Sweden maintains stable outlook for government debt

Sweden's government debt Aaa rating with a stable outlook is based on "very high" economic strength, reflecting both high GDP per capita and a resilient, diversified economy, Moody's Investors Service said in its new annual report on the Scandinavian country.
"Healthy productivity gains, low wage and price inflation, and the country's high-technology niche have bolstered competitiveness for more than a decade, leading to sizeable current account surpluses," explained Dietmar Hornung, a senior analyst in Moody's Sovereign Risk Group. "That said, the export-driven economy's dynamism has recently deteriorated, as it is so much a function of global demand."
Moody's noted that the business cycle — already in decline — has received a further push downwards. Lay-off notices and fewer new job offers suggest unemployment could rise relatively swiftly. In addition, tighter bank credit availability, lower increases in real personal incomes, and the negative wealth effect from the decline in equity and real estate prices are all weighing on domestic demand. However, Moody's does not expect that Sweden's long-term economic strength will be impaired in a lasting way.
"As well as its "very high" economic strength, the rating is further underpinned by "very high" institutional strength. The wealthy and evenly distributed standard of living, good educational attainment, and a generous social welfare system contribute to a stable political environment that in turn supports consensus-oriented economic policymaking," said Hornung.
The rating agency assesses Sweden's government financial strength as "very high".
"Public finances are healthy thanks to a history of ongoing budget surpluses and good growth dynamics," Hornung continued.
"Medium-term expenditure ceilings and surplus targets have been honoured, substantially reducing the size of government over the past 12 years. The pension system has also been adapted to cope with the fiscal pressures that would otherwise arise from the ageing of the population."
Moody's perceives Sweden's susceptibility to event risk as "very low." In early November, the Swedish government introduced a programme to strengthen financial stability. As in other countries, banks were affected by uncertainty and a lack of confidence. The programme was aimed at restoring confidence in the interbank market, securing the medium-term borrowing of banks and mortgage institutions and lowering the cost of borrowing for households and companies. In Moody's opinion, the announced measures are appropriate under the current circumstances.
The last rating action with respect to the Government of Sweden was in 2002 when the rating was raised from Aa1 to Aaa, with a stable outlook.