How undervalued does the IMF think the krona is? 

In its annual External Sector Report, published on July 12th, the IMF estimates that following a 6.4 percent devaluation over 2023, the Swedish krona is now between 23.5 percent and 10.6 percent undervalued, with a midpoint of 17 percent undervalued, using the Real Broad Effective Exchange Rate (REER measure) based on unit labour costs. 

Based on this index, the krona has depreciated by 20.3 percent since the it was floated in 1993 was about 17 percent below its 30-year average in 2023. 

Robert Bergqvist, Senior Economist at Sweden’s SEB bank, used the IMF data to compare the krona to other major currencies, posting a table on X.  

Graphic: SEB

The Singaporean dollar was the next most undervalued currency, at around 14 precent undervalued, followed by the Indian rupee, and the Polish Zloty. 

The Euro was 2 percent undervalued, the US dollar was 6 percent overvalued, while the British pound was 9 percent overvalued, making it among the world’s most overvalued currencies, only slightly ahead of the Turkish Lira, the Saudi Riyal and Argentine peso. 

Why is the krona undervalued? 

Part of the reason is that Sweden’s so-called “external position” – a term used by the IMF to describe a country’s transactions with the rest of the world – is much stronger than implied by the fundamentals. 

The external position includes the current account balance, capital and financial account balance, international reserves, external debt, and net international investment position. 

What this essentially means is that Sweden could afford to do things like import more, export less, and have higher debt, with the IMF expecting the current account balance to fall from 6.5 percent seen in 2023 to the long term average of 4 percent. 

Is it worth holding on to? 

The IMF said it would be easy for the government and businesses to remedy the imbalance by increasing investment. 

“As inflation recedes, there is scope to increase private and public investment in the green transition and the health sector. This would lower the external balance, help meet Sweden’s ambitious climate goals and prepare it for demographic challenges,” the organisation wrote. 

In Bergqvist’s post, he said that the situation made it “the world’s best currency to buy”. 

“Sweden AB (Sweden LTD) has a super strong balance sheet (= internal & external balances),” he wrote on X. “We save crazily too much according to a new IMF report. Estimates confirm the conclusion: The krona is the world’s most best currency to buy.” 

Anders Eklöf, currency strategist for Swedbank, told the Dagens Nyheter newspaper that the IMF had pointed to the imbalances in the Swedish economy, which it said would be relatively easy for the government and the country to act on. 

“The IMF is saying that Sweden has a large current account surplus,” he said. “They are also underlining that that we have future [investment] needs which are opportunities to remedy this in order to bring the levels down, This could, for example, mean investments in the green transition, social care and defence. If you launch all that, the surpluses will become more reasonable.” 

Eklöf agreed with Bergkvist that the currency was likely to strengthen over the next few years- 

“There are several things which point toward the krona strengthening,” he told DN. “We are expecting Sweden’s growth to improve, thanks among other things to reduced interest rates, lower inflation and more expansive fiscal policy.”