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IMF Country Report No. 15/329

SWEDEN

2015 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; INFORMATIONAL ANNEX; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SWEDEN

December 2015

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 2015 Article IV consultation with Sweden, the following documents have been released and are included in this package:

  • A Press Release summarizing the views of the Executive Board as expressed during its November 30, 2015 consideration of the staff report that concluded the Article IV consultation with Sweden.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 30, 2015 following discussions that ended on September 29, 2015, 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 November 13, 2015.

  • An Informational Annex prepared by the IMF staff.

  • A Statement by the Executive Director for Sweden.

The documents listed below have been or will be separately released.

  • Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623-7430 • Fax: (202) 623-7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2015 International Monetary Fund

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SWEDEN

STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION

November 13, 2015

Key Issues

Sweden is expected to enjoy solid economic growth of about 3 percent y/y in 2015 and 2016, yet it faces intertwined challenges:

  • Large migration inflows with effects on the labor market and on the budget;

  • Rapid housing price increases associated with rising household indebtedness; and

  • Low inflation and weakened inflation expectations.

Macroeconomic policies should support a rise in inflation and contain upside risks to unemployment. The firmly stimulatory stance of monetary policy is needed to avoid prolonged low inflation that would prevent monetary policy from regaining space to cushion shocks. Such a stance should continue until core inflation is durably close to target. The broadly neutral fiscal stance appropriately avoids impeding these efforts to raise inflation. Likely additional expenses related to migration should be accommodated in the near term. Looking to the medium term, maintaining central government balance on average over the cycle would be sufficient to safeguard Sweden’s fiscal buffers.

It is critical that policies work together to address housing market imbalances that pose risks to stability and growth:

  • Housing supply should be enhanced through land sale and planning reforms, which will also facilitate more competition in residential construction. Rent controls should be eliminated on new rental apartments and phased out more broadly.

  • Mortgage interest deductibility should be phased out to moderate housing demand over time and limits on capital gains tax deferrals raised to release pent up supply.

  • A debt-to-income limit should be adopted to contain rises in the already sizable share of highly indebted households, which adds to macroeconomic vulnerabilities.

Historically high migration inflows reinforce the importance of labor market reforms to broaden employment gains. Sweden has a well developed introduction program for refugees although the process of integration into employment is lengthy. Addressing high unemployment of lower skilled workers—by reducing high entry-level wages and easing strict employment protection, together with more effective training and job-matching services—would aid more rapid integration.

Approved By

Mahmood Pradhan (EUR) and Peter Allum (SPR)

Discussions for the 2015 Article IV consultation were held in Stockholm during September 17–29. The mission comprised Mssrs. Beaumont (head) and Chen, and Mses. ElGanainy and Turk, and was assisted by Mr. Dowling and Ms. Rojas (all EUR). The mission met with Ms. Andersson, Minister of Finance; Mr. Bolund, Minister of Financial Markets and Consumer Affairs; Ms. Ekholm, State Secretary of the Finance Ministry; Mr. Ingves, Governor of the Sveriges Riksbank; the Parliamentary finance committee; the Parliamentary committee reviewing the target for general government net lending; and senior officials from the Financial Supervisory Authority, Swedish Debt Office, Competition Authority, Public Employment Service, and Migration Board. It also met with representatives of the banking sector, labor unions, enterprises, Fiscal Policy Council, National Institute of Economic Research and academics. Mr. Östros (OED) joined the discussions and Mr. Pradhan (EUR) attended some of the discussions.

Contents

  • SOLID GROWTH YET INTERTWINED CHALLENGES

  • STABILITY RISKS CLOUD BRIGHT PROSPECTS

  • POLICIES NEED TO WORK TOGETHER

  • A. Monetary and Exchange Rate Policy

  • B. Fiscal Policy

  • C. Prudential Policy

  • D. Labor Market Policy

  • E. Housing Policy

  • STAFF APPRAISAL

  • BOXES

  • 1. Migration Flows and the Integration Framework for Asylum Seekers

  • 2. Housing Valuation and Policy Impacts

  • 3. External Assessment

  • 4. Female Labor Participation and Senior Management Representation

  • 5. Risk Assessment Matrix

  • FIGURES

  • 1. Macroeconomic Indicators

  • 2. Inflation and Monetary Policy

  • 3. Selected Financial Market Indicators

  • 4. House Prices and Household Debt

  • TABLES

  • 1. Selected Economic Indicators, 2012–18

  • 2. General Government Statement of Operations, 2012–18

  • 3. Public Sector Balance Sheet, 2004–12

  • 4. Balance of Payments Accounts, 2012–18

  • 5. Financial Soundness Indicators: Banks, 2008–14

  • 6. Financial Soundness Indicators: Non-Banks, 2008–14

  • 7. Financial System Structure, 2011–14

  • APPENDIX

  • I. Debt Sustainability Analysis

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SWEDEN

STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

November 13, 2015

Prepared By

The European Department

(In Consultation with Other Departments)

Contents

  • FUND RELATIONS

  • STATISTICAL ISSUES

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Press Release No. 15/544

FOR IMMEDIATE RELEASE

December 2, 2015

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