## Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with Sweden

_IMF News, July 13, 2011_

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## Bibliographic details
- Published: July 13, 2011

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### Background
- On July 8, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sweden.
- Recovery and macro developments:
  - 2010 output rose by 5½ percent, with exports, investment, and consumption all rising rapidly.
  - Unemployment has come down to 7¾ percent, from its mid-crisis peak of over 9 percent.
  - Core inflation has remained close to target throughout.
  - Financial sector strains have been contained; bank capital and liquidity have strengthened; most emergency stabilization measures have been withdrawn.
  - Fiscal deficit narrowed to 0.3 percent of GDP in 2010; public debt remains at about 40 percent of GDP and is expected to fall.
  - Monetary tightening since July 2010: Riksbank raised the policy rate by 1¾ percentage points.
  - Since its trough in mid-2009, the krona has appreciated by 20 percent against the euro.
  - Growth momentum maintained into 2011 with first quarter GDP rising by 6½ percent year-on-year.
- Remaining concerns:
  - Long-term and youth unemployment have lagged the recovery.
  - Fixed investment, although rising, remains below 2006–08 levels relative to output.
  - Risk of a decline in house prices in coming years with potential adverse impact on growth.

### Executive Board Assessment — Findings and Judgments
- Commendations and overall judgment:
  - Directors commended Sweden’s impressive recovery and noted economic growth in 2010 was uniquely strong among advanced countries.
  - Performance reflects decisive domestic policies underpinned by sound policy frameworks.
- Monetary and financial sector assessment:
  - Welcomed the measured exit from policy stimulus; increases in the Riksbank policy rate confirm commitment to low inflation.
  - Withdrawal of many financial sector support measures alongside enhanced capital ratios has strengthened sector resilience.
  - Return to fiscal surpluses has reinforced strong sovereign credentials.
- Risks and vulnerabilities:
  - Youth and long-term unemployment lagging the recovery.
  - Fixed investment remains below pre-crisis level relative to GDP.
  - House prices still appear richly valued in the context of elevated household indebtedness despite a recent dip.
  - External risks remain, especially from ongoing stresses in the euro area.
- Fiscal policy view:
  - Commended 2011 budget balance between supporting activity (maintaining a neutral stance given the remaining output gap) and building fiscal buffers against external uncertainties.
  - Welcomed increased margins relative to spending ceilings and postponement of planned tax reductions.
  - If scope for reductions in 2012 exists, focus should be on the earned income tax credit to strengthen labor market performance.
  - Welcomed the role of the Fiscal Policy Council as an effective watchdog; emphasized ensuring the Council remains adequately resourced.
- Labor market and structural policy:
  - Continued moderation in wage settlements would help secure sustained reduction in unemployment.
  - Encouraged further structural efforts and adoption of permanent concessionary arrangements for labor market entrants.
- Monetary policy guidance:
  - Anticipated further increases in the Riksbank policy rate were considered appropriate.
  - Authorities should stand ready to respond flexibly: raise rates more rapidly if wage settlements accelerate and delay somewhat if strong krona appreciation continues.
- Financial stability and macroprudential policy:
  - Welcomed FSAP update findings indicating initial reassurance on credit risks.
  - Called for continued supervisory vigilance given potential vulnerabilities from house prices.
  - Authorities should be prepared to take further macro prudential measures if significant new financial stability or consumer risks develop.
  - Welcomed recent measures to strengthen monitoring of liquidity and plans for early introduction of strong liquidity regulations taking specific account of risks in foreign currencies.
  - Supported authorities’ intention to go faster and further than Basel III capital regulations given unique characteristics and risks of the Swedish financial system.
- Institutional recommendations (endorsed FSAP recommendations):
  - Merge the stability and deposit insurance funds.
  - Establish a special bank resolution regime.
  - Increase the Financial Supervisory Agency’s capacity.
  - Improve coordination among institutions responsible for macro prudential policies.

### Key Statistics (Selected Economic and Social Indicators, 2005–12)
- Real economy (in percent change)
  - Real GDP: 2005: 3.2; 2006: 4.3; 2007: 3.3; 2008: -0.6; 2009: -5.3; 2010: 5.5; 2011: 4.4; 2012: 3.8
  - Domestic Demand: 2005: 3.0; 2006: 3.9; 2007: 4.7; 2008: 0.0; 2009: -4.9; 2010: 6.1; 2011: 2.9
  - CPI inflation: 2005: 0.8; 2006: 1.5; 2007: 1.7; 2008: 2.0; 2009: 1.9; 2010: 2.5
  - Unemployment rate (in percent): 2005: 7.6; 2006: 7.0; 2007: 6.2; 2008: 8.3; 2009: 8.4; 2010: 7.4; 2011: 6.6
  - Gross national saving (percent of GDP): 2005: 24.5; 2006: 27.2; 2007: 29.6; 2008: 28.9; 2009: 23.4; 2010: 25.0; 2011: 26.0; 2012: 27.0
  - Gross domestic investment (percent of GDP): 2005: 17.7; 2006: 18.7; 2007: 20.3; 2008: 20.2; 2009: 16.3; 2010: 18.5; 2011: 20.0; 2012: 21.4
  - Output Gap (as a percent of potential): 2005: 4.2; 2006: 5.6; 2007: 5.4; 2008: -5.9; 2009: -3.1; 2010: -1.6; 2011: -0.9
- Public finance (in percent of GDP)
  - Total Revenues: 2005: 53.8; 2006: 53.0; 2007: 52.5; 2008: 51.9; 2009: 52.1; 2010: 50.7; 2011: 49.3; 2012: 48.6
  - Total Expenditures: 2005: 51.8; 2006: 50.8; 2007: 46.1; 2008: 46.6; 2009: 49.7; 2010: 47.8; 2011: 45.2; 2012: 44.2
  - Overall balance: 2005: 2.2; 2006: 3.6; 2007: -0.3; 2008: 1.3
  - Structural balance (as a percent of potential GDP) 1/: 2005: 1.0; 2006: 0.9; 2007: 1.4; 2008: 1.2
  - General government gross debt, official statistics: 2005: 50.4; 2006: 45.3; 2007: 40.2; 2008: 38.8; 2009: 42.8; 2010: 39.8; 2011: 36.1; 2012: 32.7
  - Gross public debt, Maastricht criterion: 2005: 50.2; 2006: 45.0; 2007: 40.0; 2008: 38.3; 2009: 42.1; 2010: …
- Money and credit (12-month, percent change)
  - M1: 2005: 9.4; 2006: 11.1; 2007: 9.9; 2008: 4.9; 2009: 8.0; 2010: 7.1
  - M3: 2005: 7.5; 2006: 10.6; 2007: 12.5; 2008: 10.4; 2009: 8.2; 2010: 4.5
  - Credit to non-bank public: 2005: 10.8; 2006: 11.2; 2007: 14.3; 2008: 7.7
- Interest rates (year average)
  - Repo rate: 2005: 4.0; 2006: 0.3
  - Three-month treasury bill rate: 2005: 2.3; 2006: 3.5; 2007: 0.4; 2008: 0.5
  - Ten-year government bond yield: 2005: 3.4; 2006: 3.7
- Balance of payments (in percent of GDP)
  - Current account: 2005: 6.8; 2006: 9.2; 2007: 8.7; 2008: 6.3; 2009: 6.0; 2010: 5.7
  - Trade balance: 2005: 7.2; 2006: 7.8; 2007: 5.8
  - Foreign Direct Investment, net: 2005: -4.5; 2006: 0.7; 2007: -2.3; 2008: -5.2; 2009: -2.1
- International reserves (in billions of US dollars)
  - 2005: 26.4; 2006: 29.7; 2007: 35.4; 2008: 53.9; 2009: 55.8
  - Reserve cover (months of imports of goods and services): 2005: 2.1; 2006: 1.8
- Exchange rate (period average, unless otherwise stated)
  - Exchange rate regime: Free Floating Exchange Rate
  - Skr per U.S. dollar (June 1, 2011): 6.15
  - Nominal effective rate (2000=100): 2005: 99.2; 2006: 99.5; 2007: 101.3; 2008: 90.7; 2009: 97.8
  - Real effective rate (2000=100) 2/: 2005: 84.4; 2006: 80.2; 2007: 84.2; 2008: 80.0; 2009: 81.8
- Fund Position (April 30, 2011)
  - Holdings of currency (in percent of quota): 74.51
  - Holdings of SDRs (in percent of allocation): 100.74
  - Quota (in millions of SDRs): 2395.50
- Social Indicators (reference year)
  - GDP per capita (in current PPP US dollars, 2009): 35,805
  - Income Distribution (ratio of income received by top and bottom quintiles, 2005): 3.3
  - Life expectancy at birth (2009): 79.3 (males) and 83.3 (female)
  - Automobile ownership (2004): 456 per thousand
  - CO2 Emissions (tonnes per capita, 2007): 5.4
  - Population Density (inhabitants per sq. km., 2008): 22
  - Poverty Rate (share of the population below the established risk-of-poverty line, 2005): 9%

*Public Information Notice (PIN) No. 11/88; July 13, 2011 — IMF External Relations Department*

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