Ten Lessons about the Budget

In 1994, the OECD projected that, by the year 2000, the Swedish public debt would explode to 130% of GDP. The Swedish economy was experiencing three years of negative growth, record levels of real interest rates and unemployment. The Swedish Krona was forced out of the Exchange Rate Mechanism and declined by 20% in 1992. But by the year 2000, public debt actually fell to 53% of GDP, the budget deficit, from 11% of GDP, turned into a surplus. Growth was robust and unemployment fell. Good monetary and fiscal policies, sound labour market reforms, as well as the beneficial effects of a devalued currency account for the upturn. Here are the ten lessons about budget consolidation that Jens Henriksson, adviser to the Swedish Minister of Finance between 1994 and 2006, retains from this episode:

1. Sound public finances are prerequisites for growth

2. If you are in debt, you are not free

3. The one responsible must put his/her job on the line

4. Set goals and stick to them

5. Consolidation should be designed as a package

6. Act structurally and be consistent

7. Do not leave the problem to the local authorities

8. Be honest to citizens and financial markets

9. Stick to one message

10. Stick to it!

The difficulty with the final lesson is that it never ends. Until the deficit, sooner or later, rears its ugly head again. Then it is time to go back to the first lesson.