Sweden to loosen budget rules to boost infrastructure, defence

STOCKHOLM (Reuters) -Sweden plans to ease tight budget spending rules as it looks to boost spending in areas like infrastructure and defence, Finance Minister Elisabeth Svantesson said on Thursday.

The government coalition, the Sweden Democrats and the opposition Social Democrats have agreed to target a balanced budget instead of aiming for a surplus of 0.33% of GDP over a business cycle, Svantesson told reporters.

"This gives us both the potential to maintain a low level of government debt but nevertheless ... have the ability to invest in those areas where Sweden really has need," she said.

Hans Lindberg, head of a parliamentary committee that recommended the shift, told a news conference the change would give the government an extra 25 billion crowns ($2.38 billion) a year to spend.

At a time when countries like France are struggling to cut spending after years of living above their means, Sweden has rock solid public finances.

Debate has focused in recent years on whether public debt, at around 30% of GDP versus a European average of around 90% - is actually too low and that tight fiscal rules, introduced after a domestic financial crash in the early 1990s, are holding back economic development.

Svantesson, however, said increasing debt levels was a mistake. "It's the wrong way to go," she said. "There would be a real risk that (the debt) would just keep increasing."

The government has already promised to boost spending by around 60 billion crowns next year.

Sweden has struggled to keep up with necessary investments in infrastructure in recent years and faces huge challenges to upgrade transport and energy systems to meet the challenges of a fossil-free economy.

The defence budget has also doubled over the last four years and is set to increase further as Sweden expands its military to meet its commitments as a NATO member.

($1 = 10.5216 Swedish crowns)

(Reporting by Simon Johnson, editing by Anna Ringstrom)