## 1sweea2025001-print-pdf ## Source details **Canonical URL:** [1sweea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1sweea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1sweea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1sweea2025001-print-pdf.pdf.json) --- ### Context and Recent Developments - Macro: - Real GDP growth: 1 percent in 2024 (after a 0.1 percent contraction in 2023). - Unemployment rate averaged 8.4 in 2024, "more than 1 percentage point (pp) to above its long-term average (7.5 percent)." - Negative output gap widened in 2024 despite resilient exports and public consumption. - Private investment contracted for a second consecutive year in 2024; households continued to deleverage. - Inflation and wages: - CPIF inflation: 2.2 percent y/y in January 2025 (from 6 percent on average in 2023). - Core inflation (CPIF excluding energy): 2.7 percent in January 2025. - Services inflation: 3.9 percent y/y. - Nominal wages rose an estimated 3.5 percent in 2024; real wage growth turned positive in 2024 on an annual basis. - Financial conditions: - Riksbank policy rate lowered by a cumulative 175 bps to 2.25 percent since May 2024. - MFI credit to the private sector contracted in real terms for a second year in a row. - All measures of the credit gap remained in negative territory as of 2024Q2. - House prices fell for a second year in a row (about 10–19 percent from their peak depending on the data source). - External and fiscal: - Current account surplus: 7.4 percent of GDP in 2024. - NIIP improved to 66 percent of GDP in 2024. - General government fiscal deficit widened to 1.7 percent of GDP in 2024 from 0.8 percent of GDP in 2023. - Structural balance: weakened from -0.6 percent of GDP in 2023 to -0.8 percent of GDP in 2024. - Public debt: 32.6 percent of GDP (below the debt anchor of 35 percent of GDP). - Key 2024 budget measures (Billion of SEK; Percent of 2024 GDP): - Increase in government grants to municipalities and regions: 22.0; 0.3 - Reduced tax on petrol and diesel: 5.8; 0.1 - Tax reduction for low- and middle-income earners: 11.0; 0.2 - Paused upward adjustment of state income tax threshold: -12.3; -0.2 - Other: 29.5; 0.5 - Total: 56.0; 0.9 - o/w 2024 Budget Bill: 38.7; 0.6 - o/w 2024 Amending Budget: 17.3; 0.3 - Memorandum items: Support to Ukraine: 2.5; 0.4; Capital injection to the Riksbank: 2.5; 0.4 ### Outlook and Risks - Growth and inflation projections: - GDP growth: 1.9 percent in 2025; 2.2 percent in 2026; 1.7 percent over the medium term. - Potential GDP growth: around 1½–1¾ percent. - Positive fiscal impulse: about 0.2 pp of potential GDP in 2025 included in the outlook. - Inflation: slightly above 2 percent in 2025 before stabilizing around the 2 percent target by 2026. - Output gap: expected to close by 2030. - Key quantitative projections (selected series, percent change unless stated): - Real GDP: 2022: 1.5; 2023: -0.1; 2024: 1.0; 2025: 1.9; 2026: 2.2; 2027: 1.9; 2028: 1.7; 2029: 1.7; 2030: 1.7. - HICP inflation (average): 2022: 8.1; 2023: 5.9; 2024: 2.0; 2025: 2.1; 2026–2030: 2.0 each year. - Unemployment rate (percent): 2022: 7.5; 2023: 7.7; 2024: 8.4; 2025: 8.2; 2026: 8.0; 2027: 7.9; 2028: 7.7; 2029: 7.6; 2030: 7.5. - Risks: - Downside risks to growth; two-sided risks to inflation. - External: intensified geopolitical tensions and geoeconomic fragmentation, trade policy uncertainty, commodity price volatility. - Domestic: slower recovery of household consumption; subdued domestic demand could lead inflation to undershoot target beyond 2025, while global shocks or krona depreciation could push inflation higher. ### Monetary Policy and Central Bank Framework - Policy stance and communication: - Monetary policy eased to the midpoint of the estimated neutral range; Riksbank forward guidance points to no further cuts but readiness to act if outlook changes. - Riksbank neutral range (2024): nominal neutral range lowered by 1pp to 1.5–3 percent, midpoint 2.25 percent. - Medium-term inflation expectations remain anchored; monetary policy should stay agile and react quickly to double-sided inflation risks. - Balance sheet and recapitalization: - Pace of quantitative tightening appears adequate; holdings of securities halved since end-2022. - Sales expected to conclude in end-2025; Riksbank will maintain a long-term portfolio of nominal government bonds of SEK20 billion (0.3 percent of GDP). - FX hedge against exchange rate risk remains in place; exchange rate retains two-way flexibility. - Riksbank Act amendments: interest-free deposits by credit institutions when Riksbank equity falls below target; deposit requirement intended in second half of 2025 may save up to SEK700–1,000 million annually (at current interest rates)—about two-thirds of the Riksbank’s operational costs over the past 5 years, or 0.02 percent of RWA. - Under previous Act, a required capital injection of SEK44 billion (0.7 percent of GDP) in 2024 to reach SEK60 billion target; parliament approved SEK25 billion (0.4 percent of GDP). - Amendments grant option rather than obligation to seek recapitalization; Riksbank should monitor impacts on credit institutions and adjust parameters as needed. ### Financial Sector Soundness, Macroprudential, and NBFIs - Banking system resilience: - CET1 capital ratios: remain above the 15.5 percent regulatory requirement; largest banks about 18 percent. - Average leverage ratio: above the 3 percent minimum requirement. - Liquidity Coverage Ratio and liquid asset ratios have increased (Liquid assets to total assets: 2024: 27.9). - Regulatory capital to RWA: 2024: 23.4; Regulatory tier 1 capital to RWA: 2024: 21.1. - Return on assets: 2024: 0.9. - Customer deposits as percent of total (non-interbank) loans: 2024: 57.1. - Systemic vulnerabilities: - Main macrofinancial vulnerabilities: significant exposures to concentrated and indebted CRE sector, and high household leverage. - Household indicators: - About two-thirds of Swedish household mortgages carry variable interest rates. - Aggregate DTI ratio peaked in 2022; total household debt (percent of GDP): 2024: 85.5. - Total household debt (percent of disposable income): 2024: 179.3. - Household interest expenses (percent of disposable income): 2024: 7.2. - Increase in households seeking debt restructuring in 2023–24, particularly consumer loans. - CRE sector: - Firms strengthened balance sheets via divestments, equity injections, restructurings; operating profits increased due to indexation. - Rising vacancy rates and high roll-over needs remain concerns. - Banks raised exposure to CRE in 2022–23. - NBFIs and investment funds: - Direct and indirect exposures to CRE firms: about 13 percent of total pension and insurance assets. - Ten largest corporate bond funds collectively own about 15 percent of outstanding stock. - 2023 FSAP stress tests: most funds can withstand severe redemption shocks, but up to a quarter could face liquidity shortfalls. - Macroprudential settings and recommendations: - CCyB maintained at neutral level of 2 percent since mid-2023. - Risk weight floors for mortgages (25 percent) and CRE (35 percent) kept at least until 2027. - FSA reciprocated Danish sectoral SyRB of 7 percent on exposures to real-estate companies in Denmark. - Continue momentum in adopting 2023 FSAP recommendations. - Maintain macroprudential policy settings as structural vulnerabilities remain high. - Consider introducing a consolidated credit registry to better monitor household indebtedness. - Improve corporate bond market liquidity and enhance CRE firms’ disclosures. - Be ready to deploy policy space (including fiscal) if downside risks materialize. ### Macroprudential Policy and Borrower-Based Measures (BBMs) - Stance: - Macroprudential policy settings should remain at current level until risks materially subside. - CCyB level appropriate given elevated systemic risks; extension of risk weight floors until 2027 welcome. - If downside risks materialize and credit constraints bind, authorities could consider lowering the CCyB. - Over the medium term, consider higher capital requirements for banks’ CRE exposures. - BBMs and household indebtedness: - Maintain current set of BBMs that reduced new household borrowing and purchase prices for those affected. - Amortization requirements fostered an amortization culture. - Evidence of households topping up mortgages with riskier uncollateralized loans. - Drivers of high household debt: limited housing supply, tax system encouraging indebtedness (interest rate deductibility), poorly functioning rental markets pushing younger households into owner-occupation earlier. - Housing and tax structural reforms recommended: - Increase housing supply: remove rent controls, simplify building codes, ease regulatory burden for new construction. - Further target/reduce tax deductibility of interest payments; commission independent study on costs and benefits of mortgage interest deductibility. - Improve property taxation. - Contextual numeric detail: Sweden has the third lowest marginal effective tax rate of around -30 percent for owner-occupied debt-financed housing in the OECD. ### Fiscal Policy, Budget 2025 and Public Debt Dynamics - Fiscal stance: - Fiscal stance moderately expansionary in 2024; 2025 budget also moderately expansionary and appropriate given negative output gap. - Balanced-budget target adopted for 2027–34 fiscal framework, replacing surplus target of 0.33 percent of GDP over the cycle. - Debt anchor for gross public debt remains at 35 percent of GDP. - 2025 budget selected measures (SEK; percent of 2024 GDP; figures include multi-year values where noted): - Increased earned income tax credit and reduced tax for pensioners: 13.5 billion SEK; 0.2 percent of 2024 GDP; 13.5 billion SEK in 2026–27. - Eliminated gradual reduction of earned income tax credit and basic income tax allowance for pensioners: 4.7 billion SEK; 0.1 percent of 2024 GDP; 4.7 billion SEK in 2026–27. - Tax-free level for savings in ISK and in endowment insurance: 4.4 billion SEK; 0.1 percent of 2024 GDP; 7.0 billion SEK in 2026–27. - Reduced tax on petrol and diesel: 3.2 billion SEK; 0.0 percent of 2024 GDP; 5.7 billion SEK in 2026–27. - Phase-out of tax deductions for unsecured loans: -4.3 billion SEK; -0.1 percent of 2024 GDP; -8.7 billion SEK in 2026–27. - New research and innovation bill: 1.5 billion SEK; 0.0 percent; 2.5 billion SEK in 2026–27. - New financial frameworks for transport infrastructure 2026–2037: 6.0 billion SEK; 8.0 (percent of 2024 GDP noted in table header context). - Defense and public security: 10.0 billion SEK; 0.2 percent of 2024 GDP; 14.6 billion SEK in 2026–27; total over period 32.2 billion SEK. - Health care: 10.9 billion SEK; 0.2 percent of 2024 GDP; 11.7 billion SEK in 2026–27; total 11.9 billion SEK. - Others: 16.8 billion SEK; 0.3 percent of 2024 GDP; 10.8 billion SEK in 2026–27; total 13.3 billion SEK. - Total: 60.7 billion SEK; 0.9 percent of 2024 GDP; 67.6 billion SEK in 2026–27; total 91.6 billion SEK. - Financing: measures financed within available fiscal space and through spending reprioritization. - Fiscal projections and public debt path (selected): - General government net lending / borrowing (billions of SEK): 2022: 58; 2023: -52; 2024: -111; 2025: -97; 2026: -52; 2027: -3; 2028: -30. - Gross public debt (percent of GDP): 2024: 32.6; 2025: 33.7; 2026: 33.9; 2027: 33.2; 2028: 32.6; 2029: 31.8; 2030: 30.9. - Structural balance (percent of potential GDP): 2024: -0.8; 2025: -1.1; 2026: -0.6; 2027: 0.1; 2028–2030: 0.0. - Fiscal impulse (+ expansionary): 2024: 0.2; 2025: 0.2; 2026: -0.5; 2027: -0.7; 2028: 0.1. - Memo nominal GDP (billions of SEK): 2024: 6,448; 2025: 6,706; 2026: 6,988; 2027: 7,266; 2028: 7,538; 2029: 7,819; 2030: 8,111. - DSA baseline projections (Public Debt percent of GDP): - 2024: 32.6; 2025: 33.7; 2026: 33.9; 2027: 33.2; 2028: 32.6; 2029: 31.8; 2030: 30.9; 2031: 30.0; 2032: 29.1; 2033: 28.2; 2034: 27.3. - Staff commentary: - Public debt projected to rise in 2024 due to weaker growth and higher fiscal deficit; subsequently decline gradually as growth picks up and fiscal deficit returns to surplus target. - Simulations indicate gross public debt would rise over time to slightly below 40 percent of GDP by 2050 under the balanced budget rule, remaining within the 30 to 40 percent of GDP debt anchor range. - Medium-term risk signals indicate low risk but note banking sector size (~300 percent of GDP) exposes government to contingent liability risks. ### Structural Policies, Productivity and Climate - Productivity Commission (appointed 2023): - Interim report submitted April 2024; final report expected October 2025. - Selected reforms proposed: simplify and harmonize regulations; improve housing market (shorten planning/permitting, free rent setting for new construction); maintain transportation infrastructure; enhance education outcomes; pilot extending semester/shortening summer holidays in primary schools. - Domestic reform priorities to revive labor productivity: - Simplify and harmonize regulations, improve housing and rental market functioning, raise educational outcomes (especially among immigrants), address skill mismatches, upskill/reskill labor force, maintain transport infrastructure, deepen R&D-commercialization linkages, support venture capital and SME access to capital. - Climate targets and commitments: - Net-zero by 2045; require GHG emissions at least 85 percent below 1990 level. - Interim EU ESR targets for Sweden: emissions at least 63 and 75 percent lower than in 1990 in 2030 and 2040, respectively; domestic transportation emissions at least 70 percent lower than 2010 levels; net removals within LULUCF to increase by about 4 million tons compared to 2016–18 level. - Authorities expect current policies will meet ESR commitments by a small margin but significant uncertainty exists; 2025 Budget Bill scenario relies on assumptions including sufficient fossil-free electricity production and limited demand response to energy tax cut. ### BBM Inquiry and Mortgage Market Proposals - Background BBMs (as implemented): - LTV ceiling for mortgages: 85 percent (2010). - Amortization requirements introduced: tiered rates culminating in additional amortization for high LTI borrowers (2016, 2018). - Flexibilities: exemptions for new construction, agricultural properties, temporary exemptions for illness/unemployment, pandemic pauses. - 2023 public inquiry proposals (single package in two stages): - Raise LTV ceiling from 85 to 90. - Streamline amortization requirements into a single and lower amortization rate of 1 percent for mortgages with LTVs above 50 percent (removes higher-rate tiers). - Introduce an LTI ceiling of 550 percent (with a 10 percent flexibility allowance noted in source). - Committee notes short-term increase in mortgage debt and house prices, longer-term benefits via higher housing supply and improved access. - Staff recommendation on BBMs: - Maintain the set of BBMs given their effectiveness; continue to monitor for evidence of topping-up via uncollateralized loans and consider data improvements to refine policy. ### Data, Supervision, and Implementation of FSAP Recommendations - Data adequacy and gaps: - Sweden adheres to SDDS Plus since February 2015. - Staff overall conclusion: data produced by Statistics Sweden, Riksbank, Ministry of Finance, Finansinspektionen adequate for surveillance. - Persistent data gap: granular household assets and liabilities data (latest granular household asset data from 2012); authorities collecting subsample data; further work encouraged. - Supervision and FSAP follow-up: - Significant progress on 2023 FSAP recommendations: refined and increased frequency of stress tests on CRE; stress tests on investment funds and Nasdaq Clearing; swing pricing regulation introduced July 2023; liquidity stress tests developed for investment funds; integration of climate risks into supervisory process; database of essential service providers created; Fintech data collection efforts launched. - Remaining actions: commission independent study on mortgage interest deductibility (not yet commissioned); continue review of IRB models and capital add-ons where necessary; continue integrating FSAP recommendations and enhance macroprudential framework for NBFIs in cooperation with EU. - Crisis management and cyber resilience: - FI introduced watchlist and dashboard; KRI system launched in 2024; internal crisis handbook in development. - Cybersecurity: National Cyber Security Center reorganization; Finansforum information sharing; DORA implementation and reporting of critical ICT services required. - Payments and CBDC: - Riksbank to join Eurosystem T2 platform in 2025 and planning TS2 participation. - Final report of e-krona pilot released in 2024; parliament concluded in 2023 there is currently insufficient need for a CBDC. ### Risk Assessment Matrix (selected high-likelihood/high-impact items and responses) - Trade policy and investment shocks: Likelihood H; Impact Medium. - Policy response: support global cooperation and multilateralism; step up structural reforms; allow automatic stabilizers; adjust monetary policy depending on inflation outlook; support EU single market. - Deepening geoeconomic fragmentation: Likelihood H; Impact High. - Policy response: similar to above; strengthen EU single market. - Sovereign debt distress: Likelihood H; Impact Medium/Low. - Policy response: allow automatic stabilizers; use fiscal space for targeted support under severe scenarios. - Cyberthreats: Likelihood H; Impact Medium. - Policy response: invest in cyber resilience; strengthen operational resilience and supervision; contingency planning. - Domestic systemic financial instability (CRE correction): Likelihood M; Impact High. - Policy response: intensify monitoring of banks’ balance sheets; relax macroprudential requirements if adverse events occur; allow monetary policy to be accommodative if demand declines significantly. ### Staff Appraisal and Key Policy Recommendations - Macro: - Neutral monetary policy stance appropriate; monetary policy should remain agile and communicate clearly. - Moderately expansionary fiscal stance in 2025 appropriate given negative output gap; allow automatic stabilizers to operate and target support if downside risks materialize. - Financial stability: - Maintain current CCyB at 2 percent and risk weight floors through 2027. - Maintain BBMs; consider consolidated credit registry and improve household-level data; prepare contingency plans and crisis playbooks for CRE deterioration. - Consider medium-term higher capital requirements for banks’ CRE exposures if risks persist. - Structural reforms: - Prioritize housing supply, rental market reform, tax reform related to mortgage interest deductibility, property taxation improvements, education and skills policies, R&D commercialization, and measures to strengthen the EU single market. - Implementation: - Continue implementing 2023 FSAP recommendations; deepen NBFI macroprudential framework within EU cooperation; strengthen AML/CFT measures and data sharing. *Source: 1sweea2025001-print-pdf — IMF staff report excerpts and annexes as provided in the supplied content.* ### 2025. The mission team included S. Pelin Berkmen (head), Luisa ### SWEDEN ### Context and Recent Developments - Sweden is described as "a strong and resilient economy with the capacity to face the rising challenges." - Recent activity and labor market: - Real GDP growth picked up to 1 percent in 2024 (after a 0.1 percent contraction in 2023). - Unemployment rate averaged 8.4 in 2024, "more than 1 percentage point (pp) to above its long-term average (7.5 percent)." - Negative output gap widened in 2024 despite resilient exports and public consumption. - Private investment contracted for a second consecutive year in 2024; households continued to deleverage. - Inflation and wages: - CPIF inflation fell to 2.2 percent y/y in January 2025 from 6 percent on average in 2023. - Core inflation (CPIF excluding energy) was 2.7 percent in January 2025. - Services inflation at 3.9 percent y/y. - Nominal wages rose an estimated 3.5 percent in 2024; real wage growth turned positive in 2024 on an annual basis. - Financial conditions: - Riksbank policy rate lowered by a cumulative 175 bps to 2.25 percent since May 2024. - MFI credit to the private sector contracted in real terms for a second year in a row. - All measures of the credit gap remained in negative territory as of 2024Q2. - House prices fell for a second year in a row (about 10–19 percent from their peak depending on the data source). - External position and exchange rate: - Current account surplus increased to 7.4 percent of GDP in 2024. - CPI-based REER was 1.4 percent above 2023. - NIIP improved to 66 percent of GDP in 2024. - Krona depreciated by 0.6 percent y/y in real effective terms (OECD ULC-based) in 2024 relative to 2023, resulting in an undervaluation of about 8 to 22 percent. - Fiscal developments: - General government fiscal deficit widened to 1.7 percent of GDP in 2024 from 0.8 percent of GDP in 2023. - Structural balance weakened from -0.6 percent of GDP in 2023 to -0.8 percent of GDP in 2024. - Public debt at 32.6 percent of GDP, below the debt anchor of 35 percent of GDP. - Main 2024 budget measures (Billion of SEK; Percent of 2024 GDP): - Increase in government grants to municipalities and regions: 22.0; 0.3 - Reduced tax on petrol and diesel: 5.8; 0.1 - Tax reduction for low- and middle-income earners: 11.0; 0.2 - Paused upward adjustment of state income tax threshold: -12.3; -0.2 - Other: 29.5; 0.5 - Total: 56.0; 0.9 - o/w 2024 Budget Bill: 38.7; 0.6 - o/w 2024 Amending Budget: 17.3; 0.3 - Memorandum items: Support to Ukraine: 2.5; 0.4; Capital injection to the Riksbank: 2.5; 0.4 - Financial sector soundness and macroprudential: - CET1 capital ratios remain above the 15.5 percent regulatory requirement; largest banks at about 18 percent. - Average leverage ratio above the 3 percent minimum requirement. - FSA maintained the CCyB rate at its neutral level of 2 percent since mid-2023. - Risk weight floors for mortgages (25 percent) and commercial real estate (35 percent) set to be kept at least until 2027. - FSA reciprocated Danish sectoral SyRB of 7 percent on exposures to real-estate companies in Denmark. ### Outlook and Risks - Growth and inflation projections: - GDP growth projected to rise to 1.9 percent in 2025 and to 2.2 percent in 2026, settling at 1.7 percent over the medium term. - Potential GDP growth estimated at around 1½–1¾ percent. - A positive fiscal impulse of about 0.2 pp of potential GDP in 2025 is incorporated into the outlook. - Inflation projected to be slightly above 2 percent in 2025 before stabilizing around the 2 percent target by 2026. - Output gap expected to close by 2030. - Risks: - Downside risks to growth, balanced risks to inflation. - External risks: intensified geopolitical tensions and geoeconomic fragmentation, trade policy uncertainty, commodity price volatility. - Domestic risks: slower recovery of household consumption could pose additional downside risks. - Inflation risks: could undershoot target beyond 2025 if domestic demand remains subdued; global shocks or krona depreciation could push inflation higher than expected. ### Policy Implications and Noted Developments - Monetary policy: - Easier monetary stance (policy rate reduced to 2.25 percent) supports recovery; lower rates have contributed to easing financial conditions. - Fiscal policy: - Fiscal stance was moderately expansionary in 2024; balanced-budget target adopted for the 2027–34 fiscal framework, replacing the surplus target of 0.33 percent of GDP over the cycle. - Debt anchor for gross public debt remains unchanged. - Simulations indicate gross public debt would rise over time to slightly below 40 percent of GDP by 2050 under the balanced budget rule, remaining within the 30 to 40 percent of GDP debt anchor range. - Financial stability and macroprudential stance: - Macroprudential settings judged appropriate: CCyB at 2 percent, risk weight floors maintained, reciprocation of relevant foreign SyRBs where materiality thresholds met. - Guidance expected from authorities on future BBMs settings for mortgage lending following a public inquiry into effectiveness. _Italic: IMF mission team and document details as provided in the source content._ ### 12. Sweden is vulnerable to geoeconomic fragmentation and trade policy uncertainty. ### 12. Sweden is vulnerable to geoeconomic fragmentation and trade policy uncertainty. ### Key vulnerabilities and trade exposure - Trade openness rose to over 100 percent in 2023 from about 40 percent in the 1980’s. - Exports composition: chemicals, machinery, motor vehicles, electronics, commodities, and services. - Sweden is dependent on foreign inputs sourced globally. - An escalation of global protectionist policies would: - raise the cost of inputs and negatively impact exports (differently across sectors); - dampen consumer and business sentiment in the near term; - if persistent, reduce productivity and growth in the medium term. - The implementation of ETS2 is projected to increase headline inflation of about 0.06 pp in 2027. - The new collective wage bargaining round is expected to settle at around 3.5 percent for the next two years. ### Authorities’ views and macro outlook - Authorities shared staff’s assessment: signs of an economic rebound, but overall activity remains weak. - Real GDP growth is expected to pick up this year, and further accelerate in 2026 on the back of policy support. - External risks cited: increased trade barriers and geoeconomic fragmentation; fiscal policy uncertainty in other AEs that could cause financial market volatility; Russia’s war against Ukraine; tensions in the Middle East. - Domestic risks: recovery depends on the strength of private consumption; a depreciation of the currency could result in higher-than-anticipated inflation. - Authorities agreed with preliminary external assessment results indicating the currency is undervalued. ### Monetary policy - Monetary policy stance: - Monetary policy has appropriately eased to the midpoint of the estimated neutral range. - The Riksbank’s forward guidance points to no further interest rate cuts but it is prepared to act if inflation or activity outlook changes. - Both staff and the authorities estimate the ex-ante real policy rate to be within the neutral range. - Riksbank neutral range (2024): nominal neutral range lowered by 1pp to 1.5–3 percent, with a midpoint of 2.25 percent. - Communication and tools: - Medium-term inflation expectations remain anchored. - Monetary policy should stay agile and react quickly to double-sided inflation risks. - The Riksbank’s scenario analysis and publication of associated interest paths are important communication tools. - Balance sheet and quantitative tightening: - The pace of quantitative tightening appears adequate; holdings of securities have halved since end-2022. - Sales are expected to conclude in end-2025, by when the Riksbank will maintain a long-term portfolio of nominal government bonds of SEK20 billion (0.3 percent of GDP). - The FX hedge against exchange rate risk remains in place with no parameter changes; the exchange rate retains two-way flexibility. - Riksbank Act amendments and recapitalization framework: - The Act was amended to introduce interest-free deposits by credit institutions at the central bank when its equity falls below the target level. - The Riksbank intends to introduce the deposit requirement in the second half of 2025 potentially saving up to SEK700–1,000 million annually in interest costs (at current interest rates)—about two-thirds of the Riksbank’s operational costs over the past 5 years, or 0.02 percent of RWA. - Under the previous Central Bank Act, the Riksbank was required to petition parliament for a capital injection of SEK44 billion (0.7 percent of GDP) in 2024 to achieve a target capital of SEK60 billion; parliament approved SEK25 billion (0.4 percent of GDP). - The amendments grant the Riksbank the option rather than the obligation to seek recapitalization; the Riksbank should monitor impacts on credit institutions and adjust parameters as needed. - Authorities’ view on monetary policy: - Authorities concurred that monetary policy must be agile. - Inflationary pressures are in line with the 2 percent target and expected to remain close to target. - Monetary policy stance is broadly neutral; lower interest rates gradually support domestic demand. - The Ministry of Finance reiterated strong support for the Riksbank’s operational independence; power to recapitalize rests with parliament. ### Financial sector policies and systemic vulnerabilities - Systemic risk overview: - While subsiding, systemic risks remain elevated. - Main macrofinancial vulnerabilities: significant financial sector exposures to the concentrated and indebted CRE sector, and high household leverage. - CRE sector cross-ownership structures and lack of granular data limit visibility into interlinkages with the financial system. - Households: - About two-thirds of Swedish household mortgages carry variable interest rates. - Average DSTIs surged during the high-interest rate period and remained elevated through 2024Q3, but are expected to decline with monetary easing. - The aggregate DTI ratio peaked in 2022; current debt levels remain significantly higher than pre-pandemic figures and historical and international averages. - Significant increase in households seeking debt restructuring in 2023–24, particularly of consumer loans. - High saving levels and a strong SSN will help maintain debt service capacity. - Lack of granular data on household assets hinders a comprehensive assessment of household balance-sheet risks. - Commercial Real Estate (CRE) sector: - Outlook improved: financial conditions eased and access to bond financing improved in 2024, enabling refinancing of substantial roll-over needs. - Firms strengthened balance sheets via divestments, equity injections, and restructurings. - Operating profits increased due to high inflation and indexation allowing rent increases; pricing power is declining and roll-over needs remain high. - Rising vacancy rates and delayed impact of high interest rates complicate the operating environment. - Banks raised exposure to CRE in 2022–23; increased risk appetite could lead to renewed vulnerability build-up. - Recommendations: improve corporate bond market liquidity and enhance CRE firms’ disclosures (including contingency plans for diminished market funding). - Corporates and banks: - Corporate balance sheets outside CRE remain broadly robust; profitability strong in export and business-oriented sectors but softer where demand is weak. - Bankruptcies have risen to high levels in some sectors (construction and retail represent about 7 percent of corporate bank lending). - CRE represents less than 5 percent of bankruptcies but close to half of corporate bank lending. - As of March 2024, over three-quarters of outstanding loans had a fixed interest rate period of less than three months. - Banks’ balance sheets are solid but high exposures to real estate, including CRE, pose vulnerabilities. - Bank profitability expected to remain strong as interest rates move lower; reliance on wholesale and market funding could increase funding costs. - Authorities are collecting data on Basel III Endgame impacts; any capital requirement increases expected to be phased in gradually. - Updated solvency and liquidity stress tests confirm banks can withstand severely adverse scenarios; continued close monitoring warranted, especially for some small and consumer credit banks that are less profitable, face higher loan-losses, and rely more on euro funding from major deposit platforms. - Nonbank financial institutions (NBFIs) and investment funds: - Solvency in the NBFI sector is stable but risks stem from high interconnectedness and complexity. - Insurance companies and pension funds own over half of investment funds’ shares, which represent more than half of their assets. - Direct and indirect exposures to CRE firms constitute about 13 percent of total pension and insurance assets. - Concentration in corporate bond holdings: the ten largest corporate bond funds collectively own about 15 percent of the outstanding stock. - High-yield funds exhibit increased liquidity risks due to investments in illiquid corporate bond segments. - 2023 FSAP stress tests: most funds can withstand severe redemption shocks, but up to a quarter could face liquidity shortfalls. - Implementation of revised EU directives (UCITS and AIFMD) introducing additional disclosure requirements and a harmonized list of liquidity management tools (redemption gates and fees, EU-standard swing pricing, anti-dilution levies) will help manage these risks. - Policy actions and recommendations: - Continue momentum in adopting recommendations from the 2023 FSAP. - Maintain macroprudential policy settings as structural vulnerabilities remain high. - Be ready to deploy available policy space if downside risks materialize; under severe downside scenarios there is room for fiscal policy to play a more prominent role. - Consider introducing a consolidated credit registry to better monitor household indebtedness and enhance financial system resilience. - Continue enhancing CRE disclosures and corporate bond market liquidity. - Monitor the impact of the Riksbank Act deposit requirement on credit institutions and adjust parameters as needed. *Source: 1sweea2025001-print-pdf - 12. Sweden is vulnerable to geoeconomic fragmentation and trade policy uncertainty.* ### 27. Against this backdrop, macroprudential policy settings should remain at their current ### Against this backdrop, macroprudential policy settings should remain at their current ### Macroprudential policy stance and capital - Macroprudential policy settings should remain at their current level until risks materially subside. - The level of the CCyB is appropriate given elevated systemic risks, and no signs of constrained credit supply. - The extension of the risk weight floors for mortgages and CRE until 2027 is welcome; authorities should monitor risk weight densities to ensure that IRB models properly reflect credit risk. - If downside risks materialize and credit constraints become binding, the authorities could consider lowering the CCyB rate. - Over the medium term, capital requirements for banks’ CRE exposures could be considered. ### Borrower-Based Measures (BBMs) and household indebtedness - It would be prudent to maintain the set of BBMs, which have been effective and are crucial to maintain macro-financial resilience. - The measures have reduced new household borrowing and the purchase price for those affected by the regulations. - The amortization requirements have fostered an amortization culture. - Evidence suggests households are topping up mortgages with riskier uncollateralized loans, and household debt levels remain high due to: - supply availability in the housing market pushing up prices; - a tax system that encourages indebtedness (interest rate deductibility that subsidizes mortgage financing costs); - poorly functioning rental markets with long queues causing younger households to enter owner-occupation earlier than otherwise. ### Housing, rental markets, and tax policy recommendations - Structural reforms recommended: - Increase housing supply, including by removing rent controls, simplifying building codes, and easing regulatory burden for new construction. - Further target/reduce the tax deductibility of interest payments to limit subsidization of mortgage financing and discourage perpetual mortgages. - Consider commissioning an independent study to determine the costs and benefits of the tax deductibility of mortgage interest. - Improve property taxation. - Contextual numeric detail: - Sweden has the third lowest marginal effective tax rate of around -30 percent for owner-occupied debt-financed housing in the OECD. ### Data, supervision, and NBFI framework - The current institutional setting balances quick action and democratic accountability: - Responsibility for macroprudential policy concentrated in the FSA; the Riksbank has an important monitoring and advisory role; the Financial Stability Committee provides a discussion forum. - The FSA is autonomous in setting capital instruments; the government must approve any BBMs on households and non-financial firms. - Improved granular data collection on households’ balance sheets and cash flow is needed: - Aggregate data indicate high levels of household savings and liquid assets, but latest granular data are from 2012 showing uneven asset distribution with highly indebted households holding relatively small liquid assets. - Authorities have begun collecting data on a subsample of household assets and liabilities; further work is encouraged. - Improving timely availability of data on lending standards would help monitor risk buildup. - NBFI macroprudential framework and data gaps: - Develop a robust macroprudential framework for NBFIs in cooperation with the EU. - Establish comprehensive data reporting mechanisms for granular risk analysis. - Ensure strong interagency cooperation within Sweden and the EU. - Continue preparing contingency plans and crisis playbooks in case CRE market worsens markedly. ### Progress on regulatory and supervisory recommendations - Authorities’ recent actions: - Refined and increased frequency of stress tests on CRE; introduced stress tests on investment funds and Nasdaq Clearing. - Communicated extensively on risks to CRE firms’ disclosures. - Integrated climate-related risks into supervisory process in line with emerging international standards. - Created a database of essential service providers and outsourcing arrangements. - Established processes to facilitate exchange of information between Fintech firms and supervisors; set up data collection efforts from Fintech firms. - Continued work to strengthen the AML/CFT framework, including collecting data on CBRs and cross-border transactions, and cooperating with Nordic-Baltic supervisors for regional risk assessments. ### Payments infrastructure and CBDC - The Riksbank will join the Eurosystem’s payments settlement T2 platform in 2025 and is planning to join the securities settlement platform TS2. - In 2024, the final report of the e-krona pilot was released. - The decision to introduce a CBDC rests with parliament, which concluded in 2023 that there is currently insufficient need for a CBDC. ### Authorities’ views on macro-financial issues - Authorities agree systemic risks have diminished but remain elevated; they concur high household debt levels create vulnerabilities. - Authorities acknowledge BBMs have been successful in fostering financial system resilience; a public inquiry has evaluated BBMs and macroeconomic risks associated with household debt. - The government has the ambition to return to these issues in the spring of 2025. - Authorities indicated no current plans to alter property tax or deductions for interest expenses on collateralized loans, stating arguments for changes with reference to financial stability must be strengthened. - Outlook for CRE firms remains challenging; higher capital requirements for banks' CRE exposures are not under consideration at this time because extension of risk weight floors is expected to contain risks. - To address liquidity risks in investment funds, an inquiry is ongoing analyzing redemption terms and potential introduction of notice periods for UCITS funds. - On EU macroprudential framework for NBFIs, authorities value EU-level coordination while favoring national decision making; priorities include closing data gaps and enhancing cross-border data sharing. - Authorities remain committed to implement recommendations from the 2023 FSAP. ### Fiscal policy stance and 2025 budget - The moderately expansionary fiscal stance in the 2025 budget is appropriate given the negative output gap. - Fiscal deficit projections and stance: - The fiscal deficit would narrow by 0.3 percentage points to -1.4 percent of GDP in 2025, implying a moderate structural expansion. - Excluding the SEK 25 billion (0.4 percent of GDP) capital injection to the Riksbank in 2024, the overall deficit would increase from -1.3 percent of GDP to -1.4 percent of GDP. - Fiscal path assumptions: - Until 2027, fiscal accounts continue consolidating; thereafter it is assumed the new balanced budget rule would be in effect. - If downside risks materialize: - Automatic stabilizers should be allowed to fully operate. - Substantial available fiscal space allows for targeted policy support. - In a severe downside scenario, fiscal policy should play a prominent role. ### Main measures in the 2025 Budget Bill (selected items) - Increased earned income tax credit and reduced tax for pensioners: 13.5 billion SEK; 0.2 percent of 2024 GDP; 13.5 billion SEK in 2026–27. - Eliminated gradual reduction of earned income tax credit and basic income tax allowance for pensioners: 4.7 billion SEK; 0.1 percent of 2024 GDP; 4.7 billion SEK in 2026–27. - Tax-free level for savings in investment savings account and in endowment insurance: 4.4 billion SEK; 0.1 percent of 2024 GDP; 7.0 billion SEK in 2026–27. - Reduced tax on petrol and diesel: 3.2 billion SEK; 0.0 percent of 2024 GDP; 5.7 billion SEK in 2026–27. - Phase-out of tax deductions for unsecured loans: -4.3 billion SEK; -0.1 percent of 2024 GDP; -8.7 billion SEK in 2026–27. - New research and innovation bill: 1.5 billion SEK; 0.0 percent of 2024 GDP; 2.5 billion SEK in 2026–27. - New financial frameworks for transport infrastructure 2026–2037: 6.0 billion SEK; 8.0 (percent of 2024 GDP noted in table header context). - Defense and public security: 10.0 billion SEK; 0.2 percent of 2024 GDP; 14.6 billion SEK in 2026–27; total over period 32.2 billion SEK. - Health care: 10.9 billion SEK; 0.2 percent of 2024 GDP; 11.7 billion SEK in 2026–27; total 11.9 billion SEK. - Others: 16.8 billion SEK; 0.3 percent of 2024 GDP; 10.8 billion SEK in 2026–27; total 13.3 billion SEK. - Total: 60.7 billion SEK; 0.9 percent of 2024 GDP; 67.6 billion SEK in 2026–27; total 91.6 billion SEK. - Financing: These measures will be financed within available fiscal space and through spending reprioritization. ### Distributional and labor supply considerations - Tax measures to enhance labor supply are appropriate: - Changes to the EITC schedule would reduce the marginal income tax rate from 55 percent to 52 percent. - While benefiting households in upper income quintiles, the budget includes distributional considerations such as extension of the temporary supplementary housing allowance which mainly benefits lower-income households. - Further compensatory measures for lower-income households could be considered to mitigate any increase in income inequality. - Monitoring the impact on labor supply would help calibrate further adjustments. - The broad-based fuel tax cuts introduced in 2022 could be better targeted to support vulnerable populations while preserving price signals for the green transition. ### Medium-term fiscal priorities and sustainability pressures - Medium-term fiscal policy should focus on enhancing growth and resilience by prioritizing measures that boost economic growth, strengthen resilience, facilitate the green and digital transitions, and promote inclusion. - The 2025 Budget includes measures to improve school quality, enhance public sector efficiency, incentivize the green transition, and increase electricity supply. - Planned use of risk-sharing mechanisms to finance scaled up investments in nuclear power should be carefully designed and monitored to contain costs and contingent liabilities to the state. - Fiscal pressures accumulating from aging, climate change, and defense: - Infrastructure bill expands financial framework for 2026–37 to about 18 percent of 2024 GDP from 15 percent of GDP. - Total defense bill will allocate additional funding of 3 percent of 2024 GDP over 2025–30. - Recommendation: Extend fiscal sustainability analysis beyond aging to include climate transition and present results comprehensively to support policy formulation and spending prioritization. - The new balanced budget target in 2027 can generate additional fiscal space to be utilized prudently. ### Property taxation recommendation - Improving property taxation would help address structural deficiencies in the housing market and improve the overall tax mix. - Options include gradually increasing property tax rates from current low levels, adopting proportional or progressive property taxes with frequent revaluations, and using additional property tax revenues to potentially reduce marginal income tax rates. ### Authorities’ views on fiscal policy - Authorities broadly concurred with staff’s recommendations on fiscal policy; noted 2025 budget prioritizes reforms to strengthen household purchasing power, reinstating the work-first principle, and stimulate growth. - Authorities reiterated that a strong fiscal position is prerequisite for a robust economy; main mechanism for fiscal support is automatic stabilizers. - In significant shocks, there is fiscal space to respond through discretionary and temporary measures. - Authorities stressed affordable energy prices are essential to retain public support for the green transition and acknowledged staff’s recommendation to continue estimating overall long-term financing envelope. - Housing sector reforms remain contentious and require broad societal consensus. ### Structural issues and productivity - Labor productivity in Sweden is among the highest in Europe but has experienced a secular slowdown since the GFC. - Sweden’s strengths include a skilled labor force, a competitive business environment, high R&D investments (about 3 percent of GDP), and deep financial markets. - Contributing factors to productivity slowdown include diminishing returns to R&D, declining business dynamism, and slowing technology diffusion. - Barriers to labor mobility—inefficient housing and rental markets and skill mismatches—hinder efficient resource allocation. - In 2023, the difficulty in recruiting adequately skilled workers was reported by the largest number of firms as a main obstacle to doing business, followed by taxation, regulatory burden and labor protection. *Source: IMF staff summary of supplied content.* ### 43. The authorities have a strong focus on productivity. As part of ongoing work, a ### 1sweea2025001-print-pdf - 43. The authorities have a strong focus on productivity. As part of ongoing work, ### Productivity Commission: proposed reforms and priorities - The commission was appointed in 2023, tasked with exploring reforms to enhance productivity. An interim report (Swedish only) was submitted in April 2024, with the final report expected in October 2025. - Text Table 3 (Selected Reforms Proposed by the Productivity Commission) — key items: - Simplifying and harmonizing regulations - The Swedish National Financial Management Authority (ESV) should coordinate the work on regulatory simplification, impact assessment and ex post evaluation. - Impact assessments should be conducted when requests for new or revision to rules are made; the views of key stakeholders should be considered. - Important laws and regulations should be evaluated within five years. - The government should appoint an inquiry into a new planning law, which should allow important public interests to be weighed against each other. - Improving the housing market - The government should present a proposal on the objectives and direction for the housing market, including developing a regulatory framework helping the implementation. - The government needs to shorten the lapse of time in the planning and permitting process. - Free rent setting for new construction should be introduced. - Maintaining transportation infrastructure - The Swedish Transport Administration's investment plan should be integrated with the national plan and the financial planning system. - The government should develop a system for data collection to enable follow-up and evaluation of procurements in the transport sector. - The government should streamline the use of services windows and use total shutdowns when efficient to prioritize road and rail maintenance. - Enhancing the education system - A common school choice should be introduced. - Universities and colleges should be allowed to set threshold of grade in certain subjects in order for applicants to be considered for specific entry requirements. - A labor market component should be introduced in the resource allocation system for higher education. - A pilot project should be carried out to test extending the semester and shortening summer holidays in primary schools. - Domestic reform priorities to revive labor productivity growth: - Simplifying and harmonizing regulations to ease the administrative burden on firms, especially smaller ones. - Improving housing and rental market functioning to facilitate labor mobility, while maintaining transportation infrastructure. - Improving educational outcomes especially among immigrants, addressing skill mismatches, enhancing efforts to upskill and reskill the labor force, and reducing structural unemployment. - The planned benefits reform, which seeks to ensure social benefits align with incentives to work, is welcome. - Further deepening Sweden’s R&D model to align with industry needs, attract talent, support basic research, and facilitate commercialization. - Maintaining a strong focus on venture capital and ensuring adequate access to capital for SMEs. ### EU single market and external integration - Supporting measures to strengthen the EU single market would bolster Sweden’s productivity agenda. - Key areas for strengthening the single market: - (i) facilitating labor mobility; - (ii) streamlining trade procedures and improving border infrastructure; - (iii) opening protected sectors; - (iv) harmonizing rules for doing business across borders; - (v) reducing administrative and regulatory hurdles to stimulate business dynamism and help firms scale up, particularly for start-ups; - (vi) strengthening the EU capital markets union. - The EU is Sweden’s most important market, but it remains fragmented, limiting the benefits of economies of scale and network effects. ### Climate targets and emissions commitments - Sweden aims to achieve net-zero by 2045, requiring GHG emissions to be at least 85 percent below their 1990 level. - Interim EU ESR targets for Sweden: - emissions to be at least 63 and 75 percent lower than in 1990 in 2030 and 2040, respectively. - emissions from domestic transportation (excluding aviation) should be at least 70 percent lower than 2010 levels. - net removals within the LULUCF sector should increase by about 4 million tons compared to the 2016–18 level. - The authorities expect that under current policies Sweden’s ESR commitments will be met by a small margin, but significant uncertainty surrounds the projected path and further offsetting measures might be required. - The 2025 Budget Bill scenario relies on several key assumptions which may not materialize, including: - sufficient fossil-free electricity production and distribution (permit acquisition, skilled labor access, and infrastructure expansion could pose challenges); - limited demand response to the energy tax cut (based on preliminary data from 2023); - uptake from the LULUCF sector involves larger statistical uncertainty. - Authorities’ position: - Sweden remains steadfast in its commitment to climate targets. - The government estimated in the Budget Bill for 2025 that the measures introduced in the 2025 Budget were appropriate to fulfill Sweden’s ESR commitments. - A cross-parliamentary committee has been tasked with reviewing Sweden’s national targets to better align them with EU targets and has identified measures to contribute to achieving targets for the LULUCF sector. - With emission reduction policy instruments set at the EU level, national policies should focus on creating the right conditions to enable the green transition. ### Authorities’ views on structural policies - The authorities shared staff’s recommendations on key structural issues and agreed with the importance of raising productivity. - Work will include fine-tuning, improving, and simplifying existing frameworks and regulations across broad-based sectors. - The authorities highlighted the Research and Innovation Bill and Infrastructure Bill as significant steps to support productivity growth. - The authorities stressed Sweden’s support for measures to strengthen the EU single market, guided by market-based principles and a commitment to free trade. ### Staff appraisal: macro outlook, policy settings, and recommendations - Macro outlook and risks: - Real GDP growth is expected to accelerate to 1.9 percent in 2025 and 2.2 percent in 2026, on the back of policy support, and converge to potential GDP growth over the medium-term. - Headline inflation would stabilize around the target. - The balance of risks to the growth outlook is tilted to the downside, while risks to inflation are two-sided. - High uncertainty and a more challenging external backdrop are poised to test Sweden's export-oriented economy, while slowing productivity growth and an aging population weigh on long-term growth. - Monetary policy: - A neutral monetary policy stance is appropriate, but monetary policy should remain agile amidst high uncertainty and two-sided risks to inflation. - The Riksbank should continue leveraging its communication strategy to manage uncertainty and expectations. - Amendments to the Riksbank Act to strengthen its balance sheet and preserve operational independence are welcome. - Macroprudential and financial sector recommendations: - Current CCyB level is adequate. - The extension of current risk weight floors for mortgages and CRE is welcome. - Capital requirements for banks' CRE exposures could be considered in the medium-term. - Recent measures to contain high growth in consumer credit and transposition of EU directives to manage liquidity risks at investment funds will enhance resilience. - Introducing a consolidated credit registry would aid in better monitoring household indebtedness. - Maintain the set of BBMs and the current institutional arrangements; improve granular data collection on households’ balance sheets and cash flow. - Continue preparing contingency plans and crisis playbooks in case the CRE market weakens markedly. - Fiscal policy: - The moderately expansionary fiscal stance envisioned in the 2025 budget is appropriate. - If downside risks materialize, automatic stabilizers should be allowed to fully operate; available fiscal space allows for targeted policy support. - New tax measures in the budget are appropriate, but the 2022 fuel tax cuts could be better targeted. - Over the medium-term, fiscal policy should prioritize measures that boost economic growth, strengthen resilience, continue facilitating the green and digital transitions, and further enhance inclusion. - With accumulating fiscal pressures from aging, climate change and defense, the fiscal sustainability report should be extended to cover broad range of areas to support policy formulation. - Structural reform priorities reiterated: - Further simplifying and harmonizing regulations. - Improving housing and rental market functioning. - Raising educational outcomes, addressing skill mismatches, and enhancing upskilling and reskilling. - Maintaining transport infrastructure. - Further deepening R&D and maintaining focus on venture capital. - Supporting measures to strengthen the EU single market would bolster this agenda. - Financial sector oversight and AML/CFT: - Significant progress has been made on the recommendations of the 2023 FSAP; momentum should continue. - Further strengthen systemic risk assessment and analysis, develop a robust macroprudential framework for NBFIs within the EU, and ensure strong interagency cooperation. - Authorities’ efforts in strengthening the AML/CFT framework are welcome and should continue. *Source: 1sweea2025001-print-pdf (excerpts provided).* ### 55. Staff recommends that the next Article IV consultation take place on the standard ### 1sweea2025001-print-pdf - 55. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Staff recommendation - Staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Real sector developments and inflation - Subdued private domestic demand has weighed on growth. - Real GDP (percent change): 2022: 1.5; 2023: -0.1; 2024: 1.0; 2025: 1.9; 2026: 2.2; 2027: 1.9; 2028: 1.7; 2029: 1.7; 2030: 1.7. - Final domestic demand (percent change): 2022: 1.6; 2023: -1.0; 2024: 0.2; 2025: 1.7; 2026: 2.1; 2027: 1.8; 2028: 1.7; 2029: 1.7; 2030: 1.7. - Private consumption (percent change): 2022: 2.8; 2023: -2.1; 2024: 0.3; 2025: 1.9; 2026: 2.7; 2027: 2.1; 2028: 1.9; 2029: 1.9; 2030: 1.9. - HICP inflation (average): 2022: 8.1; 2023: 5.9; 2024: 2.0; 2025: 2.1; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0; 2030: 2.0. - HICP inflation (Q4 on Q4): 2022: 10.2; 2023: 3.0; 2024: 1.8; 2025: 2.1; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0; 2030: 2.0. - HICP core inflation (average, defined as HICP excluding energy and unprocessed food): 2022: 5.5; 2023: 7.4; 2024: 3.2; 2025: 2.5; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0; 2030: 2.0. - Unemployment rate (percent): 2022: 7.5; 2023: 7.7; 2024: 8.4; 2025: 8.2; 2026: 8.0; 2027: 7.9; 2028: 7.7; 2029: 7.6; 2030: 7.5. - Output gap (percent of potential): 2022: 1.2; 2023: -0.6; 2024: -1.2; 2025: -0.9; 2026: -0.3; 2027: -0.1; 2028: 0.0; 2029: 0.0; 2030: 0.0. - Inflation expectations: Prospera mean (2 year and 5 year) and Consensus forecasts (2 year and 5 year) shown in figures; inflation expectations have remained anchored. ### Exchange rate and wages - SEK per euro (period averages in Table 1): 2022: 10.6; 2023: 11.5; 2024: 11.4. - SEK per U.S. dollar (period averages in Table 1): 2022: 10.1; 2023: 10.6; 2024: 10.6. - Nominal wage growth is outpacing inflation (figure note). - Nominal wage growth and Headline HICP: series shown from Jan-10 through Jan-25; nominal wage growth exceeds headline HICP over recent observations. ### Financial conditions and monetary transmission - The pace of monetary policy easing has proceeded in line with past episodes (policy rate cut cycles plotted). - Policy rate (end of period, Table 1): 2022: 2.5; 2023: 4.0; 2024: 2.8. - Ten-year government bond yield (end of period, Table 1): 2022: 2.5; 2023: 2.1; 2024: 2.3. - Mortgage lending rate (end of period, Table 1): 2022: 3.4; 2023: 4.7; 2024: 3.3. - MFI lending rates (new and renegotiated loans): series for households, mortgage, and non-financial corporations shown; pass-through to lending rates and to outstanding mortgage rates is relatively high. - Household and corporate borrowing (annual percentage change) and bond issuance series shown; access to bond markets has improved. - CRE bond yields by rating category (At least A, BBB, Below BBB or no rating) plotted through Dec-24. - Policy pass-through to outstanding mortgage rates: elasticity measure from Beyer et. al. (2023) plotted; Sweden among countries with relatively high pass-through. ### Banking sector indicators and resilience - Banking system buffers are strong. - Common Equity Tier 1 Ratio (percent): Sweden series compared with EU aggregate and USA from 2019Q1 through 2024Q3 (figures). - Leverage Ratio (percent): Sweden series plotted through 2024Q3. - Return on Equity (rolling four quarters; percent): Sweden and EA19 series plotted through 2024Q3. - Bank stocks price to tangible book value per share: Sweden series compared with Europe and United States through Jan-25; banks’ stocks trade at a premium over EU peers. - Domestic banks' share of market funding (percent, 2023): Denmark (DNK), Sweden (SWE), Finland (FIN), Austria (AUT), Germany (DEU), Netherlands (NLD), EU aggregate (EU), etc.; Sweden among highest reliance on wholesale funding in the EU. - Liquidity Coverage Ratio (percent): 2023 and 2024Q3 shown; buffers to face liquidity shocks are high. Key banking sector numeric indicators (Table 5, selected): - Regulatory capital to risk-weighted assets: 2018: 21.6; 2019: 22.8; 2020: 23.5; 2021: 23.0; 2022: 22.7; 2023: 23.1; 2024: 23.4. - Regulatory tier 1 capital to risk-weighted assets: 2018: 18.8; 2019: 20.4; 2020: 21.1; 2021: 20.9; 2022: 20.4; 2023: 20.6; 2024: 21.1. - Return on assets: 2018: 0.7; 2019: 0.7; 2020: 0.4; 2021: 0.7; 2022: 0.6; 2023: 0.9; 2024: 0.9. - Liquid assets to total assets (liquid asset ratio): 2018: 17.1; 2019: 17.6; 2020: 21.0; 2021: 21.6; 2022: 21.6; 2023: 22.6; 2024: 27.9. - Customer deposits as percent of total (non-interbank) loans: 2018: 41.8; 2019: 43.1; 2020: 47.6; 2021: 60.6; 2022: 57.6; 2023: 55.9; 2024: 57.1. ### Real estate market developments - The real estate market has bottomed out; house prices are closer to fundamentals. - Real house prices (Index, 2010=100) series shown through 2024Q3 for multiple countries including SWE. - Real house price overvaluation (percent) plotted through 2023Q4. - House-price-to-income Ratio Index (Index, 2015=100, 2024Q3) shows Sweden’s position relative to peers. - Bank credit exposure to domestic and foreign real estate (percent of Tier 1 capital in 2023Q4): Sweden among the highest exposures (figure ranking). - CRE Loan maturity extensions and defaults (percent) series through Sep-24: CRE loans in distress have picked up. - Loan-to-value Ratios for New Mortgages (percent) by bucket (0-25, 25-50, 50-70, 70-80, 80-85, >85) for 2018–2023: the proportion of mortgages close to the LTV limit has remained steady. Selected real estate and household debt indicators (Table 5, memorandum items): - Change in housing price index (in percent, year average): 2018: -0.9; 2019: 2.5; 2020: 4.2; 2021: 10.1; 2022: 3.6; 2023: -5.0; 2024: -1.1. - Total household debt (in percent of GDP): 2018: 85.7; 2019: 85.8; 2020: 90.4; 2021: 86.6; 2022: 90.0; 2023: 95.0; 2024: 85.5. - Total household debt (in percent of disposable income): 2018: 187.6; 2019: 188.3; 2020: 199.5; 2021: 200.0; 2022: 194.5; 2023: 185.3; 2024: 179.3. - Household interest expenses (in percent of disposable income): 2018: 3.6; 2019: 3.7; 2020: 3.9; 2021: 3.7; 2022: 4.1; 2023: 6.8; 2024: 7.2. - Banks’ exposure to real estate: Bank Credit Exposure to Domestic and Foreign Real Estate (Percent of Tier 1 capital in 2023Q4) shows Sweden (SWE) high in the cross-country list. ### Public finances and projections (Table 2, selected) - General government net lending / borrowing (billions of SEK): 2022: 58; 2023: -52; 2024: -111; 2025: -97; 2026: -52; 2027: -3; 2028: -30; 2029: (blank); 2030: (blank). - Revenue (billions of SEK): 2022: 2,868; 2023: 2,952; 2024: 3,068; 2025: 3,196; 2026: 3,317; 2027: 3,456; 2028: 3,585; 2029: 3,719; 2030: 3,857. - Expenditure (billions of SEK): 2022: 2,810; 2023: 3,004; 2024: 3,178; 2025: 3,293; 2026: 3,369; 2027: 3,449; 2028: 3,588; 2029: 3,721; 2030: 3,857. - Gross public debt (percent of GDP): 2022: 33.6; 2023: 31.5; 2024: 32.6; 2025: 33.7; 2026: 33.9; 2027: 33.2; 2028: 32.6; 2029: 31.8; 2030: 30.9. - Structural balance (percent of potential GDP): 2022: 0.5; 2023: -0.6; 2024: -0.8; 2025: -1.1; 2026: -0.6; 2027: 0.1; 2028: 0.0; 2029: 0.0; 2030: 0.0. - Fiscal impulse (+ expansionary): 2022: -1.6; 2023: 1.1; 2024: 0.2; 2025: 0.2; 2026: -0.5; 2027: -0.7; 2028: 0.1; 2029: 0.0; 2030: 0.0. - Nominal GDP (in billions of SEK): 2022: 5,865; 2023: 6,212; 2024: 6,448; 2025: 6,706; 2026: 6,988; 2027: 7,266; 2028: 7,538; 2029: 7,819; 2030: 8,111. ### Balance of payments (Table 3, selected) - Current account balance (billions of SEK): 2022: 276; 2023: 433; 2024: 479; 2025: 454; 2026: 421; 2027: 405; 2028: 384; 2029: 379; 2030: 369. - Current account balance (percent of GDP): 2022: 4.7; 2023: 7.0; 2024: 7.4; 2025: 6.8; 2026: 6.0; 2027: 5.6; 2028: 5.1; 2029: 4.8; 2030: 4.5. - Exports of G&S (billions of SEK): 2022: 3,218; 2023: 3,494; 2024: 3,582; 2025: 3,589; 2026: 3,677; 2027: 3,779; 2028: 3,883; 2029: 4,009; 2030: 4,143. - Imports of G&S (billions of SEK): 2022: 3,076; 2023: 3,227; 2024: 3,272; 2025: 3,290; 2026: 3,408; 2027: 3,533; 2028: 3,660; 2029: 3,799; 2030: 3,944. - Net international investment position (percent of GDP): 2022: 34.8; 2023: 38.5; 2024: 66.0; 2025: 66.4; 2026: 66.8; 2027: 67.2; 2028: 67.5; 2029: 67.8; 2030: 68.1. ### Money, credit, and depository corporations - Broad money (end of period, billions of SEK): 2019: 3,741.2; 2020: 4,419.6; 2021: 4,881.3; 2022: 5,021.5; 2023: 4,957.1; 2024: 4,970.2. - Bank lending to households (average, year-on-year percent change, Table 1): 2022: 5.7; 2023: 1.5; 2024: 0.8; 2025: 4.0; 2026: 4.2; 2027: 4.0; 2028: 3.7; 2029: 3.7; 2030: 3.7. - Net foreign assets of depository corporations (billions of SEK, Table 4): 2019: 836.5; 2020: 494.1; 2021: 346.7; 2022: 175.4; 2023: 381.5; 2024: 541.0. - Claims on private sector (billions of SEK, Table 4, end of period): 2019: 6,619.3; 2020: 6,940.8; 2021: 7,411.4; 2022: 7,914.8; 2023: 7,933.1; 2024: 8,008.6. ### Memoranda and other indicators - GDP per Capita (2023, USD): 56,225. - Population (2024, million): 10.5. - Key Export Markets: Germany, Norway, and US. - Staff projections based on data as of March 6, 2025. *Source: IMF staff calculations and figures and tables reproduced from the supplied content.* ### Annex I. Implementation of Past IMF Recommendations ### Annex I. Implementation of Past IMF Recommendations ### Monetary and Macroprudential Policy - Recommendation: Maintain a restrictive monetary policy stance during the first half of 2024 to ensure that inflation returns to target; remain ready to adjust policy settings and maintain clear, forward-looking communication to anchor inflation expectations. - Authority response and outcomes: - "Inflation has been brought under control. The Riksbank lowered its main policy rate by 175bps to 2.25 percent since May-2024 to a broadly neutral stance." - Macroprudential stance: "Since mid-2023, the FSA has maintained the CCyB rate at is neutral level of 2 percent." - Risk-weight floors: "The existing risk weight floors for mortgages (25 percent) and commercial real estate (35 percent) that were set to expire in 2025 will be kept in place at least until 2027." - Rationale: Tight macroprudential settings justified by "elevated systemic risks, stemming from elevated levels of debt and high financial sector exposure to both RRE and CRE risks." ### Fiscal Policy - Recommendation: Adopt a broadly neutral fiscal policy stance; allow a small deviation from the surplus target to enable additional growth-enhancing infrastructure and social spending; consider gradually raising low property taxes, lowering high labor tax wedge, and reducing interest tax deductibility. - Authority response and outcomes: - "The 2024 Budget Bill envisioned a neutral fiscal stance." - "Based on the latest data, the fiscal stance is estimated to have been moderately expansionary in 2024. The 2025 budget also anticipates a moderately expansionary stance." - Fiscal framework change: "a political consensus has been reached to amend the surplus target of 1/3 percent of GDP (over a business cycle) to a balanced budget target starting in the upcoming fiscal framework period." - "The debt anchor for general government gross debt will remain unchanged at 35 percent of GDP." - Social benefits and labor wedge: "The inquiry into the social benefits reform is ongoing. The EITC has been increased, lowering the labor wedge." - Property tax stance: "Raising property taxes is not currently under consideration." ### Structural Reforms - Recommendation areas: - Bolster active labor market policies, tailored training and reskilling programs to address skill gaps and mismatches. - Address housing market challenges by easing restrictions on new construction (including building and permit regulations) and easing rent controls to raise housing supply and encourage labor mobility. - Reverse fuel tax cuts and offset easing in mandatory biofuel blending requirements; adopt more measures to meet Sweden’s ambitious climate goal targets. - Authority response and outcomes: - Skills governance: "The 'Strengthening the Governance of the Swedish Skills System' project seeks to enhance Sweden's multi-level skills governance system and reduce long-term skills mismatches." - Funding and timelines: "Additional funds have been allocated to address long term unemployment. The Public Employment Service will present a strategy to increase labor market training participation by April 2025." - Construction regulation changes: "New building regulations, effective 1 July 2025, have been adopted to promote development and innovation in the construction sector." - Permitting innovations: "The government is exploring the implementation of type approval for single-family houses, including potential building permit exceptions." - Climate and fuel policy: "Fuel tax cuts have been extended. The biofuel blending requirement will increase to 10 percent for both petrol and diesel in 2025." - Climate policy processes: "An inquiry and a parliamentary committee will propose measures to ensure that Sweden's national climate goals and EU commitments under the ESR and LULUCF regulations are met by 2045." *Prepared by IMF staff based on inputs from country authorities.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors: ### Public debt structure and holdings - General government consists of the central government, the local government (regions and municipalities) and the social security funds. - Holder breakdown (percent of GDP, as presented): - Budget. central govt: 59.8 77.9 32.0 58.1 65 39.9 (table formatting preserved as in source) - 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 99.0 - Oth. pub. fin. corp: 99.8 99.8 - Total (row as shown): 99.9 0.0 60.0 0.0 78.0 n.a. 429.8 566.1 1233.7 - Valuation and recording notes included in source: - Nominal value defined as in source. - Face value defined as in source. - Market value defined as in source. - Stock of arrears could be used as a proxy in absence of accrual data on other accounts payable. - IPSGSs refers to Insurance, Pension, and Standardized Guarantee Schemes. ### Debt composition, currency, instruments and maturity (figures summary) - Debt by Currency: projection shows share of FX debt steadily declining as Riksbank shifts from borrowed reserves (via the National Debt Office) to direct purchases; government intends to reduce FX debt gradually to zero as debt matures. - Debt by holder (percent of GDP) and by governing law (2024) depicted for general government (figures in source graphics). - Debt by Instruments (Percent of GDP) and Public Debt by Maturity (Percent of GDP): residual maturity indicated as 6. years in figure caption. - Marketable vs Nonmarketable debt projections shown in source figures. ### Baseline DSA—Key numeric projections and contributors (Percent of GDP unless otherwise indicated) - Public Debt (actual and projections): - 2024: 32.6 - 2025: 33.7 - 2026: 33.9 - 2027: 33.2 - 2028: 32.6 - 2029: 31.8 - 2030: 30.9 - 2031: 30.0 - 2032: 29.1 - 2033: 28.2 - 2034: 27.3 - Change in Public Debt (year-on-year): - 2024: 1.2 - 2025: 1.1 - 2026: 0.1 - 2027: -0.6 - 2028: -0.7 - 2029: -0.8 - 2030: -0.9 - 2031: -0.9 - 2032: -0.9 - 2033: -0.9 - 2034: -0.9 - Contribution of identified flows (selected years): - 2024: 0.3 - 2025: 0.6 - 2026: 0.0 - 2027: -0.6 - Subsequent years: -0.4 to -0.6 as shown in table. - Primary deficit (percent of GDP): - 2024: 1.4 - 2025: 1.3 - 2026: 0.6 - 2027: -0.2 - 2028–2034: -0.1 (each year shown as -0.1) - Noninterest revenues: 47.2 (2024) then 47.3, 47.1, 47.2 ... constant at 47.2/47.1 across projection as shown. - Noninterest expenditures: 48.6 (2024) then 48.6, 47.7, 47.0, 47.1 ... reported as 47.1 in later years. - Automatic debt dynamics (selected): -1.2, -0.7, -0.6, -0.4, -0.4, -0.4, -0.5, -0.6, -0.6, -0.6, -0.6 - Real interest rate and relative inflation (components shown in table): Real interest rate and relative inflation entries preserved as in source (e.g., Real interest rate -0.8 -0.1 0.1 0.2 0.2 0.1 0.0 0.0 -0.1 -0.1 -0.1). - Contribution of Residual: - 2024: 0.9 - 2025: 0.5 - 2026: 0.1 - 2027: 0.0 - 2028–2034: -0.3 each year - Gross Financing Needs: - 2024: 7.9 - 2025: 11.2 - 2026: 7.9 - 2027: 9.9 - 2028: 6.6 - 2029: 6.5 - 2030: 6.2 - 2031: 6.2 - 2032: 6.7 - 2033: 7.1 - 2034: 7.1 - Of which: debt service: - 2024: 6.8 - 2025: 10.3 - 2026: 7.6 - 2027: 10.5 - 2028: 7.1 - 2029: 6.9 - 2030: 6.7 - 2031: 6.6 - 2032: 7.2 - 2033: 7.5 - 2034: 7.5 - Local currency vs Foreign currency gross financing needs: - Local currency (selected): 6.4, 9.7, 7.2, 8.6, 5.8, 5.9, 6.3, 6.3, 6.9, 7.2, 7.3 - Foreign currency (selected): 0.4, 0.6, 0.4, 1.9, 1.2, 1.0, 0.4, 0.3, 0.3, 0.3, 0.3 - Memo (macroeconomic assumptions): - Real GDP growth (percent): 1.0 1.9 2.2 1.9 1.7 1.7 1.7 1.7 1.7 1.7 1.7 - Inflation (GDP deflator; percent): 2.8 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 - Nominal GDP growth (percent): 3.8 4.0 4.2 4.0 3.7 3.7 3.7 3.7 3.7 3.7 3.7 - Effective interest rate (percent): 0.0 1.7 2.4 2.7 2.6 2.3 2.0 1.9 1.8 1.7 1.7 Staff commentary summary: - Public debt in 2024 is projected to increase due to weaker growth and higher fiscal deficit than expected. - Afterwards, public debt is expected to decrease gradually as growth picks up and fiscal deficit returns to the surplus target. - The authorities will adopt a balanced budget target starting 2027. ### Realism and medium-term risk analysis - Realism analysis conclusion: "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." - Forecast track record and comparators presented in figures (public debt to GDP, primary deficit, r - g, exchange rate depreciation percentiles). - Debt reduction and fiscal adjustment distributions shown; 3-year debt reduction percentile rank reported as 54.1 in figure caption. - Debt fanchart and financeability indicators: - Probability of debt not stabilizing (pct): 8.1 - Terminal debt level x institutions index: 0.0 - Debt fanchart index entries include small decimals as shown (e.g., 0.1). - Average GFN in baseline: 8.0 2.7 (values presented in table format) - Bank claims on government (pct bank assets): 3.5 1.1 - Change in claims on govt. in stress (pct bank assets): 0.6 0.2 - GFN financeability index entries: 4.1 (and other decimals reported in figures) - Medium-Term Index and risk signals indicate low risk: - Prob. of missed crisis, 2025-2030 (if stress not predicted): 0.0 pct. - Prob. of false alarm, 2025-2030 (if stress predicted): 97.7 pct. - Commentary emphasizes low level of medium-term risk, declining debt path, and the banking sector caveat: - Sweden's banking sector size ~300 percent of GDP exposes government to contingent liability risks. - Banks have weathered tightening of financial conditions well, reflecting strong supervision and macroprudential policies. - Well functioning resolution system makes it "very unlikely for the government to assume 10 percent of banking sector assets as a liability." ### Long-term risk analysis (high-level summary) - Long-run projections for GFN-to-GDP ratio and Total Public Debt-to-GDP ratio shown under scenarios: - Baseline with t+5, Baseline with t+5 and DSPB (Debt Stabilizing Primary Balance), historical 10-year average, and custom scenarios (pension cost increase, health demographics, climate adaptation/mitigation). - Custom scenarios include: - Demographics: Pension and Health (with ECG = Excess Health Care Growth). - Climate Change: Adaptation (standardized and customized) and Mitigation (standardized and customized). - Figures show long-horizon trajectories through 2052 for GFN and debt ratios under each scenario (plotted values in source figures). ### Annex IV — Public inquiry proposals to relax borrower-based measures (BBMs) on mortgages - Background on BBMs introduced to manage household debt risks: - LTV ceiling for mortgages: 85 percent (2010). - Amortization requirements introduced: first amortization requirement of 1 percent annually for mortgages with LTVs greater than 50 percent and lower than 70 percent; 2 percent amortization for mortgages with LTVs over 70 percent (2016); second amortization requirement of further 1 percent for mortgages with LTIs over 450 percent (2018). - Flexibilities: exemptions up to five years for loans collateralized by new construction; permanent exemptions for agricultural properties; temporary exemptions in cases of illness or unemployment; Covid-19 pandemic temporary repayment pauses. - 2023 public inquiry (committee) findings: - Measures effectively curtailed household borrowing and improved consumer protection (mitigating negative home equity risk and fostering amortization culture). - Measures imposed welfare costs, particularly for younger cohorts, limiting access to housing and reducing households’ liquid assets. - Overall impact on household resilience to income and interest rate shocks is difficult to assess due to lack of granular household balance sheet data; committee suggests current measures might reduce cash flows and savings, hampering resilience. - Committee proposals (to be implemented as a single package in two stages; government response scheduled in the Spring as noted): - Raise the LTV ceiling from 85 to 90. - Streamline amortization requirements into a single and lower amortization rate of 1 percent for mortgages with LTVs above 50 percent (removes the higher-rate tiers). - Introduce an LTI ceiling of 550 percent to discourage speculative housing demand. - Committee notes mortgage debt and house prices would increase in the short term, but longer term relaxation would result in higher housing supply and improved access to housing. - Source figures on mortgage origination patterns shown: - Sweden: Share of New Mortgages Close to and Above LTV Limit (Percent) — time series plotted (values in figure). - Sweden: New Mortgages by LTI Ratio (Percent) — categories 0-150, 150-300, 300-450, > 450 shown for 2018–2023 in figure. - Text Table. 1. Sweden: Borrower Based Measures on Mortgages (Percent) — summarized measure changes: - Measure: LTV Limit — Current 85, Proposed 90. - Amortization Requirements: Current table of tiers (LTV > 50, LTV > 70, LTI > 450) consolidated into proposed single rate of 1 percent for LTV > 50. - LTI Ceiling: Proposed 550 (with a 10 percent flexibility allowance noted in source). *Sources: Bloomberg; Swedish Authorities; OECD; and IMF staff calculations.* ### Annex V. Risk Assessment Matrix ### Annex V. Risk Assessment Matrix ### External Risks - Trade policy and investment shocks - Likelihood: H - Impact of Risk: Medium: Being highly open and integrated in GVCs, higher trade barriers would negatively impact exports (both directly and indirectly), weigh on sentiment, and lower investment and consumption. - Policy Response: - In collaboration with partners, continue to support global cooperation and multilateralism. - Step up the envisaged structural reforms to leverage Sweden’s strong productivity and help sectors cope with shocks in a targeted manner. - If domestic demand slows, allow automatic stabilizers to operate. - Depending on the outlook for inflation, adjust monetary policy as needed. - Support strengthening the EU single market by lowering internal barriers to the mobility of labor, capital, goods, and services. - Sovereign debt distress - Likelihood: H - Impact of Risk: Medium/Low: Higher interest rates and tighter financial conditions would negatively impact private domestic demand and weigh on inflation, but low debt levels provide buffers. The impact on headline inflation would depend on the offsetting forces from an appreciating U.S. dollar and its impact on tradables inflation, against lower commodity prices and slowing non-tradable inflation. Migrant flows from distressed countries may result in higher public spending. - Policy Response: - Allow automatic stabilizers to operate and adjust monetary policy settings depending on the outlook for inflation - Under severe downside scenarios leverage the available fiscal space to deliver targeted support to vulnerable sectors and households, and accelerate structural reforms aimed at enhancing productivity and resilience. - Tighter financial conditions and systemic instability - Likelihood: M - Impact of Risk: Medium: The tightening of financial conditions would negatively impact leveraged households and firms in the CRE sector, resulting in a housing market correction, potentially impairing banks’ balance sheets, causing disruptions in financial markets, and weighing on overall economic activity. - Policy Response: - Intensify monitoring of banks’ balance sheets and risk management practices. - Enable automatic stabilizers to function; deploy discretionary stimulus if private demand deteriorates significantly. - Regional conflicts - Likelihood: M - Impact of Risk: Medium/High: Being highly open, Sweden will be impacted by a more protracted global slowdown through weaker external demand, and direct exposures to an intensification of the war in Ukraine. While bank balance sheets are strong, severe deterioration in household and commercial real estate balance sheets would put pressure on banks’ capital, tightening credit, with negative spillovers to other sectors. - Policy Response: - Fully deploy automatic stabilizers to contain the economic downturn. - Under severe downside scenarios use the available fiscal space to provide well-targeted support. - If the real estate correction deepens protractedly, support financial stability by maintaining the flow of credit and being ready to ease macroprudential requirements under severe downside scenarios. - Commodity price volatility - Likelihood: M - Impact of Risk: Medium: As a commodity importer, Sweden would face rising costs for firms due to higher commodity prices, leading to increased inflation and a potential decline in private. - Policy Response: - Enhance the resilience of the supply chains for essential commodities by diversifying suppliers. - Provide targeted support to vulnerable households. - Global growth acceleration - Likelihood: L - Impact of Risk: Medium: Sweden is deeply embedded in GVCs, including trough large MNCs. An increase in global growth would elevate demand for Swedish exports, spur a faster recovery in consumption and investment, potentially straining capacity and leading to higher costs for goods and services. - Policy Response: - If the economy is experiencing rapid growth, output gap turns positive, and inflation picks up, tighten monetary policy to counteract overheating pressures, and adopt a tighter fiscal stance. - Expedite structural reforms to alleviate capacity constraints. - Deepening geoeconomic fragmentation - Likelihood: H - Impact of Risk: High: Higher input costs, supply disruptions and changed trade patterns generate additional costs resulting in reduce economic activity, 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 raise productivity and help sectors cope with shocks in a targeted manner. - Support strengthening the EU single market by lowering internal barriers to the mobility of labor, capital, goods, and services. - Cyberthreats - Likelihood: H - Impact of Risk: Medium: Since Sweden is a highly digitalized economy, cyberattacks could significantly impair the functioning of the financial system and other critical systems, leading to substantial reputational risks and broader economic fallout. - Policy Response: - Continue to invest in cyber resilience by strengthening the operational resilience of the financial system, enhancing cyber risk mitigation through appropriate supervision, and promoting awareness and contingency planning for operational risks. ### Domestic Risks - Delayed recovery of private consumption - Likelihood: M - Impact of Risk: Medium/High: Recent consumption recovery has disappointed, and if consumers remain cautious in their spending, the expected recovery may not materialize. - Policy Response: - Ease monetary policy further and allow automatic stabilizers to operate. - Use additional fiscal space to promote short-and long-term growth. - Systemic financial instability - Likelihood: M - Impact of Risk: High: While banks maintain strong capital buffers, they could be adversely impacted by a severe correction in CRE sector, leading to a substantial decline in collateral values and asset quality, thereby increasing the need for provisioning and potentially restrict credit supply. - Policy Response: - Enhance data collection efforts to closely monitor recent developments and oversee banks' lending practices in the CRE sector. - Should adverse events occur, macroprudential requirements may be relaxed to bolster the banking system. - Additionally, monetary policy should be prepared to adopt a more accommodative approach if there is a significant decline in demand. *Based on the Global Risk Assessment as of February 2025.* ### Annex VII. Implementation of the 2023 FSAP Recommendations ### Annex VII. Implementation of the 2023 FSAP Recommendations ### Systemic Risk Analysis - Recommendation: Employ structural models (household and CRE) to complement bank stress tests; develop tools to analyze contingent liquidity risks from derivatives loss of longer-term wholesale funding as well as corporate exposures for the largest banks. Horizon: I - Status: FI has integrated structural models for CRE in the bank stress tests and has started to collect data on households’ balance sheets. FI has developed a stress test for Nasdaq clearing. - Recommendation: Require investment funds to offer redemption terms that are aligned with the liquidity profile of their portfolio; consider price-and quantity-based measures (e.g., swing pricing and gates); and provide guidance on liquidity stress tests. Horizon: MT - Status: Swing pricing regulation was introduced in July 2023, and FI has processed several applications by fund managers. FI has developed a liquidity stress test for investment funds to analyze systemic risks from their liquidity management, which are being used to evaluate systemic risks and have been incorporated into the supervisory process. A comprehensive EU framework on liquidity management will be transposed into national law in 2026. In addition, a broader review of the national fund legislation will also be conducted including, among others, the issue of redemption terms. FI has published guidance on liquidity stress testing to fund managers. (https://www.fi.se/sv/publicerat/rapporter/fi-analys/2022/fi-analys-37-stresstester-av-fonders-likviditetsrisker/) ### Macroprudential Policies and Systemic Risk Oversight - Recommendation: Introduce standards on the interest rate stress-tests that banks apply for mortgage loan applicants. Horizon: ST - Status: Banks already calculate a discretionary income measure, which includes a stressed interest rate. FI has, so far, left the credit assessment to the banks, as they are responsible for assessing the repayment capacity of mortgagors. Furthermore, FI carries out stress-tests of new mortgagors in the yearly mortgage report. - Recommendation: Commission an independent study to determine the costs and benefits of the tax deductibility of mortgage interest. Horizon: MT - Status: No study has been commissioned. - Recommendation: Consider higher capital requirements and/or buffers for banks’ exposures to CRE risks. Horizon: ST - Status: The period over which risk weight floors on banks’ mortgage and CRE exposures would apply has been extended by two years. - Recommendation: FSC, FI, and the Riksbank to use soft powers and joint communication to ask CRE firms to disclose their contingency funding plans in annual reports and bond prospectuses. Horizon: ST - Status: Real estate companies have increased the transparency on contingency funding plans, including on how they would handle upcoming loan maturities. Riksbank and FI have been communicating regularly, including through their Financial Stability Reports, on the need for CRE firms to strengthen their balance sheets. ### Banking Supervision and Regulation - Recommendation: Increase resources to improve on the effectiveness of supervision and improve supervisory toolkit further by enhancing offsite monitoring and screening tools, automating the collection and analysis of supervisory data, improving internal supervisory manuals, and deploying risk dashboards covering all the key risks. Horizon: I - Status: FI is facing tighter budgetary constraints, increasing the need for efficiency in its operations. During 2023, the banking department relaunched MePro, a forum for supervisory methods and processes, to ensure these are effective and of high quality. The SREP process has been streamlined during 2023, and work will continue in 2024–2025. The AML department has introduced new methods to support investigation processes. A new risk-dashboard has been launched for the banking modules. FI has launched Datarådet to improve the data collection process and increase capacity for more complex analysis. - Recommendation: Enhance supervision by: (i) increasing the frequency and intrusion of onsite inspections; (ii) comprehensive onsite inspection of banks; (iii) ongoing assessment of performance of the Internal Rating Based (IRB) models and banks’ internal stress test processes; (iv) well-targeted thematic reviews for smaller institutions; and (v) heightened focus on small but high-risk institutions. Horizon: ST - Status: FI uses a risk-based approach and aims to achieve intrusive supervision regardless of the type of supervisory activity. The review of the IRB models is ongoing, but several banks have withdrawn their applications due to quality concerns. The associated risks are being managed with P2R-add-ons. A new dashboard has been introduced and FI has increased its focus on smaller high-risk institutions. The watchlist process has been updated to better focus on small, high-risk institutions by gathering more information, considering additional risks such as liquidity and large exposures, and enhancing the selection process for the watchlist. - Recommendation: Continue integrating climate-related risks into supervisory processes and ensure alignment of practice with emerging international standards. Horizon: MT - Status: FI has communicated to category 1 and 2 banks that they are to integrate climate related stress tests in their ICAAP. FI participates in international workgroups regarding climate related risks to align its internal processes. Banks have started to report ESG data under Pillar 3 of the CRR/CRD. FI has integrated climate risk into the business model analysis, asking banks to detail their climate risk routines, strategies, governance, and activities, while awaiting updated SREP guidelines before incorporating climate risk into the scoring. - Recommendation: FI should strengthen its supervision of banks and VASPs targeted at ML/TF risks especially from cross-border operations by evolving risk management tools, collecting, and analyzing more granular data. Horizon: ST - Status: FI and Riksbank have initiated work on the collection of more granular data and information from banks and VASPs. FI has allocated additional resources to crypto analysis and to the detection of unregistered VASPs. Additional requirements on the fitness and propriety of senior management/ownership and an expanded legal mandate to issue penalties against unregistered VASPs have been introduced. ### Cyber Resilience - Recommendation: 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. Horizon: I - Status: The National Cyber Security Center is under reorganization and has been placed under the leadership of the National Defence Radio Establishment. Within the framework of the NCSC “Finansforum,” financial sector firms and public agencies share information and identify vulnerabilities and measures to improve resilience. The development of “Finansforum” to enhance information sharing between authorities and the private sector will continue during 2025. An inquiry has presented a report on the roles and responsibilities for cyber security risk management in the financial sector. The Ministry of Finance is allocating responsibilities for cyber security risk management and coordinating interagency cooperation in the financial sector, and FI has been appointed as the authority responsible for the financial sector. There have been several cyber incident simulation exercises during the year, involving the authorities and participants from the private sector. The roles and responsibilities regarding management of cyber security risk within the financial sector will be further strengthened with the implementation of DORA. - Recommendation: Establish and maintain a database of essential service providers and outsourcing arrangements, including to identify concentrations and dependencies. Horizon: I - Status: Reporting of critical ICT services is now required under DORA. ### Financial Market Infrastructures - Recommendation: Strengthen legal frameworks for weakly regulated FMIs to enforce compliance with the PFMI and other guidelines; strengthen regulation, oversight, and supervision of key service providers Getswish and Finansiell ID-Teknik BID AB. Horizon: ST - Status: A new law (2024:114) and FI regulation (2024:5) on clearing and settlement of payments, based on PFMI principles, came into force in 2024. The regulation governs the authorization, operation, organization, and supervision of clearing companies, covering aspects like corporate governance, risk management, and cybersecurity. The Riksbank now oversees Finansiell ID-Teknik BID AB, and Getswish AB. GetSwish AB applied for authorization in October 2024, and it allowed to operate until a final decision is made. Oversight of these organizations and follows a subset of the principles contained in PFMI. ### Crisis Management, Resolution and Safety Nets - Recommendation: Develop crisis management capacity within and between the authorities by formalizing a watchlist process to identify banks at risk of failure. Horizon: I - Status: FI is making increased use of a watchlist and has introduced a dashboard to help identify banks at elevated risk of failure. A bank placed on the watchlist is subject to more strict supervision. Where applicable, there is communication between the relevant authorities regarding institutions at risk of failure. Reporting has been tailored to the specific needs and profiles of each institution on the watchlist and is supplemented by additional information sources, including from the key risk indicator system (KRI), which was launched in 2024. FI is working on developing an internal crisis handbook. - Recommendation: Ensure bank resolution plans are fully operational by clarifying MREL regulation and removing other known barriers to resolvability; publish the approach for deploying bail-in and transfer tools and imposing losses on MREL holders. Horizon: I - Status: Resolution plans are developed and refined on a continuous basis. The bail-in mechanic was published in 2022. Banks have developed bail-in playbooks and initial assessments have been carried out. The SNDO continues to further operationalize the bail-in tool by developing a joint playbook with the Swedish central securities depository Euroclear. Work on operationalizing the bridge institution tool is ongoing by setting up a public company that can be used as a bridge institution in resolution. At the moment, the SNDO does not see the need to publish the approaches for applying transfer tools. The authorities deem the current MREL policy as sufficiently clear in terms of calibration of requirements. Further refinements of the policy for breaches of MREL remain an open issue. - Recommendation: Publish a policy framework describing the lender of last resort bilateral liquidity facilities, including funding in resolution. Horizon: I - Status: The Riksbank now presents the lender of last resort liquidity facilities on its webpage and is collaborating with the SNDO to agree on shared resolution preparedness arrangements and information to publicly disclose about the framework for funding in resolution. ### CBDC and Fintech - Recommendation: Extensively test the robustness and resilience of CBDC, and analyze the effectiveness of financial safeguards, and the impact on the payments and financial system. Horizon: ST - Status: A technical Request for Information, which included a robustness chapter, and the last phase of the e-krona pilot were finalized in 2023. A Payments Inquiry report by Parliament concluded in 2023 that there is currently no need for an e-krona. The focus is on monitoring the development of the Digital Euro and maintaining dialogue with other central banks in the region. - Recommendation: Facilitate exchange of information and enhance understanding of risks between Fintech firms and supervisors; collect additional data to support a more comprehensive analysis of fintech firms and conduct periodically a review of the adequacy of the regulatory perimeter. Horizon: MT - Status: FI conducted comprehensive analyses of Fintech companies operating in Sweden in three out of four business areas in 2024, and the remaining area will be finalized in early 2025. The analyses will inform FI’s decisions regarding potential changes to the monitoring and supervision routines of the sector. *Prepared by IMF staff based on inputs from the authorities.* ### Annex IX. Data Issues ### Annex IX. Data Issues ### Data Standards and Dissemination - Sweden adheres to the Special Data Dissemination Standard (SDDS) Plus since February 2015 and publishes the data on its National Summary Data Page. - The latest SDDS Plus Annual Observance Report is available on the Dissemination Standards Bulletin Board. ### Data Adequacy Assessment (surveillance) - Overall staff conclusion: Data produced by Statistics Sweden, Riksbank, the Ministry of Finance, Finansinspektionen, and other national sources is adequate for surveillance. - Staff does not use any data and/or estimates in the staff report in lieu of official statistics. - The broad assessment of data adequacy is unchanged from the previous Article IV consultation. - No new data weaknesses have been identified since the last Article IV consultation; the authorities have made improvements in the compilation of CPI statistics. - Corrective actions and capacity development priorities: N.a. - Other data gaps: n.a. - Rationale for staff assessment: Data produced by national agencies is adequate for surveillance. ### Detailed Questionnaire Results (sectoral heatmap highlights) - Median Rating: AAAAAAA - Coverage: AAAAB - Consistency: ABA - Frequency and Timeliness: AAAAA / A / B / C / D (sectoral variation implied by questionnaire) - Granularity 3/: A (notations indicate top/bottom cell distinctions for Government Finance Statistics and Monetary and Financial Statistics) - Data Adequacy Assessment Rating 1/: A - Note: When the questionnaire does not include a question on a specific dimension of data quality for a sector, the corresponding cell is blank. - 1/ The overall data adequacy assessment is based on staff's assessment of the adequacy of the country’s data for conducting analysis and formulating policy advice, and takes into consideration country-specific characteristics. - 2/ The overall questionnaire assessment and the assessments for individual sectors reported in the heatmap are based on a standardized questionnaire and scoring system (see IMF Review of the Framework for Data Adequacy Assessment for Surveillance, January 2024, Appendix I). - 3/ The top cell for "Granularity" of Government Finance Statistics shows staff's assessment of the granularity of the reported government operations data, while the bottom cell shows that of public debt statistics. The top cell for "Granularity" of Monetary and Financial Statistics shows staff's assessment of the granularity of the reported Monetary and Financial Statistics data, while the bottom cell shows that of the Financial Soundness indicators. ### Table of Common Indicators Required for Surveillance (as of February 11, 2025) - Date of Latest Observation / Date Received: 11-Feb-25 / 11-Feb-25 (for multiple DDD entries) - Selected series timing and reporting details (verbatim style from table): - 2024Q3 / Dec-24 / Q Q M M 1W1M - Dec-24 / Jan-25 / M M M W2W2D - Dec-24 / Jan-25 / M M M M 1M1M - Jan-25 / Feb-25 / M M M W2W2D - Dec-24 / Jan-25 / M M M M 1M1M - 11-Feb-25 / 11-Feb-25 / D D D ......... - Jan-25 / Feb-25 / M M M M 1M N L T 2W - 2023 / Nov-24 / A A A / Q Q 2Q/12M3M - Dec-24 / Jan-25 / M M M M 1M N L T 1W - Dec-24 / Jan-25 / M M Q M1Q N L T 1W - 2024Q3 / Jan-25 / Q Q Q Q - Q / 1Q2M - 2024Q3 / Jan-25 / Q Q M M 8W1M - 2024Q4 / Feb-25 / Q Q Q Q 1Q2M - 2024Q3 / Dec-24 / Q Q Q Q 1Q8W - 2024Q3 / Dec-24 / Q Q Q Q 1Q8W - Data provision note: Publication under the Data Standards Initiatives through the National Summary Data Page. Definitions and footnotes reproduced verbatim from table: - 1 Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions. - 2 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. - 3 Foreign, domestic bank, and domestic nonbank financing. - 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. - 5 Including currency and maturity composition. - 6 Frequency and timeliness: (“D”) daily; (“W”) weekly or with a lag of no more than one week after the reference date; (“M”) monthly or with lag of no more than one month after the reference date; (“Q”) quarterly or with lag of no more than one quarter after the reference date; (“A”) annual.; ("SA") semiannual; ("I") irregular; ("NA") not available or not applicable; and ("NLT") not later than. - 7 Encouraged frequency of data and timeliness of reporting under the e-GDDS and required frequency of data and timeliness of reporting under the SDDS and SDDS Plus. Any flexibility options or transition plans used under the SDDS or SDDS Plus are not reflected. - 8 Based on the information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board. ### Data Strengths and Limitations (staff and authorities views) - Strengths: - National agencies (Statistics Sweden, Riksbank, Ministry of Finance, Finansinspektionen) produce data adequate for surveillance. - Sweden publishes data under SDDS Plus and maintains National Summary Data Page dissemination. - Limitations and data quality issues: - Some shortcomings in data provided to the Fund that somewhat hamper surveillance (questionnaire heatmap indicates sectoral variation). - Persistent data quality issues and gaps, particularly for indebted households’ assets and debts, which constrain analysis linked to financial stability, monetary policy, and consumer protection. - Changes since last Article IV: - Broad assessment unchanged; improvements made in CPI compilation. ### Data Collections and Surveys of Note - Finansinspektionen yearly surveys: - The mortgage survey, households’ loans and savings survey, and the commercial real estate loan survey are yearly surveys collected from institutions. - KRITA: - KRITA is a survey conducted by Statistics Sweden (SCB) on behalf of the Riksbank since 2018. KRITA contains data on Swedish credit institutions' credits to companies and the public sector, credit by credit. - Coverage comment: These data collections cover a wide range of loans of interest for authorities to monitor, but gaps remain for household assets and debts. *Source: Annex IX. Data Issues, Sweden — Staff Report for the 2025 Article IV Consultation (informational annex).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1sweea2025001-print-pdf.pdf_