MOODY'S WILL REVIEW SWEDEN'S FOREIGN CURRENCY COUNTRY CEILINGS FOR POSSIBLE UPGRADE; ALSO ON REVIEW FOR POSSIBLE UPGRADE ARE THE FOREIGN CURRENCY RATINGS OF SWEDISH EXPORT CREDIT, KOMMUNINVEST, AND VATTENFALL, PLUS THE GUARANTEED FOREIGN CURRENCY DEBT OF
New York, 05-15-98 -- Moody's Investors Service announced that it will review for possible upgrade Sweden's Aa3 country ceilings for long-term foreign currency debt and bank deposits. Accordingly, the ratings of all Aa3-rated foreign currency bonds and notes issued by the Kingdom of Sweden will be placed on review for possible upgrade. Moody's had assigned a positive outlook to Sweden's country ceiling ratings in June 1997.
Moody's said it also would be reviewing for possible upgrade the ratings of the foreign currency bonds and notes of Swedish Export Credit Corporation and Kommuninvest I Sverige Aktiebolag. In addition, the rated foreign currency bonds issued by Venantius AB and Forsmark Kraftgrupp that are guaranteed by the Kingdom of Sweden will be reviewed for possible upgrade. In a related move, Moody's will also consider for possible upgrade the foreign currency ratings of bonds and notes issued by the state-owned electrical company Vattenfall.
Moody's said that the Swedish public finances have undergone a significant correction during the last three years thanks to income tax reform, stricter overall spending limits, cutbacks in social insurance payments, the improved health of the banking sector, and moderate economic expansion. The narrowing trend in the fiscal deficit was sustained in spite of a sharp slowdown in growth from mid-1996 to mid-1997. The ratio of public sector debt stabilized, although at a relatively high level, and has begun to fall. Balanced monetary policies and good productivity gains have kept inflation low in spite of fast real wage growth. The external trade surpluses are sufficiently large to withstand the impact of the downturn in Asian import demand and stronger domestic demand in the near term.
Moody's review will focus on the extent to which the turnaround in public sector and external finances can endure after the fading of the impetus for reform, which was compelled by the financial crisis and recession of the early 1990s. The agency pointed out that the economy continues to be characterized by marked distortions, particularly in taxation and labor regulation, that represent risks to the country's economic health and competitiveness over the longer term. Unemployment remains quite high by historical standards and job creation in the private sector may continue to disappoint. The government's decision to stay outside the European Monetary Union common currency area at its start next year is likely to be problematic from the standpoint of business investment, unless a new imperative to address these distortions is begun. On balance, however, the progress made in the last few years clearly puts upward pressure on the foreign currency ratings, motivating the current review for possible upgrade.
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