{
  "title": "Sweden - Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, February 2, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/02/01/mcs020221-sweden-staff-concluding-statement-of-the-2021-article-iv-mission",
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  "summary": "Publication date: February 2, 2021.",
  "publishDate": "2021-02-02",
  "sections": [
    {
      "heading": "Mission context and summary assessment",
      "content": "- Publication date: February 2, 2021.\n- IMF team conducted virtual meetings during January 19–29, 2021; mission led by Khaled Sakr and met with Minister of Finance Magdalena Andersson, Minister of Financial Markets and Housing Per Bolund, and Riksbank Governor Stefan Ingves; other senior officials; and representatives of parliamentary finance committee, labor unions, the banking sector, and academics.\n- Key judgment: Sweden entered the COVID-19 pandemic with substantial buffers from prudent fiscal and financial management; the recession in 2020 was moderated by strong support measures and structural features of the economy."
    },
    {
      "heading": "Macroeconomic impact and policy response",
      "content": "- Fall in output in 2020: around 3 percent (less than the EU average).\n- Fiscal support package announced for 2020: about 12 percent of GDP.\n- Fiscal outcome: fiscal balance expected to have moved from a small surplus in 2019 to an estimated deficit of around 4 percent of GDP in 2020.\n- Monetary policy:\n  - Policy (repo) rate: kept at zero since it moved from negative territory effective January 2020 just prior to the pandemic.\n  - Riksbank measures: reduced overnight lending rate; ample liquidity provision including a funding-for-lending facility, weekly market operations at longer maturities at the repo rate, and the asset purchase program.\n  - Asset purchase program expansion contributed to stabilizing corporate and mortgage bond markets.\n- Macroprudential measures by Finansinspektionen: reduced the countercyclical buffer, temporarily suspended the amortization requirement, and urged banks to refrain from paying out dividends."
    },
    {
      "heading": "Recovery prospects and risks",
      "content": "- Recovery expected to start in 2021, but downside risks have recently increased.\n- Main downside risks identified:\n  - New wave of infections.\n  - Mutations of the virus.\n  - Slower-than-expected rollout of vaccinations.\n  - Any necessary tightening of containment measures.\n- Policy implications:\n  - Fiscal stance appropriate; scope exists for additional support if the recovery or inflation expectations falter.\n  - Riksbank should stand ready to complement fiscal support as needed.\n  - Avoid premature return to the surplus target.\n  - As recovery starts, support measures should be gradually withdrawn in a coordinated and well-communicated manner to balance avoiding economic scarring and preventing prolonged support of non-viable firms."
    },
    {
      "heading": "Structural challenges and policy recommendations",
      "content": "- Labor market and inclusion:\n  - Crisis highlighted long-standing inequities; increase in unemployment larger than in countries with deeper recessions.\n  - Temporary employment (common in hospitality, among youth and foreign-born) decreased substantially.\n  - Recommendations:\n    - Strengthen inclusive growth by advancing structural reforms and increasing growth-enhancing and green spending to meet health and demographic challenges.\n    - Make the short-term work scheme more flexible to better support temporary workers and new hiring, and to incentivize retraining.\n    - Further reduction of the high labor tax wedge is desirable.\n    - Continue higher spending on training and education and initiatives geared towards the foreign-born, especially women (noted in the 2021 Budget Bill).\n- Housing market and construction:\n  - Challenges: shortages in affordable housing; extremely low property taxes; overly regulated rental market with long queues that favors existing tenants; complex local regulations impeding supply and competition in construction.\n  - Recommendations:\n    - Gradually increase property taxes from their extremely low level together with other reforms to make the housing market more dynamic and facilitate labor mobility.\n    - Introduce a simpler market-based rental system complemented with adequate housing allowances to better meet economic and social objectives.\n    - Streamline local regulations to increase supply and competition in the construction sector and drive down cost.\n    - Welcome ongoing public inquiries aimed at proposals to improve the functioning of the rental market."
    },
    {
      "heading": "Financial stability, vulnerabilities, and data needs",
      "content": "- Financial sector resilience: banks entered the crisis with high profitability and strong capital buffers; banks’ performance remains robust despite some deterioration in indicators.\n- Long-standing vulnerabilities highlighted:\n  - Exposures to the commercial real estate (CRE) sector.\n  - High household debt and accelerating house prices.\n- Specific concerns and monitoring needs:\n  - Increasing share of CRE funding via bond issuance requires close monitoring of the corporate bond market from a financial stability perspective.\n  - A prolonged recession or structural shifts (e-commerce, teleworking, less travel) could reduce CRE revenue streams for highly exposed companies.\n  - Need for enhanced data collection on household and private sector balance sheets to inform authorities’ management of buildup of risks; recently launched inquiry on household balance sheet statistics is welcome.\n  - Possible further strengthening of prudential regulations, especially for CRE.\n- Anti-money laundering: amendments to the Swedish framework and enforcement are welcome; robust implementation of recent reforms should continue."
    },
    {
      "heading": "Role of the Riksbank and digital currency",
      "content": "- Monetary policy stance judged appropriate for crisis stabilization; Riksbank communication that all policy options will be considered if recovery or inflation expectations falter is noted as reassuring.\n- Operational considerations:\n  - Any amendments to the Riksbank law should preserve operational independence and ability to quickly deploy a broad range of instruments in future crises.\n- E-krona:\n  - Riksbank at the forefront of exploring central bank digital currency.\n  - The e-krona pilot project will help design an e-krona proposal to maximize benefits while minimizing risks, including risks for financial intermediation and cybercrime.\n\nSource: Sweden - Staff Concluding Statement of the 2021 Article IV Mission (February 2, 2021).\n\n---\n\n\n References\n\n- Sweden and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- IMF Country Report No. 20/239\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/02/01/mcs020221-sweden-staff-concluding-statement-of-the-2021-article-iv-mission"
    }
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    "Published: February 2, 2021",
    "Publication date: February 2, 2021.",
    "IMF team conducted virtual meetings during January 19–29, 2021; mission led by Khaled Sakr and met with Minister of Finance Magdalena Andersson, Minister of Financial Markets and Housing Per Bolund, and Riksbank Governor Stefan Ingves; other senior officials; and representatives of parliamentary finance committee, labor unions, the banking sector, and academics.",
    "Key judgment: Sweden entered the COVID-19 pandemic with substantial buffers from prudent fiscal and financial management; the recession in 2020 was moderated by strong support measures and structural features of the economy.",
    "Fall in output in 2020: around 3 percent (less than the EU average).",
    "Fiscal support package announced for 2020: about 12 percent of GDP.",
    "Fiscal outcome: fiscal balance expected to have moved from a small surplus in 2019 to an estimated deficit of around 4 percent of GDP in 2020.",
    "Monetary policy:",
    "Macroprudential measures by Finansinspektionen: reduced the countercyclical buffer, temporarily suspended the amortization requirement, and urged banks to refrain from paying out dividends.",
    "Recovery expected to start in 2021, but downside risks have recently increased.",
    "Main downside risks identified:",
    "Policy implications:",
    "Labor market and inclusion:",
    "Housing market and construction:",
    "Financial sector resilience: banks entered the crisis with high profitability and strong capital buffers; banks’ performance remains robust despite some deterioration in indicators.",
    "Long-standing vulnerabilities highlighted:",
    "Specific concerns and monitoring needs:",
    "Anti-money laundering: amendments to the Swedish framework and enforcement are welcome; robust implementation of recent reforms should continue.",
    "Monetary policy stance judged appropriate for crisis stabilization; Riksbank communication that all policy options will be considered if recovery or inflation expectations falter is noted as reassuring.",
    "Operational considerations:",
    "E-krona:",
    "[Sweden and the IMF](http://www.imf.org/external/country/SWE/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/index.htm)",
    "[IMF Country Report No. 20/239](https://www.imf.org/en/Publications/CR/Issues/2020/08/03/Sweden-Technical-Assistance-Report-Proposed-Amendments-to-the-Riskbank-Act-49636)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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