher net interest income.
  - Capital ratios (CET1) increased to 19.2 percent.
  - Leverage ratios are 5.6 percent.
  - Share of non-performing loans remains at 0.3 percent.
- Stress tests:
  - FSAP adverse scenarios suggest systemwide CET1 ratio could fall by 620–800 bps depending on shock severity; with CET1 ratios averaging 19 percent, banks would remain broadly resilient.
- Macroprudential measures taken and recommended:
  - CCyB raised gradually from zero to reach 2 percent in June 2023.
  - New risk weight floors introduced (September 2023): 25 percent for loans secured by RRE; 35 percent for loans secured by CRE.
  - Extend 25 percent risk weight floors for retail loans secured with RRE for 2 years.
  - Recommendation: Consider gradual further strengthening of bank capital buffers; introduce sectoral SyRB for CRE exposures phased in with lead-time; prioritize completion of IRB model review.
  - BBMs could be tightened to contain risks related to high household debt.
  - Continue timely implementation of remaining key FSAP recommendations (granular household data, standardized CRE disclosures, improved risk analyses, increased onsite supervision, strengthened crisis management).
- Financial conditions and credit:
  - Private credit weakened: bank credit fell -5 percent y/y; market-based credit to private sector fell -23.5 percent y/y.
  - Households’ interest expense as a share of disposable income rose from under 4 percent in 2021 to about 8 percent in late 2023.
  - Mortgage lending rate: 4.7 (end-2023).
  - RRE prices fell by 10 percent in 2023; bankruptcies have picked up sharply.
  - Foreign participation in CRE bond market ~50 percent.

### Commercial real estate (CRE) stress and policy message
- CRE heterogeneity and stress:
  - CRE prices have fallen only 6 percent on average; turnover in CRE has slowed significantly.
  - Highly leveraged/lower-rated firms saw debt-carrying capacity deteriorate and bond spreads widened by close to 200 bps in 2023.
  - Broadly even split between loans and bond issuance for CRE financing; eurobond financing has dried up.
  - Inflation-indexed rents and a switch to bank financing partially eased pressure on investment-grade firms; lower-rated companies face acute funding pressures.
  - CRE sector highly concentrated with sizeable cross ownership; only some 47 percent of CRE bank lending originates from Swedish banks.
  - A similar proportion of CRE companies’ bonds are owned by Swedish financial institutions and investors, including NBFIs; significant foreign participation raises exchange rate volatility risks.
- Policy message for firms: De-lever to reach lower loan-to-value and higher ICRs by buttressing cash flows, selling assets, issuing equity, and restructuring debt.
- Supervisory and data actions:
  - FI integrated structural CRE models in bank stress tests; developed stress-test for investment funds; swing pricing introduced for fund redemptions.
  - Recommendation: Introduce standardized interest rate stress tests and structural models for household, CRE, liquidity, and bank solvency risks; regular contagion analysis across banks and NBFIs; close data gaps (granular household balance sheet data, standardized CRE disclosures).

### Household and corporate vulnerabilities
- Households:
  - DTI ratio 187 percent; mortgage loan-to-value ratios 75 percent.
  - About 50 percent of households have a mortgage; of those, 90 percent have interest rate fixation periods of two years or less.
  - Households’ debt to asset ratio is 27.5 percent.
  - Applications for temporary debt service and amortization relief have risen.
- Non-financial corporates (NFCs):
  - NFC debt stood at 120 percent of GDP at end-2022.
  - Rising bankruptcies concentrated in construction, retail, restaurants, and micro firms.
  - Corporate bond market liquidity weak, exposing investment funds to losses.
  - Corporate profits are high but sector highly heterogeneous; exporters and service companies fared better.
- Recommendation: Monitor unsecured lending defaults and potential drag on housing demand and consumption; prioritize granular household data to assess distributional risks.

### Fiscal policy stance and recommendations
- Near-term stance: "planned broadly neutral fiscal policy stance in 2024 is appropriate."
- 2024 budget: includes well-targeted measures to support vulnerable populations.
- Fiscal space: substantial fiscal space exists to provide support if recession deepens; additional measures should be well designed to avoid inflationary pressures and targeted to the vulnerable.
- Fiscal measures and numbers:
  - Fiscal deficit of 0.1 percent of GDP estimated for 2023, with an estimated impulse of 0.5 percent of GDP.
  - Energy support measures (some 0.7 percent of GDP) financed outside the budget.
  - 2024 budget entails a broadly neutral fiscal stance as measured by the structural fiscal balance; slight widening of overall fiscal deficit to 0.7 percent of GDP noted elsewhere.
  - Gross impact of all discretionary measures on the 2024 budget around 0.6 percent of GDP.
- Medium-term priorities:
  - Address structural and demographic-related spending pressures and new investment needs for the green transition.
  - Tax reforms: rationalize dividend taxation, lower labor income taxes, reduce interest tax deductibility, and improve property taxation.
  - Staff view: a small deviation from the surplus target could allow financing of growth-enhancing public investment and social spending while preserving key elements of the framework.

### Structural reforms and medium-term growth
- Need: strengthen productivity, medium-term growth, social inclusion, and the green transition.
- Priorities:
  - Upskilling and education opportunities; bolster active labor market policies, tailored training and reskilling programs.
  - Strengthen working incentives.
  - Housing market: ease restrictions on new construction (including building and permit regulations) and ease rent control to raise housing supply and encourage labor mobility.
  - Increase supply of renewable energy and green infrastructure; additional measures needed to meet Sweden’s climate goals.

### Near-term outlook and key risks
- Growth projections:
  - Growth projected to average 0.2 percent in 2024.
  - Growth projected to pick up to 2.3 percent in 2025, converging to potential rate of 2.1 percent by 2028.
- Inflation dynamics:
  - Headline HICP peaked at 10.8 percent at end-2022; fell to 1.9 percent y/y in December 2023.
  - Core inflation fell to 5.3 percent y/y from a peak of 9.3 percent y/y in early-2023.
  - Services inflation accounts for 45 percent of consumer price basket and showed disinflation only since October.
  - December 3-month SAAR reading for headline inflation at 2.7 percent.
- Labor market:
  - Employment growth moderated from 3 percent in 2022 to 1.4 in 2023.
  - Unemployment rate reached 8 percent in 2023Q4 (about 1.3 percentage points above the average for 2017–19).
  - Two-year wage settlement for 2023–24: 4.1 percent in 2023 and 3.3 percent in 2024.
- Exchange rate:
  - Currency depreciation of some 3 percent in effective terms since end-2022 contributed to inflationary pressures.
- Risk balance:
  - Risks to growth tilted to the downside; key risk is sharper-than-projected effects from financial tightening and a potentially sharper CRE correction with cascading bank effects.
  - Inflation risks two-sided: uneven disinflation could slow normalization of expectations or lead to renewed wage pressures; global supply shocks could push inflation up; weaker growth could induce steeper disinflation.

### Crisis management, AML/CFT, and CBDC
- Crisis management:
  - EU Directive on restructuring and insolvency (implemented 2022) increased restructuring effectiveness (early commencement, enhanced stay of creditor actions, approval of plans by classes).
  - Recommendations: hybrid restructuring options combining informal negotiations with limited court intervention; preserve easing of macroprudential measures only for severe downside scenarios; ensure contingency plans well coordinated with clarity on roles for government, Riksbank, and National Debt Office.
  - Staff: continue improving crisis management and resolution frameworks and maintain close monitoring of systemic risks.
- Housing market and BBMs:
  - Policy options to reduce interest-rate sensitivity: streamline or lower costs of early repayment, further target/reduce tax deductibility of interest payments, increase amortization requirements.
  - Supply-side: remove rent controls, simplify building codes, ease regulatory burden for new construction.
- CBDC:
  - Extensively testing robustness and resilience of e-krona is key; Riksbank to continue evaluating pre-requisites and follow European developments.
- AML/CFT:
  - Continue enhancing understanding of ML/TF risks and strengthen risk-based supervision by collecting more granular data, ensuring adequate beneficial ownership information, considering tiered assessment of correspondent banking risks, aligning legal framework with international standards, and strengthening oversight of virtual assets service providers.
  - Staff advice: deepen analysis of financial integrity failures and calibrate stress tests featuring ML/TF events where relevant.

### Selected key statistics (staff projections based on data as of January 31, 2024)
- Real GDP growth: 2023 -0.3; 2024 0.2; 2025 2.3.
- Private consumption: 2023 -1.7; 2024 1.1; 2025 2.2.
- Gross fixed investment: 2023 -1.5; 2024 -1.2; 2025 2.0.
- HICP inflation (average): 2023 5.9; 2024 2.6; 2025 2.0.
- HICP core inflation (average): 2023 7.4; 2024 3.5; 2025 2.2.
- Unemployment rate: 2023 7.7; 2024 8.4; 2025 8.2.
- General government gross debt (percent of GDP): 2023 34.0; 2024 34.5; 2025 33.5.
- Current account (percent of GDP): 2023 6.1; 2024 6.0; 2025 5.3.
- Net international investment position: 2023 31.7; 2024 32.4; 2025 33.0.
- CPIF inflation (average, memorandum): 2023 6.0.
- GDP per Capita (2022, USD): 65,496.
- Population (2022, million): 10.5.

### Debt dynamics and sovereign risk assessment
- Public Debt (percent of GDP) — baseline path key values:
  - 2023 34.0; 2024 34.7; 2025 34.3; 2026 33.5; 2027 32.5; 2028 31.6; 2029 30.8; 2030 30.0; 2031 29.2; 2032 28.4; 2033 27.4.
- Gross Financing Needs (GFN, percent of GDP): 2024 1.4; 2025 4.4; 2026 4.4; 2027 3.7; 2028 3.2; 2029 3.4.
- DSA assessment: "The overall risk of sovereign stress is low."
- Long-term vulnerabilities: pension and health scenarios increase debt but remain below the EU Maastricht debt threshold of 60 percent.

*Source: SWEDEN STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION (1sweea2024001).*

### 2.6 percent in 2024 and reach target by mid-2025. Inflation risks are balanced, with upside

### 2.6 percent in 2024 and reach target by mid-2025. Inflation risks are balanced, with upside

### Inflation outlook and monetary policy
- Inflation projected to be "2.6 percent in 2024 and reach target by mid-2025."
- Risks to inflation: balanced overall, with upside risks from still elevated core inflation and a slower adjustment in inflation expectations or global supply-side disruptions; offsetting downside from faster disinflation due to weaker growth.
- Monetary stance assessed as "appropriately restrictive" and should remain in place during the first half of 2024 to ensure inflation returns to target.
- Riksbank guidance:
  - Remain ready to adjust monetary policy settings if risks materialize on either side.
  - Continue a clear, forward-looking communication strategy to ensure inflation expectations remain anchored.
- Recent monetary policy actions:
  - Policy rate increased from 0.0 to 4.0 (end-2023).
  - Asset sales (QT) initiated April 2023, accelerated June 2023 and further in February 2024.

### Financial stability and macroprudential policy
- Macroprudential stance: "settings should remain tight amid elevated systemic risks."
- Main sources of systemic risk:
  - Elevated levels of debt.
  - High financial sector exposure to both RRE and CRE risks.
- Banking system resilience:
  - Banking system described as strong and should be able to weather severe shocks, but close monitoring by banks and supervisors is crucial given heightened uncertainty.
- Recent and recommended macroprudential measures:
  - Increase in the CCyB and extension of risk weight floors for banks’ RE and CRE loan exposures were timely to enhance bank resilience.
  - Over the medium-term, introduce higher capital requirements on banks’ CRE exposures to contain systemic risks.
  - BBMs could be tightened to contain risks related to high household debt.
  - Continue timely implementation of remaining key FSAP recommendations: improve granular household balance sheet data, standardized disclosures for CRE sector, improve risk analyses, increase onsite and intrusive supervision, and strengthen crisis management strategies.
- Financial conditions and credit:
  - Private credit weakened: bank credit and market-based credit to the private sector fell in real terms (-5 percent and -23.5 percent y/y respectively).
  - Households’ interest expense as a share of disposable income rose from under 4 percent in 2021 to about 8 percent in late 2023.
  - Mortgage lending rate: 4.7 (end-2023).
  - RRE prices fell by 10 percent in 2023; bankruptcies have picked up sharply.
  - Foreign participation in CRE bond market ~50 percent.

### Fiscal policy
- Near-term stance: "planned broadly neutral fiscal policy stance in 2024 is appropriate."
- 2024 budget includes well-targeted measures to support vulnerable populations.
- Substantial fiscal space exists to provide support if the recession deepens, but additional measures should be well designed to avoid inflationary pressures and targeted to the vulnerable.
- Medium-term fiscal priorities:
  - Address structural and demographic-related spending pressures and new investment needs to support the green transition.
  - Tax reforms: rationalize dividend taxation, lower labor income taxes, reduce interest tax deductibility, and improve property taxation.
  - A small deviation from the surplus target, while preserving key elements of the framework, could allow financing of growth-enhancing public investment and social spending needs.

### Structural reforms and medium-term growth
- Structural reforms needed to strengthen productivity, medium-term growth, social inclusion, and the green transition.
- Priorities:
  - Upskilling and education opportunities; bolster active labor market policies, tailored training and reskilling programs.
  - Strengthen working incentives.
  - Address housing market challenges: ease restrictions on new construction (including building and permit regulations) and ease rent control to raise housing supply and encourage labor mobility.
  - Increase supply of renewable energy and green infrastructure; additional measures needed to meet Sweden’s ambitious climate goal targets.

### Near-term outlook and key risks
- Near-term growth: "Growth is projected to average 0.2 percent in 2024."
- Balance of risks on activity tilted to the downside; key risk is sharper-than-projected effects from financial tightening.
- Labor market:
  - Employment growth moderated from 3 percent in 2022 to 1.4 in 2023.
  - Unemployment rate reached 8 percent in 2023Q4 (about 1.3 percentage points above the average for 2017–19).
  - Two-year wage settlement for 2023–24: 4.1 percent in 2023 and 3.3 percent in 2024.
- Inflation dynamics:
  - Headline HICP peaked at 10.8 percent at end-2022; fell to 1.9 percent y/y in December 2023.
  - Core inflation: fell to 5.3 percent y/y from a peak of 9.3 percent y/y in early-2023.
  - Services inflation accounts for 45 percent of consumer price basket and showed disinflation only since October.
  - December 3-month SAAR reading for headline inflation at 2.7 percent.
- Exchange rate and pass-through:
  - Currency depreciation of some 3 percent in effective terms since end-2022 contributed to inflationary pressures.

### Selected key statistics (staff projections based on data as of January 31, 2024)
- Real GDP growth: 2023 -0.3; 2024 0.2; 2025 2.3.
- Private consumption: 2023 -1.7; 2024 1.1; 2025 2.2.
- Gross fixed investment: 2023 -1.5; 2024 -1.2; 2025 2.0.
- HICP inflation (average): 2023 5.9; 2024 2.6; 2025 2.0.
- HICP core inflation (average): 2023 7.4; 2024 3.5; 2025 2.2.
- Unemployment rate: 2023 7.7; 2024 8.4; 2025 8.2.
- General government gross debt (percent of GDP): 2023 34.0; 2024 34.5; 2025 33.5.
- Current account (percent of GDP): 2023 6.1; 2024 6.0; 2025 5.3.
- Net international investment position: 2023 31.7; 2024 32.4; 2025 33.0.
- CPIF inflation (average, memorandum): 2023 6.0.
- GDP per Capita (2022, USD): 65,496; Population (2022, million): 10.5.

*Source: SWEDEN STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION.*

### 7.      The CRE sector is  particularly hit, though with significant heterogeneity. Some CRE

### 1sweea2024001 - 7.      The CRE sector is  particularly hit, though with significant heterogeneity. Some CRE

### CRE sector stress and heterogeneity
- Some CRE companies passed higher costs onto rents and sustained cash flows; highly leveraged/lower-rated firms saw debt-carrying capacity deteriorate and bond spreads widen by close to 200 bps in 2023, though narrowing slightly in early 2024.
- CRE prices have fallen only 6 percent on average; turnover in CRE has slowed significantly.
- CRE financing:
  - Broadly evenly split between loans and bond issuance; eurobond financing has dried up notably.
  - Inflation-indexed rents and a switch to bank financing have partially eased pressure on investment-grade firms; lower-rated companies face acute funding pressures.
  - Cash margins will narrow further if interest rates remain higher for longer or market valuations decline further.
- Data and concentration risks:
  - The CRE sector is highly concentrated with sizeable cross ownership and exposures to banks and non-banks within Sweden and regionally; only some 47 percent of CRE bank lending originates from Swedish banks.
  - A similar proportion of CRE companies’ bonds are owned by Swedish financial institutions and investors, including NBFIs; significant foreign participation raises exchange rate volatility risks.
- Policy message: CRE firms need to de-lever to reach lower loan-to-value and higher ICRs by buttressing cash flows, selling assets, issuing equity, and restructuring debt.

### Banking system condition and buffers
- Bank profitability is up, supported by higher net interest income as deposit rates lagged lending rates.
- Risk indicators and capital/liquidity:
  - Risk-weighted assets (RWA) have risen marginally; share of stage II loans increased by 6 percent year-to-date (notably in property sector).
  - Share of non-performing loans remains at 0.3 percent.
  - Capital ratios (CET1) increased to 19.2 percent.
  - Leverage ratios are 5.6 percent, lower reflecting lower RWAs under IRB models.
  - Major banks have comfortable liquidity buffers.
- Stress test outcomes and resilience:
  - FSAP adverse scenarios suggest systemwide CET1 ratio could fall by 620–800 bps depending on shock severity.
  - With CET1 ratios averaging 19 percent, banks would remain broadly resilient under those scenarios.
  - Liquidity stress tests indicate banks can handle large liquidity shocks, but significant exposure to foreign wholesale funding requires close monitoring.
- Recommendation: Consider gradual further strengthening of bank capital buffers; CCyB increase is timely; introduce sectoral SyRB for CRE exposures phased in with lead-time; prioritize completion of the ongoing review of IRB models.

### Macroprudential and supervisory actions
- Countercyclical buffer (CCyB) was raised gradually from zero to reach 2 percent in June 2023.
- In September 2023, the Financial Supervisory Agency (FSA/Finansinspektionen, FI) introduced new risk weight floors for banks’ corporate loans:
  - 25 percent for loans secured by RRE.
  - 35 percent for loans secured by CRE.
  - These replaced previous Pillar 2 risk weight floors.
- The 25 percent risk weight floors for retail loans secured with RRE were extended for 2 years.
- Progress on FSAP recommendations:
  - FI strengthened supervisory review, introduced a risk dashboard, and integrated structural CRE models in bank stress tests.
  - FI developed a stress-test for investment funds; government introduced swing pricing to regulate fund redemptions.
  - Joint communications through the Financial Stability Council stressed CRE risks and contingency planning.
  - On-site supervision intrusiveness/frequency has not increased; FI is using watchlists more and focusing resources on smaller higher-risk institutions.
- Policy recommendations:
  - Introduce standardized interest rate stress tests and structural models for household, CRE, liquidity, and bank solvency risks.
  - Regular contagion analysis across banks and NBFIs.
  - Strengthen on-site and off-site supervision.
  - Close data gaps: collect granular household balance sheet data and standardized CRE disclosures.

### Household and corporate vulnerabilities
- Households:
  - DTI ratio 187 percent; mortgage loan-to-value ratios 75 percent.
  - About 50 percent of households have a mortgage; of those, 90 percent have interest rate fixation periods of two years or less.
  - Applications for temporary debt service and amortization relief have risen.
  - Households’ debt to asset ratio is 27.5 percent.
- Non-financial corporates (NFCs):
  - NFC debt stood at 120 percent of GDP at end-2022.
  - Rising bankruptcies concentrated in construction, retail, restaurants, and micro firms.
  - Corporate bond market liquidity remains weak, exposing investment funds to losses.
  - Corporate profits are high but sector highly heterogeneous; exporters and service companies fared better.
- Recommendation: Monitor unsecured lending defaults and potential drag on housing demand and consumption; prioritize granular household data to assess distributional risks.

### Fiscal and external position
- Fiscal stance and measures:
  - Fiscal deficit of 0.1 percent of GDP is estimated for 2023, with an estimated impulse of 0.5 percent of GDP, mainly reflecting higher spending and local government deficits.
  - Energy support measures (some 0.7 percent of GDP) were financed outside the budget through congestion fees from the publicly owned electricity transmission company and did not impact the fiscal stance.
  - The 2024 budget entails a broadly neutral fiscal stance as measured by the structural fiscal balance.
- External sector:
  - Current account surplus projected to widen to 6.1 percent of GDP in 2023 from 5.8 percent of GDP in 2022.
  - The krona depreciated by 5.3 percent in real effective terms resulting in an undervaluation of 11–23 percent.
  - International reserves remained adequate.
  - Staff’s external position assessment: substantially stronger than the level implied by medium-term fundamentals and desirable policies (preliminary pending full year data).

### Outlook, inflation, and monetary policy
- Assumptions:
  - Energy and commodity prices expected to ease slightly as per January 2024 WEO projections; no further escalation in regional conflicts.
  - Monetary policy expected to remain contractionary, with the policy rate close to 4 percent during the first half of 2024.
- Growth and inflation projections:
  - Growth projected to average 0.2 percent y/y in 2024, supported by recovering private consumption.
  - Growth projected to pick up to 2.3 percent in 2025, converging to potential rate of 2.1 percent by 2028.
  - Inflation projected to average 2.6 percent in 2024 (2.4 percent on a Q4/Q4 basis) and return to the 2 percent target by mid-2025.
- Risks:
  - Balance of risks to growth tilted to the downside: prolonged global slowdown, intensification of regional conflicts, deeper geoeconomic fragmentation, stronger-than-expected monetary transmission affecting domestic demand, and systemic risk from a sharper CRE correction with cascading bank effects (partly mitigated by strong bank capital).
  - Inflation risks two-sided: uneven disinflation momentum could slow normalization of inflation expectations or lead to renewed wage pressures; global supply shocks could push inflation up; weaker growth could induce steeper disinflation.
- Monetary policy stance and guidance:
  - Ex-ante real policy rate based on 1-year inflation expectations is between 1½–2 percent, above staff’s neutral rate estimates (¼–¾ percent).
  - Staff analysis: a 100bps hike in the policy rate results in a 0.7 percent decline (peak effect) on GDP after 4 quarters, while headline inflation falls by some 0.2 pp over 3–4 quarters.
  - Recommended to maintain restrictive stance for some time to anchor expectations and be ready to respond to two-sided inflation risks; policy rate should remain the main instrument with QT playing a limited role.
  - Meeting-by-meeting data-dependent approach, increased frequency of monetary policy meetings, and forward-looking communications should allow nimble responses.

### Riksbank FX operation and reserves management
- The Riksbank launched an FX hedging program in late September 2023 after losses of about 1.4 percent of GDP in 2022 (mostly explained by valuation losses of bond holdings).
- The operation synthetically shielded about a quarter of FX reserves from potential krona appreciation and was completed in 4 months; operational details were published with a two-week lag.
- The operation had no stated objective to impact the exchange rate; during the program the krona appreciated some 4.5 percent against the USD and 2 percent against the euro.
- Authorities indicated approximately a quarter of the FX reserves has been hedged and the central bank will maintain this level of hedge going forward.
- Policy note: Maintain the shock-absorbing role of the exchange rate; avoid repeated use of the hedging strategy except to ensure robust risk management.

### Implementation priorities and recommendations
- Continue tight monetary-fiscal mix and macroprudential settings to ensure inflation returns to target while maintaining financial stability.
- Maintain momentum on adopting FSAP recommendations and strengthen public and social investment and structural reforms to boost potential growth and advance green transition.
- Strengthen systemic risk analysis and monitoring; introduce standardized interest rate stress tests and structural models for household, CRE, liquidity, and solvency risks.
- Regularly analyze contagion risks across banks and NBFIs; strengthen both on-site and off-site supervision.
- Close key data gaps (granular household balance sheet data, standardized CRE disclosures).
- Consider gradual further strengthening of bank capital buffers, including using current high profitability to raise capital via retained earnings, and enhance availability of longer-term wholesale funding.

*Source: 1sweea2024001*

### 27.      Improved clarity in the crisis management strategy would help navigate potential

### 1sweea2024001 - 27.      Improved clarity in the crisis management strategy would help navigate potential

### Crisis management and financial stability
- Under mild downside scenarios, market-based processes (ongoing loan renegotiations between stressed households and banks) would ease financing strains.
- Bank-led timely support for viable corporate firms, including in the CRE sector, combined with a speedy resolution of insolvent firms, would allow smooth resource allocation without systemic effects.
- The implementation of the EU Directive on restructuring and insolvency in 2022 increased the effectiveness of restructuring through:
  - early commencement of proceedings;
  - enhancing the stay of creditor actions, including secured creditors;
  - establishing the approval of reconstruction plans by classes.
- Considerations and possible measures:
  - Hybrid restructuring options that combine informal restructuring negotiations with limited court intervention and enable wider use of out-of-court restructuring.
  - Preserve easing of existing macroprudential measures, including lowering the CCyB, for severe downside scenarios only.
  - Ensure contingency plans are well coordinated with full clarity on roles for the government, Riksbank and National Debt Office (as discussed in the FSAP).
- Staff recommendation: continue improving crisis management and resolution frameworks and maintain close monitoring of systemic risks.

### Housing market challenges and borrower-based measures (BBMs)
- Policy options to reduce households’ interest rate sensitivity and discourage short fixation periods and perpetual mortgages:
  - Streamline or lower the costs of early repayment of mortgage loans.
  - Further target/reduce the tax deductibility of interest payments.
  - Increase amortization requirements.
- Other long-standing recommendations:
  - Improve property taxation.
  - Once economic conditions stabilize, consider tightening BBMs on mortgage loans.
- Supply-side measures to increase housing supply:
  - Remove rent controls.
  - Simplify building codes.
  - Ease regulatory burden for new construction.
- Note: A public inquiry is ongoing regarding the effectiveness of BBMs.

### Central bank digital currency (CBDC)
- Extensively testing the robustness and resilience of a CBDC (e-krona) is key to mitigate potential systemic risks from its introduction.
- The Riksbank is expected to continue evaluating pre-requisites for the introduction of e-krona, including risk mitigation aspects, and is closely following European-level developments to decide next steps.

### Anti–money laundering / Countering the financing of terrorism (AML/CFT)
- Continue efforts to enhance understanding of ML/TF risks and strengthen risk-based supervision by:
  - Including additional data sources (e.g., macro-economic variables such as investments) and other information (e.g., business models of payment service providers) in assessments of cross-border financial flows.
  - Collecting more granular data and information from banks (work already initiated by FI and Riksbank).
  - Ensuring financial institutions maintain adequate, accurate, and up-to-date beneficial ownership information.
  - Considering assessing ML/TF risks associated with correspondent banking on a tiered risk categorization basis.
  - Aligning the legal framework with international standards and strengthening AML/CFT regulation and supervision of virtual assets service providers.
- Continue analyzing the potential impact of financial integrity on financial stability (Annex V).

### Authorities’ views on financial sector recommendations
- The FSA:
  - Shared staff’s assessment of elevated systemic risks but noted risks broadly stabilized with the decline in borrowing and risk-taking among households and firms, including in the CRE sector.
  - Agreed banks should continue to provision in a forward-looking manner and noted banks were resilient to large shocks and/or significant credit losses.
  - Noted considerations of higher capital requirements, including a SyRB, would need to wait until the review of IRB models is finalized.
  - Agreed on importance of retaining borrower-based measures and awaited results of the ongoing public inquiry into BBMs.
  - Stressed need to prioritize FSAP recommendations given limited resources and welcomed improved SREP efficiency and advances in granular data collection.

### Fiscal policy near-term stance and measures
- 2024 budget:
  - Slight widening of the overall fiscal deficit to 0.7 percent of GDP.
  - Structural balance projected to remain close to zero in 2024.
  - Implied neutral fiscal policy stance to allow for a disinflationary macroeconomic policy mix.
- Fiscal trajectory:
  - Overall fiscal deficit expected to shrink in 2025.
  - Both overall and structural balance turn into a surplus from 2026 onwards, in line with the fiscal rule.
- Discretionary measures and targeting:
  - Gross impact of all discretionary measures on the budget is around 0.6 percent of GDP.
  - Measures include income-tax reductions for lower-income households, pensions, the elderly, spending on green investments, support to municipalities, and defense.
  - Energy support measures (fuel tax cuts, reduction on biofuel blending requirements, electricity price subsidies) introduced in 2022; net fiscal impact limited as subsidies were financed through off-budget revenues.
  - Recommendation: calibrate energy support to support only vulnerable households and consider gradually phasing out energy support measures with the sharp decline in energy prices.
- Fiscal space and adverse scenarios:
  - Available substantial fiscal space provides room for further fiscal support under adverse growth scenarios (Annex VI).
  - Under severe downside scenarios, besides automatic stabilizers, discretionary spending could be considered but should help bring structural improvements to the budget (well-targeted, accelerate public investment to support the green transition, strengthen incentives to work, support inclusiveness—e.g., investment in education, training, reskilling).

### Medium-term fiscal priorities and framework review
- Need for stronger public spending and fiscal reforms to boost economic resilience and raise potential growth through investments in education, health care, and green transition infrastructure.
- Defense spending expected to steadily grow given Sweden’s prospective NATO membership.
- Long-standing fiscal priorities:
  - Tax reforms to rationalize dividend taxation.
  - Lower labor income taxes to reduce the labor tax wedge.
  - Reduce interest tax deductibility.
  - Improve property taxation.
- Upcoming periodic review of the fiscal framework expected to address issues including:
  - Scope for a more active role of fiscal policy in macroeconomic stabilization.
  - Potential revisions to fiscal targets, including lowering the surplus target of 0.3 percent of GDP and raising the debt anchor of 35 percent of GDP.
- Staff view: a small deviation from the surplus target, while preserving key elements of the framework, would allow strong growth-enhancing public investment and social spending; strengthen countercyclical role of fiscal policy with close dialogue between fiscal and monetary authorities.

### Macro-structural reforms: labor, housing, and green transition
- Labor market reforms to close gaps:
  - Address high structural and long-term unemployment and skills mismatches, especially for youth, low-skilled, foreign-born (particularly foreign-born women).
  - Strengthen entry jobs program with tailored training and mentoring.
  - Tackle education and skills gaps, improve skills matching, advance digital knowledge, strengthen working incentives.
  - Reskilling and upskilling important given high share of employees exposed to AI.
  - Study Grant for Transition (SGT) launched on January 1, 2023; targets employed people with certain years of work experience between 27–62 years of age; has attracted many applicants causing screening delays.
  - Entry jobs program subsidizes employment by paying about half of the wage costs for up to two years when a company employs migrants who have been in Sweden less than three years or being unemployed for at least two years.
- Climate mitigation and adaptation:
  - National climate goal: reach zero net emissions by 2045.
  - Under Emissions Sharing Regulations: reduce national emissions by 50 percent by 2030 (relative to 2005 levels).
  - Under LULUCF regulation: increase carbon sink by 4 million tons by 2030 (relative to the average under 2016–2018).
  - EU ETS 2 envisaged to be introduced in Sweden from 2027 and cover applicable sectors; government intends to propose full compensation for consumers and businesses for EU ETS 2 effects on fuel prices.
  - Recommendations: reverse fuel tax cuts as global energy prices normalize; offset easing in mandatory biofuel blending with new measures; streamline construction and operational permit applications for renewable investments; consider incentives through feebates; scale up electric charging infrastructure and incentivize uptake of low-emitting heavy trucks and other non-road electric vehicles and machines.
- Housing market:
  - Easing rent controls and streamlining building and land-use planning procedures to support labor mobility.
  - Simplify complex regulations, licensing requirements, and municipalities’ local planning monopoly to enable efficient investment in infrastructure and housing.

### Geo-economic fragmentation and supply-chain resilience
- As a small open economy integrated in GVCs, Sweden is vulnerable to external shocks.
- Sweden’s foreign input reliance, specifically on China, has increased over the past decade.
- Recommendations: cost-effective diversification of suppliers, improve early warning systems, increase domestic competitiveness through digitalization to build resilience.
- Opportunity: recent discovery in Northern Sweden of one of the largest rare-earth deposits in Europe is an opportunity for the green transition.

### Staff appraisal: outlook, policy stance, and priorities
- Near-term economic outlook:
  - Growth projected to average 0.2 percent in 2024, and gradually recover thereafter to average 2.3 percent in 2025.
  - Balance of risks to growth is tilted to the downside, main risk from larger-than-projected effects from tight financial conditions.
  - Inflation expected to average 2.6 percent in 2024 and reach target by mid-2025.
  - Inflation risks are balanced; uncertainty around the outlook remains high.
- Monetary policy:
  - Stance is appropriately restrictive and should remain in place during the first half of 2024 to ensure inflation returns to target.
  - Riksbank should remain ready to adjust monetary policy settings if inflation risks materialize and maintain clear forward-looking communication.
- Macroprudential policy:
  - Settings should remain tight amid elevated systemic risks (elevated levels of debt and high exposure to both RRE and CRE).
  - Increase in the CCyB and extension of risk weight floors for banks’ RE and CRE loan exposures were timely.
  - Over the medium-term, higher capital requirements on banks’ CRE exposures should be introduced; BBMs could be tightened to contain high household debt.
- FSAP recommendations:
  - Progress is commendable; momentum should continue with improved granular household balance sheet data collection, standardized CRE disclosures, improved risk analyses, increased onsite supervision, and strengthened crisis management strategies.
- Fiscal policy assessment:
  - Planned broadly neutral fiscal stance in 2024 is appropriate; 2024 budget includes well-targeted measures to support vulnerable populations.
  - If recession deepens, available fiscal space allows room for further support; measures should be well designed to avoid inflationary pressures and targeted toward the vulnerable.
  - Sweden’s strong fiscal framework underpins sustainable public finances; medium-term needs include addressing demographic-related spending pressures and new green transition investment needs.
- Structural reforms:
  - Essential to raise productivity and support stronger inclusive medium-term growth: upskilling, education opportunities, strengthening working incentives, targeted active labor market policies, easing restrictions on new construction and permits, and increasing renewable energy and green infrastructure supply.

*Source: IMF staff report excerpt.*

### 49.      Staff recommends that the next Article IV consultation take place on the standard

### 1sweea2024001 - 49.      Staff recommends that the next Article IV consultation take place on the standard

### Real sector developments
- Economy status:
  - "After a strong post-pandemic recovery, the economy is now in recession."
- Inflation and related dynamics:
  - "Inflation, after peaking in end-2022, is on a downward trend with declining energy prices."
  - "Inflation also reflected Krona depreciation, which has recently stabilized..."
  - "...and inflation expectations are gradually returning to target."
- Labor market and wages:
  - "Nominal wage growth has remained broadly stable."
  - "The unemployment rate has ticked up slightly."
- Selected historical growth contributions (chart data labels preserved):
  - Contribution to GDP Growth (Percentage change) series include Household consumption, Public consumption, Gross fixed capital formation, Inventories, Net exports, GDP growth (quarters 2013Q1–2023Q3 shown in figure).
- HICP and components (year-over-year series shown):
  - Components include Unprocessed food, Energy, Non-energy industrial goods, Processed food, Services, Sweden Core HICP, Sweden Headline HICP, EA Headline HICP.
- Exchange rates (period series):
  - SEK per Euro and SEK per USD series (Jan-14 to Jan-24 shown).
- Inflation expectations series (percent):
  - Households mean, 1 year; Prospera mean, 1 year; Prospera mean, 2 year; Prospera mean, 5 year; Companies, 1 year; Consensus forecasts, 1 year (Jan-20 to Jan-24 shown).

### Financial conditions
- Monetary tightening and lending rates:
  - "Amid an unprecedented monetary policy tightening... lending rates have increased across the board..."
  - Sweden's Policy Rate Hike Cycles (percentage point increase) plotted for 2022-2023, 2010-2011, 2005-2008, 1999-2001.
  - MFI Lending Rates (Percent) series include Non-financial corporations, Households, total loans, Mortgage (Oct-15 to Dec-23).
- Borrowing and issuance:
  - "Loan and bond issuances have sharply fallen..."
  - Household and Corporate Borrowing (Annual percentage change) series shown.
- Bond spreads and corporate sector:
  - "Corporate bond spreads have widened, particularly for HY property companies."
  - Interest Rate Spreads for Property Company Bonds (Basis points above swap rates) by rating buckets: Total, Investment Grade+ (AAA to A-), Investment Grade- (BBB+ to BBB-), High Yield (lower than BBB-).
- Defaults and bankruptcies:
  - "Bankruptcies have recently picked up."
  - Total Bankruptcies (Number of bankruptcies) series shown (Jan-19 to Jan-24).
- Policy pass-through to mortgages:
  - Elasticity of Rates on Outstanding Mortgages and Share of Flexible Rate Mortgages (chart from Beyer et. al. (2023)).

### Banking sector indicators
- Capital and leverage:
  - Common Equity Tier 1 Ratio (Percent) series for Sweden, Euro area, USA (2018Q4–2023Q3).
  - Leverage Ratio (Percent) series for Sweden, Euro area, USA (2018Q4–2023Q3).
- Profitability and market valuation:
  - Return on Equity (Rolling four quarters; percent) for Sweden and EA19.
  - Bank Stocks Price to Tangible Book Value per Share (Percent) for Sweden, Europe, United States (Dec-19–Dec-23).
- Funding and liquidity:
  - Domestic Banks' Share of Market Funding (Percent, 2022) with Sweden positioned among peers.
  - Liquidity Coverage Ratio (Percent) for 2022 and 2023Q3 relative to regulatory minimum.

### Real estate sector — residential
- House prices and valuation:
  - "Real house prices have been declining since 2022..."
  - "Estimates point to a correction in house price overvaluation."
  - Real House Prices (Index, 2010=100) and Real House Price Overvaluation (Percent) series displayed.
- Price-to-income:
  - "The price to income ratio is low relative to peers." House-Price-to-Income Ratio Index (Index, 2015=100, 2023Q3 or latest available).
- Loan-to-value and bank exposure:
  - "Bank exposure to residential real estate is high."
  - Average Loan-to-value Ratio for Existing Mortgages (Percent) series (2015Q3–2023Q3).
  - Loan-to-value Ratios for New Mortgages (Percent) distribution by buckets: 0–25, 25–50, 50–70, 70–85, 85+ (2019–2022).
  - Bank Credit Exposure to Domestic and Foreign Real Estate (Percent of Tier 1 capital in 2023Q1) chart showing Sweden among peers.

### Commercial real estate (CRE)
- Valuations and trends:
  - "CRE valuations rose significantly in recent decades... adjusting down slightly since 2022."
  - MSCI Commercial Real Estate Capital Value Index (Index, 2010=100; same store) series by country and time.
- Bank and non-bank exposures:
  - "Banks’ exposure to CRE loans is sizeable."
  - CRE Loans Relative to Bank Capital (Percent of Tier 1 Capital; 2023 Q2) with Sweden among peers.
  - "Non-banks, including the insurance sector (€15b billion) and pension funds (€ 22b), are also exposed."
  - Types of CRE Instruments in the Insurance Sector by Country (Percent of total exposure, 2023Q2).
- Refinancing risks and market indicators:
  - "CRE companies face sizeable bond refinancing needs in the next two years..." Bond Maturity of Swedish Property Companies (Billion SEK) by rating buckets (2024–2029).
  - CRE equity valuations: Swedish CRE Companies' Shares (Percent change from January 2023) for selected firms (Jan-23 to Feb-24).

### Labor market and digitalization
- Productivity and hours:
  - "Labor productivity has drifted down recently..."
  - Labor Productivity (Index, 2015=100) series for Sweden and peers (2010Q1–2023Q3).
  - "While hours worked are relatively lower." Actual Hours Worked vs GDP Per Capita scatter and series.
- Skills mismatches and unemployment distribution:
  - "Amid increases in skills mismatches."
  - Beveridge Curve chart (vacancy rate vs unemployment rate) and related series.
  - "On a structural basis, unemployment strains are higher for the foreign-born... especially among foreign-born women."
  - Unemployment Rates: Young and Foreign-born (Percent; seasonally-adjusted; 2023Q3 or latest available) and Female Unemployment Rates: Total and Foreign-born (Percent; seasonally-adjusted; 2023Q3 or latest available).
- AI and digital skills:
  - "Digital skills are key to raising employment levels and complementarity with AI-driven production."
  - Employment Share by Gender categories: Low Exposure, Low Complementarity; Low Exposure, High Complementarity; High Exposure, Low Complementarity; High Exposure, High Complementarity (chart classification including SWE).

### Key macroeconomic projections and indicators (Table 1 highlights)
- Real GDP growth (percent change):
  - 2021: 6.1
  - 2022: 2.9
  - 2023: -0.3
  - 2024: 0.2
  - 2025: 2.3
  - 2026: 2.2
  - 2027: 2.2
  - 2028: 2.1
  - 2029: 2.1
- HICP inflation (average):
  - 2021: 2.7
  - 2022: 8.1
  - 2023: 5.9
  - 2024: 2.6
  - 2025: 2.0
  - 2026: 2.0
  - 2027: 2.0
  - 2028: 2.0
  - 2029: 2.0
- Unemployment rate (percent):
  - 2021: 8.9
  - 2022: 7.5
  - 2023: 7.7
  - 2024: 8.4
  - 2025: 8.2
  - 2026: 7.7
  - 2027: 7.5
  - 2028: 7.5
  - 2029: 7.5
- Current account (percent of GDP):
  - 2021: 7.1
  - 2022: 5.8
  - 2023: 6.1
  - 2024: 6.0
  - 2025: 5.3
  - 2026: 4.7
  - 2027: 4.4
  - 2028: 4.0
  - 2029: 4.0
- Net international investment position:
  - 2021: 19.0 (percent of GDP)
  - 2022: 30.9
  - 2023: 31.7
  - 2024: 32.4
  - 2025: 33.0
  - 2026: 33.6
  - 2027: 34.1
  - 2028: 34.6
  - 2029: 35.1
- GDP per Capita (2022, USD): 65,496
- Population (2022, million): 10.5

### Public finances (Table 2 highlights)
- Net lending / Borrowing (billions of SEK):
  - 2021: 175
  - 2022: -5
  - 2023: -4
  - 2024: -3
  - 2025: -1
  - 2026: 2
  - 2027: 4
  - 2028: 2
  - 2029: 6
- Gross public debt (percent of GDP):
  - 2021: 36.5
  - 2022: 32.9
  - 2023: 34.0
  - 2024: 34.5
  - 2025: 33.5
  - 2026: 32.4
  - 2027: 31.3
  - 2028: 30.3
  - 2029: 29.4
- Structural Balance (percent of potential GDP):
  - 2021: -0.5
  - 2022: 0.7
  - 2023: 0.0
  - 2024: 0.0
  - 2025: 0.2
  - 2026: 0.5
  - 2027: 0.4
  - 2028: 0.3
  - 2029: 0.3
- Fiscal impulse (expansionary +):
  - 2021: -1.0
  - 2022: -1.1
  - 2023: 0.7
  - 2024: 0.0
  - 2025: -0.2
  - 2026: -0.3
  - 2027: 0.1
  - 2028: 0.0
  - 2029: 0.0
- Nominal GDP (in billions of SEK):
  - 2021: 5,487
  - 2022: 5,985
  - 2023: 6,313
  - 2024: 6,511
  - 2025: 6,814
  - 2026: 7,106
  - 2027: 7,408
  - 2028: 7,716
  - 2029: 8,038

### External sector (Table 3 highlights)
- Current Account Balance (billions of SEK):
  - 2021: 388
  - 2022: 349
  - 2023: 388
  - 2024: 393
  - 2025: 364
  - 2026: 337
  - 2027: 325
  - 2028: 307
  - 2029: 320
- Trade balance (billions of SEK):
  - 2021: 266
  - 2022: 190
  - 2023: 212
  - 2024: 205
  - 2025: 168
  - 2026: 132
  - 2027: 122
  - 2028: 127
  - 2029: 132
- Exports of G&S (billions of SEK):
  - 2021: 2,570
  - 2022: 3,194
  - 2023: 3,298
  - 2024: 3,366
  - 2025: 3,464
  - 2026: 3,586
  - 2027: 3,736
  - 2028: 3,924
  - 2029: 4,121
- Imports of G&S (billions of SEK):
  - 2021: 2,304
  - 2022: 3,004
  - 2023: 3,086
  - 2024: 3,160
  - 2025: 3,297
  - 2026: 3,454
  - 2027: 3,614
  - 2028: 3,797
  - 2029: 3,989
- Financial Account Balance (billions of SEK):
  - 2021: 467
  - 2022: 333
  - 2023: 93
  - 2024: 398
  - 2025: 370
  - 2026: 343
  - 2027: 313
  - 2028: 131
  - 2029: 326

### Monetary and financial aggregates (selected)
- Broad Money (end of period, in billions of SEK):
  - 2018: 3,494.6
  - 2019: 3,741.2
  - 2020: 4,419.6
  - 2021: 4,881.3
  - 2022: 5,013.4
- Bank lending to households (year-on-year percent change, eop):
  - 2021: 6.7
  - 2022: 3.5
  - 2023: 0.3
- Policy rate (percent, end of period):
  - 2021: 0.0
  - 2022: 2.5
  - 2023: 4.0
- Mortgage lending rate (percent, end of period):
  - 2021: 1.4
  - 2022: 3.4
  - 2023: 4.7

### Financial soundness indicators (selected, Table 5 highlights)
- Capital adequacy:
  - Regulatory capital to risk-weighted assets: 2017: 26.4; 2018: 21.6; 2019: 22.8; 2020: 23.5; 2021: 23.0; 2022: 22.7; 2023: 23.1
  - Regulatory tier 1 capital to risk-weighted assets: 2017: 23.4; 2018: 18.8; 2019: 20.4; 2020: 21.1; 2021: 20.9; 2022: 20.4; 2023: 20.8
- Asset quality:
  - Non-performing loans to total gross loans: 2017: 1.1; 2018: 0.5; 2019: 0.6; 2020: 0.5; 2021: 0.4; 2022: 0.3; 2023: 0.3
- Profitability and liquidity:
  - Return on assets: 2017: 0.7; 2018: 0.7; 2019: 0.7; 2020: 0.4; 2021: 0.7; 2022: 0.6; 2023: 0.9
  - Liquid assets to total assets (liquid asset ratio): 2017: 18.2; 2018: 17.1; 2019: 17.6; 2020: 21.0; 2021: 24.8; 2022: 25.3; 2023: 31.9
- Household and corporate debt (memorial items):
  - Total household debt (in percent of GDP): 2017: 85.3; 2018: 86.3; 2019: 86.9; 2020: 90.8; 2021: 87.1; 2022: 88.5; 2023: 92.0
  - Total household debt (in percent of disposable income): 2017: 187.3; 2018: 188.8; 2019: 189.8; 2020: 200.1; 2021: 201.8; 2022: 196.0; 2023: 189.0
  - Household interest expenses (in percent of disposable income): 2017: 3.7; 2018: 3.7; 2019: 3.8; 2020: 4.0; 2021: 3.7; 2022: 4.3; 2023: 7.0

*Source: 1sweea2024001 - 49.      Staff recommends that the next Article IV consultation take place on the standard*

### Annex I. Implementation of Past IMF Advice

### Annex I. Implementation of Past IMF Advice

### Monetary Policy
- Recommendation: Continue to tighten monetary policy to forcefully tackle inflation and avoid policy surprises to help anchor inflation expectations.
- Authorities’ response:
  - The monetary tightening cycle that started in mid-2022 continued through 2023, with the Riksbank’s main policy rate increasing by an additional 150bps in 2023 to 4 percent.
  - The policy rate has remained unchanged since September 2023.

### Fiscal Policy
- Recommendation: A slightly contractionary stance will help support monetary policy efforts.
- Authorities’ response and assessment:
  - At the time the 2023 budget was adopted in 2022, it was estimated that it would be slightly contractionary and the overall fiscal stance to be neutral in 2023.
  - Based on latest data, the fiscal stance is estimated to have been mildly expansionary in 2023.
  - Fiscal policy is projected to move towards a more neutral stance in 2024, based on the authorities’ 2024 budget.
- Additional IMF advice and authorities’ responses:
  - IMF: A small deviation from the surplus target over the medium-term would allow for additional growth-enhancing infrastructure and social spending; gradually raise the low property taxes; lower the high labor tax wedge.
  - Authorities: A public inquiry to assess the appropriate level of the surplus target is ongoing. An inquiry into benefits reform, including reduction of labor taxation, is ongoing. Raising property taxes is not currently under consideration.

### Structural Reforms and Labor Market
- IMF recommendations:
  - Tackle education and skills gaps; increase efficiency of programs and regional services.
  - Raise incentives to work to further increase labor market participation.
  - Address housing market distortions by gradually easing rent controls and simplify building codes.
  - Complement the carbon tax with a higher supply of renewables.
- Authorities’ response:
  - Reforms ongoing, including early jobs and study grant of transition programs.
  - Public inquiries on productivity and incentives to work will inform a “work first principle.”
  - Government priorities include measures to increase access to buildable land and simplifying building regulations.
  - Reforms and proposals ongoing for renewables and support for charging infrastructure, clean vehicle premiums for low-emitting heavy trucks and other non-road electric vehicles and machines.

### Implementation of 2023 FSAP Recommendations (Annex II): Systemic Risk, Macroprudential, and Supervision
- Systemic risk analysis:
  - IMF recommendation: Employ structural models (household and CRE) to complement bank stress tests; develop tools to analyze contingent liquidity risks.
  - Status: FI has integrated structural models for CRE into bank stress tests and is working on integration for households; full integration pending new data availability.
- Investment funds liquidity management:
  - IMF recommendation: Require redemption terms aligned with portfolio liquidity; consider swing pricing and gates; provide liquidity stress test guidance.
  - Status: Swing pricing regulation introduced in July 2023; FI developed a liquidity stress test for investment funds; EU framework transposition into national law in 2026; broader review of national fund legislation planned.
- Interest-rate stress testing for mortgage applicants:
  - Recommendation: Introduce standards on interest-rate stress-tests.
  - Status: Banks already calculate a discretionary income including a stressed interest rate; FI has left credit assessment to banks; FI conducts yearly mortgage report stress-tests of new mortgagors.
- Mortgage interest tax deductibility:
  - Recommendation: Commission independent study on costs and benefits.
  - Status: No study commissioned; tax deductibility considered complex; government closely monitors developments.
- Capital requirements for CRE exposures:
  - Recommendation: Consider higher capital requirements and/or buffers for banks’ CRE exposures.
  - Status: Period over which risk weight floors on banks’ mortgage and CRE exposures apply extended by two years; measure replaces a previous Pillar II measure.
- CRE firms’ contingency funding transparency:
  - Recommendation: FSC, FI, and Riksbank to encourage disclosure of contingency funding plans.
  - Status: Real estate companies have increased transparency; Riksbank and FI communicate via Financial Stability Reports.

- Banking supervision and regulation:
  - Recommendation: Increase resources and improve supervisory toolkit (offsite monitoring, automation, manuals, risk dashboards).
  - Status: FI facing tighter budgetary constraints; banking department relaunched MePro in 2023; SREP process streamlined during 2023, continued work in 2024–2025; new risk-dashboard launched for banking modules; AML department introduced new methods.
  - Recommendation: Enhance supervision via more intrusive onsite inspections, IRB assessment, thematic reviews, focus on small high-risk institutions.
  - Status: FI uses a risk-based approach; review of IRB models ongoing with some bank withdrawal of applications; risks managed with P2R-add-ons; supervisory review process strengthened; increased focus on smaller high-risk institutions.
  - Climate-related risks:
    - Recommendation: Continue integrating climate-related risks into supervisory processes.
    - Status: FI communicated to category 1 and 2 banks to integrate climate-related stress tests in ICAAP; FI participating in international workgroups.
  - ML/TF and VASP oversight:
    - Recommendation: Strengthen supervision of banks and VASPs for ML/TF risks; collect more granular data.
    - Status: FI and Riksbank initiated collection of more granular data; FI allocated additional resources to crypto analysis and detection of unregistered VASPs; additional requirements on fitness and propriety and expanded legal mandate to issue penalties against unregistered VASPs introduced.

### Cyber Resilience
- Recommendations: Clarify roles and responsibilities for cyber security risk management; develop contingency plans and crisis protocols; enhance information sharing; establish database of essential service providers and outsourcing arrangements.
- Status:
  - National Cyber Security Center empowered; work on new national information and cyber security strategy started.
  - “Finansforum” framework used for information sharing and identification of vulnerabilities; development to continue during 2024/2025.
  - Government appointed a commission of inquiry to improve operational crisis management in financial sector disruptions.
  - Ministry of Finance allocating responsibilities for cyber security in the financial sector; FI appointed as authority responsible for the financial sector.
  - Several cyber incident simulation exercises conducted during the year.
  - Financial entities required to maintain and update a register of contractual arrangements on ICT services by Third Party Service Providers; technical standard at European level to be introduced in 2025.

### Financial Market Infrastructures (FMIs)
- Recommendation: Strengthen legal frameworks for weakly regulated FMIs to enforce PFMI compliance; strengthen oversight of key service providers Getswish and Finansiell ID-Teknik BID AB.
- Status:
  - Proposed legislation on clearing and settlement of payments introduced in parliament and would enter into law in 2024H2.
  - Getswish AB may apply for authorization under new legislation and would be subject to FI supervision if authorized.
  - The Riksbank now oversees Finansiell ID-Teknik BID AB and Getswish AB.

### Crisis Management, Resolution, and Safety Nets
- Watchlist and crisis identification:
  - Recommendation: Formalize watchlist process to identify banks at risk of failure.
  - Status: FI increased use of a watchlist and introduced a dashboard to identify banks at elevated risk of failure; banks on the watchlist face stricter supervision and authorities communicate where applicable.
- Resolution planning and MREL:
  - Recommendation: Ensure bank resolution plans fully operational; clarify MREL regulation; publish approach for bail-in and transfer tools.
  - Status: Resolution plans developed and refined continuously; guidance frameworks for bail-in introduced in December 2022; banks developed bail-in playbooks and initial assessments performed; new enhanced resolution plan format introduced; SNDO to strengthen operational preparedness for transfer strategies; current MREL policy deemed sufficiently clear though refinements for breaches of MREL remain open.
- Lender-of-last-resort and funding in resolution:
  - Recommendation: Publish policy framework describing lender of last resort bilateral liquidity facilities.
  - Status: Riksbank presents lender of last resort liquidity facilities on its webpage and collaborates with SNDO on shared resolution preparedness and public disclosure for funding in resolution.

### CBDC and Fintech
- Recommendations: Extensively test robustness and resilience of CBDC; analyze effectiveness of financial safeguards and impact on payments/financial system; facilitate exchange of information between Fintech firms and supervisors; collect additional data and review regulatory perimeter.
- Status:
  - A technical RFI included a robustness chapter; work ongoing on analysis of effectiveness of financial safeguards.
  - A detailed action plan for fintech supervision and data collection will be completed in 2024.

### External Sector Assessment (Annex III)
- Overall assessment:
  - Based on preliminary estimates for 2023, the external position is substantially stronger than the level implied by medium-term fundamentals and desirable policies, with an increase of the current account of about 0.3 percentage points.
  - The projected medium-term recovery is expected to bring the external balance down before stabilizing at its long-term average of about 4 percent, in the absence of policies for external rebalancing.
- Potential policy responses:
  - As inflation recedes, increase private and public investment in the green transition and the health sector to lower the external balance, meet climate goals, and prepare for demographic challenges.

- Foreign asset and liability position (2023 and assessment):
  - Net IIP is estimated to reach about 31.7 percent of GDP in 2023, an increase of about 0.8 percentage points.
  - Gross liabilities decreased to 250.5 percent of GDP in 2023, with more than half being gross external debt (172 percent of GDP).
  - Other financial institutions hold net foreign assets of 71.5 percent of GDP; Social Security Funds 20.1 percent of GDP; households 17 percent of GDP; the Riksbank 7 percent of GDP.
  - Net external debtors: non-financial corporations 31 percent of GDP; monetary financial institutions 42 percent of GDP; general government 2.4 percent of GDP.
  - 50 percent of the net IIP are in foreign currency.
  - Assessment: Net IIP expected to firm further; foreign currency assets almost three times foreign currency liabilities; IIP data subject to uncertainty with errors and omissions averaging over 2 percent of GDP in the past decade; rollovers of external debt pose vulnerability but moderated by banks’ liquidity and capital buffers; net IIP level and trajectory do not raise sustainability concerns.
  - 2023 (% GDP) key figures: NIIP: 31.7; Gross Assets: 282.2; Debt Assets: 86.3; Gross Liab.: 250.5; Debt Liab.: 126.5.

- Current account (2023 and assessment):
  - Background: Current account increased to 6.1 percent of GDP in 2023 from 5.8 percent of GDP in 2022, after revision up from 4.3, on the back of higher net exports of goods and services.
  - Gross savings decreased by 1.1 percentage point to 33.1 percent of GDP in 2023; gross investment decreased by 1.3 percentage points to 27 percent of GDP.
  - Sweden continues to be a net oil importer with the oil deficit estimated at -1  .2 percent of GDP.
  - Assessment: Cyclically adjusted current account estimated at 5.9 percent of GDP in 2023, 4.9 percentage points above the cyclically adjusted EBA norm of 1 percent of GDP.
    - Staff assesses the CA gap at 4.9 percent of GDP in 2023, with a model-estimated range of 4.5 to 5.3 percent of GDP (using the model’s standard error of ±0.4 percent of GDP).
    - Policies explaining the gap make up 0.8 percentage points, with fiscal policy accounting for 1.1 percent; health, reserves and credit gaps contributions accounting for -0.2, 0 and 0 percent, respectively.
    - Complementary EBA tools suggest Sweden’s pension system could explain about 1 percentage point of the gap.
  - 2023 (% GDP) key figures: CA: 6.1; Cycl. Adj. CA: 5.9; EBA Norm: 1; EBA Gap: 4.9; Staff Adj.: - ; Staff Gap: 4.9.

- Real exchange rate (REER) and valuation:
  - Background: In 2023, the krona depreciated by about 5 percentage points in real effective terms (OECD-ULC based) relative to its average index in 2022.
  - Assessment:
    - Staff CA gap implies a REER gap of -11.9 percent (applying an estimated elasticity of 0.37).
    - The REER index and level models suggest gaps of −16.6 percent and −16.8 percent, respectively, for 2023.
    - The ULC-based REER index using OECD data depreciated and was about 16.8 percent below its 30-year average (since the krona was floated in 1993) over the course of 2023.
    - IMF staff assesses the krona to be undervalued between -11.1 to -22.5 percent, with a midpoint of -16.8 percent as guided by the ULC-based REER index.

- Capital and financial account flows:
  - Background: Financial account increased by 5.7 percentage points in 2023 to 6.2 percent of GDP.
  - Change driven by portfolio investments from -3.7 to 1.9 percent of GDP and direct investments decreased from 2.6 to 2.4 percent of GDP.
  - Assessment: Large changes in capital flows common for large financial-sector countries; risk mitigated by strong regulation and supervision. FSAP assessment: banking system expected to be resilient to large liquidity shocks despite substantial wholesale funding share.

- FX intervention and reserves:
  - Background: Exchange rate is de facto floating. Foreign currency reserves broadly remained constant at USD 78.6 billion in 2023, equivalent to 15 percent of the short-term external debt of monetary and financial institutions, and about 3 months of imports.
  - The Riksbank launched a program to hedge the FX risk in its balance sheet in September 25 2023, following losses of about 1.4 percent of GDP in 2022.
  - Assessment: Despite floating regime, maintaining adequate foreign reserves is important given high dependence on wholesale funding in foreign currency; Riksbank can quickly establish swap facilities when necessary.

*Prepared by IMF staff based on inputs from country authorities.*

### Annex IV. Risk Assessment Matrix

### Annex IV. Risk Assessment Matrix

### Global Risks: Abrupt global slowdown or recession
- Likelihood: M
- Impact of Risk: High: "Being highly open, Sweden will be impacted by a more protracted global slowdown through weaker external demand. While bank balance sheets are strong,  severe deterioration in household and commercial real estate balance sheets will put pressure on bank capital,  triggering credit tightening, and induce negative spillovers   to other sectors."
- Contextual channels and triggers (as described):
  - U.S.: "Amid tight labor markets and/or commodity price shocks, inflation remains elevated, prompting the Fed to keep rates higher for longer and resulting in more abrupt financial, housing, and commercial real estate market correction, and 'hard landing.'"
  - Europe: "Intensifying fallout from the war in Ukraine, recurrent energy crisis and supply disruptions, and monetary tightening exacerbate economic downturns, and housing and commercial real estate market corrections."
  - China: "Sharper-than-expected slowdown in the property sector, unexpected fiscal tightening due to local government financing stress and decline in investment, and/or rising geopolitical tensions disrupt economic activity."
- Policy Response:
  - "Fully deploy automatic stabilizers to contain the economic downturn, and under severe downside scenarios use available fiscal space to provide well-targeted support. Stand ready to implement further policy support as needed."
  - "If the real estate correction appears to overshoot, support financial stability by maintaining the flow of credit and being ready to ease macroprudential requirements under severe downside scenarios."

### Global Risks: Deepening geoeconomic fragmentation
- Likelihood: H
- Impact of Risk: High: "Higher input costs, supply disruptions and changed trade patterns generate transition costs and may result in lower real incomes and lower firm profitability."
- Policy Response:
  - "In collaboration with partners, continue to support global cooperation and multilateralism. Step up the envisaged structural reforms to enhance flexibility and help sectors cope with shocks in a targeted manner."

### Global Risks: Cyberthreats
- Likelihood: H
- Impact of Risk: Medium: "Sweden is a highly digitalized economy, cyberattacks could significantly impair the functioning of the financial system and economy, in general."
- Policy Response:
  - "As per FSAP recommendations, clarify roles and responsibilities for cyber security risk management; develop contingency plans and crisis protocols for large-scale attacks; enhance information sharing among agencies and with the financial sector, such as through a permanent forum and regular cyber threat intelligence reports."

Note: "Based on the Global Risk Assessment as of July 2023. The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline ('low' is meant to indicate a probability below 10 percent, 'medium' a probability between 10 and 30 percent, and 'high' a probability between 30 and 50 percent)."

### Domestic Risks: Systemic financial instability
- Likelihood: M
- Impact of Risk: High: "Bank buffers are strong but would be adversely impacted if the ongoing correction in CRE sector is severe, resulting in a marked deterioration of collateral values and asset quality, thereby increasing provisioning and undermining credit supply."
- Policy Response:
  - "Monitor recent developments through better data collections and supervise banks commercial real estate lending closely."
  - "High bank profitability provides an opportunity to build capital buffers and stronger provisioning, without affecting credit supply."
  - "If the event materializes, macroprudential requirements can be eased to support banking system."
  - "Monetary policy should stand ready to change course to a more accommodative stance under severe scenarios with declining activity and inflation."

### Annex V. Leveraging Data to Enhance the Analysis of Risks to Financial Integrity

### Key findings from Sweden-tailored ML exercise
- Purpose and data:
  - The exercise "tailored for Sweden" used anonymized supervisory data made available by the banking supervisor and was "prepared by Grace Jackson, Pierre Bardin, Indulekha Thomas (Legal Department, IMF), and Antoine Bouveret (Short-Term Expert, IMF)."
  - Four money laundering events occurring in the Nordic Baltic region in 2018–2019 were chosen; one event directly affected a Swedish bank, others related to regional banks.
- Main empirical results:
  - "ML events affecting Swedish banks have been followed by a relative decline in liquidity for the affected bank due to deposit outflows, in particular from other financial corporations (OFCs), credit institutions and to a lesser extent non-financial corporates."
  - "Other domestic banks saw some increase in deposits around the event from same categories of depositors, suggesting that depositors moved out of the impacted banks towards other domestic banks (substitution effect)."
  - "Other ML cases with transnational dimension in the region affecting banks with headquarters in a neighboring country were associated with deposits outflows for Swedish banks known as having exposure to the region with which the ML cases were associated, indicating possible contagion effects."
- Broader interpretation:
  - "Failures or weaknesses in countries’ AML/CFT regimes can threaten financial sector stability. The adverse effects of ML and its predicate crimes are commonly channeled through the banking sector. In this context, the role of risk-based supervision is extremely important."
  - "The empirical literature on the impact of ML shocks on the banking sector is scarce."
- Policy and institutional recommendations:
  - "Further exploration of the impact of financial integrity failures on financial stability would result in a more accurate understanding of the exposures and support a more tailored response."
  - "This analysis should be supported through collaboration between AML/CFT supervisors, prudential supervisors, and financial stability experts within the respective agencies at national and regional levels."
  - "By deepening the analysis of the impact of financial integrity on financial stability, banks and supervisors will be better positioned to determine whether additional capital buffers are required."
  - "The authorities should look further into the possibilities of calibrating stress test scenarios featuring financial integrity failures/events and apply them where relevant to banks more vulnerable to such issues, relying among other factors on financial flow analysis (to better understand the threat) and the conclusions of the supervisory ML/TF risk assessment (to capture banks that are most vulnerable)."
- Note on authorities' actions:
  - "In this context, Finansinspektionen’s efforts to deepen the understanding and examination of this topic is welcome."

### Annex VI. Debt Sustainability and Sovereign Risk Assessment (DSA) — Summary points
- Overall assessment:
  - "Sweden: Risk of Sovereign Stress Overall...Low"
  - "Near term 1/ Medium termLowLow FanchartLowLow GFNLow Stress test... Long term LowLow"
  - "The overall risk of sovereign stress is low, reflecting a relatively low level of vulnerability in the near- and medium-term and low levels of vulnerability over the long-term horizon."
- Debt trajectories and scenarios:
  - "Debt stabilization in the baseline"
  - "Medium-term risks are assessed as low against a mechanical signal of low. Sweden's low debt levels and historical debt performance suggest that medium-term risk are low as debt is very likely to continue to decline over the medium term."
  - "Long-term risks are low. Only under the pension and health scenario would Sweden's debt increase substantially but even then it would remain below the EU Maastricht debt threshold of 60 percent."
  - "The recent pension reform, which links retirement age to 2/3 of life-expectancy, is going to ensure long-term sustainability of Sweden's fiscal position."
- DSA summary commentary:
  - "Sweden is at a low overall risk of sovereign stress and debt is sustainable. Off-budget financing of energy support and a largely balanced net lending position helped contain the increase in debt at 1% pp in 2023 amidst growth slowdown and increases in interest rates and inflation."
  - "The government's FX debt also decreased, as it ended the practice of FX borrowing from markets to lend-on to Riksbanken."
  - "Medium-term liquidity risks as analyzed by the GFN Financeability Module and Fanchart are low as well."
  - "Over the longer run, Sweden debt is also at low risk of stress and only under very conservative assumptions, as in the pension and health scenario, it is expected to increase substantially. However, even then debt is comfortably below the EU Maastricht debt of 60 percent of GDP."
- Notes:
  - "The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing."
  - "1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published."
  - "2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ('with high probability' or 'but not with high probability') is deleted before publication."

*Source: IMF staff calculations.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors

### Debt holdings and consolidation coverage
- Coverage color code presented: █ chosen coverage     █ Missing from recommended coverage     █ Not applicable.
- Holders and issuer reporting (values preserved as presented):
  - Budget. central govt: 59.8 77.9 32.0 58.1 65 39.9
  - Extra-budget. funds: 0.0
  - Social security funds: 0.7 0.7
  - State govt.: 0.0
  - Local govt.: 0.1 0.2 9.6 23.2 24 42.4
  - Nonfin pub. corp.: 251.9 251.9
  - Central bank: 99.0 0.0 0.0 0.099.0
  - Oth. pub. fin. corp: 99.8 99.8
  - Total: 99.9 0.0 60.0 0.0 78.0 n.a. 429.8 566.1 1233.7
- Notes and definitions included in source:
  - 1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.
  - 2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
  - 3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.
  - 4/ Includes accrual recording, commitment basis, due for payment, etc.
  - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation and subsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and other volume changes).
  - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.
  - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values.
- Commentary: In Sweden, the general government consist of the central government, the local government (which includes the regions and municipalities) and the social security funds.

### Public Debt Structure Indicators (figures & commentary)
- Perimeter shown: general government.
- Debt by currency (percent of GDP) — projection series shown for 2014–2032 with categories:
  - Foreign currency and Local currency (visual projection up to 2032).
- Public debt by holder (percent of GDP) — categories include:
  - External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank.
- Public debt by governing law, 2023 (percent) — categories include:
  - Domestic law, Foreign law ex. multilateral, Multilateral.
- Debt by instruments (percent of GDP) — categories include:
  - Debt securities, Loans, IPSGSs 3/, Currency & deposits.
- Public debt by maturity (percent of GDP) — categories:
  - ≤ 1 year, 1-5 years, > 5 years; residual maturity: 6. years; projection series shown.
- Commentary on FX debt:
  - "The share of FX debt in overall debt will steadily decline. This is due to the change how the Riksbank is financing its foreign reserves. Starting in 2021, the Riksbank has been gradually replacing reserves that are borrowed through the National Debt Office (which is in charge of central government debt issuances and planning) with direct purchases. With this change, the government announced to reduces its FX debt gradually to zero as debt matures. This will also change the maturity profile of pubic debt."
- Sources for indicators: Bloomberg; OECD; Swedish Authorities; and IMF staff calculations.

### Public DSA — Baseline Scenario (key projected values, all percent of GDP unless indicated)
- Actual and projected public debt path:
  - Public Debt: 34.0 (Actual 2023), 34.7 (2024), 34.3 (2025), 33.5 (2026), 32.5 (2027), 31.6 (2028), 30.8 (2029), 30.0 (2030), 29.2 (2031), 28.4 (2032), 27.4 (2033)
- Change in Public Debt: 1.2 (2024), 0.6 (2025), -0.4 (2026), -0.8 (2027), -1.0 (2028), -1.0 (2029), -0.8 (2030), -0.8 (2031), -0.7 (2032), -0.9 (2033), -1.0 (extension)
- Contribution of identified flows: -0.7 (2024), 0.0 (2025), -0.7 (2026), -0.9 (2027), -0.9 (2028), -0.9 (2029), -0.6 (2030), -0.6 (2031), -0.7 (2032), -0.7 (2033), -0.7 (extension)
- Primary deficit: -0.3 (2024), 0.3 (2025), 0.0 (2026), -0.5 (2027), -0.4 (2028), -0.4 (2029), 0.0 (2030 onward reported as 0.0)
- Noninterest revenues: 46.8 (2024), 47.0 (2025), 47.5 (2026), 48.5 (2027), 48.5 (2028), 48.5 (2029), 48.8 (2030–2033 repeated as 48.8)
- Noninterest expenditures: 46.5 (2024), 47.3 (2025), 47.5 (2026), 48.0 (2027), 48.1 (2028), 48.1 (2029), 48.8 (2030–2033 repeated as 48.8)
- Automatic debt dynamics: -1.4 (2024), -0.3 (2025), -0.7 (2026), -0.5 (2027), -0.5 (2028), -0.5 (2029), -0.5 (2030), -0.6 (2031), -0.7 (2032), -0.7 (2033), -0.7 (extension)
- Real interest rate and relative inflation: -1.6 (2024), -0.2 (2025), 0.1 (2026), 0.3 (2027), 0.2 (2028), 0.2 (2029), 0.1 (2030), 0.0 (2031–2033 repeated as 0.0)
- Real interest rate: -1.8 (2024), -0.2 (2025), 0.1 (2026), 0.3 (2027), 0.2 (2028), 0.2 (2029), 0.1 (2030), 0.0 (2031–2033)
- Relative inflation: 0.2 (2024), 0.0 (2025 onward reported as 0.0)
- Real growth rate: 0.1 (2024), -0.1 (2025), -0.8 (2026), -0.8 (2027), -0.7 (2028), -0.7 (2029), -0.7 (2030 onward)
- Other identified flows: 1.0 (2024), 0.0 (2025 onward reported as 0.0)
- Contingent liabilities: 1.0 (2024), 0.0 (2025 onward)
- Contribution of Residual: 1.9 (2024), 0.6 (2025), 0.4 (2026), 0.1 (2027), 0.0 (2028), -0.1 (2029), -0.2 (2030), -0.2 (2031), 0.0 (2032), -0.2 (2033), -0.3 (extension)
- Gross Financing Needs (GFN): 1.4 (2024), 4.4 (2025), 4.4 (2026), 3.7 (2027), 3.2 (2028), 3.4 (2029), 2.9 (2030), 2.6 (2031), 4.9 (2032), 4.0 (2033), 2.8 (extension)
  - of which: debt service: 1.1 (2024), 4.4 (2025), 4.9 (2026), 4.5 (2027), 4.0 (2028), 4.2 (2029), 3.3 (2030), 3.0 (2031), 5.3 (2032), 4.4 (2033), 3.2 (extension)
  - Local currency: 1.1 (2024), 3.9 (2025), 4.5 (2026), 3.7 (2027), 3.2 (2028), 3.7 (2029), 3.0 (2030), 2.8 (2031), 5.2 (2032), 4.2 (2033), 2.9 (extension)
  - Foreign currency: 0.0 (2024), 0.5 (2025), 0.4 (2026), 0.8 (2027), 0.7 (2028), 0.5 (2029), 0.3 (2030), 0.2 (2031), 0.1 (2032), 0.1 (2033), 0.2 (extension)
- Memo:
  - Real GDP growth (percent): -0.3 (2024), 0.2 (2025), 2.3 (2026), 2.2 (2027), 2.2 (2028), 2.2 (2029), 2.2 (2030), 2.2 (2031), 2.2 (2032), 2.2 (2033)
  - Inflation (GDP deflator; percent): 5.8 (2024), 2.9 (2025), 2.3 (2026), 2.0 (2027 onward reported as 2.0)
  - Nominal GDP growth (percent): 5.5 (2024), 3.1 (2025), 4.7 (2026), 4.3 (2027), 4.2 (2028 onward reported as 4.2)
  - Effective interest rate (percent): 0.0 (2024), 2.2 (2025), 2.5 (2026), 2.9 (2027), 2.5 (2028), 2.6 (2029), 2.5 (2030), 2.1 (2031), 1.9 (2032), 1.8 (2033)
- Staff commentary:
  - "After a slight increase in public debt in 2024 due to the projected growth slowdown and fiscal deficit, public debt is expected to decrease gradually due to a favorable growth dynamics and the assumption of continuing small primary surpluses until 2028 which is in line with the fiscal surplus target. After 2028 it is assumed that the authorities will adjust the surplus target to zero."

### Realism of Baseline Assumption (forecast track record & realism analysis)
- Forecast track record horizons: t+1, t+3, t+5 with comparator group percentiles indicated by color code.
- Key indicators examined: Public debt to GDP, Primary deficit, r - g, Exchange rate depreciation, Historical Output Gap Revisions.
- Commentary: "Realism analysis does not point to major concerns: the projected fiscal adjustment and debt reduction are well within norms and slightly lower than in the past 5 years due to conservative assumptions."
- Illustrative percentile and distribution metrics noted (figures and distributions presented; no additional numeric summary beyond figures in source).

### Medium-Term Risk Analysis (indices, probabilities, and exposures)
- Debt FanChart and GFN Financeability Index indicators (values reproduced as in source):
  - Fanchart width: 26.1 0.4
  - Probability of debt not stabilizing (pct): 11.6 0.1
  - Terminal debt level x institutions index: 4.5 0.1
  - Debt fanchart index: ... 0.6
  - Average GFN in baseline: 3.7 1.2
  - Bank claims on government (pct bank assets): 3.6 1.2
  - Chg. in claims on govt. in stress (pct bank assets): 0.5 0.2
  - GFN financeability index: ... 2.6
  - G F N financeability index (additional): 7.6 0.1, Low...0.3, 2.1 17.9 0.5 0.0 0.4 1.1 0
- Probabilities regarding crisis prediction (2024-2029):
  - Prob. of missed crisis, 2024-2029 (if stress not predicted): 0.0 pct.
  - Prob. of false alarm, 2024-2029 (if stress predicted): 93.2 pct.
- Commentary:
  - "Both medium-term tools point to low level of risk; the Debt Fanchart Module and the GFN Financeability Module show that debt is on a declining path."
  - Banking sector context: "The size of Sweden's banking sector (about 300 percent of GDP) exposes the government to significant contingent liability risks, however, banks have thus far weathered well the tightening of financial conditions, reflecting the strength of banking supervision and macroprudential policies. Also due to well functioning resolution system, it is very unlikely for the government to assume 10 percent of banking sector assets as a liability."
- Stress test notes: banking sector stress test manually triggered by staff to assess risk from an extremely severe bank stress scenario.

### Long-Term Risk Analysis (scenarios and demographic/climate sensitivities)
- Long-term projections and risk indications across scenarios:
  - Variables highlighted: GFN-to-GDP Ratio, Total Public Debt-to-GDP Ratio, Real GDP growth, Primary Balance-to-GDP, Nominal depreciation, Inflation (GDP deflator).
  - Baseline medium-term extrapolation values and customized scenarios presented with comparisons to historical 10-year averages and scenarios with DSPB (Debt Stabilizing Primary Balance).
- Demographics — Pension:
  - Permanent adjustment needed in the pension system (pp of GDP per year) to keep pension assets positive:
    - 0.00% for 50 years
    - 0.42% until 2100
    - 1.06% for 30 years
- Demographics — Health:
  - Scenarios include Health (Demographics) and Health (Demographics + ECG), where ECG = Excess Health Care Growth (difference between avg. health care cost cpi and cpi).
- Climate change — Adaptation:
  - Scenarios: With climate adaptation (standardized scenario) and With climate adaptation (customized scenario).
  - Customized scenario assumes an additional increase in the primary balance by 0.1 percentage point over the forecast horizon.
- Overall indication: graphical projections show relative magnitudes of long-run risks under pension, health, and climate scenarios compared to baseline; numeric scenario inputs preserved as presented.

### Data, reporting, and statistical notes
- Assessment of data adequacy:
  - "Data provision is adequate for surveillance. The country has a full range of statistical publications, many of which are on the internet. The quality and timeliness of the economic database are generally very good."
- Data standards and methodologies:
  - Subscriber to SDDS Plus since February 11, 2015.
  - National Accounts: ESA 2010 since September 2014.
  - Government Finance Statistics: compiled on an accrual basis according to the ESA 2010 methodology; IMF GFS datasets cover general government operations and financial balance sheet.
  - External Sector Statistics: BPM6 format since December 2014.
  - Monetary statistics: based on the ECB framework.
  - Financial Soundness Indicators: reported from 2005 up to 2023Q2.
- Table of Common Indicators Required for Surveillance (as of February 8, 2024) — selected latest observation dates and frequencies preserved:
  - Exchange Rates: 2024/02/08 (Date received 2024/02/08) — Frequency D/D/D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 2023: Q3 (Date received 2023/12) — Frequency Q/Q/Q
  - Reserve/Base Money: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - Broad Money: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - Central Bank Balance Sheet: 2024:M01 (Date received 2024/02) — Frequency M/M/M
  - Consolidated Balance Sheet of the Banking System: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - Interest Rates: 2024/02/08 (Date received 2024/02/08) — Frequency D/D/D
  - Consumer Price Index: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - Revenue, Expenditure, Balance and Composition of Financing — General Government: 2023 (Date received 2024/02) — Frequency A/A/A
  - Revenue, Expenditure, Balance, and Composition of Financing — Central Government: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - Stocks of Central Government and Central Government-Guaranteed Debt: 2023:M12 (Date received 2024/02) — Frequency M/M/M
  - External Current Account Balance: 2023: Q3 (Date received 2023/12) — Frequency Q/Q/Q
  - Exports and Imports of Goods and Services: 2023: Q3 (Date received 2023/12) — Frequency Q/Q/Q
  - GDP: 2023: Q4 (Date received 2024/02) — Frequency Q/Q/Q
  - Gross External Debt: 2023: Q3 (Date received 2023/12) — Frequency Q/Q/Q
  - International Investment Position: 2023: Q3 (Date received 2023/12) — Frequency Q/Q/Q

*Prepared by European Department; sources: Bloomberg; OECD; Swedish Authorities; and IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1sweea2024001.pdf_