The country was given ‘AAA’ long-term and ‘A-1+’ short term sovereign credit ratings.
S&P credit analyst Ana Mates said the ratings are underpinned by robust consensus in favour of prudent macroeconomic policies, which have allowed Sweden to reduce its general government debt ratio, expected at around 30 percent of GDP by 2010, compared with more than 60 percent in 1999.
Established fiscal rules have served the country well, and are likely to be strengthened under the new government, the broker added.
The reforms proposed in the 2007 budget will further strengthen public finances by increasing the tax base and lowering the numbers claiming welfare benefits, although the general government surplus will decline in 2007, it said.
“In the medium term, Sweden’s extremely strong credit standing should remain secure against most foreseeable downside economic, political, and financial risks,” said Mates.
“The wealth and diversity of the Swedish economy should enable the country to weather external shocks and significant changes to its economic environment without major strains on economic stability,” she added.
The main downside risk to the rating is the government’s limited revenue flexibility, as a result of the very high tax burden embedded in its social model of a generous welfare state, Mates said.
Slippages in the government’s efforts to keep spending in check and gradually reduce the tax burden could, over time, put downward pressure on the ratings, she added.