Tuesday, May 31, 2005

Sweden Sliding

Sweden -- 2005 IMF Article IV Consultation, Concluding Statement

Last week, the Swedish media noted that the country's economic policy had been praised by the IMF.

Well, I wonder if the person who wrote that had read the Concluding Statement coming out of the so-called Article IV Consultations. This is an annual thing. Well Prepared. Carefully Drafted.

It's true that the IMF starts by speaking of "large gains in productivity, continued low inflation and a comfortable competitive position." 2004 was also a year of "strong economic expansion."

But that's really the end of the praise. And probably as far as the journalists read.

The rest is a rather damming indictment of the government for presiding over "gradual drift" towards higher and higher public deficits. The central government finances are already in deficit, and the overall public sector is heading there fast.

It might not be as bad as in some other countries - but certainly worse than most people are aware of.

But it's not only that. IMF speaks of an "institutional setup that discourages work effort", and notes that figures on how many people work in Sweden should be treated with a large grain of salt.

"Taking account of the large number of employees on sick leave, social assistance, labor market programs, and measures such as mid-life sabbaticals, effective employment is significantly lower. The marked rise in disability pensioners, especially among yonger workers, is particularly worrisome."

And it goes on by calling for redudce income taxes and says that "the pace of structural reforms needs to be accelerated."

Sweden is certainly a country well placed to benefit from the acceleration of European integration and globalization that we are now seeing.

But it requires more forward-looking policies. IMF is worth listening to - in everything it has to say in this report.