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IMF Country Report No. 12/154
SWEDEN
2012 ARTICLE IV CONSULTATION
June 2012
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Sweden, the following documents have been released and are included in this package:
Staff Report for the 2012 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 14, 2012, with the officials of Sweden on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 4, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
Informational Annex prepared by the IMF.
Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its June 18, 2012 discussion of the staff report that concluded the Article IV consultation.
Statement by the Executive Director for Sweden.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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SWEDEN
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION
June 4, 2012
Key Issues
Context. Sweden’s recovery from the global crisis has been spectacular but underlying growth has now slowed sharply, unemployment remains above pre-crisis levels and the outlook is clouded given weaknesses in European trading partners.
Focus. Discussions centered on the economic policy mix to manage near-term risks and to buttress the resilience of Sweden’s outsized financial system.
Financial stability. Staff emphasized the importance of, alongside Sweden’s commendable strive to adopt higher capital requirements than provided under Basel III, ensuring that supervisors are able to make effective use of “Pillar 2”, strengthening early intervention and resolution powers of the supervisors, assessments (as for capital) of the adequacy of international liquidity standards for Sweden, extension of resolution planning to all major banks, and deepening regional supervisory coordination and crisis management under the Nordic-Baltic arrangements.
Near-term macroeconomic policy mix. Given Sweden’s strong fiscal position automatic stabilizers are rightly left to operate unimpeded. And given tail risk of large jumps in public debt, this budget stance also retains appropriately large fiscal buffers. On the monetary side, policy should continue to be set according to the baseline scenario, as it can be adjusted rapidly if tail risks are realized. Macroprudential instruments should be deployed further if the housing market reflates once again.
Medium-term policy frameworks. The framework of fiscal rules targeting 1 percent of GDP surplus over the cycle and nominal expenditure ceilings remain appropriate. However the tax structure could be more “growth friendly” and better targeted to vulnerable groups. The monetary framework also remains credible but could be improved by greater clarity on the Riksbank’s financial stability mandate as well as publication of market-rates-based forecasts.
Structural reforms. With labor market entrants particularly exposed to European tail risks, steps being actively considered by the social partners to increase the accommodation of new entrants in employment contract structures are strongly supported. And in the housing sector, deregulation of rental market could reduce shortages and improve employment prospects, notably in the main cities.
Approved By
Mahmood Pradhan and Taline Koranchelian
Discussions took place in Stockholm May 3–14, 2012. The staff comprised of Mr. Doyle (head), Ms. Batini and Mr. Ishi (all EUR) and Ms. Jaramillo (FAD). Mr. Berger (EUR) joined the mission for two days. Mr. Holmberg (OEDNO) attended for the duration of the mission.
Contents
KEY ISSUES
THE SETTING
THE IMPLICATIONS FOR POLICY
A. Financial Stability
B. Fiscal Policy Framework
C. Monetary Policy and Framework
D. Structural Reform Policy
THE AUTHORITIES’ VIEWS
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators, 2009–13
2. Financial System Structure 2002–11
3. Financial Soundness Indicators: Banks, 2003–11
4. Financial Soundness Indicators: Non-Banks, 2003–10
5. General Government Statement of Operations, 2007–15
6. Public Sector Balance Sheet
7. Balance of Payments Accounts, 2006–17
FIGURES
1. Long View, 1997–12
2. The Short View, 2007–12
3. Household Balance Sheets and Consumption, 2004–11
4. Selected Financial Markets Indicators, 2008–12
5. Inflation and Monetary Policy, 2007–11
6. Fiscal Developments
7. Performance of the Swedish Banking System, 2007–12
8. Non Bank Financial Sector, 2007–12
BOXES
1. Should Sweden Be Concerned of Adverse Inward Spillovers from Europe
2. Fiscal Buffers: How Big Are They? How Big Should They Be?
3. How Strong is the Pass-through from Repo Rates to Mortgage Rates in Sweden
4. Competitiveness and the Equilibrium Real Exchange Rate
5. How Vulnerable Is Sweden’s Housing Market?
6. Key Measures in the 2012 Budget Bill
ANNEX
I. Medium-Term Public Debt Sustainability Analysis
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June 4, 2012
Prepared By
European Department
Contents
FUND RELATIONS
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Public Information Notice (PIN) No. 12/63
FOR IMMEDIATE RELEASE
June 27, 2012
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
On June 18, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sweden.1
