“At a time of record public debt-to-GDP ratios among advanced economies, Sweden is noteworthy for its strong public finances,” the IMF wrote in the latest edition of its Fiscal Monitor newsletter.
In a subsection entitled “Lessons from Sweden”, the IMF details several aspects of how Sweden has managed its public finances since the 2009 recession that could be useful for other countries struggling to find their way out of fiscal trouble.
Specifically, the IMF lauds Sweden for “building up fiscal buffers” during better economic times. Prior to the onset of the economic crisis which developed following the collapse of the 2008 Lehman Brothers bank in the United States, Sweden had a budget surplus of 3.5 percent of GDP.
“When the recession hit (with real GDP contracting by 5 percent in 2009, compared to an average decline of 3.5 percent across advanced economies), the government had enough fiscal space … to implement stimulus measures without jeopardizing fiscal sustainability,” the IMF wrote.
The IMF also noted the credibility of Sweden’s central bank, the Riksbank, in allowing for a more aggressive use of monetary policy, as well as the flexibility of the krona exchange rate.
Sweden’s decisive action in propping up ailing banks in 2008-2009, was also cited as a contributing factor to how the country managed the crisis.
“The authorities took fast action to calm depositors and interbank markets, including a doubling and extension of the deposit guarantee and introduction of new bank recapitalization and debt guarantee schemes,” the IMF wrote.
The report comes as the IMF published its latest World Economic Outlook in which it predicts global economic growth will only reach 3.3 percent in 2012 and 3.6 percent in 2013.
“Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses,” said IMF Chief Economist Olivier Blanchard in a statement.
For Sweden, the IMF predicts economic growth of 1.2 percent this year and 2.2 percent in 2013. The Riksbank, meanwhile, forecast Swedish economic growth of 1.5 percent in 2012 and 1.9 percent in 2013, while Finance Minister Anders Borg’s budget bill includes a forecast of 1.6 percent this year and 2.7 percent in 2013.
The IMF and Borg, however, were in agreement in their forecasts for unemployment in Sweden in 2013, predicting it will fall slightly to 7.5 percent.