Sweden Slipping

Public Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with�Sweden

Yesterday was the day when the government in Sweden, after weeks of agony with its redgreen parliamentary base, presented its budget to the Riksdag.

As was to be expected when the government is facing an election next year and opinion polls are appalling, the budget promised vast sums of money trying to get unemployment down.

But that's not likely to be much of a success. To a cost of 24 billion crowns it claims that it is creating 55 000 new jobs. This in itself isn't much, but then practically all of it is in different labour market or educational schemes.

In an indirect sort of way this seems to be acknowledged by the government. It only believes that open unemployment will decrease by 0,2 %, at the same time as there will be a much bigger increase in persons in different labour market schemes.

The week before last the International Monetary Fund released its annual review of the economic performancy of the country.

All in all, Sweden has a decent growth performance, and the IMF believes that growth, driven by export successes, will be 2,5 % in the next two years. It could be much worse - as well as somewhat better.

But in other areas the record is far more mixed. IMF notes that employment has declined and unemployment has risen further, and that's really the hearth of the failure.

Reforms are necessary, it says. That includes "further reforms of the tax-benefit system", although I fail to see the relevance of the word "further" given the stalemate on the issue in recent years. And IMF urges that Sweden should "accelerate the pace of other structural reforms" as well.

The most worriesome words are however reserved for the decline in the fiscal standards, with expenditure boosted well above what is prudent and responsible. With a diplomatic formulation which in all certainty is the result of diplomatic wrangling with the Swedish government - that's the way these things are done - the IMF notes that this could be "costly later".

Costly later. Yes, indeed.