“The government has handled the problems on the financial markets well. But the deep economic downturn requires more powerful stimuli to combat the employment crisis than what the government has so far proposed,” the seven experts of the Swedish Fiscal Policy Council said in a report.

It urged the government to increase public spending.

Prime Minister Fredrik Reinfeldt came to power in 2006 on a campaign promise of getting Swedes back to work.

One of his biggest moves has been to reform unemployment insurance to increase premiums and decrease payouts to the jobless, in an attempt to encourage low-income earners to seek work rather than rely on benefits.

“The government’s earlier labour market reforms will raise employment in the long term. But this policy also requires powerful measures to combat the rising unemployment in this economic downturn,” the council said.

Sweden registered unemployment of 8.3 percent in March – in line with the rest of Europe – and the finance ministry has forecast the level will rise to 8.9 percent this year, 11.1 percent in 2010 and 11.7 percent in 2011.

It also expects the economy to shrink by 4.2 percent this year, its sharpest decline since 1939.

Finance Minister Anders Borg has insisted on the need to keep public spending in check, but has allocated 10 billion kronor ($1.22 billion) this year to fund job retraining schemes, increased unemployment insurance and other assistance to those looking for work.

The government has also announced an extra 17 billion kronor to local authorities to offset the effects of the crisis on the welfare state, such as schools, healthcare and daycare.

The council urged the government to increase public spending by 45 billion kronor over 2009 and 2010.

“The expenditure ceiling should not limit public spending given the current exceptional situation,” it said.

It also said unemployment insurance should be temporarily raised due to the economic crisis, and called for a rise in the retirement age – currently 65 – to counter the strain Sweden’s ageing population will put on public finances.

The council was created in 2007 as an independent body to scrutinize the government’s finance policy.