National debt | Sweden’s national debt fell below the one thousand billion kroner mark in May – Finland’s direction is different

Swedish a new sign of the strength of the national economy was given in May, when the country’s national debt fell below the symbolic mark of one thousand billion kroner for the first time in 30 years.

Riksgälden, the agency managing the country’s national debt, said last week in its monthly report that Sweden’s national debt was 981.1 billion kroner at the end of May.

The last time Sweden’s national debt was less than one thousand billion kroner was in 1993, tells Swedish newspaper Dagens Industri.

Sweden’s national debt was reduced by approximately 39 billion kroner in May, because the country’s tax revenues were higher than budgeted.

By comparison, the direction of the development of the national debt in Finland is different. The State Treasury reported on Monday that Finland’s national debt increased by a good one billion euros in May to 146.4 billion euros.

The absolute monthly figures vary somewhat from month to month, but Sweden’s public debt has developed more favorably than Finland’s corresponding debt also relatively, i.e. in relation to the gross domestic product (GDP).

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The International Monetary Fund (IMF) predicts that the development will diverge even further.

According to Eurostat, the Eurozone Statistical Center, Sweden’s debt ratio fell to 33 percent last year from 36.5 percent a year earlier. In Finland, the debt-to-GDP ratio rose to 73.0 percent from 72.6 percent at the same time.

The International Monetary Fund (IMF) predicts that the development will diverge even further. According to the IMF’s forecast, Sweden’s debt ratio will decrease towards 30 percent by 2027, while Finland’s debt ratio is on the rise and approaches 80 percent.

“Sweden’s debt development forecast is very different compared to Finland’s forecast. Sweden is going down a bit, and in Finland the rise will continue,” says Nordea’s economist Kristian Nummelin.

The relative indebtedness of Finland and Sweden developed in parallel until the financial crisis of 2007–2009. After that, the Finnish economy faced, among other things, the euro and Nokia crisis, as well as the period of anemic economic growth called the “lost decade”, says Nummelin.

Economists estimate that the background of the different debt development is Sweden’s stronger national economy than Finland’s and stronger economic growth in the last ten years. Economic growth has increased the Swedish government’s tax revenues.

Sweden’s economy is helped by greater immigration and better birth rates. These have increased the demand for labor and improved employment. In addition to economic growth, the improvement in employment also directly strengthens the state economy.

“In Sweden, the proportion of the working-age population is larger, and therefore the age structure of the population is more balanced than in Finland,” says the head of the Finnish Confederation of Business and Industry (EK) Sami Pakarinen.

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Productivity development in Sweden has also been better than in Finland.

The aging of Finns increases the demand for publicly funded care services, especially during the current decade.

“The biggest reason for the continuation of Finland’s public debt without significant corrective measures is aging and the change in the age structure of the population,” Pakarinen says.

According to a calculation published by the Center for Economic Research in February, Finland’s poor dependency ratio would improve if the net immigration to Finland were around 44,000 people per year. Last year, around 35,000 people moved to Finland net.

“If this level were to remain for years to come, it would help the maintenance ratio problem significantly,” Pakarinen says.

Nordic Nummelin says that productivity development in Sweden has also been better than in Finland.

Productivity development in Sweden has been boosted by significantly higher investments in research and product development than in Finland.

Productivity has increased in Sweden, especially in private services. That has been the difference to Finland, says EK’s Pakarinen.

Swedish the state’s indebtedness is kept in check by stricter political control measures and adjustment rules than in Finland, if the state economy is in too much of a deficit.

In Sweden, the goal is to keep the state economy in surplus over the business cycle. The Swedish system is similar to the framework practice in use in Finland, but stricter in budget deficit situations.

The Swedish government must start proposing measures to correct the deficit if the budget balance is too unstable.

“In Sweden, there will be adjustment measures automatically if the deficit seems to be increasing. This has prevented the large deficits that Finland has had,” says Handelsbanken Finland’s chief economist Timo Hirvonen.