The IMF has published on its website the concluding report by staff after consultation with Sweden under Article IV of the IMF’s articles of agreement.

The IMF report indicates that Sweden’s economy is performing well and economic growth should remain strong in the near term, continuing at around 3% into 2016. Exports are expected to increase but there are risks owing to reduced demand in the Euro area, other Nordic countries and emerging markets.

House prices and household debt are high and reforms are necessary to address structural problems in the housing and labor markets. These structural reforms should be carried out in addition to monetary and fiscal policies aiming to contain inflation and unemployment. The IMF considers that the rising migrant inflows are an opportunity for Sweden to establish its social model in the long term.

Problems in the housing market could be tackled through tax policy as well as other measures. The IMF report suggests that Sweden should now begin to phase out the tax deductibility of mortgage interest. This could be done while interest rates are low as the demand for housing is robust and economic distortion of the market would be limited.

Increasing the threshold for deferring capital gains tax liabilities would avoid the situation there is inefficient use of a dwelling due to the lock in effect of the potential capital gain on a disposal.

The IMF report also suggests that there should be incentives for municipalities to modernize land acquisition and planning procedures. These should include the use of what it refers to as “use it or lose it” permits or taxes on undeveloped land to increase the supply of land. Rent controls could be phased out, including exemption of new construction, with low income households protected by the housing allowance.