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ECONOMY

Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid
The headquarters of Sweden's aid agency SIDA. Photo: Jessica Gow/TT

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.

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MONEY

Swedish central bank: Cuts to key interest rate in May or June ‘likely’

Sweden's Riksbank on Wednesday left the country's main interest rate unchanged at 4 percent, with cuts in May or June "likely".

Swedish central bank: Cuts to key interest rate in May or June 'likely'

“Inflation is in the process of stabilising at the [2 percent] target, but inflationary pressures are still somewhat elevated,” the bank wrote in a press release accompanying the announcement.

It was widely expected that the bank would choose to keep the key interest rate unchanged at 4 percent, the highest level since 2008.

“It is likely that the [key interest] rate can be cut in May or June if inflation prospects remain favourable,” it added.

According to the bank’s forecast, it expects to lower the key interest rate three times over the next year, reaching 3.2 percent by the first quarter of 2025 – significantly lower than the 4.1 percent prediction from its November 2023 forecast.

The bank also revised its forecasts for GDP and CPI (consumer price index) inflation. GDP is expected to stand at 0.3 percent this year, up from the previous prediction of -0.2 percent, CPI inflation is predicted to stand at 3.5 percent, down from the previous prediction of 4.4 percent, while the prediction for CPIF inflation (consumer price index with a fixed interest rate, the measure favoured by the Riksbank), remains the same at 2.3 percent for 2024.

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There are a few possible risk factors which could affect these predictions, it writes, including new supply shocks due to geopolitical unrest, the krona continuing to weaken, or companies’ pricing behaviour not changing as expected.

Experts from major Swedish banks welcomed the decision, adding that the Riksbank may lower the key interest rate more often than suggested in its forecast.

“We think there will be even more drops to the interest rate,” head analyst at Nordea, Susanne Spector, told TT newswire, adding that there is a “high chance” that the rate could be lowered as soon as May.

SEB agreed, predicting four drops to the interest rate and a “slightly higher chance” of a drop to the rate in May rather than June.

“For households under pressure an earlier drop is positive,” SEB interest strategist Amanda Sundström told TT.

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