Is this the best time for Sweden to borrow given its historic low interest rate in the market?

Tuesday, 24 July 2012
As the Swedish economy continues to struggle and its infrastructure needs revamping, people, or better still analysts and pressure groups - lobbyists?, are talking here and there about that this is the best time for the government to borrow and kick start an infrastructure development, redevelopment and expansion.

The Euro crisis has made it extremely cheap for the Swedish government to borrow on world markets. This is thus an excellent opportunity to finance new infrastructure such as rail and roads, which are begging for improvement, many analysts and such organisations and bodies have said.

Also the Euro crisis has made the Swedish currency, the Krona to rise to record highs level against the euro. Meanwhile, there has been increased capital flight to northern Europe all making it to be cheaper for the stable states to borrow money. In Finland and Denmark, the government interest rates are negative.

But even in Sweden the rate that the state must offer to sell government bonds is so low that it hits during inflation. A two-year government bond, for example, has an interest rate of 0.78 percent. This means that in practice it is free, and even profitable for the government to borrow.

"It has never been cheaper for the state to borrow. This is an optimal time to invest in infrastructure. The labour force is cheap due to the recession, "said Johan Javéus, currency expert and chief strategist at SEB to Swedish business daily Dagens Industri.

He is backed by Björn Lindgren, an economist at the Confederation of Swedish Enterprise. He points that "right now it good to borrow at negative real interest rate even for a ten-year bond even with the recession. So yes, it is advantageous to launch infrastructure investments now, "he says.

Confederation of Swedish Enterprise warns that buying on infrastructure for the sole purpose to stimulate the economy is a right way to go at this time in addition to the cheapness of money as well as labour released from the weak building sector.

"It is important to launch the right type of investment. Investing in removing bottlenecks in the rail, for example, is often better than the launching of major rail projects, "says Björn Lindgren.

Sweden has been accused by the OECD and the EU for low investment infrastructure despite it public finances being buoyant.

The Finance Minister, Anders Borg, has had both vague and dimmed approach when he was questions about investments in rail transportation and the roads in the future. Therefore, if the government has no will to spend or borrow for issues such as investments in infrastructures at a time when it is advantageous to do so, then they probably have a better way of moving the economy forward that we know.
By scancomark.se Team

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